“What goes up has to go down” is a basic law of physics. Now the question arises whether this applies to our current real estate market. It’s a question many people ask themselves as property prices, especially single-family homes, are rising despite the uncertainties of the overall economy.
Daryl Fairweather, chief economist at Redfin, said buyers act quickly when they see a home they like in that market.
“The real estate market is really weird right now,” said Fairweather. “Almost two-thirds of homebuyers make an offer that hasn’t been seen in the past year.”
The Greater Boston Real Estate Board found that single-family home prices rose 13% over the past year. The supply, on the other hand, fell by 33% in the same period.
Fairweather said the pandemic had changed people’s relationship with their homes. “People spend more time in their homes, and that has motivated a lot of people to look for a new place to live because they want more space or live in a different area.”
This change in attitude, coupled with low interest rates, was what triggered the rise in prices. There is also concern that a housing bubble may be ready to burst.
Fairweather isn’t worried yet. “I think once the pandemic ends and things return to normal, some of that increased price hike should slow down and if it doesn’t I might be concerned.”
Keren Horn, an economics professor at UMass Boston who specializes in housing issues, said she saw some warning signs in the overvaluation of house prices. “Income and wages are not growing as fast as house prices,” she said.
As with Fairweather, Horn sees the current rise in prices in the changed way people live today. She said a chronic shortage of new housing exacerbated the problem.
“I think one of the critical red flags people are looking for is that it’s being driven by speculation, the demand for housing that is being driven by an unsustainable force that has people turning homes. and in this case I think the rise in property prices is really due to stable demand, “added Fairweather.
Both economists assume that price increases will cool off this spring.
“I think the offer will likely go back to where it was,” said Horn.
“As we get out of this pandemic and get more vaccinated, we will see an increase in new entries,” added Fairweather.
Horn said one of the worrying aspects of this price hike is how it fits into the ongoing asset gap problem. While it increases the wealth of current homeowners, it makes it difficult for first-time buyers and those of more modest means to even enter the market.
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