The prices of residential properties in the United States rose by 16.9% by the end of 2021. This was quite unexpected, especially because of the pandemic’s impact in 2020.
More so, with the ripple effect on the economy, finance and real estate experts assumed that it would take at least three years for things to bounce back. On the contrary, the housing industry received a major boost with a 16.9% increase, setting the highest record since 1999. In light of this development, the discussion below highlights some factors influencing housing prices.
On the contrary, the housing industry received a major boost with a 16.9% increase, setting the highest record since 1999. In light of this development, the discussion below highlights some factors influencing housing prices.
- The monetary value of homes in a neighborhood
Usually, similar neighborhoods tend to have property prices pegged in a range. The monetary value of similar homes in a particular location plays a significant role in determining the going price. In real estate terms, it is known as comps. This is the appraisal term for selling or buying properties of the same value, structure, etc., in a specific location. House pricing is quite a complex subject due to the several factors that determine final values.
On the national scale, comps may not have much influence, especially because the determination of house prices varies from state to state. The truth is, no two comps are the same, even in one state. In other words, the deciding determinant is the neighborhood in a specific location. Therefore, if you’re planning to buy a residential property anytime soon, it would help if you conducted a thorough background study. In many instances, though, you will need a professional to estimate the home’s value.
- The rising cost of building materials and tools
The cost of building materials is impacted by importation, demand, interest rate, inflation, transportation, etc. Together, all these elements influence the final cost of houses. Over the years, the prices of houses have continued to increase. Therefore, this has contributed to the notion that global demand for building materials is a major driver for the price spike in construction materials. Additionally, contractors and architects are compelled to pay for crane hire during the building process, particularly for high-rise apartment buildings.
There have been only a few times throughout the years that the cost of some building materials reduced. For example, in September 2021, several news reports reported a decline in the price of lumber. However, experts believe the lumber bumble may not go beyond the second quarter of 2022. Indeed, these are quite rare occurrences but still do not make a major impact on the determination of how much a newly-built house should go for.
- Economic indicators
The economy and unemployment rates play significant roles in how high houses can be priced. In a robust economy, and a low unemployment rate, the cost of houses tends to spike. On the other hand, when the economy slows down with more people unemployed, it is assumed that sellers reduce their asking price to enable them to make a sale.
Although many factors account for the cost of houses, the determinants in the US vary every year. In other words, the cost of building material importations may be the main driving point in a particular period. Meanwhile, in the next year, it could be another economic indicator.
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