In the last year alone, “the real estate prices have increased by a whopping 11.3%”, according to Norada. This year, the increase in real estate prices has been marked at 16.9%. It’s currently unknown whether or not the real estate prices will continue increasing or if the percentage will drop at least a bit.
Since it’s becoming harder and harder for potential house buyers to purchase a home in the United States of America, we have decided to explore this topic. Hopefully, we will find the exact reason why this is happening and will the prices drop anytime soon.
Covid-19 is the main reason for prices increasing
Believe it or not, the ongoing global pandemic is the main reason why real estate prices have skyrocketed to previously unreached heights. That’s true for several reasons:
- Work has been either delayed or stopped for a while – Due to lockdowns all across the country, work had seemingly stopped or was significantly delayed. While everything is going back to normal as of November 2021 and is not heading towards another lockdown, the consequences are still present.
- People are leaving big cities, but more are still coming – A lot of people have left major cities such as New York City, Houston, and Los Angeles for the countryside due to the pandemic. Despite that, the demand for housing in the US has been increasing.
To keep up with the increase in rent prices, people have been taking bank loans more often than not. The low interest rate can help them out with that, but it doesn’t change the fact that the prices have skyrocketed.
Some people have even decided to rely on reverse mortgages to acquire money for their homes. How a reverse mortgage works is that it allows a homeowner to borrow money from their equity without having to worry about monthly mortgage payments.
How are reverse mortgages relevant to real estate nowadays?
Real estate prices have become as high as $733,289 on average. In 2019, for example, the average NYC home was listed at $617.250. This $116.000 increase in only two years has been hard on the pockets of people looking to purchase a new home.
As a matter of fact, not everyone can afford a home in the US nowadays, which forces them to rely on loans or reverse mortgages.
However, only people who are 62 years of age or older can apply for a reverse mortgage. They can earn anywhere from 40-60% of their property’s appraised value, and the older they are, the more money they can receive. Most people use this money to purchase another property instead of relying on bank loans.
Only wealthy people like some of the richest NBA players aren’t affected by the real estate price increase. Middle-class people are still struggling to find financial means to purchase a home for themselves and their families, which can turn into a big problem if it isn’t sorted out.
High real estate prices can turn the nation into a nation of renters
Unsurprisingly, people in the USA can become a nation of renters sooner than anyone thought. While the demand for housing in the USA is still impeccably high, most people are reluctant to purchase homes for several reasons:
- The prices are simply not worth it – With the massive increases in prices, some people believe that buying a home isn’t worth it these days. It might not seem like a lot to some, but an additional $116.000 compared to 2019, for instance, is quite hard for most.
- They are waiting for the prices to normalize again – Some people, on the other hand, are waiting for the prices to drop to those from 2019. Sadly, we don’t believe that this will happen anytime soon.
To keep up with the increasing real estate prices, people are renting instead of purchasing in 2021. The number of people who are entirely against buying a home/apartment is growing more and more, and this is not going to change anytime soon.
To make things worse, according to Norada, “house price growth will be around 7% in 2022”. The chances of real estate prices getting lower are slimmer than ever before.
Conclusion
The pandemic’s influence on real estate prices is indeed newsworthy. We believe that not enough people in the USA are aware that housing prices will probably never be the same again. Their options are – bank loans, reverse mortgages, or renting. None are ideal, but sometimes they are a must.
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