Homeownership has long been the capstone of the American dream. But for many would-be homebuyers, rising prices are outpacing their income. This disparity only adds to the stress of the homebuying process. What does that mean for the 2022 housing market?
Record-High Prices
While it has been easy to blame the 2020 pandemic for the present housing crisis, home prices have been rising steadily for more than a decade. By some estimates, the median price for a home has risen roughly 30% since 2012. Go back even further, and you will discover that home prices have risen 118% since 1965.
Inflation, of course, is nothing new. But consider that the median American salary has only climbed by 11% in the last decade. This means that home prices have indeed grown considerably faster than many Americans can afford.
Affordability Stress
How much is too much for a home? Lenders and realtors recommend that a new home payment should not exceed 30% of your gross monthly income. But with skyrocketing prices, that’s easier said than done.
One young couple reports that the housing search has been “the most stressful six months” of their lives. “We’ve been backed into a corner,” they lament. Many young Americans are simply walking away from purchasing entirely.
Low Inventory
Part of the reason that prices are rising is that there isn’t enough supply to meet demand. Huge numbers of Americans want to buy houses, but realtors lack the inventory to meet this demand.
According to the National Association of Realtors, more than six million homes were sold in 2021. That is the highest number since 2006. Yet that is still a long way from meeting the demand.
New construction could be an option. However, housing companies generally prefer to build large homes, which don’t always make good “starter homes” for first-time buyers. And even if communities focus on building new homes, it will be a long time before new construction matches rising demand.
When Will the “Bubble” Burst?
According to Jenny Schuetz, a housing researcher at the Brookings Institution, there’s no real housing “bubble” at all. “It’s not a bubble,” she says. “It really is about supply and demand — not enough houses and huge numbers of people wanting homes.”
Unfortunately, this imbalance is unlikely to normalize anytime soon. Still, we might see developments as the older generations retire and downsize, putting more homes on the market for young families.
Additionally, the reshuffling of jobs in the wake of the pandemic will soon calm down. Once that happens, we may see salaries and consumer prices begin to realign.
Good News for Renters
If there’s a bright spot to these trends, it’s that real estate investors will have no problem finding tenants. Until housing prices finally drop, there will be continued demand for affordable apartments. This may present an investment opportunity and also provide much-needed housing for Americans who have been priced out of the market.
This article is for information, illustrative and entertainment purposes only and does not purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular investment action.
