For most people, buying a house is the biggest investment they will ever make. The worth of the property, therefore, is of great importance throughout the duration of the owner's dwelling because the financial return on investment will come at re-sale. Those preparing to reap that return have reason to be glad these days -- home values averaged $359,900 nationwide in June of 2021. Yet that is a snapshot of a market often buffeted by economic, cultural and, in the age of COVID-19 -- biomedical changes. Certain realities should be considered when setting expectations for the long-term values of residences.
How Many Are Seeking Homes?
Needless to say, a small pool of buyers is going to make for anxious sellers. Conversely, a robust purchasing population puts sellers in the driver seat. This measure has much to do with demographics, i.e. patterns in age, sex, migration and size of the populace. The baby boom, for instance, represents a large boost in population and a consequent higher demand for dwellings. As those babies have aged, they bought homes to raise families of their own. This same demographic is now downsizing and selling their properties, moving into more modest residences. Currently, there are more than enough people willing to buy. Other variables, though, may change this condition.
The Expense of Home Financing
Banks and finance companies make their profits by putting a price tag on the money they lend. The interest rate determines how much a borrower must pay each month for the use of the lender's funds. Depending on the mortgage amount, an institution can accrue a significant number of dollars from a borrower. If interest rates rise, the cost of borrowing does likewise, pricing some home seekers out of the market. This development results in a lowering of overall demand and forcing home values down. Rising fees will also make borrowing cost-prohibitive to more people, thereby pushing others out of home-buying contention. Analysts believe that interest rates will remain low for the near future. With less optimism, they predict that inflation will remain an agent in higher prices -- exceeding four percent -- for some time to come. Whether low interest rates will offset higher fees remains to be seen.
General Economic Health
Another good sign of continued healthy property values is the overall health of the economy. Low unemployment, strong productivity, and affordable goods and services provide a comfort level to sellers that their homes will move at desirable prices. As noted above, inflation is not expected to ebb soon, posing a challenge to sales prices. What about the job market? The U.S. Bureau of Labor Statistics expects nearly 12 million jobs to be added in the decade between 2020 and 2030. Germain to home prices is whether that growth will be steady or volatile. Productivity, defined as the ratio between output (e.g. goods and services) and inputs (e.g. labor and investment capital), has been back and forth, making predictions difficult. The COVID-19 pandemic bears some responsibility for this and how well the economy rebounds from it will influence the price of houses.
Public Policies and Government Spending
Should lawmakers decide to intervene in the economy with subsidies and tax incentives for buyers, sellers might be able to fetch the current prices for their properties. Following the financial meltdown of 2008-9, first-time home buyers were given such breaks, encouraging many to look for houses when they might otherwise have refrained. Current policy proposals under consideration seek to replicate these results and build up the volume of residential purchasing and home construction.
