Why are houses so expensive? – Forbes Advisor


Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.

No matter how seriously you want to buy a home – from just browsing online to having open houses every weekend – it’s pretty obvious that house prices have skyrocketed lately.

In fact, the median national home listing price hit an all-time high in February of $392,000, according to Realtor.com. Meanwhile, housing supply remains tight: the number of homes for sale on any given day in February is 24.5% lower than a year ago.

“I’ve been in this business for over 30 years and I’ve never seen anything like this before,” says Andi DeFelice, buyer’s broker at Exclusive Buyer’s Realty in Savannah, Georgia.

Demand is so high, DeFelice says she’s seen competition with as many as 17 other buyers for just one client’s home. Any available home is “like a piece of gold sitting on a piece of land,” she says.

Intense competition with a limited supply of housing is a main factor in the rise in housing prices. Another factor has been the Covid-19 pandemic: people have left overcrowded cities for cheaper housing in suburban areas, or grown tired of sharing small living spaces when their home has also become their living space. work during quarantine.

But Covid-19 has only accelerated a supply problem that has underpinned the market since the last financial crisis. Here’s what caused the housing market to be as expensive as it is today, and where it’s headed.

Where have all the houses gone?

From 1968 (when new housing starts records began) to 2008, builders completed an average of 1.53 million homes each year, according to data from the US Census Bureau. During this period, homebuilders built enough homes to keep supply and demand relatively balanced. But after a few years of serious overbuilding in the early 2000s, the bubble burst and the financial crisis erupted.

Since then, only an average of 936,000 new homes have been completed each year from 2009 to 2021, down 39% per year since the last financial crisis. This means that supply in the housing market never fully recovered to the levels seen for decades until 2008.

Some builders went out of business, and with a glut of empty homes from the bubble years standing empty, others were reluctant to start building again. Many construction workers left the industry.

“Underlying all of this is simply an insufficient supply over the past few years,” said Daniel McCue, senior research associate at Harvard University’s Joint Center for Housing Studies.

“We’re still digging our way” from the legacy of the bubble, he says.

In 2021, economists at mortgage guarantor Freddie Mac estimated there was a shortage of 3.8 million homes in the United States. They noted. in particular, the undersupply of starter homes – those 1,400 square feet or less.

“In 2020, we estimate that there were only 65,000 new entry-level homes completed, less than one-fifth of the entry-level homes built per year in the late 1970s and early 1970s. of the 1980s,” the report said.

The pandemic has further exacerbated the situation, as building materials for homes have become harder to obtain and more expensive. Wood prices have increased by more than 150%, for example.

Who are today’s home buyers?

The lack of starter homes is particularly significant because millennials are now in what economists call the “peak homebuying” age. As Freddie economists note, there are 72 million people in this generation, the largest since baby boomers.

Most first-time home buyers generally look for existing homes that they can afford, rather than newly built homes that tend to be more expensive. However, the older generation has been hesitant to sell their homes since the pandemic began, representing a shortfall of about 1.6 million homes through 2018, Freddie economists said.

Additionally, occupancy rates in seniors’ residences fell to 74% in January 2022, from 85% before the pandemic, as many seniors preferred to live in their homes instead due to the risk of Covid in the larger shared residences, according to a report by Redfin, a national real estate brokerage firm.

Covid has also prompted wealthier home buyers, who may have accumulated more savings during quarantine, to buy second homes.

“Interest in second homes began to skyrocket in mid-2020 as affluent Americans took advantage of remote work and low mortgage rates to get away and invest in vacation destinations,” the authors wrote. Redfin economists in January.

This demand has been up to 90% higher than pre-pandemic levels for the past two years, a phenomenon that does not help the shortage of supply.

The typical homebuyer also faces increased competition from institutional investors who have purchased much of the limited supply available.

Investors bought a record 18.4% of homes during the fourth quarter of 2021, according to Redfin. That’s 80,000 homes over the three-month period, added to more than 200,000 homes that many researchers believe were purchased by private equity real estate firms in the post-financial crisis period.

Investors typically pay in cash, not with a mortgage, which makes their offerings much more secure and attractive to sellers. Since they don’t finance, they may be able to offer a price slightly above the asking price without worrying about an appraisal.

If you want to buy a home in today’s hot market

While the current housing market is much more difficult to enter for first-time homebuyers and low-to-middle income earners, there are a few advantages to keep in mind.

For starters, mortgage rates remain relatively low compared to historical trends. And there are plenty of mortgage lenders offering various programs designed for first-time home buyers or ways to lower your mortgage costs, like buying points off your interest rate.

Related: Best Mortgage Lenders

Make sure you are fully prequalified and get your credit score as strong as possible. Also research all of your down payment assistance options.

You can also work with a mortgage broker to help you expand your network of mortgage offers and start the application process.

And while it’s important to keep looking at online housing listings like Redfin, Zillow, and Realtor.com, finding the right realtor will help you narrow down your search and ultimately find the best home deal for you. .

Previous Living History visits Saint Michael's for Sutherland Reading
Next Nicola Sturgeon supports Lorraine Kelly's appeal for Ukrainian refugees in Poland