#609 - After an astounding rise in home prices, this expert predicts the boom will continue

Below is an interview of Edward Pinto, the Director of AEI’s Housing Center, with Fortune’s Shawn Tulley on the state of rapidly rising home prices across the country:

In almost five decades as one of America’s top housing experts, including a stint as chief credit officer of Fannie Mae, Ed Pinto has never seen prices climb at anything like the pace he’s seeing for May. “The high end is up 25% over May of last year, and the overall increase is 15%,” says Pinto, director of the American Enterprise Institute’s Housing Center. “What’s driving those incredible increases is an arbitrage opportunity. The work from home economy has unleashed people who before the pandemic were tied to jobs in expensive coastal metros and empowered them to move to cities where they can get a lot more house for the same or in most cases less money.” He notes that even though the trend is inflating values in places like Phoenix, Raleigh and Pittsburgh, those locales remain such a great bargain for the refugees from Boston or San Jose. He believes nationwide prices have plenty of room to keep surging at comparable rates in the coming months, before moderating to an annual increase of 10% in 2022.

Pinto collects his May home price appreciation (or HPA) figures from closed sales. He then uses these data to calculate HPAs by tracking changes in prices for the same homes from one period to the next. He divides the market into four price tiers: low, low-medium, medium-high, and high. Each is based on the average sales price in a metro for all the homes reported in the public records. “Low” encompasses all houses selling at 40% or less of the average sales price of houses with FHA mortgages in the metro area; low-medium qualifies at 40% to 80% of the FHA metro area sales price; medium-high goes from that 80% mark to 125% of the Fannie and Freddie maximum loan limit for the metro; and high comprises sales that exceeds the 125% mark. For example, in Phoenix the Fannie or Freddie loan maximum is $548,000. So the “high” tier starts at $685,000.

Join your host Sean Reynolds, owner of Summit Properties NW and Reynolds & Kline Appraisal as he takes a look at this developing topic.

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