In the year 2000, the average home price was $126,000. By 2020, the average home price had increased to $259,000, a 106 percent growth that occurred within less than a generation. What’s staggering about this increase in home prices is how quickly the market rebounded after the 2008 housing crash. Many current first-time homebuyers were reaching adulthood during the Great Recession and they remember how hard it was to find jobs and for their parents to sell their homes.
The life experience of living through a housing crash is driving some people to wait on buying. The housing market goes up and down, and some people want to take advantage of the next housing bubble to enter the market at a more affordable price.
However, they may be waiting a long time. The market is a long way away from experiencing a correction and some housing costs are going to keep rising higher than ever. Here are a few reasons why housing demand is going to continue to increase and keep home prices high.
America is Short More than 5 Million Homes
Like any market, housing follows the basic economic rules of supply and demand. When supply is low and demand is high, housing prices increase. In 2008, the supply was high as homes were foreclosed on and demand was low as no one could afford them. This caused housing prices to drop.
Right now, there is a significant lack of supply, which is caused by many factors. First, home construction is running at its slowest pace in decades. In 2012, there were 12.3 million homes constructed. In 2021, there were only seven million. Supply chain issues and the pandemic prevented new home construction, limiting the number of houses available.
New construction isn’t the only reason supply is low. NPR’s Planet Money podcast explained that older Americans are staying in their homes longer. They are able to remain independent and healthy, allowing them to live alone. In previous generations, these Americans either entered assisted living or moved in with their kids, creating turnover in the housing market. Without these homes hitting the market, the supply of existing homes remains low.
The are multiple factors that contribute to supply and demand in the housing market. However, all of them point to the same conclusion: there aren’t enough houses available for the people who want to buy them. As a result, home prices remain high.
The Housing Market is Not a Monolith
While the real estate market is certainly affected by national trends, not every market responds the same way. Even if the housing market crash was imminent, there’s no guarantee that your desired neighborhood or city would be affordable. Cities like Nashville, Tampa, and Austin are considered high-growth areas, where more people are moving there than the national average. A housing crash might drive a small dip in prices, but supply and demand will keep home values.
Use the Home Price Index chart by Virtual Capitalist to see how demand for different markets varies from the national average. In San Jose, California, the average home price increased 227 percent since 2000. In Springfield, Ohio the average home price increased by only 25 percent over the same period.
While the 2008 market crash rocked home sales across the nation, it’s unlikely that another housing bubble burst could have the same effect across the country. Even in 2008, some markets were harder hit than others.
Climate Change Will Affect Where People Live
Even within cities, there are social and economic changes that affect the cost of housing. The city of New Orleans is a great example of this. The city is continuously plagued by hurricanes while sea-level rise increasingly causes flooding in neighborhoods that used to stay dry during the storms. As a result, living near the water is becoming less desirable as the chances of property damage increase. It is also less affordable because of home insurance and flood insurance costs.
Because of climate change, more people are moving to neighborhoods that are higher up in the city, driving up home prices in those areas while the home values of properties in low-lying areas decrease. There are similar movement patterns in other parts of the country, where demand varies by flood zone. Other natural disasters also change the housing market. In California, buyers are moving to areas that are less likely to experience wildfires, changing demand in various towns and cities.
Mother Nature will beat out any market trends caused by a housing bubble burst. Eventually, the homes that are the most affordable will likely be the ones most at risk.
You Can’t Count on a Housing Crash
Some buyers have decided to wait for the next housing crash to enter the market. They believe that a crash in the next few years will create a large supply of houses and allow them to invest in a property at a more affordable rate. However, the housing market crash isn’t guaranteed, and it could leave you worse off financially.
First, housing prices continue to increase. Buying a few years ago might have helped you save money instead of waiting until now or a few years from now. Along with home prices, interest rates also fluctuate and could increase in the future, driving up the cost of buying property.
Furthermore, the longer you choose to rent, the less time you have to build your equity. The money paid to a landlord could have gone to your financial growth and long-term investments through a mortgage.
Finally, the housing crash in 2008 was part of a traumatic economic event for millions of Americans. There’s no guarantee that a housing crash won’t bring unemployment and a strain on your finances. You might not have the finances to invest in a house if the crash comes.
Start Planning for Your Real Estate Journey
While it’s important to research economic trends in your area, you shouldn’t put your life on hold for a theoretical crash that might not come. Hoping for a market crash cannot replace strategic financial planning.
Consider meeting with a money expert to discuss your home buying goals, then find an agent who can help you purchase an affordable home in your ideal area. At UpNest, we specialize in pairing buyers with agents who know their stuff. You can save money with our service and find a Realtor who helps first-time homeowners.
Take the first steps today to invest in your future and find your home.