The real estate market has gone through many ups and downs and shifts over the last few years, and one issue these changes have highlighted is affordability. With rising housing prices and stagnant wages, many people are finding it increasingly difficult to buy or rent a home.
In this article, we will take a look at the current state of the real estate market, the factors that are driving the affordability crisis and possible solutions.
What is the Affordability Crisis in Real Estate?
The affordability crisis in real estate refers to the situation where the cost of housing has become so high that a significant portion of the population is unable to afford it. This is due to a combination of rising home prices and stagnant wages, which have resulted in a widening gap between the cost of housing and people’s ability to pay for it. Under normal circumstances, housing should be about ⅓ of someone’s income, but that’s not the reality for millions of people.
Why is the Affordability Crisis Happening?
There are several factors that are driving the affordability crisis in real estate, including:
Supply and Demand
The demand for housing has been growing faster than the supply, which has resulted in a housing shortage. The real issue isn’t the growth in the demand though, it’s that there’s a huge imbalance between the households being started and the houses available. Unfortunately, even with new constructions, the supply just can’t catch up with how many people need a roof over their heads.
Limited Housing Inventory
The number of homes available for sale has been limited, which has further fueled the rise in prices. We have gone from a market where sellers wanted to sell because of the sharp rise in home values, to a market where sellers would rather hold onto their homes because of the cost, meaning there’s less on the market.
Financial Education (or lack thereof)
Teaching people the fundamentals of personal finance is an important piece of setting people up to become homeowners. There’s a lot of important financial information that people just aren’t aware of. People don’t know the options that are available to them, and how to prepare for the process of buying a home, even if it’s something they’re planning to do in the future. People aren’t aware of different options and concessions they have to buy a home so that it costs less. People aren’t aware of the information that needs to be stacked up to qualify for a home loan. They don’t know how to line up homeowners insurance vs home warranty, and how to avoid a coverage gap that could ruin them financially.
Many homebuyers aren’t aware of the coverage gap until it’s too late. In order to keep your home running smoothly at all times, this is something you have to be aware of before you sign on the dotted line. When people are fully informed and educated, they are set up for success to afford what comes with buying and owning a home.
Rising Interest Rates
In the last 12 months, interest rates have nearly doubled. It’s natural that it feels even harder for buyers to wrap their heads around a much higher monthly payment. This is leading to more people deciding to rent for longer. Under normal circumstances, buying works out to be cheaper than renting, but that’s not the case not right now.
The Impact of the Affordability Crisis
The affordability crisis in real estate is having a major impact on many people’s lives. Some of the key impacts include:
- Increased homelessness: With rising housing prices and limited options, many people are unable to find affordable housing and are becoming homeless.
- Increased burden on renters: Renters are facing skyrocketing rents, making it more difficult for them to afford basic necessities like food and healthcare.
- Lower home ownership rates: With the high cost of housing, fewer people are able to buy homes, leading to a decrease in home ownership rates.
- Increased debt: Many people are taking on debt to pay for housing, which can have long-term financial consequences.
Conclusion
The affordability crisis in real estate is a major issue that is affecting many people’s lives. The factors driving the crisis are complex and include rising home prices, limited housing inventory, rising interest rates, and stagnant wages. To address the affordability crisis, it is important to implement policies that promote affordable housing options and increase access to homeownership. This may include investing in affordable housing developments, rent control legislation, providing tax incentives for home buyers, and increasing wages for workers. Only by working together can we address the affordability crisis and ensure that everyone has access to safe, affordable housing.