Why Are House Prices So High?
Home prices are determined by many factors, starting with the supply of homes and continuing with the strength of the local economy. Strength of the economy of some areas is represented in the incomes of future homeowners currently in the market. Important factor is also the desire to own a home, rather than rent one. Generally speaking in the United States, demand has historically been quite strong and is more than likely to stay strong despite some short term crises we could have from time to time.
Why Are House Prices So High?
We were told that the main reason for the house prices being so high is that there are too many people and just not enough houses. While this is partly true, house prices have been strongly pushed up the hundreds of billions of dollars of new money that banks basically just created in the years just before the financial crisis. Crisis itself put the prices down, but only for a short while and after just a few years they continued to grow strongly year by year.
Mortgage rates dropped below 4% the last year in the U.S., this gave opportunity to many people to refinance current loans. The solid economy and strong employment numbers from the beginning of the year also incised sales of new homes. So for this year expectations are that the boom in refinancing will slowly fade out, this will lead to larger numbers in home sales. In the same time high construction costs will most likely keep housing affordability at bay for most.
Some think that home prices are rising too rapidly because of the housing shortage. This lack of listings is somewhat decreasing the sales growth we could otherwise expect.
Biggest lack of supply is in new housing, and part of it is in the availability of existing homes.
Large number of younger potential home buyers are still trapped in their first home, mostly just because they can’t find the right home. One that they would want to trade up to, one that could motivate them to that step. So in the end the lack of construction is not just impacting entry level or as we call them first-time home buyers, but also in large scale the potential trade-up buyers.