6 Reasons Housing Market Prices Fall and Cause Money Pain

Historically, the housing market has not been affected much by price variations compared to other popular assets people own. This phenomenon could be mainly due to the nature of the transaction – enormous costs with purchasing a home, holding, and maintenance costs.

Increase In Interest Rates

Interest rates are critical to the housing market since when interest rates increase, there will be an increase in consumers’ total monthly mortgage payments.

Economic Recession

Recessions can lead to an increase in unemployment and lower household income. In recessionary environments, home buyers and real investor investors tend to be defensive, lacking the certainty required for a significant investment like a house purchase.

Lending Criteria Tightening

The housing market liquidity is quite sensitive to the changes in credit conditions. Banks are now unwilling to lend with low-interest rates, which will tighten their lending criteria tremendously.

Taxes Rise

A small change levied on stamp duty, or any other forms of taxes set on homes can increase the cost of houses. An increase in taxes can suppress the housing market, making purchases more expensive, and for investors with an existing real estate portfolio, increased taxes can be even more burdensome.

When New Segments Of People Become Homeowners

With the aging baby boomers, US senior citizens and millennial homeowners are growing daily. As these segments achieve financial independence, they will outrun the baby boomer generation.

The Average Wage Earned Is Less Than Rental Incomes

Rental income from houses has increased by 8.6% YOY since 1980, outpacing both wage growth and inflation. But today’s inflation is at 7% wiping down years of income growth for Americans.

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