Inflation is at its highest rate in over 40 years, and younger Americans are especially feeling the pain. Homebuyers are aghast at the record-high home prices, and most young people are currently priced out of the housing market. Added to the major problem of inflation is rising interest rates. The pandemic made a lot of unexpected changes to the economy that have affected everything from what we will have available to buy on the market for the rest of 2022 to the loan rates for the homes we’re buying.
Everything is Getting More Expensive, Including Homes
As it’s been since the 1990s, wages are slow to rise, but that hasn’t stopped the prices of literally everything we buy to soar. Profits for many companies are at an all-time high while labor costs remain the same or barely higher than they were 30 years ago. There will be a breaking point, but it won’t be in 2022.
Economists tell us that the best way to slow inflation is to slow the economy down. The Fed does this by raising interest rates for federally backed loans like mortgages. As interest rates rise, it becomes more expensive to buy a home. When rates rise, it usually slows down the housing market, but we’re in a unique situation right now in America because there’s a shortage of empty homes in America.
Scarcity in the Real Estate Market
Baby Boomers and Millennials were both born during baby booms. The construction of new homes hasn’t kept up with the boom in the population of millennials, and thanks to student loan debt, most millennials can’t afford to buy an old home in disrepair, let alone build a new home. Pair that factor with the sky-high cost of buying a home and rising interest rates and you’ve got a perfect storm for home buyers.
Bidding Wars for Houses
In 2021, the cost of buying a home rose 18.8 percent. We’re supposed to see double-digit price hikes again this year. Most of us remember the housing crash of 2008, and the bubble in the housing market appearing in 2021 is reminiscent of 2007 pre-crash price hikes. However, this time around, there aren’t a lot of subprime mortgages to contend with. We’re not in the same situation we were in during 2008.
Real estate experts aren’t expecting a dramatic crash in the housing market any time soon, though most are hoping for the market to cool a little to give buyers some relief. Economists are expecting a mild slow-down in Q4 2022, but the housing market will be propped up by the tight supply of new houses.
Those who are fortunate enough to qualify for a loan right now are participating in bidding wars to buy a house. They’re paying more than the asking price for homes. Many are buying homes in disrepair or with less than favorable terms just to get the opportunity to buy a house. Many homes are selling hours after hitting the market.
Help for Homebuyers
It’s true that younger generations are struggling with the current housing market and economy. The Potempa Team wants to help. We’ve helped thousands of clients get millions of dollars in mortgages. We understand the struggles you’ll face buying a home in the current market, and we’ll form a strategy with you that will get you and your family into your new home. Contact us today to get started.