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What causes surge in housing prices?

Rising Cost of Housing

Demand and supply go hand in hand. Low supply and high demand increase the price of a product and vice versa. This is the theory of Law of demand and supply in Economics.  This principle stands correct in most of the case, including housing prices. According to the Law of order, at higher rates, buyers demand less of a product. But then, why are Housing prices fuelling up like never before?

Creation of more money by banks:

During the times of financial crisis, banks create money whenever they make a loan. That means every time they extend a mortgage loan; they make huge money. Since there are more loans available, there is more demand and prices are going higher and higher.

Global economic crises:

Housing prices are becoming overburdened year after year. Before the bubbling started, the percentage of taking away salary that an average person incurred was the maximum of 20%. But with economic crises and growing inflation, the rate oftaking away salary that buyers are spending is anywhere between 40%- 50%. Not only buyers but sellers also face the effects and rents also reached their all-time peak.

Rising Cost of Housing

Higher prices offer no benefit:

High housing prices benefit not anyone. It is just a myth that a seller can benefit from growing prices. But in reality, if a seller is selling a house, it is equally valid that he might be purchasing some asset again with hiked prices Only banks and financial institutions which lend mortgage loans benefit from the surge because more price means more loan taken for more extended periods and more interests. Those who have many properties can also benefit from the hike because there is no direct mandate that they will have to buy another property.

The demand and supply clash:

If the need for a product increases, the prices increase. This is a general market principle.  Unless and until there is an increase in demand and decrease in supply, prices are bound to rise. Also, there is no possibility of the increasing amount in this case because land cannot be created, and moreover it takes a lot of time to build a house.

Severe competition:

More and more banks are offering interest rates at cheaper rates to attract customers owing to rise in higher prices. This is because there is more demand because of lowinterest rates. But supply is not byrequirement, and there is a constant rise in prices.Overall, careful observation of these points shows that there has been a tremendous increase in housing prices, which will not benefit anyone You can find out more.

Bill Benter

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