Buyers Discouraged, No Longer Incentivized, By High Home Prices

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Home prices continue to trend upwards leaving buyers with few options and even fewer affordable ones

March 23, 2016

The issues of supply and affordability are working in tandem like Lethal Weapon’s Riggs and Murtaugh to provide a devastating blow to many would-be homebuyers; not only are there very few houses for buyers to choose from, but many can’t even afford the options available to them. It makes sense, then, that the share of current renters who say now is a good time to buy dropped in the most recent quarter.

As MarketWatch reports, home sales in February dropped 7.1 percent and are at their lowest pace since November. And with supply still low, prices are going to continue to grow. The more expensive homes become, the more likely it is that these prices will cripple the market.

It's entirely possible February’s decline is related to other causes such as poor weather, as February is typically a pretty slow month for home sales, but the supply and affordability problem cannot be overlooked.

What's currently happening with high prices stands in contrast to just under a decade ago, when high home prices enticed buyers instead of driving them away. Seeing prices rise made more individuals want to get in on the action themselves. It is similar to how people invest in gold; as the price per ounce continues to rise, people see this and can’t help but visualize all the money they are missing out on by not having any skin in the game.

After the housing bubble burst, however, that mentality of investing in property and expecting future price growth seems to have been replaced with one of a more cautious disposition. Homeowners have become less confident about the value of equity in their homes and are not as quick to cash out in order to finance other spending. Which, in turn, leads to many homeowners not completely realizing how much their homes could get on the market and, therefore, not listing them and hurting supply even further.

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