Economic Storm That Has Halted Real Estate Industry

Household debt in US is so high that it has now surpassed 2008 peak. On the other hand, there has been severe shortage of home inventory, and home owners do not seem to sell their homes if we look at the general scenario.

So, what is really going on?

The current situation is like an economic storm which is forcing the home owners to stick with their homes and sidelining the first-time homebuyers. While the long homeownership may not look very daunting but it has huge impact on the real estate industry in general.

The factors which are creating and developing this scenario are as follows.

Higher debts

The American household debts reached an all-time high of$12.73 trillion according to a report that was released in March. This debt is even higher as compared to the one calculated in 2008; i.e. $12.68 trillion.

Nevertheless, a bigger part of this debt is composed of student loans and auto loans. Household debt is the smaller part in this scenario. Another problem which is transforming into a bigger issue is credit card debt which is $1 trillion.

Talking about higher student debt, it is causing issue in real estate because millennial group because it prevents younger people from becoming homeowners. The situation makes it difficult for such prospective homeowners to save money for down payment and qualify for mortgage loans.

Homes are not being sold

The average tenure of homeowners is 8.5 years. This average is quite higher than of 2008, which was 3.5 years.

With this situation going on, it can be easily realized that moving is actually beneficial for the real estate and economy in general. In the real estate industry, lenders, real estate agents, appraisers, home inspectors and furniture retailers get benefits when houses are sold and people move.

The trend of staying put starts with the real estate crashes when homeowners do not find it easy to pay off the mortgages. Bad job prospects in the other areas also fuel the situation as homeowners then prefer staying in their current homes.

Furthermore, the soaring home prices and interest rates also make it difficult for the homeowners to see any benefit in trading their current homes for the new ones.

And the people, who are doing well financially, do not sell their starter homes when they move. They keep those homes as rentals. Surely the time could be good for landlords but not for the real estate industry because people would not be able to buy affordable houses.

Imbalanced inventory

Another trend in home building is that the builders are more interested in building the luxury homes rather the starter homes, obviously because of higher profit margin. As a result, general affordability is affected because people usually look for starter homes.