The Current Real Estate Market
The American dream has long been associated with the idea of owning a home. It represents a symbol of stability, success, and the pursuit of a better life. In this article, we will delve into why homeownership is an integral part of the American dream and why this dream is fleeting at the current moment.
Owning a home brings stability and security unmatched by renting. It provides a personal space, allowing individuals and families to establish roots and a sense of belonging. Real estate is a valuable asset that appreciates over time, helping homeowners build equity and accumulate wealth. Increasing property values can lead to significant returns on investment. Homeownership also offers intergenerational benefits, allowing families to pass down wealth and provide stability for future generations. By investing in a home, individuals lay the foundation for their family’s financial well-being and create a cherished legacy.
It’s clear why homeowners desire the highest price when selling their homes. In the last two years, there has been a substantial demand for homes due to lockdowns and an increased value placed on personal space. City residents no longer needed to commute daily to the office, allowing them to consider larger properties outside the city. Consequently, flippers began purchasing houses at a higher frequency, aiming to resell them the following year with a xx% profit. Investors regarded single-family homes as excellent protection against inflation, and shows were created to enable real estate investors to purchase homes at a “fair price.”
Increased demand for single-family homes drove prices up. This was compounded by supply chain and scarcity issues; wood prices tripled, making it harder to afford home projects and expansions. Through the lockdown, productivity was lowered, as Contractors needed to take extra precautions when working during the pandemic. China was also in lockdown, which made it harder to get certain home products in the US Market.
Homeowners started to value their homes at a much higher price, and as prices surged, they profited.
Enter the US Government. Inflation became a nationwide concern as people faced difficulties in affording groceries. To address this, the Federal Reserve opted to increase interest rates, aiming to reduce spending and encourage saving. This approach allows for the resolution of supply chain challenges and enables the economy to adjust to the evolving circumstances.
Homeowners want the most for their house; however, with the higher interest rate, what does that mean? Let’s break down the cost differences at different interest rates. The mortgage comparison calculator is available for free at criticalguides.org.
As you can see above, the sum of payments or the total amount of payments you are paying at a 7% interest rate is close to double the purchase price of the house. Your monthly costs also increase at a ridiculous 58%. Please note this calculation doesn’t take taxes or fees into consideration, and when factoring in taxes, your monthly cost could increase significantly more. This is leading to a difficult situation for young people purchasing their first home and seller who want to sell at what they deem to be a fair price.
Conclusion:
Given the escalated interest rates and stagnant housing prices, it’s unavoidable for the real estate market to witness a decline in demand and an uptick in inventory. Property values will eventually decline. The exact timing remains uncertain, but the interim period will be incredibly challenging for young individuals aspiring to buy a home. As the number of buyers dwindles, selling one’s property will become more arduous. At this stage, we must await market correction, causing distress for recent home buyers who will witness a decline in their property’s value.
-Alex Y
