The housing crises that began in 2007, was caused by an actual oversupply of inventory and lofty prices that didn’t reflect the true value of the market. Houses that were selling for $350,000, looked like they should have been going for $200,000 but speculation and easy loans drove the prices very far away from sanity. It was only a matter of time before it all crashed.
Back then rents were relatively low compared to housing prices as renters were harder to come by with so many moving into homes. It was actually smarter to rent than to buy at the time.
Houses once again look like prices are getting lofty, but rents have also increased at astonishing rates. The problem now isn’t too much inventory or easy money. The problem is now lack of inventory.
A rent.com study in 2015 predicted that rental rates would increase 8% in 2016 and so far they are on track. Housing prices rose 17% in the three years preceding the end of 2015. While some predictions are only for a 3% increase in 2016, some markets have been seeing double digit appreciation year over year. The lack of inventory is the aftermath of home builders exiting the market in dramatic fashion during the recession. Due to a lack of jobs, many construction workers moved into different careers and many illegal aliens that worked in the industry returned to Mexico. Ramping up is now problematic for home builders that can’t find a labor force.
The biggest issue is now that both rents and home ownership prices are easily outstripping incomes. With the average family income having fallen from about $57,000 before the recession to $53,000 now, both rents and purchases are taking a much larger chunk out of family incomes. Affordability in housing is now reducing the purchasing power of average Americans.
When demand is high supply will do whatever it can to catch up. Much of the problem on the supply side is in the time to ramp and build while more and more Americans come to age and family status of wanting to purchase a home. It is very doubtful that supply can be ramped up quickly enough before 2019 at this point.
So it seems that housing prices will continue to increase and price more and more people out of the market. It could also mean that home prices must eventually decline with so few able to afford them, but the constant increase in rent prices will keep pushing people toward ownership. The average American is now getting squeezed on both sides and any eventual end to it is not in immediate sight.
There is no immediate solution here, but once again housing is creating problems and once again it is the average working American that is paying for it.
Lina Martinez is contributor to zenruption’s life and money sections. She would love to buy a house someday but right now is just happy to have affordable rent. Considering how little writers make, she is planning on renting forever.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license