The economy is in better shape than it’s been in a long time. One sign of a robust economy is rising housing costs. With the bursting of the housing bubble in 2008 still fresh in the minds of so many Americans, the sudden increase in housing prices is a cause for concern. Many fear a new housing bubble. And all that comes afterward.
Why are Home Prices on the Rise?
Aside from home prices serving as a solid indicator of a healthy national economy, there are other situations that affect housing prices. One of those key factors is the number of houses available on the market.
Supply and demand.
Right now, supply is low. It is especially low in critical low-end housing markets, according to CNBC, and could be pricing some people out of housing altogether – especially in light of rising interest rates. In fact, CNBC reports that many would-be first-time homebuyers are skipping the housing market completely choosing to rent because there just aren’t enough affordable homes for them to choose from.
How Fast are Home Prices Growing?
According to The Balance, home prices are currently “32 percent higher than inflation,” very similar to 2005 (the beginning of the former housing crisis) when they were 35 percent higher.
National Public Radio (NPR) reports that housing prices are now above the heights they achieved prior to the most recent market crash. Overall, the market is still feeling the sting of the previous crash when 24 percent of Americans under the age of 45 owned homes in 2006.
Today only 14 percent of Americans in the same demographic own homes. The rate of growth in prices will only reduce those numbers further.
The Double Whammy for Buyers
If the problem for the housing market was isolated to home prices, recovery might be a simple matter. The problem is that not only are housing prices up, but interest rates at the end of May 2018 were a full percentage point higher than in September of 2017, according to CNBC.
Rather than purchasing new homes and upgrading to better homes, many would-be home sellers are opting to remain in their homes and refinancing their existing home loans, so they can make improvements to their homes instead of “moving up.” This contributes to the lack of “starter” homes on the market making it more difficult for younger buyers or first-time home buyers to find affordable housing available. It’s a domino effect.
What Does This Mean for Sellers?
Right now, the housing marketplace is a seller’s market. Home sellers who aren’t looking to purchase new homes, for instance, or are relocating to less competitive housing markets have the most to gain by selling their homes at times of increased demands and inflated home values.Right now, the housing marketplace is a seller’s market. Home sellers who aren’t looking to purchase new homes, for instance, or are relocating to less competitive housing markets have the most to gain by selling their homes at times of increased… Click To Tweet
Other options available to people who are relocating is to refinance their homes, perhaps at lower interest rates, and rent or lease their homes for secondary income sources after their relocations.
Real estate is a cyclical market. In the early months of 2009 there was great fear that the housing market would never recover or normalize. Now it’s experiencing new heights when it comes to home prices and values. Those who can weather the storm and wait out the historic highs may find better opportunities for buying in the future.