What Causes Housing Prices to Rise in the US?

The bubble and bust cycle that impacts housing prices left a very bad taste in the mouths of homeowners during the housing collapse that began in 2007. The period was typified by an investment frenzy in the loan market. Nearly anyone who applied for a housing loan was approved. Today, banks are much more picky about who they’ll give loans to. Yet in the last few years real estate prices has climbed nearly as high as they were during the pre-bubble collapse of ‘07. What’s going on?

Supply and Demand

Interested home buyers may have noticed when going through San Diego real estate listings to find homes in their price range, that the prices for San Diego houses have gone completely out of control. The simple economic factor that has created this situation is supply and demand. There are currently more people interested in buying homes than there are homes on the market right now. Prospective home buyers are often finding themselves in bidding wars with other interested home buyers and this has driven up the value of real estate here in San Diego, and all over the country.

Employment Factors

Even as banks have become more picky about who they’re willing to extend mortgages to, the fact remains that there are a higher number of buyers here that do qualify for mortgages. That has helped to create a situation where there are a lot more interested in buyers in the market.

Employment indicators are also a key component in terms of the vitality of local market. Places like Denver have seen the value of its housing rise exponentially in the last few years. This is largely because the Denver job market has seen impressive growth during that period.

Interest Rate

Right now, and right before the housing bubble, interests rates were quite low. This created a situation that encouraged many people to enter the housing market. More people entering the housing market creates more demand, which in terms drives up the price of houses. While interest rates remain low, there is likely to be a large amount of demand.

The Bust

The housing market is dependent on a lot of other factors. Unemployment was a major problem in 2006, which caused many new homeowners to default on their mortgages. This in turn led to the devaluation of property, and that is why the housing bubble happened. The lenders bore the brunt of the problem losing millions of dollars on loans that they extended. Meanwhile, they claimed the houses and put them on the market, but no one could afford to buy them. It was the reverse of the situation we have now. Supply far outweighed demand.