Why Is Real Estate Becoming So Expensive?

There are a lot of people who are looking for a new home, and many people are shocked by the price associated with some of the properties they are looking at. Unfortunately, it is becoming significantly harder for first-time homeowners to buy anything close to what matches their needs. The reality is that the cost of housing has far outpaced the rate of wage growth. Therefore, a lot of people are wondering why real estate has gotten so expensive. Some people are even wondering if we are living in a bubble. Generally, purchasing houses drives the rest of the economy. A lot of businesses follow homes, with numerous shops, restaurants, and even a Florida dispensary or two going in around major housing developments. Unfortunately, not everyone can afford a home. Why is real estate increasing in price so quickly?

No New Houses Are Being Built

One of the first reasons why real estate prices are going up is that there are no new houses being built. Even though there might be a new house going up here and there, they are also incredibly expensive because of the rest of the market. The reality is that the supply chain has made it difficult for anyone to build a new house right now. Furthermore, it is difficult to find contractors who are willing to help with home construction. Because there aren't a lot of new houses being built, people who would traditionally buy new houses are instead buying resale houses. This is contributing to increased demand and a lack of supply, driving up the price of real estate.

Pent-Up Demand Following the Pandemic

Next, there is a lot of pent-up demand following the coronavirus pandemic. Moving comes in waves. Unfortunately, people were not able to move last year because many people did not want to expose themselves to other people during the pandemic. As a result, people who wanted to move last year are moving this year instead. When this is combined with additional people looking to move this year, there are more people looking to buy houses than there were in the past. This is contributing to a tremendous amount of demand for houses, driving up the prices. Eventually, this may cool off, but a lot of the demand for new houses is driven by people trying to move in the wake of the coronavirus pandemic.

Record Low Interest Rates

Furthermore, we are dealing with incredibly low interest rates right now. In an effort to prop up the economy, the Federal Reserve lowered interest rates during the pandemic. These interest rates have not yet gone up again, so many people are trying to take advantage of low interest rates. Most people understand that interest rates cannot get much lower than they are right now. As a result, many people know that their money will go further if they try to buy a house right now. Some people are okay paying significantly above asking price if they can lock in a mortgage rate that is relatively low. On the other hand, this may make it difficult for people to turn a profit when they go to sell that house in the future. Low interest rates on home loans are driving the rush of home-buying.

Wall Street Buying Up Houses

Finally, there are plenty of other people driving up demand for houses right now as well. For example, many Wall Street investors are taking a look at how quickly the value of real estate is going up. When they compare this to the traditional market, they see that there is an opportunity to make money. All they have to do is buy a house, hold it, and sell it. Unfortunately, when Wall Street investors purchase property like this, they are removing opportunities from people who would otherwise be living in that house. Therefore, Wall Street is driving up the price of housing as well. It will be interesting to see if the government decides to regulate this moving forward. It might have to do so.

Looking to the Future

These are just a few of the many reasons why real estate has gotten so expensive during the past year. There are a lot of factors playing a role in why real estate has gotten so pricey. Furthermore, a lot of people don't want to put their houses on the market right now because they are afraid they won't be able to find a new house if they decide to move. It is impossible to predict the future. Eventually, interest rates on home loans will have to go up. This could slow down some of the record levels of buying. It will be interesting to see how the government responds to the real estate issues at hand. Some people are concerned we are facing a bubble.