Home prices are still on the rise in the US: understand
Buying a home is the great American dream. However, inflation, the pandemic and the war in Europe brought a recession and an increase in home prices. Understand better!
by Sabrina Paes
The current state of the housing market
Home prices may have gone down. However, they are still scary and remained high in the first half of 2022. The expectation of improvement is still a mystery.
While the values of other sectors of society are slowly decreasing, house prices seem to be rising.
And do you know why? Because there aren’t enough houses to supply the entire population demand of the United States.
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This has a significant impact on the real estate market. One of the main ones is the drop in sales that has been happening for 6 consecutive months since the beginning of 2022.
When we see that the mortgage price has doubled in 2 years as houses pile up for sale, we realize that the crisis is severe. The market is going through a critical moment, but it could improve soon. Understand!
What is causing the increase in house prices?
In the United States, the jump in the values of properties sold in the last two years has generated fear. The fear that a new housing bubble could be forming, bringing back memories of the bad 2008.
The housing market is facing depression. Home prices skyrocketed in 2021, rising 18.8% across the US, according to the US National Home Price Index.
Phoenix, Arizona; Tampa, Florida; and Miami, Florida, lead the list with the biggest home price increases.
In Phoenix, it is 32.5% more expensive to buy a house. In Tampa, the values of these properties increased by 29.4%, and in Miami, by 27.3%.
The rise in home prices did not happen by accident. Some factors, such as the outbreak of the war in Ukraine, the pandemic, and inflation, were the main protagonists of these increases.
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The government needed to invest a lot of money in society in order to overcome inflation. The government even injected around US$ 7 million into the economy.
However, this has brought an increase in the interest rate, and this directly affects the real estate market. As interest rates fall, the tendency is for home prices to fall as well.
The Covid-19 pandemic has affected the world market. After all, commercial activities were paralyzed for a long time. This affected the price of products and people’s wages.
The real estate market did not pass unscathed. With lower wages and a recovery trend, combined with high-interest rates, the impact was great. People cannot buy houses, and houses are stagnant.
The war between Russia and Ukraine
The war between the two countries also affects and contributes to inflation. After all, the United States depends on some products from Ukraine, such as fuel.
Also, the reduction of inputs brings the need for alternative sources. As a consequence, government investment and interest rates will increase.
How the rise in home prices affects buyers and sellers?
Rising home prices can significantly affect the entire real estate chain. That is, high values directly influence the process of buying and selling homes in the United States.
On the one hand, buyers are unable to acquire a new home due to the high prices. In other words, consumer products rose, and so did households. This makes the purchase difficult.
In some cases, interested parties can take out a loan and financing. However, with high-interest rates, debt can be a real fear.
Sellers, on the other hand, find it difficult to sell. Proof of this is that the United States faces a significant backlog of homes without buyers.
That is, although there is a high demand for people looking for houses, there are several properties still waiting for a sale. The result of this is a crash in the real estate economy and a major recession in the sector.
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What to expect for the following months: will home prices drop?
According to the New York Post, the US housing market has plunged into a “full-blown recession.”
Home builder confidence has plummeted for eight straight months. This marks its worst period since the housing market imploded in 2007.
Interest rate hikes seek to try to control high inflation. This marked the year 2022 and could help to slow down price increases in the coming months.
As it depends on medium and long-term financing, the real estate market is very sensitive to fluctuations in interest rates.
As financing becomes more expensive, demand tends to fall. In some cases, this movement can lead prices to stabilize or even decrease.
The issue, in this case, is that even if prices rise less, the problem of access to housing for the poorest families persists. Or even worse, it may intensify as loans become more expensive.
Is it the right time to buy a home?
Based on this unfavorable scenario, it is clear that buying a home right now is not the best idea. However, you need to know other reasons that convince you of this.
First, buying a home can wipe out your savings. This can be very bad in a time of an economy full of uncertainties due to world inflation.
Home prices are way beyond normal. Therefore, the time is not favorable to spend much more money than expected to acquire a property.
Another reason is that you need to have a good or excellent credit history to buy a home. And to build a good track record, you need time. Therefore, the time is not ideal for the purchase.
High monthly mortgage payments won’t leave much cushion in your budget. That is, if you don’t have enough savings, buying a home can be a disaster.
Finally, it is worth mentioning that house prices tend to fall in the coming months.
As the market is locked and fewer people are buying, the tendency is for prices to fall to stimulate purchases and the real estate economy.
The scenario is not favorable for any type of action at this time. And that’s not all. The US market goes through the winter or bear market. Learn more about the fall in values with the post below.
Is the US in a bear market?
The world economy has suffered strong consequences from the War in Ukraine. However, are we in a bear market? Find it out!
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