Why Is Housing So Expensive?
If you’re in the market for a home, you are aware that housing prices are on the rise. In fact, according to the S&P CoreLogic Case-Shiller national home price index, house prices increased 19.8% year-over-year in February, the third highest monthly increase in the last 35 years. As a result, many families now wonder if they will ever be able to own their dream home.
There are many factors that contribute to the current high costs of real estate. First, we will look at the history of housing prices for context, and then we will explore the reasons for the current real estate costs.
History Of Housing Prices
Historically, the cost of housing has steadily increased since 1940 when the first housing census was conducted. However, spikes and falls in the market have occurred due to difficult economic factors. The most significant increase in home prices was recorded in the 1970s, when prices grew by 43 percent. This was followed by the slowest growth period over the 1980s, when prices rose by approximately 8 percent. Additionally, there have been times when housing prices briefly fell; for example, during the Great Recession in the 2000s, home prices fell by nearly 12 percent.
Despite the rising cost of housing, average salaries have not risen to accommodate real estate prices. According to Pew Research Center, after adjusting for inflation, the current average hourly wage has just about the same purchasing power it did in 1978. This gap has prevented many American families from purchasing homes, and this discrepancy has grown more apparent in recent years.
Contributing Factors to Rising Housing Costs
The short answer to the housing crisis is an issue of supply and demand, but several political, economic, and societal factors also contribute to the rising housing costs in the U.S.
Below are the main factors contributing to expensive housing:
Lower Interest Rates
In recent years, lower interest rates have contributed to increased home prices. When interest rates decrease, the cost of home loans decrease, which motivates more people to want to buy homes. This increases demand for homes, which subsequently increases their prices.
The increased demand for houses is coupled with a lower supply of them. More people are able to finance a home, and therefore, more people want them. There simply are not enough stick-built houses to accommodate the demand for them.
Local Zoning Regulations
Increased housing prices are also related to the increase in building and zoning regulations, which is particularly impactful in urban areas. Regulations such as permit requirements and population density laws have decreased the supply of houses, leading to an increase in their prices.
Increase in Construction Costs
Various political actions and trade agreements have influenced the cost of imported construction materials. Because of various tariffs, many construction materials are more expensive than they were before. Therefore, it costs more to build a house than it did before, and this is reflected in their prices.
Less Home Building
The last decade or so, fewer construction companies have been building homes. This is because during the Great Recession, home builders experienced significant financial losses on new construction. Therefore, the industry is overall more conservative about new construction. This further restricts the supply of houses, leading to an increase in price.
Housing a New Generation
Another contributing factor to the housing crisis is the fact that a new generation is in the position to buy: millennials. Over the last several years as millennials have begun to buy houses, the demand has risen exponentially. Additionally, interest in real estate investment has grown as more people are looking for different sources of income. Unfortunately, this means that there are real estate investors inflating prices within the industry.
Higher Land Prices
As the population has increased, there is less land available across the United States. While there is still plenty of land to go around, the cost of land has risen in correlation with the increasing average home prices. Generally, it is more expensive to buy land than it once was.
Will Housing Prices Go Down?
All over the country, housing prices have increased over the past year. However, it is unlikely that this trend will continue for much longer. Interest rates are expected to climb back up this year, which will slow the market. Additionally, real estate development has increased as companies try to keep up with demand. This is likely to also lower prices.
That said, it is unlikely that housing prices will significantly decrease back to where they were before the pandemic. A new generation of homebuyers is still emerging, and data predict this will continue to impact housing prices in the coming year. Though housing costs are unlikely to rise as dramatically as they did in 2021, there are still likely to be changes that will leave an impact.
Manufactured Homes: An Affordable Solution
At Braustin Homes, affordable housing is one of our passions. We believe that every family should be able to own a home. If you are concerned about rising housing prices and interested in learning about alternative options, we would be happy to help.
You may have certain misconceptions about mobile homes, but in reality, they are an affordable and high-quality alternative to stick-built homes. In our mobile home design studio, you can find the mobile home that best meets your needs through customization. Whether you’re looking for a single-wide mobile home for yourself, or a double-wide mobile home for the whole family, there are a variety of beautiful and durable options for you.