Monday, May 3, 2021 / by Ryan Nager
Why have home prices grown so rapidly across the nation?
It’s very easy to attribute rising home prices to the influx of buyers in the market looking for homes right now. Of course, there has been an above-average level of demand, but that’s not necessarily the reason home prices have grown so rapidly.
The first real issue has to do with the supply of homes. As I’ve mentioned before, we’re currently experiencing a record-low amount of inventory. To give you some perspective: We would need almost 24,000 active listings to hit the market just to create some semblance of a normal market, which would be a 700% increase from where we currently are. At the moment, sellers are in charge, but we’re starting to see a little bit of fatigue; in some segments of our market, demand has been lower than it has in years.
"Real estate will continue to be a safe investment for the foreseeable future."
The other reason why home prices are growing so fast is related to construction costs, which have increased monumentally over the last year. A year ago, plywood was going for $25, where it’s now somewhere around $80. However, that isn’t the reason that builders are able to charge more. The real reason they’re able to do so is that the resale market has been so strong. Since new construction has a longer-term contract date, by the time they expire, some homes look cheap compared to a resale property. As such, new construction companies are having to get creative. Some are even allowing buyers to completely exit out of their contracts and get their earnest money back since builders know they can sell that property for more than they could just 12 months ago.
So where do we go from here? We’ve seen record growth over the last couple of years, but most economists believe that we’re going to be on a much more normalized trade trajectory from here on out. Even still, real estate will continue to be a safe investment for the foreseeable future.
If you have any questions about the market or real estate in general, don’t hesitate to reach out to me. I’d love to help you.