4 Reasons Why Home Prices are Getting Higher
Many of potential home buyers were told that home prices are getting higher since there are too many people and not enough houses. While this is true, another reason why house prices are so high because of the banks that make hundreds of dollars each years before the financial crisis.
“Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.” John Kenneth Galbraith
Banks Created Thousands of Dollars and Put it Into Property:
In the last ten years to the beginning of the financial crisis, home prices doubled, even tripled. There are so many potential home buyers who think this is since there were not enough sell-able homes around there. However, this is not true always. A big reason behind this rise was that banks possess the authority to create money every time they issue a loan. Hence, during the financial crisis, the amount of dollars bank created through mortgage lending more than quadrupled. This lending was the big reason for the huge increase in home prices.
House Price Increases More Than Wages:
The reality is house prices increase much quicker than the wages. As a result, buying a home becomes difficult for a regular home buyer. People are giving up their hope to buy houses simply because of their inability to pay for a new home. Moreover, a potential home buyer is not the one who is going through this crisis; rents for houses go up as well. This increase in home prices also led to an over-increase in the amount of money that first time home buyers spent on paying mortgage loans. As a result, the percentage of take home salary that the first time buyer would spend on paying the mortgage loans has also risen.
Low Interest Rate:
It’s an unfavorable time to buy a home since the interest rates are low. Normally, house prices rise as interest rates decreases and house prices will fall if the rate of interest is higher, without any significance job increase. It is always better to pay a low price when interest rates are high than paying high price with a low interest rate, even if the mortgage payment behaves the same either way.
House Price Bubble is Not Beneficial:
As the property price bubbles, the related behavior associated with it tend to cause financial crisis. This will lead to higher unemployment rate and higher government debt. High home price also acts as a mechanism for transferring wealth from a young potential home buyer to the old well established home buyers. Even people with housing cannot make much benefit when house prices are high.