Basically I understand that there are not many houses for sale right now, so supply and demand would dictate high prices. However, wouldn’t the high prices attract more people to sell? Is everyone just holding their houses hoping prices go even higher?
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Well, just because you’re selling your house at a high price, it doesn’t make it smart to do. Because, as you said, houses are going for a lot now. So, buying a house is going to cost you more than it normally would too
Any market is driven by supply and demand. More sellers drive price down, more buyers (or richer buyers) drive it up.
Current increase is driven in part by COVID: people stay home more, so they want nicer homes, and are willing to pay for them.
Supply side is complicated. On one side, it takes a long time to build new houses. On the other, actual supply are people willing to sell, and homeowners can change their mind and many are prone to hype.
Housing bubble is when people believe price of housing will continue rising way ahead of inflation, and start buying houses not to live in, but to resell later. Once some bad news break that belief, they all start selling those extra houses, and that can make the price crash.
Well, in a very simple example: if you sell your house you are “homeless” in order to have a place to live you are now in the market for a high-priced house. So, just because you sold your house for big bucks, doesn’t mean that you are suddenly rich, you just gotta spend all that money on a new house.
The laws of supply and demand are economics 101 and not a law of physics that applies to every situation. Prices can be “sticky” for several reasons. For example I don’t want to sell my home because i love it and love my neighbors and want to die here. I don’t really care whether the housing market is doing well I’ll never sell it. Another example would be housing construction, why not just build more houses? except once you decide to build the price of things like lumber and cement skyrocket, then it takes along time to build a house by the time it’s finished the housing price might have gone down and you’ve lost money. Just because prices are surging in NYC and San Francisco doesn’t mean they are all over the country either. There are so many abandoned houses in cities like Detroit and Cleveland that the government is just bulldozing entire neighborhoods and letting them return to grass,
The lack of supply was caused by reasons that aren’t driven by money… the bottleneck was with seniors/boomers not making the step toward retirement housing. They didn’t want people bringing COVID into their home; they didn’t want to travel to shop for retirement home in FL or AZ; their adult kids living alone in apartments moved back home to ride out pandemic; plans to enter assisted living facilities were delayed.
No family homes for sale, no homes for owners of starter homes to step up. That means no starter homes hitting the market. No homes for first time buyers.
That would absolutely be true, if investment was the only reason to own a home. But real estate isn’t commodity trading. These are people’s homes. There are more considerations to selling your home than just price. If you buy a gallon of milk today, and tomorrow find out that milk ha doubled in price, you aren’t going to go out and sell your milk. You bought it so you can drink it.
Anyway, the problem with the housing market right now isn’t that people aren’t selling, but that a few buyers, such as the company Blackrock, are buying every house that goes on the market for far more than asking price. That allows them to rent that house out, making a profit in the long-term. They’re doing that because rent prices are so high. And rent is so high because no one can buy a house. It’s a vicious cycle.
Selling your house is all fine and dandy if you’re wanting/willing to move and can find a place you’ll be able to afford after selling your home that won’t end up costing you more money than you’re already paying.
Like, i could probably sell my home for more than i paid for it. That would be good, I’d make a profit. Ok, i paid off my mortgage and have a bit of cash in my bank account, but now what? I’m homeless, so now i have to find someplace to live. What are the chances i can find a house, preferably comparable to the house i just sold, that is going to cost me less per month than my old mortgage payment? It also needs to be in an area i want to live in, i certainly don’t want to move farther away from where i work.
On top of finding a new place to live, that’s going to cost me the same or preferably less than i was already paying, i have to go through the hassle of moving. I’m going to have to take some time off of work so that i can pack my house up and then rent a moving truck and move everything to the new house and unpack everything. And that’s just a hassle i don’t want to do.
Now, if i could sell my current home for enough to pay off my current mortgage and after paying it off i make enough of a profit off the sale to outright buy a new house, that would be something to consider doing. I could take all of that profit and invest it, more likely than not making more money in interest than i would be paying for a new mortgage, and come out ahead in the end. But there’s just no guarantee that that would happen. I’m not likely to find a house like i have, where i want to live, that’s going to cost me less than I’m already paying.
Making a small profit is good, but only if doing so isn’t going to cost you more money then you made in the longterm.
Complicatedly.
How many people are born. How good of a job they can get. How loose banks are with loans. How loose the politicians are with banks. How good other investments are doing. How many houses people build. How much mayors want to attract new people and how hard they make it to build houses. How much homeowners want neighbors / high-rises / mixed housing / projects and how much influence they have over the mayor. The price of lumber. The price of of labor. The price of lumber labor. The price of specialized blue-collar jobs. The influence of unions on the blue-collar labor. How may blue-collar labor skillsets we train up. How many choose instead to go to college or the military or whatever. The Fed interest rate. The bank interest rate. How racist the bankers are and the racial composition of the place you’re trying to get a loan in.
>However, wouldn’t the high prices attract more people to sell? Is everyone just holding their houses hoping prices go even higher?
Not really. Most people live in their house. Selling means they have to… buy another house. Very few people sell their house for major profit and then choose to go live in an apartment. That’s really only an option for the elderly.
The last big crash was largely due to banks handing out adjustable rate mortgages like they were candy. They didn’t do proper background and credit checks. When the rates adjusted up a large percentage of borrowers couldn’t make payments.
Next, this spiraled because the stock market was full of what we’re basically bundles of mortgages, a historically safe investment. These mortgages were bundled in such a way that single digit percentages of them defaulting caused a massive crash. Now the markets gone to hell, people are losing their jobs and investments, further defaults on mortgages. And we had a crash.
Today prices are high because with COVID we had millions of people stuck at home, the nearby amenities were all closed, restaurants, bars, etc. So a huge number of people were looking to move. Interest rates were at historic lows and it was a great time to take out a new mortgage. So we have two big factors contributing to the high demand for homes.
With mortgage rates going back up and restrictions lifting we should see a slowing.
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