| Hi Taylor:
What gives with the insane housing market? I feel like prices
have been too high for three years but they just keep going up. -
Hi Erica: Don't I know it! It's made real estate investing
a huge boon for sellers and a real struggle for modest buyers. It's
also not just a U.S. issue, as England, Australia, and other countries
are in the same boat.
I'll stop short of predicting what's going to happen, but here are
some factors playing into the continued rise in housing prices.
exodus. It's a funny paradox, that the high cost of living
in citieswhere houses are completely unaffordablehas
driven more and more people into suburbs and rural areas where
they can buy a home instead of overpaying for apartments. That's
kept housing demand high even with the cost out of reach for so
many. Oddly enough, the pandemic played into this and helped the
housing market, as there was an even greater surge of people looking
to leave the crowded cities.
2. Interest rates. They're still really, really low. Borrowing
has been relatively easy for half a decade, so access to mortgages
has been pretty broad. Sellers know that people will take on a
bigger expense when there's a lender there to help, leaving little
motivation for anyone to slow the upward pricing trend. It won't
last forever, but the threat of interest rates going back up is
just another factor motivating people to buy now.
3. Supply-driven demand. Even with so many people being
priced out of the housing market, there still aren't very many
houses out there. You might see a lot of "for sale" signs on your
street, but what we're seeing a lot less of is new-home construction.
Labor and material shortages, not to mention limited land that's
open for development, means the market is heavily reliant on existing
homes to meet the needs of all the buyers. Unfortunately, a huge
change in the economy or even a bursting bubble won't deliver
the increase in supply that we need. It's possible that we'll
see an economic downturn during which housing prices continue
to rise, which would be a new twist.
| If you're waiting
for prices to drop, you shouldn't hold your breath. We can't expect
the prices to break records month after month, as they've done this
summer, but we definitely didn't reach the top of the market as some
analysts predicted. Buy if you can since real estate is always a strong
investment. In the meantime, if the cost is too great, invest as much
as you can to keep your money growing so you're ready to buy in the
© Taylor Kovar
September 20, 2021
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