The Truth About Fake Home Appreciation

Added: 2026-05-31

[00:00:12]Hi there, it's Stephen Thomas, chief economist at Reports on Housing, and we have another housing debrief today.

[00:00:19]We're recording this on Friday, May 29th. And this week we're sponsored by Angie Sandival with JMJ Financial, the Tibido Morell Group. And what we're going to focus on with this housing debrief is the truth about fake home appreciation. And I this is a reoccurring theme that I'm hearing from a lot of different people that that runup, especially at the end in 2022, was just fake. It just shouldn't have happened. And uh I kind of agree that we really shouldn't have had that kind of runaway uh home price appreciation, but there's a reason for it. We will dive into it. Um the re the one of the main reasons we had this home price appreciation where it was just staggering and went through the roof was because we had all the ingredients all together for the is the perfect storm for just mass appreciation. And um what that is is this it we have to talk about the federal funds target rate. The federal funds target rate is what the federal funds charges for uh overnight banking and where the federal funds rate need uh what what where they go is typically long-term what happens with uh with 30-year mortgages as well. So they they anticipate uh the market anticipates where the Federal Reserve is going to go in the future and based upon that is where mortgage rates head as well as where the 10-year Treasury heads and and so um you can see over here that we had very very uh we we they brought down the Fed far Fed funds target rate down to 0%. And they did that at the uh during uh as in response to the great recession. Then they started to increase again. They uh they came all the way up until in 2018 we hit 5% interest rates.

[00:02:15]Then people were freaking out. Then they started coming down a little bit and then we hit COVID. And when we hit CO they brought it back down to zero. So basically it meant easy uh easy lending and very very low rates. And you can actually see this if we go way back in time and you could see this is the effect of federal funds rate. You could see where it's that that same point where it's zero and zero in the response to the great recession. But this goes way back in time and you could see they almost never uh bring it down to zero and they never keep it there. And it really wasn't until the 1980s that the Fed really understood where they needed to be. And over time it you could see what happened uh that rates went down lower and lower and lower from 1980 all the way until uh they started to increase the federal funds rate um in 2022.

[00:03:07]But uh you can see this is extremely low and and uh they very very low. And on top of that they were also doing something where they were they were uh pouring a lot of money into uh treasuries as well as into mortgage back securities. So that is the collection of all mortgages together. They were buying mortgage back securities and they were buying it at a very very rapid rate. And you could see here that this is uh them over time their balance sheet and how much it grew and they it grew during the uh the financial crisis and then it continued to grow throughout uh the uh 2012 all the way until they stopped and they didn't stop until 2014 where it was flat and then you can see the co 19 pandemic once again they poured a lot of money instantaneously kept on pouring money until they stopped at uh in 2022.

[00:04:02]So they were really applying billions, trillions of dollars into the uh into uh mortgage back securities as well as the bond market. So they were buying government securities as well. So that meant that if they're purchasing along with everybody else, that brings the overall rates down a little bit more and they were they were making sure that everything was functioning. But the argument was that they kept these the federal funds rate at zero for too long as well as they overdid it in the purchase of mortgage back securities and uh government bonds. And in hindsight, absolutely that is exactly what they did. They did uh far too much of it. You could actually see what happened. What happened as a result of the great re uh of of COVID is this was the onset of the pandemic and you can see see what's happened to mortgage rates over time just since 2000. And at the beginning of the pandemic from that point on it uh mortgage rates went lower and lower and they hit all-time lows. They hit 17 record lows. The 17th was in January of 2021 when interest rates uh had dropped all the way down to 2.6. 65%. So it was 17 record lows in a row, 2.65% being the lowest, but it was just like one record beating the next one. It was going lower and lower and lower. And uh and uh as a result, it was also at a time when our inventory levels were at already at record lows. And you could see this right here. This is I'm pointing to January of 2000. And this is United States total housing inventory from the National Association of Real Realtors going back to 1982. And I this is just through uh July of 2000 because I wanted to really illustrate exactly how low uh the inventory was. And you could see if I draw a line across here that was the lowest January of any January going back to 1982. Now, keep in mind the population kept on growing and continues to grow. And uh even though we have way a way higher population, that number in January of 2020 was was so low given the population size that it already was extremely low prior to them uh the Federal Reserve bringing it down to zero, the federal funds rate and interest rate falling to record lows. So we already had a low inventory. And if you know anything about supply and demand and then you juice rates, it really makes things explode. And that is exactly what happens because of what the Fed had done as well as bringing it down and hitting those 17 record lows. It was like gasoline on a fire because we didn't have that many homes to begin with. So as a result inventory levels were eaten up extremely fast and we were left with we were daring the co 19 people were saying nobody is going to be purchasing a home during co and boy were they wrong and a matter of fact this was actually uh a real estate agent had sent this my direction and this was during co and the this was the lines because you could only have one person going in at a time into these uh into these houses while they were open for like a couple hours because they would hold them open only for a couple of hours, uh, listen to all the offers that they that that that they received over the next few days, and then like Tuesday of the following week, they would answer all of the offers. And so there were, you know, they they would get upwards of 20, 30 offers on a property. They even stop, we we don't want any more offers because they'd go way above asking price. and and uh they had that many offers that these these uh prices went well above the asking price which just helped fuel how fast homes appreciated during that time period. And uh so what we saw were prices skyrocketing higher. Oh, and by the way, I need a really quick I need everybody uh to I I always do this at the end. I forget to please like this video, subscribe to our YouTube channel.

[00:08:18]It just helps in the overall analytics and we will continue just to bring the real facts, the real data, the real truth, not a narrative. We're not permab bears. We're not permab bulls. We're not about pol politics either. We'll tell you how politics will affect all the different uh lines that we look at that ultimately affect housing, but we just want to tell it like it is so you can make really good, honest to goodness, mature adult decisions based upon that.

[00:08:42]So values really went up and uh and you could see that's because that that is because of the very very low uh supply and the juiced uh demand.

[00:08:54]And then over here because it it was so juiced that the inventory had a very very hard time growing. As a matter of fact, this is January of 20 uh 2021, and it it continued to go down lower and lower, and um man, it was just it was so incredibly low. You could compare January 2021 to January of 2020 and it it's it was just driving lower and lower, and it continued to do that each year. So, 2021 and 2022 was even lower. So uh the the inventory was being pushed lower and lower and demand was increasing more and more because we had these extremely low interest rates. So you can imagine 2.65% interest rates with record low inventories was just a recipe for uh uncontrollable uh inflation of housing prices. So uh everything was sold like an auction. I already explained it that you'd have a window of being able to see a lot of homes for just a couple hours on a Saturday and then they would answer all the offers uh after closing it down after a certain number of offers uh on the following Tuesday. And I felt and during this time we talked about how unhealthy the market was. It was so unhealthy. It was unbelievably unhealthy where I just sat back and said this is just not good. But I couldn't even sleep at times because I just knew that there were values were going up really fast, but there weren't that many buyers that could take advantage of getting in before values really went up. They would just skyrocket up. It was going up at at a very very fast pace. Uh, I was hearing in 2022, I there were people that were coming back talking and I would I'd be doing my uh doing uh various uh presentations and I'd have agents that were telling me that that that they were listening to offers a h 100,000 $150,000 above the asking price and that's just not music to my ears at all. I like appreciation of homes, but not all all of a sudden all at once. Even if I am a homeowner, that is not what I'm rooting for as an economist. Absolutely does not make much sense. So, uh, before we get into how unhealthy everything was and where, uh, what what kind of appreciation we realized, let's get to our sponsor. And our sponsor this week is Angie Sandaval with JMJ Financial, the Tibido Morell Group. And if you need money, they can help. She can definitely help you. Angie can. And, uh, they have, this is for uh, seniors. And it's called a home safe second. Find your financial flexibility without a payment. So, it's a home safe second is a fixed rate second mortgage that allows you to tap a portion of your equity with no change to your first lean mortgage and no additionally monthly mortgage payment is required. And uh this pay you could pay higher interest credit card debt. You could buy a second home, pay for home improvements, cover rising costs at the pump and grocery store, fund long-term care, medical expenses or emergencies.

[00:11:59]And you must be 55 plus except in Texas and Washington. It must be current on your first mortgage. Property must be your primary residence. You have a have to have a minimum FICO score of 640 and must maintain the property tax uh the property and be up to date on property taxes, insurance, and any HOA uh fees.

[00:12:17]So, contact Angie Sandaval with JMJ Financial 310-418-9722.

[00:12:23]That's 3109 uh 310418-9722.

[00:12:28]That's Angie Sandaval with the Tibido Morell Group. And now the market was extremely unhealthy healthy. I was absolutely losing uh sleep. You could see what happened with price appreciation. Really, it did skyrocket up. I'm showing you January of 2000. And you could see this was January of 2000 all the way until it went to this is uh July of 2022. And it really did skyrocket. It went it went practically uh straight up. we can uh see that and it went up 41% from January of 2000 all the way until we hit July of 2022. So that was an unprecedented uh appreciation in such a short span of time. And ultimately it felt like the housing market had realized fake appreciation that values had gone up so fast that everybody felt like their home was a castle. And that's what the values went up to price levels that were almost like luxury in many areas. It was luxury luxury uh the luxury uh price uh level changed. It was much much higher because of how much appreciation had taken place across the United States and it felt extremely fake in the time. And that's what so many people have been saying over and over again. I just heard it in a comment this week that this kind of appreciation that we realized was fake.

[00:13:52]Now I will tell you what happened in 2022, the second half of 2022 is it actually values went down a total of 4%.

[00:14:03]And that was uh from uh July through uh December of 2022 that values did come down 4%. And this is on a month-over-month basis. So I'm showing you the the uh second half of 2022, but you can see what happened in 2023. We then still had an inventory issue in 2023. Not that many homes came on the market and yet demand was still uh it there it there was so few homes on the market that even the small demand that that was out there still resulted in home price appreciation across the United States. And you can see that there are some months that it went negative, but it's not that much negative. And it's been positive during the springtime, a little bit negative towards the end of the year. It just depends upon the year. And this is where we are right now. Uh you can see on the right hand side, this is April 2026 on the very right hand side. And it is actually continues to be positive so far this year. We'll we'll have to see where it goes across the United States. This is just one of the many home price indices. This is Freddy Max house price index. Now, ultimately what this is is the supply and demand thing. I've talked about it before and we just had this really really low supply and we had demand that this really really low supply. there wasn't that many homes on the market and then we had demand that was just juiced and so that we had this price appreciation. But what's happened since then is is just a little bit uh different and and and uh but ultimately in everybody's gut they felt like that home price appreciation was fake. They said that values need to come down. They have to come down. And uh because when we talk about home affordability it's not just prices. We also have to look at incomes. We have to look at uh mortgage rates and we have to look at prices. We put all that together and you see how affordable things are and overall home affordability is extremely low and that is why buyer demand continues to be extremely low in 2023 24 25 now 26 it all looks the same because we've had rates that have not changed incomes that have gone up. So it affordability has gotten a little bit better because we've been going up about 5% peranom in in incomes uh and which has in in some cases has been outpacing inflation but then um and but mortgage rates have been stubborn.

[00:16:23]They haven't really changed. Income's gone up slightly and prices they've continue to go up a little bit. So as a result, it's not really getting much better in the affordability front and but the real problem in this is we're everybody says well incomes aren't going to go up that much and uh rates are not going to change that much. So ultimately the only thing that has to give are prices but that hasn't happened. And the reason that hasn't happened is because of the health of the overall housing stock. I've talked about it many many times before and the and there are uh people are fine with their low fixed rate mortgage payment as well as they been uh since DoddFrank in 2010 uh there's just been a really really strong buyer and uh with 760 plus credit scores is actually the atypical buyer that's out there right now and that's been purchasing for a super long time. they have a lot of equity. So there's real lack of motivation by home by uh home sellers today. So you don't have that many people that really must sell. You do have some people that are you have death, you have divorce, you have disease, uh you have the marriage diamonds, they call those the D's, and there's just these variety of D's that that describe the people that absolutely have to sell. However, we just don't have enough of them accumulatively across the United States, which is why we've had so many people that have reduced prices and then ultimately, even after reducing prices, pulling their homes off the market because they just don't have the motivation. They don't really really have to sell. They like to sell, but then they give it a whirl.

[00:18:01]They don't like it, and they delist.

[00:18:03]They pull their homes off the market.

[00:18:04]And we've shown lots of charts where the number of D-listings is through the roof. So, a lot of people pull their homes off the market, throw in the towel and say, "Hey, you know what? It was worth a shot, but we didn't get it."

[00:18:14]That type of thing. So, ultimately, we don't have, it feels artificial to so many different people, and when it was going on, it felt like, oh my gosh, this is like funny money. But at the end of the day, how do you bring down prices?

[00:18:26]What seller out there is going to suddenly say, "Yeah, you know what? In order for me to sell, I really do want to sell, so I'm going to come down in price." There aren't that many people that are going to go there. they're going to say, "I would like I'm not gonna I'm not willing to take uh 10, 20, $30,000 below the last person that just sold." So, there's a real stickiness in in pricing right now because of the lack of motivation. And that is why you've seen fewer people actually there are fewer homeowners coming on this this year. And we have this supply and demand thing where as a matter of fact, Zillow just recalibrated for the rest of the year. And for the year from from April of 2020 uh6 to uh April of 2027, they're talking.01% uh price depreciation. So it's negative.01% for the entire year. And it's they change it based upon what's going on right now. uh they change it on a monthly basis, but 01% is basically flat, which means we have a very very balanced market for the year where buyers will be pulling back because of unaffordability and sellers will be pulling back because they don't really have to sell and they don't want to give up equity. And that's what you refer to as a balanced market. So you don't get enough pressure on pricing. You need people that must sell and there are very few of those. There will be there will always be pockets across the United States. So every uh the real estate market is local in the end, but for most of the United States, it's just going to be flat over the next year until this Iran thing is gone. And the only and then we could get back to uh mortgage rates coming down a little bit because we were at 6% prior to Iran starting. If we were at 6% again, it would actually juice demand and you'd see this different supply and demand thing where you add a little bit more to the demand side and which would which would result in more closed sales and it's just because home affordability starts to improve. So that's what we see over time. This is all the trend analysis that we see. I just wanted to explain how we got here and uh you know kind of where we're going from here. If you like what you see, continue, you know, like uh our uh this this particular video as well as subscribe to our YouTube channel and go to reports and housing.com for more information. And the most recent one that just came out is called affordability obstacles. And we've actually talked about the different uh how affordable things are right now today, how where have they been for the last several years, where were they in 1980, 1990, 2000, 2006, and uh just do a comparison. So, uh, that we have we have reports that all over SoCal, the Bay Area, Phoenix, and Vegas. Go to reports onousing.com and utilize the coupon code fake. And, uh, but I appreciate you joining us for another housing debrief.

[00:21:14]Hope you learned something. That's the whole thing. We just want to help educate everybody about what's really going on today. So, hope you learned something and I appreciate you uh, tuning in and we'll see you next week.

[00:21:26]We'll see you on the other side.