Why Are Home Prices Rising?

January 22, 2020
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Homebuyer demand is growing, but high price tags are shutting out some potential homeowners. And it is unlikely to get any better for buyers anytime soon. Due to the housing shortage, buyers are facing a tough market in two ways: One, the low inventory is pushing prices sky high. Two, even if they can afford a home, sometimes the ones that would fit their budget and preferences are not in their area. Builders are picking up pace to meet the current demand, but it is going to be an uphill battle. Still cautious because of the Great Recession, they don’t want to ramp up construction too quickly, and many found it more profitable to focus on multifamily or luxury sectors, especially with the labor shortage. The industry is gaining interest in building more affordable single-family, but it could take years to bridge the inventory gap. 

For years, home prices have been climbing to record highs in much of the country. That has sidelined many aspiring homeowners and taken a toll on the budgets of those stretching to make it work. The reason? There simply aren't enough homes to meet the demand, pushing prices up to the heavens.

One of the biggest culprits of the housing shortage is the severe shortfall in new construction. Builders simply aren't putting up enough homes to come anywhere close to satisfying the hordes of buyers—a problem expected to get a little better this year even as more buyers enter the market, according to the National Association of Home Builders. But it still likely won't be enough to meet demand.

“We’ve had multiple years of low housing production," says Robert Dietz, chief economist of the NAHB. "That's the reason we've got this housing deficit."

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