During the pandemic years, 2020 and 2021, there has been an increase in demand for home buying because many people realized the importance of more space and outdoor living. With high demand comes increased prices.
Home buying communities can real estate companies have been noticing the great inflation of house prices, more so than normal in the past couple of years. According to Radian Home Price Index (HPI), their annualized rate has inflated at 13.9 percent within nine months—from January to September 2021. This rate is almost 40 percent higher than it was at this same time in 2020. These rates just show that prices and demands are continuing to increase in the following years.
Why Do Home Prices Continue to Increase?
Home prices are increasing as years go by, especially with the pandemic still ongoing, partly because of the acute housing shortage that has arisen. House building slowed down below the level of necessity providing for new household formation. It has worsened since the peak of the pandemic, resulting in more demands from potential buyers.
Another reason for this price inflation is the supply of home building materials. Construction workers and suppliers aren’t able to carry on not only because of shortages and delays but also because of a lack of workers and land scarcity.
With the number of people voluntarily quitting their current jobs, together with the ones that are forced to leave their jobs due to loss of profit and worker limitations, there’s no doubt that lack of workers and openings is currently happening.
Researches predict that climate change has also something to do with the increase in home prices. There have been evidence-based reports of global warming in cities, claiming its impact will worsen over time. These issues include housing stock shortages and problems with the housing finance system.
Flooding is one significant risk. As it’s already common in some areas, flood insurance may also be in demand since some residential areas are found to be eventually worsening to flooding and rise of sea level.
Still, the mismatch between the homebuyers’ demand and nationwide supply is the major problem in this industry. Because of this, banks and loaners expect it to continue on with the decade of 2020s.
Homeowners and Landlords Have the Best Advantage
Homeowners who are planning to sell their property have the highest advantage in this crisis since their prices are increasing. Even if they’re not selling, they still get to keep the accumulated home price appreciation. This now allows them to expand their net worth, plus it can also be an additional source of equity.
With today’s low rates, they have the option to take advantage of them to refinance their mortgages in order to decrease their monthly payment.
Prices have surged above their rates before the pandemic in many cities. The increase in home prices also means that rental prices increase as well. As for homebuyers, they also face higher monthly payments on the same home they’ve been paying off before 2020. Today’s low interest contributes to offset increased costs, yet prices are still increasing more than the interest rates are decreasing.
Since home prices are surging, as do down payments. The higher the down payment, the smaller the mortgage. In our current economy, people are forced to spend more money on their daily essentials, like rental payments and other needs. Leaving them less money to save for future endeavors.
Therefore, saving for a down payment may still be difficult since inflation is overtaking wage worth. Plus, many people lose their jobs, homeownership is getting farther and farther from people’s reach.
In the hopes of the homebuyer’s income also increases, they would be able to have a higher ratio. In reality, today’s renters are less likely to achieve homeownership in the middle of this crisis unless they’ve had a different plan. Since renters have less predictability and stability, they can expect their rent to increase each year faster than before.
Suggested Solution to Home Buying in This Inflation
While everyone agrees home buying is difficult even before the inflation of home prices, with a resourceful and patient attitude, it’s possible to get through this. It’s clear that information on the internet has been letting us down, but we can’t let it if we really want to buy our own property.
Slow and persistent can be a smart way to overcome inflation. Little by little, your steps towards achieving homeownership can arise. For now, take time to find the right location, land, and house for yourself and your family if you have them. Now that the news has told us that this inflation will continue in the following years, then it’s time for people to switch to a different and more effective plan as well.