Eli5: Why are housing prices so high now? Is it better to buy or rent a place to live?
In: 1
A few factors, some longer terms and some shorter term…
**Longer term:**
– There has been a slowdown of new housing built since the Great Recession of 2008.
– This was exacerbated by large Millennial generation coming of age to start families and buy homes.
**Shorter term:**
– Super low interest rates have made payments lower for higher priced homes. A $450k loan at 3% interest is same payment as a $350k loan at 5%. Since most buyers look at monthly payments/budget to determine affordability, more buyers could afford each price point.
– COVID caused a big shift in housing. Many buyers who were thinking of buying or upgrading in a couple years moved up plans because they needed more space now — work/school from home, desire for a yard, etc. So you had 3 years worth of buyers looking to buy at same time. But the seniors who typically would downsize from family home to their retirement home weren’t selling — they didn’t want COVID coming into their home, they didn’t want to travel to FL or AZ and shop for retirement home, their adult kids moved back home to ride out pandemic, etc. So the supply of homes on the market was cut in half. 3x demand 1/2x supply makes for a HUGE supply/demand imbalance!
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