Will home values continue to rise?

Anxious homebuyers and a low supply of homes has led to a hot housing market, with an average home price increase of 25% as of March 2020, but will it continue to rise?

There are three factors that come into play:

 

1. Mortgage Rates

It's simple, low rates = more buyers, high rates = less buyers. Why? Because with lower rates, buyers can afford a higher total loan amount and of course with higher rates, they can afford less. So you may be able to afford a $400,000 home now, but if the rates rise you may only be able to afford a $300,000 home.

2. Inflation

Remember when our parents or grandparents used to tell us about how when they were young gas was only $0.25 per gal.. the good old days. The prices are much higher than that now, all because of inflation.

2021 was a record-breaking year in that inflation rose 6.8%, the fastest it has ever grown in the last 40 years. We never know for sure whether inflation will rise or fall, so we generally look back on our past history to determine what could happen.

There's one thing for sure, inflation does have an affect on the housing market. High inflation makes for high consumer prices, which makes it much more difficult for home buyers to save for a down payment and afford a mortgage.

For home sellers, they may still have the chance to list and sell their home for market value or less, and there will likely be significantly less buyers on the market, so it may also take longer than expected.

If inflations falls, however, home prices will rise but buyers will be able to afford higher mortgages, down payments, etc.

3. New Home Builds

The COVID pandemic had an enormous affect on new home construction, thanks to manufacturer shutdowns and slower processing of materials, making it harder for building contractors to get the materials needed for home building.

So basically, with less home construction, there are less available homes on the market, making for more competition in the buying market of existing homes, which allows sellers to list their homes higher than market value. And vice versa.

Interested in learning about other real estate topics? Leave a comment below with ideas of what you would like to see, or any other feedback you may have!