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Out of reach -

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.

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Continuing the upwards trend -

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.

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The pandemic effect -

At the outset of the COVID-19 pandemic, the government decided to reduce interest rates so the economy would receive a boost.

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The pandemic effect -

The reduction in interest rates combined with people's desire to abandon cities for residential areas with more favorable pricing caused an increased demand.

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The pandemic effect -

At the same time, the economic and political instability of the market during the pandemic saw many sellers withdrawing.

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Post-pandemic trends -

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.

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Lower interest rate effect -

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.

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Lower interest rate effect -

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.

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Millennial purchasing -

A whole generation of prospective property buyers has reached the age where they are seeking to become homeowners: millennials.

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Millennial purchasing -

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."

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Building materials -

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.

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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.

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Lower builder trust -

Generally, there has been a decrease in the amount of homes being built. This is a more recent development in the housing market.

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Lower builder trust -

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.

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State subsidies -

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.

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Higher land prices -

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.

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More 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.

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More zoning regulations -

Allowance requirements, neighborhood limits, and laws that regulate population density are some types of zoning regulations.

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The boomer effect -

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.

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The boomer effect -

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.

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Location, location, location -

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.

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Salaries vs. house prices -

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.

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Past prices -

Since the 1940s, house prices have been steadily increasing. In the 1970s, the highest increase in house prices occurred, as they rose by 43%.

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Past prices -

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.

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Investor impact -

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.

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Getting a less expensive home: consider a fixer-upper -

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.

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Purchase with a partner -

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.

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Look at buyer assistance programs -

Research the buyer assistance programs available in your area. These are designed to make home ownership more affordable and ultimately more attainable.

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Compromise on size -

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.

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Shop around for the best deal on house prices and mortgage rates -

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)

See also: US cities with the best work-life balance

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