Why US Property is at its Hottest in Years


Everybody knows that the economy has not been in the best of health for the past few years. Interest rates are low, pension funds are facing record deficits and costs like healthcare and insurance continue to rise. Yet throughout it all, the property market has remained largely  buoyant.

This represents great news for homeowners and those looking to sell their property, but can present a challenge for buyers. The business of finding the right property is just the first hurdle. There is then the matter of getting the finance together before somebody beats you to it and takes that dream house from under your nose. For most that means getting a mortgage pre-approval and coming up with a decent deposit. According to Crediful.com pre-approvals are usually valid for 60 to 90 days which gives you a bit of time to fall in love with the ideal property and get your savings in  order.

Supply and  demand

So what is behind this trend in rising property prices? According to a recent report from property listings website Zillow, it is a good old fashioned case of demand outstripping supply. And the pattern is predicted to continue for the weeks and months to come. The inventory of housing on the market has fallen consistently every single month since the beginning of 2015. When there are fewer homes available to choose from, all the competition is between buyers instead of sellers, meaning prices are inevitable forced up at an ever accelerating  rate.

The report shows that there are some nine percent fewer homes available on the market than there were this time last year, the largest drop that has been seen since August of 2013, when a 10.2 percent fall was  recorded.

All of this means that house sales are taking place faster than ever. The average property was on the market for just 77 days in April, which is the lowest figure ever recorded. Zillow expects these patterns to continue, and there is every likelihood that we will see further records broken between now and the end of  2018.

Rising  prices

And so we see the principles of supply and demand in action – the increasing paucity of homes is sending the market into the stratosphere. Residential prices rose 7.4 percent from May 2016 to May 2017, and the largest contributory factor was availability of inventory. This has seen the average price of a home in the USA reach approximately  $200,000.

Inevitably, this means it is more and more difficult for those starting out in life to reach that first rung on the ladder. We can already see a situation in New York where owning a property is becoming the exception rather than the rule, purely down to the increase in house prices. Is this a pattern that is going to emerge across America’s other major  cities?

According to The Washington Post, it is already the case. However, their contention that this is fine and that home ownership is overrated anyway misses the point. Remember our old friend supply and demand – the same principles apply in the rental market, and if everyone now starts renting, prices will likewise escalate. This is already being seen in New York, and other major cities are sure to follow. The only difference is that with a mortgage, the homeowner is buying an appreciating asset with his or her money, while when renting, the money is simply  gone.

What is behind  it?

The facts, then are understood. But why is there this shortage? If prices are rising and demand is high, surely this provides an incentive for those considering a move to put their homes on the market and reap the benefit as they laugh all the way to the bank. The theory sounds great, but of course the downside is that they then find themselves in the position of the buyer, trying to find a new  home.

The theory works for empty nesters looking to downsize, and there has been no better time to do so. But even if they were to flood the market, three or four bedroom detached properties in the suburbs are of no help to most first time  buyers.

Ultimately, we see a vicious circle in which potential sellers decide the market is just too competitive, and they decide not to sell – contributing further to the underlying  problem.

Perhaps new house builds are the answer. The trouble here is that there are simply not enough affordable new homes being constructed. Most of the developments that you do see are at the luxury end of the spectrum, which does little to help the inventory crisis at the affordable  end.

Looking to the  future

While the economy remains as it is, the current pattern is likely to continue, certainly over the next year or so. All that buyers can do is watch the market, manage their finances and ensure they are prepared. Great properties still come onto the market every day, but you need to be ready to act faster than anyone else when they  do.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.