When we hear about the real estate market, we seem to only hear about how high the prices are and how insane the market is. True, prices are rising rapidly, but are they rising at a quicker rate than at any previous period in history? Why are prices rising, and is it due to a fictitious demand or a scarcity of supply? Will the market crash shortly, or will it continue to rise or level off? Based on statistics and my experience as a real estate broker, investor, author, and counselor, I will address all of these issues!
How Fast Have Housing Prices Increased?
Housing prices have risen dramatically in recent years, particularly since COVID, but they had been rising for some time before to then. Prices appear to have risen dramatically, but this is partly due to the fact that we recently saw one of the worst real estate crashes in history, with historically low prices.
In the second quarter of 2020, the median house value was $322,000, and in the fourth quarter of 2021, it was $408,000. That’s a gain of $86,000 in just 18 months. That may appear absurd, but it represents a 27 percent gain in 18 months, or nearly 18 percent every year. That is a significant increase, but it is not unprecedented.
Are Housing Prices Increasing Faster Than Before?
Many individuals believe that prices cannot continue to rise because they have risen so quickly. However, the price increase we’ve seen recently isn’t the highest in US history. I’m not even mentioning the rise before to the latest crash. There was no housing market meltdown in the 1970s because property prices increased at a faster rate. Increased interest rates, huge inflation, and two recessions characterized the 1970s.
The 2020s would be the third-highest appreciating decade if prices continued to climb at their current pace. Yes, prices are rising quickly, but not as quickly as some may lead you to believe.
Even after recovering from the biggest housing catastrophe in history, prices have not yet reached the levels seen in the 1970s.
What Is Causing Prices To Increase?
Many people have attributed the rise in property prices to a variety of factors. Investors are being blamed for all of the house purchases. Foreigners are being blamed for home purchases. The administration is being accused for not permitting additional construction to take place.
The cause of the high pricing, in my opinion, is a lack of construction and the cost of construction.
Yes, a higher percentage of houses being sold to investors, but because inventory is so limited, the actual number of houses investors buy isn’t that high. In fact, the proportion of owner-occupied homes is growing far faster than the proportion of investor-owned homes.
As you can see, there are fewer rental units than there were six years ago, but there are millions more owner-occupied units. The true reason for rising home costs is because there are more owner-occupants than ever before, and there aren’t enough houses to go around.
After the last crash, the United States experienced record low building for years, and that building has never been able to catch up. Although you may hear that a lot of construction is taking place, such homes are not yet completed. Due to supply chain challenges, construction time has increased dramatically, and the actual number of dwellings being completed is quite low.
You can see that they have built relatively little in the last 14 years, despite the fact that the population has grown. Although the birth rate in the United States is down, those children will not be able to purchase a home for decades.
The cost of construction is one of the factors driving increasing property prices. It’s difficult to get workers to construct, the government makes it difficult to construct, and supplies are pricey. Is it possible that the rise in property prices will come to a halt? Yes, they could lower their rate of growth, but inflation would have to slow as well. It’s difficult to predict what will happen, but I don’t expect a crash anytime soon.