After more than 15 years as a licensed real estate seller in New York State, I have come to firmly believe that the two primary (and key) drivers of the historic rise in home prices are extremely low prices, inventory, and historically – low mortgage rates! In the last year, in most areas of this nation, house prices have increased, by percentages never seen before, etc. Simultaneously, there is also an extremely low inventory of homes available for sale on the market. The combination of the shocks related to supply and demand and the affordability created by these mortgage interest rates are the two main factors, in terms of increasing the costs, of buying homes. With that in mind, this article will briefly attempt to consider, examine, review, and discuss these two keys/factors, and what they indicate, etc.
1. Low inventory: A number of factors have likely contributed to the current extended period of extremely low inventory of homes for sale in many regions/areas/localities. Some of these causes include: the stress and uncertainties stemming from this horrible pandemic; buyer – interest, because the crisis has also increased the desire, for many, to move; and, lack of certainty, on the part of the owners, about what to do, if they sold. The economic laws of supply and demand teach us that when there is limited supply (as there is today), demand outstrips it, often causing prices to rise! This creates what is known as a Seller’s Market (more buyers than sellers and demand, creating an advantage for the seller).
two. Low mortgage interest rates: Few remember, interest rates on mortgages, at the low level, we see, today! Because of this, buyers can buy more homes for their money. Since most people buy a home, taking advantage of a mortgage to finance their purchase is often the most important and relevant factor in whether or not one can afford a specific property. In that sense, it is essential to remember, and appreciate, a difference of 1%, for example, in a house of $200,000 (which, with a down payment of 20%, requires a mortgage of $160,000), is equivalent to about $100 per month , difference/savings. In many regions, the average mortgage is much higher, meaning a $400,000 home (with a $320,000 mortgage) is $200 a month difference, and a $600,000 home would save $300 at the lower rate. . While this allows more people to buy homes, it also has the result of creating additional demand and higher prices!
When you better understand the relationship between these two factors and the real estate market, you will be better prepared to proceed wisely, using the best approach and making the best decisions for you. Will you be a more aware, wise and potential homebuyer?