Why is Real Estate So High Right Now?

 The current real estate market is unlike what we have ever seen. The economy is struggling with inflation, higher interest rates, higher home values nationwide, while still battling the housing shortage. Each of these issues on their own offer enough strain for an economy and future home buyer or seller, but all of them together is laying way to the perfect storm, more commonly known as a bubble. While economists are not sure when this particular bubble may burst, it is agreed upon across the board that this current condition cannot be sustained.

Why do we care?
For our country and economy in the United States, the real estate market would be considered the backbone, the foundation, and basically if it’s out of whack everything will follow course eventually. Afterall holding real estate at such a high level makes sense, given we all need/want a roof over our head.

How does inflation affect the real estate market?
Most would agree that hearing the word inflation usually never leaves you feeling warm and fuzzy. Inflation simply put is costs of living being higher or inflated, while there is a decrease in the value of money. Overall, very bad for long periods of time or when extremely high. In 2022, inflation was at 8% while for the past ten years inflation has averaged around 1.88%. Inflation causes everything to increase in price, including housing.

How does higher interest rates affect the real estate market?
While most at this time are completely freaking about the interest rates right now, if you were to lookup the historical national average for interest rates, they would be in the 7%-9% range. Those historically low 2-3% interest rates were a brief phenomenon that was not sustainable. The fact we are only inching into the 7% interest rate range compared to our history actually makes our rates still fairly low. With that being said, it has completely affected the buying power for buyers. The same house sale price with a 5% interest rate compared to a 7% interest rate offers a lower monthly mortgage payment by hundreds of dollars. This quite obviously has affected how much home someone could buy, leaving such a large gap for affordable housing.

How higher home values affect the real estate market? More so, why have they rose?
For obvious reasons higher home values affect the real estate market in every way. Since the pandemic home value growth has surged higher than typical. One of the key factors on why the spike in home prices was tied to the large housing shortage stemming from the lack of new home construction nationwide since the 2008 recession. New home construction being one of the industries that was completely devastated after the financial crisis, most smaller builders went out of business while the other builders took years to rally. The rate of new home construction only recently (last 5 years) really making a turnaround. Another key factor, also tied closely to 2008, is home values have not had their typical steady growth rate historically. In a way, when values started to rise in 2020 it was really making up for lost time.

Why aren’t there any houses available?
The housing shortage is so closely linked to all three of the issues above and essentially the effect from the causes above. So many homeowners took advantage of the low interest rates by refinancing and now they are held hostage to their home since upgrading or downsizing isn’t as much of a viable option any longer due to the interest rates pricing them out. The shear lack of homes, especially affordable homes, is linked to the lack of new builds in the past fifteen years. The middle class and first-time homebuyers suffering the most from lack of affordable housing since these homes have been swooped up by investors and cash buyers.
 
What should I do?
Every situation is unique and navigating through these times of financial uncertainty not every piece of advice fits to every person or situation. Offering a blanket answer to all would be ignorant and ill-advised. It is important to do as much research as possible on market predictions, pay attention to current events and consult with those in the profession. A certain amount of self-reflection on your current situation and taking a moment to stroke up a broad plan for the next five years on where you see yourself will help you determine what moves you need to make now financially and real estate wise. It’s important to remember that real estate is considered the largest investment an individual can make and many financial advisors will state that the returns you can make on a properly planned real estate investment will yield much larger dividends than you could receive in the public stock markets.
 
As always, your local Ring the Bell Agent would be happy to delve deeper into this decision making process by providing you honest and updated market information for you to make the most involved real estate decisions.