Weekly Economic Trends and Indicators

The Headline:

The National Association of Realtors recently released their local market report for the fourth quarter of 2023 for the Davenport-Moline-Rock Island metro area. In the four-county area, the median home price for the fourth quarter was $168,100, which was up 3.4% over the previous year. The three-year growth locally averaged 4.1% per year. There were 393 building permits for 1-unit buildings in the metro area in 2023. This is above the average over the last eight years (359), but down 11.7% from 2022 which was an exceptionally good year for home building locally.

The Details:

Over the last three years, the ratio of mortgage servicing costs to income has increased quite dramatically at the national level, but the rise has been much smaller locally. Nationally, mortgage servicing costs have increased from about 15% to over 25% of income. Locally, the ratio increased from around 8% to 12.6%. As this has been driven by the increase in mortgage interest rates, this certainly has affected the demand for housing. However, the local pressure on demand has been less significant than in other parts of the country.

Finally, while housing prices have increased significantly, homes are still quite affordable in the Quad Cities compared to the rest of the country. The ratio of the median home price to average income at the national level has increased from about 3 to over 4 in the last decade with most of the increase coming in the post-pandemic period. Locally, that ratio has remained fairly close to 2 over the same period. In other words, not only are homes more affordable here, but also, housing values and incomes have moved more closely together here. This has kept homes in the Quad Cities affordable over time even as home prices have far outpaced income growth in other parts of the country.

The Context:

Housing values jumped significantly beginning in late 2020, and that growth has only begun to moderate in the last two quarters. This increase is a result of the supply and demand imbalance that was sparked by low mortgage rates during the pandemic and post-pandemic changes in buyer preferences. Locally, the market has been more stable with supply and demand more in balance. Local homeowners are enjoying a moderate amount of appreciation while homes remain relatively affordable.

While local home price increases have moderated slightly in the last few months, the growth is still healthy compared to parts other parts of the country. Areas of the south and west which experienced sharper increases in home prices are now seeing smaller gains, or even small decreases in those values. As interest rates are expected to decrease later this year and inflation continues to return to the long-run target of 2%, we would expect home values to continue to appreciate as demand picks up again.

Next week: National labor market update