The Real Estate Market: Why is this happening?

Tayler Scipior

Maybe your family is considering a move. Well prices are increasing rapidly in the real estate market currently. As home prices increase, so do homebuyers’ down payments. Due to higher prices on homes, this could possibly lead to an expansion of new houses being built. This adds to GDP (gross domestic product) and may increase a multiplier effect in local areas. Meaning “the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of capital” Higher inflation rates raise the cost of living. Inflation caused by rising demand and falling unemployment. Wages are likely to rise to keep people working. 

Paul Leonard, real estate agent of KPR Brokers LLC in Stevens Point says that last spring and summer “Many homes sold for 10-30% more than they were purchased for just a few years before.” Homes being more expensive right now is simply the supply and demand problem we are currently experiencing. From the beginning of the Covid 19 pandemic, interest rates were reduced to boost economic health and growth. Many homesellers withdrew from the market due to political and economic instability. Paul also claims that “We are currently experiencing a shortage of homes for sale in our market compared to the number of buyers actively searching.” When it comes to homes, supply is small. 

The imbalance between supply and demand is causing a major housing shortage. Which resulted from strong economic growth creating hundreds of thousands of new jobs (which increases demand for housing) to provide enough supply to meet the demand. The U.S. is short 5.24 million homes, according to recent research from “The pandemic has certainly exacerbated the U.S. housing shortage, but data shows household formations outpaced new construction long before Covid.” 

During the pandemic, housing shortage has increased but this was happening years before Covid also. But why? Why does this happen? Well, housing shortages happen because of supply and demand, the supply is unable to keep up with the demand. The market is trying to even out but in housing, a balanced market doesn’t happen just like that. If there is excessive available supply, called a glut, it takes time to sell all of those extra properties. The Covid 19 pandemic hit and caused an excessive supply, just as the 2020 spring selling season was about to start.