Home Affordability: Get your Grubby Mitts off my American Dream
The Truth About Home Affordability
Why have homes gotten so expensive? In the realm of the American Dream, owning a home stands as a quintessential emblem. We purchased our current home for one fifth of its current value and the home my mom purchased when I was in High School has increased ten times in value. Doesn’t seem like wages have increased ten times since then.
Let’s take a dive into the real reasons homes have increased in value so quickly and debunk the lie you might be hearing about home affordability.
Home Economics: Supply and Demand
Homes are a great example of supply and demand. Their value is determined by what a “ready, willing and able” buyer will pay for the home – Demand. If there are a lot of buyers in the market, the demand is high. Supply would be the number of home availability for sale in that market. Simple, right? If a buyer is willing to pay $650,000 for a home, that’s its value. But there are many factors that come into play that affect affordability of housing.
One of which is what new home builders are offering homes for. After all, if you can purchase a brand new, 2,500 sq foot home for $500,000, you wouldn’t spend $650,000 on an existing home. This makes the price of new homes a major factor of affordability.
Unraveling The Price Factors
The Influence of New Construction:
The cost of new homes plays a significant role in overall market affordability. With new 2,500 sq foot homes fetching $500,000, why would one opt for an older property at a higher price? Yet, the price of new construction has skyrocketed, driven by escalating land and water costs, alongside increasingly stringent building codes imposed by local governments. While these regulations aim to enhance efficiency and safety, they inadvertently elevate construction costs.
The Burden of Taxes and Insurance:
A steep rise in property taxes and insurance premiums has further compounded the affordability crisis. It’s disheartening to see long-standing residents, mortgage-free yet, being financially ousted from their homes due solely to onerous property taxes.
Policies and Paradoxes:
The irony doesn’t escape me when the very officials who champion “home affordability” are the architects of policies that exacerbate the affordability gap. The discourse around interest rates, set by federal entities, adds another layer to this complex scenario. Moreover, the absence of affordable housing options within communities forces workers into lengthy commutes, exacerbating traffic woes and environmental pollution.
Home Affordability
A recent article proposed that restructuring real estate commissions could herald a new dawn of home affordability. This suggestion, however, overlooks the core mechanics of home pricing. Consider a scenario where three identical homes in a neighborhood each sell for $650,000 through full-service realty firms. Opting to sell independently, would you list your home below market value or aim for a profit maximization? The market dictates that $650,000 remains the equitable price, regardless of the commission saved. This shows real estate commissions affect seller proceeds, but not affordability for home buyers.
Seeking Solutions in Complexity
The notion that reducing real estate commissions or tweaking interest rates will singularly rectify the affordability crisis is overly simplistic. True progress lies in addressing the multifaceted drivers of high housing costs: from regulatory frameworks and tax policies to insurance premiums. As we ponder the path forward, let’s engage in informed discussions and advocate for comprehensive policy reforms that genuinely aim to make the American Dream accessible once again.
Let this post be a catalyst for change, encouraging readers to delve deeper into the intricacies of housing affordability and to actively participate in the discourse surrounding it. Together, we can unravel the complexities and work towards solutions that ensure home ownership remains a core component of the American Dream for generations to come.
Written by Nathan Weinland, leader of the Weinland Team at RE/MAX Alliance
Phone: (970) 690-4088
Email: Sales@TheWeinlandTeam.com
Written by fortcollinsexperience
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