Published Date 1/24/2022
Round and round it goes. Where it ends, nobody knows. Or so that is the case with home values, which rose a whopping 17% in 2021 from the year before. First time homebuyers are being all but boxed out, with the average price for a home now sitting at $346,900.
For those entrenched under their own roofs, while it’s great to be giddy over how much their homes are now worth, the phenomenon can also bite them in the extremities if it’s their intention to sell and expect to buy a home at a fair price elsewhere.
"The price increase is a record," says Lawrence Yun, the chief economist for the National Association of Realtors, which just came out with the new numbers. He adds that the rise in home values is "even stronger than the days of subprime lending."
NPR’s Chris Arnold says Yun is referring to the ruinous lending practices that fueled the housing bubble and led to the financial crisis 15 years ago. Back then prices were getting artificially boosted because people were paying more than they could actually afford. “But Yun says reforms put in place by Congress since then ensure that people can afford the home loans they get. So something very different is happening now,” says Arnold.
"We are facing a major housing shortage," Yun says. "In December, we saw record low inventory, an all time low, there's simply not enough homes available for sale."
Working from home is no longer a novelty for many Americans, with millions of them looking for more space while bucking a record low supply, coupled with strong demand and high prices. But Yun expects price gains to moderate this year, perhaps to around 4% to 5%.
"The price gains will begin to normalize," he says. "And people should not anticipate another year of this double digit rate of appreciation."
The law of supply and demand never truly goes out of style, however, and will continue to drive this real estate marketplace. Arnold says the housing market will remain out of balance so long as the supply of homes is so constricted. The reason? “After the financial crisis, many homebuilders went out of business, and for a decade the builders that were left did not build enough homes given population growth,” he says. “In fact, estimates are that the U.S. is short several million homes. And building more won't happen overnight.”
On the homebuilder front, there is no way to spin this. Builders say they are facing major headwinds including, in many places, a lack of available land, labor, building materials, and overly restrictive zoning.
"Policymakers could help by reducing lumber tariffs," says Robert Dietz, the chief economist of the National Association of Homebuilders. He says local and state governments could also help get more affordable homes built by, "enacting zoning reform to allow builders to build with greater density.” To top that off more workforce development programs are needed to train construction workers.
NPR, TBWS
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