Will Real Estate Ever Be Affordable Again?

With the steady population growth throughout the United States, the increase in demand for real estate is higher than ever before. This growth has created a profitable sellers’ market for real estate, but will real estate ever be affordable again?

Real estate might not ever be affordable again. Various economic associations and economists predict that the average housing prices will continue to increase through the end of 2021. Factors such as a high construction cost and an increase in land prices make real estate very expensive.

This article contains relevant information on what we know about the real estate market and why it continues to be less affordable as well as ways you might still profit from this market. Keep reading to learn more.

Why is Housing So Expensive?

Housing is expensive because land prices are going up, and construction materials are at an all-time high. In addition, historically low-interest rates play a significant role in the housing market.

Currently, they’ve all come together to create a perfect storm that seems to have no end in sight.

It began with a reduction in interest rates coupled with the desire of many citizens in countries like the U.S. to move to other favorable locations. These trends constituted inflation in real estate market value which, in turn, helped raise building prices. 

In addition, the Covid-19 pandemic and the country’s shutdowns contributed to the scarcity of materials and subsequent rise in building prices.

Increase in Land Prices

The continual population growth has inevitably led to a land and housing shortage. Generally, land purchases have become more expensive, affecting the cost of average home prices and ownership. 

Also, while the cost of real estate is up throughout the United States, location is still an important component for pricing. 

As such, if you desire to live in a more rural part of the US, you may be able to find more affordable real estate, but that decision will cost you in terms of proximity to stores, entertainment, and medical supplies.

High Construction Cost

In addition to land costs, many materials needed for building construction must often be imported, adding to their costs. The scarcity of these materials weighs heavily on costs. 

A good example is the shortage of bricks that Britain has been facing since before the recession, which has as such caused direct inflation of house prices. In the United States, however, the price of lumber has increased so much that people are putting off any new projects because they can’t afford the lumber.

Higher Demand

“Higher demand requires a higher overall cost." 

The reluctance of many homeowners to sell their houses, especially during the Coronavirus pandemic, pushed many buyers into some fierce bidding wars for the available homes.

Increase in Local Zoning Regulations

Zoning laws such as residential permits, neighborhood restrictions, and others have also affected home prices leading to them being more expensive. When new construction must follow these regulations, the additional costs are wrapped up in the overall purchase price.

Why Are Homes So Costly Now?

The reason homes are so costly now is the supply and demand. There’s a great demand for houses in major cities, and the supply is limited. Further complicating the issue, banks will often buy and destroy, or rent out, empty houses which push up housing prices.

Based on reports by Fortune, the average listing price in February 2020 rocketed to 13.7% year-over-year. This price increase jumped to 17.2% in April, with no sign of it looking to slow down. 

How Do Increased Selling Prices Influence Investors?

The increased selling prices influence investors who flip homes. However, unless they can buy low and sell high, they’ll most likely look elsewhere to make their money. 

In short, they buy up available homes in anticipation of rising housing prices because the property value provides higher returns.

Considering the significant increase in home values recently, investors are also driving the market because significant opportunities await investors who can invest early in a trending market. 

How Interest Rates Affect the Real Estate Market

In the world of business, interest rates generate significant impacts. They’re able to push up or push down the costs of property in real estate, which can be seen from rates on interbank exchanges and Treasury bills (T-Bills). 

These rates often determine your ability to purchase real estate; however, mortgage rates aren’t the sole determinants of price in the real estate market.

How to Make The Most of The Current Real Estate Market

It’s near impossible to predict how the current real estate market will pan out because of many economic and social trends. That said, real estate has always been a source of investments that generate long-term returns.

You can find a way around whatever the market presents. Let's look at some of the ways to make the most of the current real estate market.

Try Renting Out Your Property

One of the trends caused by the current inflation of real estate prices is that more folks are looking to rent properties.

Although it’s the more expensive option for real estate, many homes are selling faster than sellers can find replacement homes, which makes the rental property industry explode. This is one trend that won't be going anywhere any time soon, so why not make the most of the opportunity? 

There’s money to be made from renting out your property, even if real estate becomes affordable again. 

Many people would rather rent than buy a home for many reasons that have nothing to do with real estate prices today. Therefore, having a property that you put up for rent is a great way to generate a stable source of income. 

That way, you can always make something from the market.

Exploit the Hottest Markets

Some real estate markets generate more profits than others. 

For example, there are choice locations that offer higher profit potential than other locations. Then there’s the constant expansion of cities and a corresponding increase in investments in real estate. 

The trick is recognizing the markets with high-profit potential and capitalizing on them. Regardless of the trends in the current real estate market, there are always hot markets that you can exploit to make a quick buck or two.

Explore Crowdfunded Real Estate

Crowdfunded real estate is quite lucrative when handled the right way. It involves becoming part of an investment team that’s into the business of buying rental property.

Investors then get profits off these properties that often come with minimal effort. 

It’s a great way to negotiate the current real estate market because it requires low minimums, so you do not have to generate large amounts of money before you can invest in these properties.

The best part about crowdfunded real estate is that it requires minimal experience for you to make the most of any opportunity that presents itself. All that’s needed is a functional investment strategy and a basic understanding of the real estate market.

Conclusion

Owning a place you can call "Home" is the dream of many people, so they save money for years and set targets to make it possible. However, the steady increase in home prices has posed a stumbling block through the years.

Despite the economic measures the Government took, the cost of purchasing homes has continued to spike, and it seems that real estate will never be affordable again.

If you plan on owning real estate or investing in rental properties, be aware of the costs and factors behind the real estate market. Be patient and compromise.

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