Why Are House Prices Rising and Will I Ever Buy a Home?
The housing market has experienced a significant surge in prices over recent years. This phenomenon is often attributed to several factors, including the effects of the Coronavirus eviction moratorium, the rise of speculation, and the tightening of inventory due to increased material costs. This article explores these factors in detail and discusses potential solutions for prospective buyers.
The Role of the Coronavirus Eviction Moratorium
The Coronavirus eviction moratorium, implemented to protect tenants during the pandemic, has inadvertently reduced the supply of available properties. By delaying evictions, this moratorium has created a stark supply-crash in the housing market. As a result, buyers are now competing more aggressively for the limited inventory available, leading to increased prices for homes.
Speculation and Low Inventory
The market has seen a notable increase in speculation, where investors are purchasing homes, often at inflated prices, with the hope of reselling them for a profit. Along with speculation, the low inventory of available homes has exacerbated the situation. This shortage is particularly apparent in new construction projects, where costs for materials like lumber have skyrocketed. Lumber prices have increased by 150%, while other materials have doubled in cost, making it increasingly difficult for builders to supply homes to the market.
The Impact on Borrowers
Another contributing factor to the rise in housing prices is the relaxation of lending standards. Lenders are now waiving appraisal requirements, allowing homebuyers to bring cash to fill the difference between the purchase price and the appraised value. Additionally, lenders are making exceptions to debt-to-income ratios, making it easier for people to qualify for mortgages. For investors, FICO scores as low as 350 are acceptable, further adding to the competition for homes.
Challenges and Future Outlook
According to the latest statistics, 2.5 million homes are currently behind on their mortgage payments and in forbearance plans. This figure is lower than the 3.8 million foreclosures seen during the 2007 to 2010 period. However, once the eviction moratorium ends, it is likely that these accumulated foreclosures could cause a significant correction in the housing market, as the supply of available homes returns to normal levels.
Moreover, recent interest rates, while low, are not necessarily advantageous for the new higher price points. The combination of speculation, low inventory, and waiving lending standards is creating an environment where prices may continue to rise. For instance, Wall Street institutions are increasingly investing in homes, and this trend might lead to a doubling of prices in the next two years, making it challenging for many to afford a home.
Advice for Prospective Buyers
Navigating the current housing market can be daunting for many buyeres. One piece of advice is to wait and reassess the situation in three years or longer, allowing more time to see if the market trends stabilize. Additionally, given the vast size of the United States, which spans over 3000 miles, there are numerous regions with a diverse range of real estate opportunities.
Millennials, in particular, have shown to be financially savvy and have clear goals when it comes to home ownership. However, even with strong financial knowledge, the current market conditions present several challenges. Prospective buyers should carefully consider their financial situation, projected income, and the longer-term trends in the housing market before making a significant investment.
In conclusion, the factors driving up housing prices are complex and multifaceted. While the current market may seem challenging, patience and strategic planning can help prospective buyers navigate these tough times and find the right home.