From Ukraine to Gaza
In the US, house prices have climbed 15% in 2023 alone, according to one report. One of the main problems right now is how demand is outstripping supply.
At the outset of the COVID-19 pandemic, the government decided to reduce interest rates so the economy would receive a boost.
In the meantime, much more buyers than sellers have reentered the real estate market. Overall, the total amount of homes available hasn't increase while the numbers seeking a place has significantly risen.
Over the past few decades, the cost of buying a home has risen dramatically. It's a dream that can seem out of reach for many people who want to get their start.
At the same time, the economic and political instability of the market during the pandemic saw many sellers withdrawing.
When interest rates are lowered, the cost of financing a home decreases for buyers. When this occurs, it's normal for more prospective buyers to decide it's a good time to buy.
The reduction in interest rates combined with people's desire to abandon cities for residential areas with more favorable pricing caused an increased demand.
However, if the interest rate is low for a long time, it drives up demand. This is turn increases the average asking price for a home.
A whole generation of prospective property buyers has reached the age where they are seeking to become homeowners: millennials.
The surge of millennials buying property in recent years has also contributed to the rise in property prices, again because of increased demand. This phenomenon is sometimes called "millennial pricing."
Not all building materials needed to build houses can be sourced locally or even nationally. Trade agreements and political developments impact the cost of importing building materials.
When building materials become more expensive due to new tariffs, it has a knock-on effect on the cost of housing—that's passed on to the consumer.
A lot of builders lost a considerable amount of money in the Great Recession of 2008. Many companies remain cautious of the potential for losses, something that's reflected in house prices.
Generally, there has been a decrease in the amount of homes being built. This is a more recent development in the housing market.
Allowance requirements, neighborhood limits, and laws that regulate population density are some types of zoning regulations.
Since 1940, there have been a number of amendments to laws regarding construction and zoning regulations. These have reduced the potential density of housing, particularly in metropolitan areas, driving prices up.
While there isn't a land shortage, the value of land has risen, making it more expensive than it used to be. This increase in the cost of land has a direct impact on house prices.
State subsidies put in place to help first-time buyers enter the market were a way the government offered assistance to help with the cost of purchasing a home. Unfortunately, they may also have contributed to higher prices as buyers were able to pay more for property.
Sadly, salaries have not increased in line with the rise in house prices. While pay has risen, on average, by 2-3% per year, this hasn't been in proportion with the escalating cost of buying a home.
Depending on where you want to buy, house prices can be more expensive. In the Northeast of the US, prices have increased much faster and more noticeably than in the South or Midwest.
Since the 1940s, house prices have been steadily increasing. In the 1970s, the highest increase in house prices occurred, as they rose by 43%.
Research the buyer assistance programs available in your area. These are designed to make home ownership more affordable and ultimately more attainable.
It's less expensive to purchase when buying with another person. Whether that's a life partner, a friend, or a family member, consider splitting the cost and building equity with another person to make owning a reality.
In contrast, in the 1980s prices rose 8%. In the years following the Great Recession in the 2000s, prices dropped 12% in comparison with the '90s.
Old homes that need to be upgraded are generally less expensive. You could get a great deal if you consider purchasing a fixer-upper and gradually make improvements over time.
Be realistic about the amount of space you really need. Think about purchasing a smaller home with less square footage to get your first step on the housing ladder.
Moving further out of the city can mean less costly housing options and lower property taxes. It pays to shop around. The same is true for housing loans. Not all loans require a 20% down payment, and you might qualify for more favorable rates depending on your income.
Sources: (CNBC) (Bankrate) (NY Rent Own Sell)
Baby boomers are creating more households as they age. Despite the increase in millennial buyers overall, their numbers are actually eclipsed by the number of people in the 65-74 and 75+ age groups buying homes.
It's not all bad news. If you're an investor, higher prices can mean a higher return on your investment in the long run.
While eventually boomers will require fewer homes, this might not happen for some time. The youngest boomers are entering/have just entered their sixties, and are still approaching retirement: a time when they might consider selling or downsizing.
Click on to understand why owning a home has become a distant dream for many aspiring first-time home buyers.
Why is the housing market so expensive?
Home ownership is a distant dream for many
LIFESTYLE Money
It's one of the biggest purchases most people will ever make in their lifetime. Buying a home involves an investment of money, and it's a huge commitment. Generally, mortgages run for 15-30 years, and interest rates can be adjusted at any moment by governments during that timespan, increasing your repayments. And as the average price of property rises, so too does the barrier to entry: the deposit you need in order to buy. But what's driving the surge in prices to begin with?
Click on to understand why owning a home has become a distant dream for many aspiring first-time home buyers.