The growth of the U.S. economy has been fueled by several factors, one of which is the housing market. This is marked by rising prices, mortgage rates, and the construction of new houses. These indicators suggest that the housing market is strong and healthy, but the negative effects of these trends should not be overlooked.
Home buyers in search of the perfect blend of quality and affordability have to deal with a lack of inventory that comes from periods of increased home sales. The Wall Street Journal writer Laura Kusisto looks at Minneapolis as a microcosm of the U.S. housing market. She notes that inventory in and around the city dropped by 25 percent from the year prior while the median price rose 7.6 percent to $223,000. Strong job growth in these cities has created a need for “starter” homes on the lower end of the housing price range. The tightening of inventory and the rise in prices has created a mismatch that puts home-buyers in a tough situation. According to The Wall Street Journal, “In Minneapolis, 32% of online searches are for starter homes but 21% of the inventory is in the appropriate price range, according to real-estate tracker Trulia.” In other words, home buyers are searching for affordability, but much of the available inventory falls in the “luxury” category. People are being forced to pay a premium and some are even dishing out full-cash offers to win their deed in the competitive market. Mortgage company Freddie Mac predicts that home sales will decline by about 100,000 this year due to decreased inventory. The mortgage company notes, “When many buyers come to the market in the spring, affordability is going to be a real challenge.” The increased demand for homes may also be attributed to the influx of younger Americans to growing cities like Minneapolis.
If you are in search of a new home you may want to think outside the box and avoid these “growth cities” or be forced to pay a premium for scarce inventory, or at least be wary of what exactly you are paying for and don’t forget to consider all available housing options. In the meantime, consumers can have some confidence in the fact that home prices, home-buyers, and incomes are on the rise as they are signs of an improving economy.
Read more from The Wall Street Journal.