Kovar Capital: What is going on with the housing market?

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Hey Taylor: What gives with the insane housing market? I feel like prices have been too high for three years but they just keep going up. - Erica

Hey Erica: Don’t I know it! It’s made real estate investing a huge boon for sellers and a real struggle for modest buyers. It’s also not just a U.S. issue, as England, Australia, and other countries are in the same boat.

I’ll stop short of predicting what’s going to happen, but here are some factors playing into the continued rise in housing prices.

Urban exodus. It’s a funny paradox, that the high cost of living in cities—where houses are completely unaffordable—has driven more and more people into suburbs and rural areas where they can buy a home instead of overpaying for apartments. That’s kept housing demand high even with the cost out of reach for so many. Oddly enough, the pandemic played into this and helped the housing market, as there was an even greater surge of people looking to leave the crowded cities.

Interest rates. They’re still really, really low. Borrowing has been relatively easy for half a decade, so access to mortgages has been pretty broad. Sellers know that people will take on a bigger expense when there’s a lender there to help, leaving little motivation for anyone to slow the upward pricing trend. It won’t last forever, but the threat of interest rates going back up is just another factor motivating people to buy now.

Supply-driven demand. Even with so many people being priced out of the housing market, there still aren’t very many houses out there. You might see a lot of “for sale” signs on your street, but what we’re seeing a lot less of is new-home construction. Labor and material shortages, not to mention limited land that’s open for development, means the market is heavily reliant on existing homes to meet the needs of all the buyers. Unfortunately, a huge change in the economy or even a bursting bubble won’t deliver the increase in supply that we need. It’s possible that we’ll see an economic downturn during which housing prices continue to rise, which would be a new twist.

If you’re waiting for prices to drop, you shouldn’t hold your breath. We can’t expect the prices to break records month after month, as they’ve done this summer, but we definitely didn’t reach the top of the market as some analysts predicted. Buy if you can since real estate is always a strong investment. In the meantime, if the cost is too great, invest as much as you can to keep your money growing so you’re ready to buy in the future!

Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.

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