So you’ve heard us say about 1,000,000 times that industry is low. And you’ve seen or heard this in your Morning Brew, on the nightly news or even throughout the neighborhood. But why?
While there is not one simple answer, there are a few large contributing factors that we find highly impactful.
Rising lumber costs
Lumber costs have been on the rise for the last few years. The global pandemic contributed to a shortage in lumber, pushing prices up even more. To put things in perspective, according to one Fortune article, the price of lumber is up 188% since the start of the pandemic. In the residential real estate world, that means higher prices for new construction homes. When new construction costs increase, additional demand is placed on existing homes in certain locations or price points in which new homes are not being built.
Historically low interest rates
“But I thought interest rates were rising,” you may be thinking. In the short term, yes, we’re seeing some increases in interest rates. If you compare this, however, to longer term trends, borrowing money via a mortgage is still extremely affordable. Even just 10 years ago in 2001, the annual average interest rate on a 30-year mortgage was 4.45%, according to Freddie Mac. In the most recent month of March, the average rate for the same loan type was 3.08%, according to the same source. Low interest rates attract new buyers to the market and keeps real estate an attractive investing option for many as well. Higher demand from buyers creates more competition among the inventory that is available.
Real estate investors
The midwest has also been an attractive place for investors to acquire real estate over the last few years due to the affordable cost of entry relative to other real estate markets (consider the coasts). When investors buy-and-hold rental properties, it removes homes from the marketplace that may have once been available to owner occupant buyers.
Changes in generational behavior
Millennials, for example, have finally decided to enter the housing market. We’re also seeing more scenarios of multi-generational living due to the pandemic – for instance, adult children moving back home from college or starter jobs. This has caused home owners to stay put who may have otherwise considered selling – down-sizing, snow-birding, etc.
While this is not a fully comprehensive list, they are some of the larger factor we believe is creating the housing shortage and forcing appreciation among our local real estate market.