Weekly Economic Trends and Indicators

The Headlines:

The median home price in the Quad Cities metro area was $185,500 in the third quarter of 2024 according to a report from the National Association of Realtors. This is an increase of 3.7% over the previous year and up 17.3% over three years ago. Nationally, the median home price was $414,100 which was up 3.3% over the previous year and up 14.9% over three years ago.

The Details:

Building permit activity continued to be above average in the metro area. According to the report, there were a total of 438 permits for 1-unit buildings in the past 12 months through October. This was above the 8-year average of 368 permits annually. This number of permits was 20.7% higher than a year ago. This growth far exceeded the national average of 12.0%.

The Quad Cities metro area has traditionally been a very affordable housing market. Currently the ratio of mortgage payment to median family income is about 12.9% in the Quad Cities versus 24.9% nationally. This ratio is up significantly since 2021 both locally and nationally, however the increase has been more modest locally, rising above the long-term average by less than 5 percentage points compared to nearly 8 percentage points nationally.

The Context:

The third quarter numbers continue a trend of home price appreciation in the Quad Cities that is above the national average. Many potential home sellers have been reluctant to sell because they enjoy very low mortgage rates due to purchasing or refinancing a home during the COVID-19 recession. This has diminished the number of homes on the market, especially for first-time homebuyers, and has put upward pressure on prices. Existing home sales nationally are at levels not seen since the recovery from the 2008 recession. Building activity, as evidenced by building permits, has picked up in order to address the drop in the supply of existing homes. However, building takes time, and only very recently have inventory levels started to improve.

When the Federal Reserve began lowering the short-term rates in September, mortgage rates were already on a downward path in anticipation of policy easing. However, toward the end of the year, mortgage rates reversed course and rose almost a full percentage point from October to January due to renewed concerns about inflation.

A surge in inflation that keeps mortgage rates high would put a damper on the housing market. For now, however, there remains a considerable amount of uncertainty regarding inflation concerns. As a result, the probabilities of additional rate cuts from the Fed have moved around quite a bit in the last week according to CME FedWatch. This uncertainty has led to some softening of mortgage rates in the last week. It remains to be seen how long this will last. For now, most expect housing values to continue along the current path until either inventory starts to catch up or demand weakens due to a slowdown in the economy.

Next week: National labor market update