Property prices continue to rise in the U.S. as demand outstrips supply, or at least that is indicated by rising real estate prices, which saw their largest increase since 2005, rising 13.2% from March 2020 to March 2021, according to the Case-Shiller National Home Price Index measured by Standard & Poor’s bank.
The increase is even more dramatic according to the Commerce Department, which on Tuesday confirmed that the average home price in the U.S. stood at about $372,400, up 20.1% in just one year and the largest increase since 1988.
Low interest rates, cheap loans from banks and the emergence of demand for homes among the young population are the main factors that have led housing prices to inflate to historic highs.
Before the rising prices, a new player has also arrived in the U.S. housing market: pension funds and investment firms. In fact, in some cities such as Houston, these private equity funds account for up to 24% of real estate purchases. Many investment funds and investors have turned to home purchases to shield themselves from rising inflation in the U.S. and the resulting declines in stock prices in the financial markets.
Home price growth also responds to household shortages
Rising house prices are a response to a shortage of new homes. There were about 1.07 million homes for sale in the U.S. in April, down 28.2% from the same month in 2020, according to statistics from the National Association of Realtors (NAR).
Although builders have increased the number of projects under construction, the U.S. still faces a shortfall of up to 4 million homes, so it could take years for the construction sector to catch up with demand.
Builders are also facing rising costs for construction material prices, such as lumber, whose futures market prices have tripled since April 2020.
Like lumber, construction material prices in general have pointed upward, in the month of March alone according to the Producer Price Index published by the Bureau of Labor Statistics rose by 2.4%, and overall prices have already risen by as much as 9.8% so far this year.
Rising raw material costs are not the only constraint facing the U.S. construction sector to scale up building, but also the lack of labor. In fact, nearly 72% of builders say the lack of manpower is one of the main constraints to their business.
With the $1,400 stimulus checks from President Joe Biden’s bailout plan, plus unemployment benefits, many people have been deterred from looking for work in the United States. This is evidenced by the lackluster job growth in April, where the economy generated only 266,000 new jobs relative to the expected 1 million.