US Real Estate Prices Still on the Rise in 2021

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Considering all that happened in the past 15 months, one would expect the real estate market to crash. We say that in view of the fear of recession still lingering and the record high unemployment rates[1]. Apart from the early steep decline in sales in March 2020, the real estate market is doing quite well during this pandemic.

Real Estate in November 2020:

· Home Prices grew by 15% than the previous year.

· Mortgage rates came to a lowest in decades at 2.31%.

· The inventory dunked by 22% than previous year, causing a shortage, and consequently, hiking the prices.

The inventory is very low this year. Keeping in perspective the inventory decline of 22% in November 2020, as compared to November 2019[2]. There aren’t enough houses on the market and it is driving the prices up this year too. Another shocking phenomenon was the growth of home prices by a remarkable 15% in November 2020 compared to the previous year. The prices rose the national median to more than $300,000.

Furthermore, another cause for the rise in real estate are the low mortgage interest rates. The federal reserve lowered the mortgage rates in response to the pandemic[3]. These lowered interest rates are instigating more people to buy homes, creating a rise in demand. The house prices are likely to rise throughout 2021. Additionally, experts forecast the chances of a real estate market crash are low and the market will flourish.

What Factors Drive the Property Value Up?

Naturally, home values should rise with time. However, natural disasters and recessions, like the COVID-19 pandemic, should cause the value to decrease. Then why are the property values rising in 2021?

Well, the answer is they are not rising everywhere. While some areas see a trend in hike of prices due to low supply, others are struggling to rebound. National trends can deceive a buyer from the reality of the situation. While one region’s real estate booms, there are other regions that see a bust.

Here you can see the market trends of US real estate in different regions:

You can see how the recession of 2008 effected regions differently. Apart from calamities, recessions, and natural disasters, the following factors effect property value the most:

Economy:

The economy does not directly compare to the strength of the real estate market. As can be seen in this pandemic. However, economic conditions do affect the overall buying power and the need for selling. A flourishing economy with high employment rate, job stability, and high income will definitely increase the buying power. Thus, resulting in higher land value near the business centers.

Security:

Security is the top priority for home buyers. If a neighborhood is secure, the real estate prices will be higher. Similarly, houses with home security systems, fire alarms and sprinklers, and strong windows and doors will sell for a much higher price than houses without them. A safe neighborhood with low crime rates holds high value and the prices tend to increase further in difficult times.

Supply & Demand:

Well, you must know this from your economics class. If the demand is exceeding the supply, the prices will rise. And as we discussed above, the inventory is low this year. Means there are less houses to buy on the market. This is causing the sellers to list their houses at higher than usual rates.

Slim Pickings:

Moreover, the shortage causes reduced ‘good’ options to be available to a customer. The demand list of a real estate customer is quite long, and frankly, it should be. So, now there are very few houses that meet the criteria of a ‘good house’ for buyers. This can cause the potential buyers to fight over the property, causing the price to hike even more.

Bidding Wars:

As by this example, if a bidding war breaks out between buyers, it causes the property value to increase. This higher price sale affects the value of all the comparable properties in the neighborhood positively. That is to say, that the new listings in the area will set a higher price by taking precedent of this advanced sale, driving the overall home prices in the neighborhood to increase.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes