How Do Sky-High Property Values Impact Homebuyers?
The housing market across the US is on its way to a full recovery, with 26% of the country’s markets surpassing previous records in property values since the peak of the housing bubble.
This may come as no surprise in many markets, including California and New York. The median price of homes in the San Francisco Bay area hit $702,150, a 15.2% increase from the same time last year. Southern California saw a hefty boost in property values, with the median home price reaching $453,910, a 7.9% increase from last January.
A similar effect is being seen in many other parts of the country too. Median property values in Nashville, TN increased 9.5% to a median price of $189,100, while those in Phoenix, AZ spiked 8.1% to $218,300. Boston, MA median home prices increased 5.9% to $387,400, and Seattle, WA now boasts a median home price of $373,000, up 9.4%.
Homebuyers Are Left With Limited Options
Many factors are responsible for driving the prices of properties up, but perhaps one of the most critical is housing supply. The spike in property values in many markets across the US is the direct result of tight inventory, which means the number of listings is a lot less compared to a few months ago.
With an inventory squeeze and a spike in property values, buyers are being left with fewer options when it comes to relocating or getting into the market at all. Even with a decent down payment and healthy credit, finding the right home can be a real challenge.
San Fernando Valley’s housing inventory dropped 13% since the same time last year, and Portland, OR inventory is dipped 28%. And it’s the same story in many other markets across the US.
With limited options, multiple offers and bidding wars are imminent. And nothing drives sale prices higher than a handful of eager buyers doing their best to outbid each other. Many are coming in with all-cash offers to ensure they’re the winning bidder, making it tough for younger first-time homebuyers to compete.
Rent isn’t exactly cheap either, making it hard to save up to get into an expensive market.
How Much Higher Can Prices Go?
“Housing bubble” has been a really popular buzzword in the world of real estate these days, and for good reason. Many are concerned that a new housing bubble is closer than initially anticipated, especially in red-hot markets all over the state of California. Many centers have been experiencing double-digit increases in home prices for a few months now, sparking the question about how much longer such a rapid pace can last before losing steam and succumbing to a bubble.
Despite the labor market showing strength overall, it’s still incredibly difficult to realistically afford certain prices based on income, igniting a housing affordability issue in many centers across the country.
With a heightened level of competition for properties in markets like San Francisco, Seattle and Phoenix, the combination of limited inventory and high property prices can be a dire one for homebuyer hopefuls looking to get into the market.
The Brighter Side: Rising Equity
While homebuyers might be negatively affected by spikes in home prices, many who already own homes are enjoying sizeable equity in their properties. More homeowners owe less on their mortgages that what their properties are worth compared to last year, which means they’ve got the advantage of more equity.
Once they’ve built up a certain level of equity, they can make a handsome profit on the sale of their properties, and open up inventory at the same time.
Another bright side to the story is that the overall housing market in the US is not playing catch-up anymore as it had been since the recession eight years ago.
But in the meantime, buyers have to deal with a shortage of inventory and an affordability issue that will likely continue well into the near future until the bubble finally bursts.
