Do you want to invest in property? Do you think the current market conditions are favorable for buying a house? House prices have been on the rise for a while now, and many people wonder why.
This article will discuss the main reasons why house prices are growing. We will look at both economic and demographic factors contributing to the increase in prices.
So, if you’re curious about why your home is worth more than it was last year, keep reading.
Demographics
One of the main reasons for the increase in house prices is demographics. The population is growing, and more people are moving to urban areas.
This demand for housing is pushing prices up. As seen in this guide on Auckland property markets, there are areas where the population is growing very rapidly.
This influx of people is causing prices to rise as demand outweighs supply. Additionally, the average household size is shrinking. This means that fewer people live in each home, so there is a need for more housing units.
The median age of first-home buyers is also rising. This is because more people stay in education for longer and start their careers later.
As a result, they have less money to put towards a deposit and are more likely to live in rental accommodation for longer. This pushes up prices for first-home buyers as they compete with investors and other buyers who have more money.
Interest Rates
Another reason why house prices are growing is because of interest rates. Low-interest rates make it cheaper to borrow money, so people can take out larger mortgages.
This increased demand for housing is pushing prices up. Additionally, low-interest rates mean that people are more likely to invest in property.
This is because they can get a higher return on their investment than if they put their money in a savings account.
The current interest rates are at historic lows, so we are likely to see prices continue to rise in the short term. However, it is essential to remember that interest rates will eventually start to increase. This could cause prices to fall as people can no longer afford their mortgages.
Supply and Demand
Another essential reason house prices are growing is supply and demand. The population is growing, but the number of homes available for sale is not keeping up with this demand. This means that more people compete for each property, driving prices up.
It is important to remember that the housing market is cyclical. Prices will eventually start to fall as the number of homes for sale increases.
This could be due to people downsizing, baby boomers retiring, or the economy slowing down. However, we are likely to see prices continue to rise in the short term in the current market conditions.
Government Policies/Subsidies
Government policies and subsidies are also affecting house prices. The government is trying to increase the number of first-home buyers by offering subsidies and grants. This is increasing demand for housing, which is pushing prices up.
Additionally, the government has introduced a bright-line test. This means that people who buy the property and sell it within two years will have to pay tax on their profits. This discourages people from buying property as an investment, reducing the number of properties available for sale. This then leads to prices rising as demand outweighs supply.
Economy
The economy is also affecting house prices. A strong economy means that people have more money to spend, so they are more likely to buy a home. This increased demand is pushing prices up.
Additionally, a strong economy means more people are moving to urban areas for work. This is also increasing the demand for housing and pushing prices up.
The economy is making the property market look good, and people are more likely to buy a house. For instance, in developed countries like the USA, unemployment is currently very low. This means that people have more money to spend, and they are confident about their prospects. This increased demand for housing is pushing prices up.
Mortgage Availability
Another reason why house prices are growing is because of mortgage availability. Banks are lending more money to people who want to buy a home. This is because the economy is strong, and they are confident that people will be able to repay their loans.
With the available mortgages, people can buy more expensive homes. This increased demand is pushing prices up. Additionally, people who already own a home are refinancing their mortgages and taking out equity. This means that they have more money to spend on buying another property, also driving prices up.
As we can see, there are many reasons why house prices are growing. This is due to the strong economy, population growth, and low-interest rates.
While this is good news for homeowners, it may make it difficult for first-time buyers to enter the market. However, it is still possible to purchase a home with careful planning and saving. Speak with a financial advisor to see what options are available to you.
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