Bison Bud

While I understand that the interest rates on home loans are at historic lows and that this generally spurs increased sales, I don't understand why homes are selling for so much more than even just a year ago. At least in my area, the average price of a home has increased by leaps and bounds over the past two years. Many homes are selling for prices $50 to $80 thousand more than what they were accessed for just a year ago. It seems to me that the savings for the low interest rate are being consumed by the elevated pricing and yet homes are selling like crazy around here. Factor in the number of people out of work or at reduced income due to Covid 19 and I find this situation counter-intuitive to say the least. While, I'm not planning on moving anywhere, this also affects the current value of my home and the property taxes I have to pay each year and I'm not real happy about that one. Anyway, it is indeed a seller's market around here and I wonder if this is just a local situation or if others are seeing similar situations across the country. One thing for sure, the Realtors are loving it! In any case, can someone out there explain what's driving this apparent paradox to me?

cedymock Loc: Irmo, South Carolina

Driving around my little piece of the country use to see home for sale signs all over, today not so much. In July of 2020 I had communicated to my sister there were no homes for sale between our homes, when two to three months earlier there were about two dozen or more on the fifteen mile rural road.

Bubbee Loc: Aventura, Florida

Where are you?

Indi Loc: L. I., NY, Palm Beach Cty when it's cold.

City people are getting away from the a COVID hot spots. You must live in the burbs or some rural area.

47greyfox Loc: on the edge of the Colorado front range

I have a friend who is a successful realtor. His main issue is reportedly inventory.

Cubanphoto

All I can tell you is that watch for the camera prices. There might be good deals this holiday season!!!!
??????

jbmauser Loc: Roanoke, VA

It would help if you told us where in the world you are. There is a huge flight of city dwellers and from states in particular. People who can work anywhere there is good internet have taken to the hinterlands. thus impacting prices with cash from elsewhere.

Triple G

Be Watchful for the crash.

lamiaceae Loc: San Luis Obispo County, CA

First, where are you located? The situation is different where I am. The cost of living is sky high in Calif. and home prices are near the highest any where. People are leaving, not because of politics. Homes easily cost $700k.

Why? Good question.

Bison Bud

We live in the Greater Cincinnati area, actually across the river in Northern Kentucky.

lamiaceae Loc: San Luis Obispo County, CA

That is probably part of it. Now that you bring that up. I know a few people who did just that. Working from home could create a lot more freedom as to where one lives. And those that like rat races can move to the big cities.

pendennis

Here in Michigan, especially Southeast, it's a seller's market. Homes are literally being bid on by multiple buyers, and prices are going for well over the original list.

The new housing market has taken a hit, allegedly because of COVID-19, so buyers are opting for "second" choices, i.e. the used housing market.

Either because of the seller's market, or just over-supply, it's become a renter's market with regard to apartments.

DirtFarmer Loc: Escaped from the NYC area, back to MA

I'm sure this will depend on your state, but in all the states in which I've owned houses, market price changes did not seriously affect my taxes. Taxes did go up regularly but not so much in response to market prices.

The way my taxes worked is (1) the town would set a budget for the year; (2) the Assessors would determine the tax value of every taxable structure in town; (3) the town would set the tax rate by taking the total budget and dividing it by the total valuation of the town determined by the Assessors. The tax rate had to be approved by the state and some states limited any tax increases to a certain percentage.

If all the buildings increased in value by 10%, the tax rate would go down by 10% to generate the same revenue. If the budget was increased the revenue had to increase by the same amount because towns, unlike the Federal Government, have to balance their budget. (If they have to borrow, the payments have to fit into the budget although some states have different rules for borrowing). So if the budget went up but the value of the buildings didn't, the tax rate would have to go up. If the budget did not increase the taxes would remain the same. The only way your taxes would rise above any average increase would be if your house increased in value more than the average increase.

So tax increases are driven by the town budget, not necessarily by the market value of the homes (as long as market changes are uniform across the town). And the town budget usually increases because of inflation: prices go up for everything and wages go up so the only way to keep the town budget constant is to make cuts somewhere.

Of course there's some positive feedback to market increases. If people buy more expensive houses they demand more services from the town. So the budget goes up.

chrissybabe Loc: New Zealand

Very simple really.
When your money on fixed deposit used to give you 5% return but now only gives you 1% you buy a house and rent it out to get 5%. Plus pickup on capital gains down the track.
And if you are really smart the power-tools (etc) you buy to do repairs for your tenants become tax free expenses.
This is not really rocket science. Because when mortgage interest rates go back to 7% and people default on their repayments and lose the lot they will need rental accommodation even more in one of the several houses you bought at fire sale prices.
Think this won't happen ?
When I got divorced and bought my ex out it coincided with mortgage rates that peaked at 23%. We have a doozy coming !

John N Loc: HP14 3QF Stokenchurch, UK

I do hope you don't get the U.K. disease of thinking the property rises are sacrosanct.
How the younger generation manage to afford a home these days is beyond me. 4.5x salary is common but many offer 6x, but if you sell high your kids have got to buy high.
It was a manageable 2.5x salary when we bought our first place.