What comes next?
Homeowners have never been more fortunate. US home prices soared 11.2% y/o/y (year-over-year) in 2020 1 — the biggest annual gain since 2006. And, the trend shows no signs of slowing down: from April 2020 to April 2021, home prices climbed 16% 2.
A large number of experts claim the boom originated from low borrowing costs. They argue, now, the weakness of the markets will follow the rise of mortgage rates. Such an argument is misleading. For one, the sale price of houses in the US has been rising in the last 10 years 3, 4 while mortgage rates have barely moved in the same period 5. Although the current market is inundated with buyers, the housing demand has remained tight due to slow builders.
The major issue, not exclusive to the construction sector, is the lack of technology and skilled workers. Indeed, contractors are struggling to find qualified people to hire 6. Many business owners report the average American mindset considers construction careers like a job of last resort.
Despite the construction process being bureaucratic and painful, homebuilders also face growing strict regulations and inspections. Reasonably, the government makes it harder and longer for houses to become homes.
Another mainspring is that current homebuyers are relishing larger houses. The average floor area of new single-family houses has increased considerably. From 2,392 square feet in 2010 to 2,602 square feet in 2018 7, 8. The outcome is, again, more time required for engineers to draw up plans and for contractors to build houses.
A housing market stagnation is undeniable. Just like in every other investment, house prices fluctuate in synchrony with supply and demand. As the avid buyers settle down, homebuilders will gain an edge to help regulate moderate prices. Hitherto, however, home values will continue to ascend, favoring remodelers who take advantage of a higher ROI. The long-term outlook remains the same as always: constant uprise.
1 Rugaber, Christopher. “US Home Prices Soared in January by Most in Seven Years.” AP NEWS, Associated Press, 30 Mar. 2021, apnews.com/article/financial-markets-home-prices-prices-coronavirus-pandemic-5f01185ee13a69234972f13179896a2f?utm_source=morning_brew.
2 Lambert, Lance. “Home Prices Are up 16% over the Past Year. Is It Time to Sell or Buy?” Fortune, Fortune, 12 Apr. 2021, fortune.com/2021/04/12/home-prices-housing-market-real-estate-should-i-sell-buy-my-house-mortgage-rates-lumber-copper-shortages/.
3 “Median Sales Price of Houses Sold for the United States.” FRED, 28 Jan. 2021, fred.stlouisfed.org/series/MSPUS.
4 “Home Values on Zillow.” Zillow.com, 28 Feb. 2021, www.zillow.com/home-values/.
5 Mac, Freddie. “Mortgage Rates from Freddie Mac.” Freddie Mac, 15 Apr. 2021, www.freddiemac.com/pmms/.
6 Chaluvadi, Ashok. “Labor Shortages Remain Top Concern for Builders: NAHB Now: The News Blog of the National Association of Home Builders.” NAHB Now | The News Blog of the National Association of Home Builders | NAHB Now | The News Blog of the National Association of Home Builders, 20 Feb. 2020, nahbnow.com/2020/02/labor-shortages-remain-top-concern-for-builders/.
7 Dietz, Robert. “Single-Family Home Size Increases at the Start of 2018: Eye On Housing.” Eye On Housing | National Association of Home Builders Discusses Economics and Housing Policy, 16 May 2018, eyeonhousing.org/2018/05/single-family-home-size-increases-at-the-start-of-2018/.
8 Grist. Median and Average Square Feet of Floor Area in New Single-Family Houses Completed. 31 Dec. 2010, grist.org/wp-content/uploads/2010/12/sftotalmedavgsqft.pdf .
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