- calendar_month March 7, 2023
8 Reasons Why We Won’t See Home Prices Dropping Anytime Soon
Current Real Estate, Industry, RE News February 24, 2023February 24, 2023 JohnHart Real Estate
If you’re looking forward to home prices dropping in the near future, you may want to read this. Our CEO, founder, and principal broker Harout Keuroghlian recently made clear his belief that we’re not going to be seeing home prices reduced by much, if any, in the foreseeable future. And when Harout has a “belief”, you can count on it being more of an educated guess. His track record of accuracy speaks for itself. But beyond that, he’s also been in this industry through some dizzying highs and nauseating lows.
An Abundance of Equity is Keeping Home Prices High
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Depending on your personal situation, you may find it difficult to believe that there is currently an abundance of equity. But in the United States alone, we’re not just looking at billions in equity. We’re looking at trillions. According to the Federal Reserve, $27.8 trillion to be specific. In fact, homeowners have so much equity that banks are beginning to extend equity lines of credit. Naturally, homeowners are reluctant to give up that kind of security.
It’s More Affordable to Pay Mortgage Than Rent
Rents are soaring pretty much everywhere you look. In many cases, they’re even outpacing mortgage payments. Who wants to put their home on the market when ownership is more affordable than leasing?
So, yet another reason you won’t see home prices dropping is because mortgages are currently easier to pay than rents in many cases. This not only means homeowners are staying put. It means renters are becoming more desperate to become homeowners.
Gig Economy is Making It Easier to Make Ends Meet
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Not so long ago, when you needed extra income, you might have had to apply for a second scheduled job. Demand for supplemental income hasn’t changed much. But the way we get it has.
The rise of gig economy has made it easier, though not any less exhausting, to make mortgage payments without skipping a beat. Coming up short on that mortgage payment? Pick up a couple Saturday shifts driving for Uber and you’re golden.
Contextually Low Interest Rates Keep Home Prices from Dropping
You may think interest rates are currently high. But if so, you’re not paying attention to the larger picture. If you look back over the decades, it becomes clear that interest rates are historically low. And as you probably realize, low interest rates mean high prices. Even our veteran agents would struggle trying to persuade someone to give up their 30-year mortgage at a fixed rate of 2.5 percent!
Much Ado About ADUs
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Due to the urgent need for housing in California, adding an accessory dwelling unit (ADU) is easier than it’s ever been. We discussed ADUs at great length in a recent blog, but they basically provide another means of supplemental income. By renting out an authorized ADU, property owners make it easier to meet the demands of their mortgages.
Home Offices Increase Home Demand
Even as Amazon requests that its workforce return to the office, we still see plenty of people working from home post-pandemic. This is particularly obvious in the commercial real estate sector where we’ve seen pricing for office space fall. For a lot of smaller businesses, allowing employees to continue working from home is more cost-effective.
Suddenly, a fraction of the workforce doesn’t just have a home. They have a place of business they need to maintain. And that’s just another reason why we won’t see home prices dropping in the near future. Those permanently working from home now have twice the incentive to hold onto that property.
Photo credit: Envato
Construction Continues to Be Unable to Meet Demand
Another reason that we won’t see home prices dropping soon is because of simple supply and demand. It’s easy to play the blame game and point fingers, but that’s not why we’re here. The fact remains that during the pandemic, supply chain issues disrupted construction. We still haven’t recovered from that. And with the conflict in Ukraine continuing indefinitely, we’re likely to continue seeing problems with the supply chain.
Generational Growing Pains
Right now, the millennial generation is actively looking for housing. It seemed like they were content to rent for the duration of their lives. But the pandemic instilled in them the desire for a stable, reliable home.
Unfortunately for them, the preceding generations have historically had greater wealth. And they’re the ones currently in the available homes. Baby Boomers are holding onto these properties for the long haul. And Generation X are looking at their recent purchases as the place they’ll retire. This has effectively blocked the next generation of homeownership.
Photo credit: Envato
Don’t Let the Current Climate Paralyze You
These are just some of the reasons Harout doesn’t see home prices dropping in our immediate future. And it could be some time before this diversity of issues is untangled enough for real strides forward. So, if you’re waiting for housing prices to plummet, you’d do well not to hold your breath.
Better yet, if your current situation isn’t all that you want it to be, don’t let the current climate discourage you from moving forward. Our team of talented real estate professionals would be happy to get you started with a free home evaluation if you’re looking to sell. Or, if you want to see what else is out there, they can help you find the perfect home for your price point.
