Home prices almost always seem to be rising. If you’re thinking about buying or building a new home, you may be wondering why this is happening. Well, there are actually a number of different factors at play. Here are the main elements that cause home prices to rise.
Inflation refers to a general decrease in the value of money. In other words, inflation is why a dollar buys less now than it did five, 15, or 100 years ago. Inflation is always happening, and it is responsible for some of the increase in home prices.
In the United States, however, inflation is usually only worth about 1 or 2 percent per year, so it really only accounts for a very small portion of the increase in home prices. According to some analysts, home prices are rising at three times the rate of inflation.
One of the basic principles of economics is that as demand increases, prices rise, and similarly, as supply decreases, prices also go up. Home prices are no exception, and as of early 2018, the supply of homes in the United States is declining. That means there are fewer homes for the same amount of buyers, and this situation drives prices up.
Of course, you can always increase the supply of homes by simply building more, but in many cases, there isn’t enough space for new homes. Space restrictions in certain communities can directly affect home prices.
While supply is decreasing, demand is increasing. That’s especially true for property markets in Florida. According to data from U-Haul, Florida is the second most popular state for people to move to, and in fact, the state has 8 percent more growth in 2018 than the previous year. Over the last few years, this state has experienced a huge influx of new residents. Miami, for example, grew by 13 percent in just six years from 2010 to 2016, and many cities in the state followed similar trends.
Low Interest Rate
Every quarter, the US Federal Reserve System (usually called “the Fed”) adjusts the interest rate, and these manipulations are designed to affect the economy in certain ways. When rates are low, mortgages are less expensive, and as a result, people are more likely to buy homes. That, in turn, increases demand, which increases home prices. That said, the interest rate was recently increased in the first quarter of 2018, and the Fed plans to increase it at least two more times this year. While those increases have not had an effect on house prices at the time of writing, the new rates may cause a downward trend in home prices eventually.
Increased Costs for Labor and Materials
Of course, home prices don’t exist in a bubble, and as other costs go up or down, home prices adjust accordingly. For instance, if you are having a new home built, the cost of materials and wages for workers are built into your costs. If those prices are higher than usual, your home may also cost more.
If you want to avoid rising home prices, you may want to buy now. To create a custom home, contact us at Passage Island Construction.