In cities across the country, homes sold well above list value. Homeowners have seen their properties valued and first-time buyers may feel like they are left out of the market. In May of this year, the average home sales price hit an all-time high.
The Des Moines metropolitan area and other Iowa cities are no exception to this trend.
The country “had a strong market pre-pandemic,” said Tracy Turner, associate professor of finance at Iowa State University’s Ivy College of Business. “And then conditions during the pandemic, combined with low interest rates combined with some other supply-side factors, including some sort of low inventory in most places across the country, helped boost house prices.”
Turner’s primary focus is residential real estate markets, home ownership, and housing market behavior. She spoke to Ben Kieffer on River to River about these housing trends and made predictions about what to expect in the future, especially in Iowa.
Why is buying a house so expensive now?
As Daniel Wheaton reported in March, the pandemic has slowed housing construction even though the country’s largest generation has started buying houses. In addition to labor shortages and delivery bottlenecks, the cost of building materials has also risen.
But now that some of these issues have started to resolve – for example, the once exorbitant price of lumber has started to fall – home prices may begin to level out. However, to what extent these bottlenecks and other factors will continue to affect the market is unclear.
“This wood problem is really caused by house price inflation,” she said. “This demand (for living space) is fueling the new building. We’ll see in the coming months when the new data comes out how much this is driving prices up in the Des Moines area. “
And Turner notes that the Midwest is a builder-friendly region.
“Housing markets are really local and depend on both geographic expansion capability and regulatory restrictions,” said Turner. “And we see that in cities like Des Moines, Kansas City, Minneapolis.”
How does this affect the rental market?
These trends affect not only buyers and sellers, but also tenants in the community.
“At some point, you have a group of tenants and a group of owners in one location,” said Turner. “And if there is population growth and this new population cannot easily get hold of property, then that population growth will put pressure on the rental markets and we will see high rents or rising rents.”
Luxury apartment rents in densely populated areas like New York, an epicenter for the spread of the coronavirus, plummeted as people who work from home and could afford luxury urban apartments moved out and started buying houses. Some landlords even went so far as to offer months of free rent when people left town. Meanwhile, rents for lower-income housing across the country stayed the same or even rose along with the unemployment rate. Middle-income tenants who have lost their jobs have increased the demand for cheaper rents.
With some being pushed out of the market and others rising their rents, black Americans and people of color are disproportionately affected.
“We know from historical factors that there are a number of reasons for this,” said Turner. “But what we do know is that minority groups in the US have much lower home ownership rates and I think that is an obstacle. So, if you did not grow up in an owning family, this could be an obstacle for you. You don’t have the learning or support factor of home-owning parents to buy their own … that is, I would say, made worse by a situation where you have really hot markets. “
Looking ahead, some Americans may fear a housing crisis, similar to what happened in 2008 when the housing bubble burst as part of the larger financial crisis. Economists have found that mortgage loan standards are stricter than they were in 2008.
And Turner said a similar bust is unlikely. Turner said she believes home prices will stabilize as more inventory becomes available “within a year.” “The rate of inflation is typical, but we should see this kind of multi-bidders turmoil on a property that should slow down,” she said.
You can hear the entire conversation between Turner and Kieffer on River to River.