Will Inflation Cut Short The US Real Estate Boom?

Summary

• Although borrowings became cheaper for new homebuyers, fewer houses in the market have driven up the house prices.
• The current housing sales figures may be the highest in the US in the last 40 years, say experts.
• The younger generation accounted for 38% of home buyers.

The US real estate market has seen exponential growth in recent times, but can it sustain that momentum in the coming quarters? While investors would look to ride the current wave, the question in their minds maybe how long will this good time last? – for every rise comes a fall.

Several factors may have contributed to this pandemic-fuelled real estate boom, thanks to low mortgage rates, the work-from-home culture, and perhaps even people’s changing lifestyles.

Besides the residential housing market, the commercial segment, including healthcare, infrastructure, airports, and offices, have witnessed strong demand, particularly from the millennial population, helping to accelerate the construction activities, say experts.

Pic Credit: Pixabay.

Also Read: Planning to buy a property? Five questions to ask real estate agent

The Housing Market

Although borrowings have become cheaper for new homebuyers, fewer houses in the market have driven up their prices. Experts predict the housing market to continue to see strong growth.

Many who postponed their home-buying plans in 2020 due to the pandemic are looking to buy their homes this year. Their needs vary - some need more space for work, while others need bigger houses for their growing kids as their rooms turned into a virtual classroom due to covid.

Moreover, house-hunting has become easy as most sellers are in the digital space these days. Buyers are looking to buy properties in the suburbs, and rural areas as cities became congested. Experts say that independent homes, condos, townhomes, as well as co-ops are in high demand.

The young generation accounted for 38% of home buyers. Also, those who fall in the high-income bracket could save enough money during the pandemic to buy new homes for themselves.

Pic Credit: Pixabay.

Also Read: How to ace the real estate game in 2021? Here are few investing tips

Why Are House Prices Rising?

Currently, house prices are 10% to 40% overvalued due to high demand and low supplies, depending on the area, experts say. This increased demand has fuelled the acceleration in construction activities. The current trend is similar to the period seen before the 2008 recession, although the reasons for the housing surge are different. Furthermore, banks are more careful about their loans this time.

According to industry experts, the number of houses available for purchase is less than 4 million while the demand has been many times more. The imbalance in demand and supply will keep the prices higher, they say.

Also Read: Housing Loan Commitments reach Record High in November 2020

Places such as Denver, San Jose, Phoenix, Seattle, and Idaho have registered a real estate boom in 2021. Experts say the current housing sales figures may be the highest in the US in the last 40 years. Remodelling of existing houses is another major trend currently in the US.

Meanwhile, it is a brisk business for property developers. In the long run, though, they may face issues like procuring land promptly or high material cost that may delay their projects. Home sales and construction of new houses are likely to see robust growth this year.

Also Read: Housing Market Set to Turn Bullish as Demand Skyrockets

Infrastructure

Currently, many big-ticket infrastructure projects are underway this year. Those include an international airport in Southwest Florida, a campus for the North Arizona University, and scores of road projects.

The pandemic also has exposed many shortcomings in the healthcare infrastructure that may need to be rebuilt. The crisis also has highlighted the importance of offices that meet the safety standards to deal with health hazards. Experts estimate that the construction industry to grow by 15.6% this year.