Why Is Real Estate So Expensive Right Now?

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Written By Justin McGill

DealBloom aims to share the latest tips and strategies to help realtors, brokers, loan officers, and investors navigate the world of real estate.

If you’re like many people, you’ve probably wondered why is real estate so expensive. It’s a question that has been asked for years, and there are several factors that contribute to the high cost of housing.

In this blog post, we’ll explore some of the reasons why is real estate so expensive and offer some solutions for making it more affordable.

For most of us, our home is our biggest investment. And while there are many benefits to owning a home – from building equity to having a place to call your own – the high cost of housing can be a major barrier for many people looking to enter the market.

So what exactly contributes to these sky-high prices?

Why Is Real Estate So Expensive?

Home prices have been rising steadily over the last few years. According to a recent study by the Federal Housing Finance Agency, they increased 18.7% in the last year alone.

Home prices have increased 4.6% in the last two quarters alone.

The high price of houses is due to a supply-and-demand issue. After the coronavirus outbreak, the government reduced the interest rate to stimulate the sluggish economy.

The decrease in interest rates coupled with the desire by many to move out of cities and into more spacious homes drove demand for housing.

However, the current political and economic climate has caused many sellers to retreat from the market.

The current housing market is imbalanced, with more buyers than sellers. This has caused prices to increase dramatically.

The History of Housing Prices

In 1940, the average price for a home in the U.S. was $30,600 when adjusted for inflation.

According to the US Census, the average price for a home was $346,000 as of 2021.

So, how did the price of a home jump from $30,600 to $346,000?

Overall, the cost of the average home has steadily increased over the past 70 years. This growth has been interrupted by occasional dips and rises, however, due to changing economic conditions.

Home values grew the most in the 1970s, with an increase of 43% over the 10-year period. This was then followed by the lowest growth in home value over the following 10 years, with 8%.

Home values have fluctuated wildly over the past few decades. The 1970s saw the most significant increase, with home value rising by 43% over the 10-year span. The 1980s were slower, with an increase of 8%.

Home prices have been known to decline during certain periods, such as the Great Recession in the 2000s when prices fell by 12 percent.

Unfortunately, average salaries and wages in the U.S. have not kept pace with the rise in home prices.

Housing prices have increased faster than wages for decades, making it difficult for many Americans to purchase a property.

According to Pew Research Center, wages only grow by two to three percent each year, while housing prices have been increasing at a much faster rate. This has made it especially difficult for people to buy homes in recent years.

However, there are homeownership programs that aim to help low-income families overcome this obstacle.

Home prices have increased differently in different regions. The Northeast has seen the biggest increase likely due to the strong economy in this region and the high demand for housing.

According to Investopedia, the South and the Midwest have seen the smallest increase in home prices. While prices vary regionally, the country has seen overall growth in the housing market.

How Do Rising Housing Prices Affect Investors?

Increasing home prices are a double-edged sword for investors. On one hand, it increases their purchase prices, but on the other, it also increases their profit margins.

Investors need to have access to funding so they can take advantage of new opportunities quickly. They should also be aware of how rising prices will affect their potential profits when considering a purchase.

If you’re lucky, breaking into a housing market that’s popular could mean that house prices will rise.

Even if the market is doing well, it’s important to remember that you should always evaluate each deal on a case-by-case basis. This way, you can be sure that you’re making the best decision for your investment.

Why Are Home Prices Too High?

Existing home prices surpassed $400,000 for the first time in May. While 30-year fixed-rate mortgages hovered at 6%, median home sale prices reached $407,600.

Many real estate agents are confused as to why their sales have been declining, despite prices continuing to increase.

The slow housing supply in recent years has led to a backlog of buyers.

The coronavirus outbreak caused an immediate slowdown in U.S. housing starts, which were already slowing down from the 2008 financial crisis.

Despite recent housing market conditions that haven’t been favorable for buyers, the most dedicated home buyers continue to purchase. This means that even the harshest of housing market trends have yet to be felt.

As the housing market continues to cool, we are seeing an increase in the number of sellers who are reducing their asking prices. This is a sign that the pent-up demand for housing is beginning to subside, and that the market is beginning to reach a balance between buyers and sellers.

During the four weeks ending in May, 20% of homeowners who listed their homes reduced their prices. This is the highest rate recorded this year.

That said, although the number of homes being sold is decreasing, they are still selling for above their listing price.

It seems that the market may be changing soon. There are signs that some of the fundamentals are softening. These include more homes being priced below their listing prices, more homebuilders canceling contracts, and more lenders seeing borrowers stretching themselves thin.

Advice for Buyers and Sellers

Sellers and buyers are anxious to jump into the fast-paced real estate market, but for very different reasons. Low-interest rates make mortgages seem attractive to buyers.

After 12 months of dealing with the global coronavirus crisis, some tenants are wanting a space that can grow. While there are some incentives for buying now, it’s only a matter of time before the real estate market catches up with the demand.

Pay close attention to your financial situation and your housing needs, and in due time you’ll find what you’re looking for.

Sellers should be careful when listing their properties without a backup plan. Although it may be a great time to sell due to appreciation, having a backup plan is always beneficial. This way, if the sale falls through or doesn’t meet your expectations, you have something to fall back on.

As a home seller, it’s essential to remember that you will be entering the housing market again as a homebuyer unless you plan to rent out your property. Home values are expected to continue rising, even as the buying market softens a bit. By planning ahead and taking advantage of the current conditions, you can ensure a smooth and successful transaction.

The real estate market is a long game, and when you’re ready to sell, you’ll likely be able to capitalize on your property’s value, interest rates, and more.

Will Housing Prices Go Down in 2022?

The housing market has been heating up, but prices are likely to cool off a bit in the coming year.

In fact, some experts are even predicting that prices may start to level off or decrease in some areas in 2022.

The rise in home prices has been largely attributed to low interest rates. These rates, however, are anticipated to steadily rise in the coming year, which will cause the housing market to slow.

Further, the real estate market has seen an upturn in construction as areas try to keep up with the demand for housing. This has also slowed the increases in home prices seen over the last year.

The drop in prices that was expected due to COVID-19 has still been felt, but the impact has not been as severe as initially predicted. For example, the 17.8 percent increase in home values that was forecast for the year has been reduced to 14.9%.

Mortgage rates are expected to go up and the housing market is still recovering, but slowly. Prices are not expected to fall anytime soon, but the rate at which they are climbing will slow down.

Why are Houses Unaffordable?

There are many reasons why houses are so unaffordable. One reason is that the cost of land and construction has increased significantly over the years.

Another reason is that the demand for housing has increased while the supply of housing has remained relatively static. This has caused prices to increase significantly.

Finally, interest rates have also played a role in making houses less affordable as they have increased the cost of borrowing money to purchase a home.

Real estate can be a great investment, but it also comes with a certain amount of risk. Before making any decisions, it’s important to do your research and speak with a financial advisor to see if real estate is right for you.

Conclusion

As you can see, there are several reasons why is real estate so expensive. While there’s no easy solution to making housing more affordable, understanding the reasons behind these costs can help us make informed decisions about where we live and how we invest in property.

Justin McGill