Economists Focus on Real Estate Industry

Economists Focus on Real Estate Industry

In the USA, a decline in the supply and a strong demand for real estate has once again caused prices to reach record heights. This price inflation has sadly driven sales into a decline. There are delivery bottlenecks and a lack of building materials, and this mixture is further driving a steep increase of pricing. The current economic crisis has made many Americans think about moving to the suburbs or the countryside. However, the supply of corresponding real estate is also lagging behind this demand.

Price Bubble and Housing Shortage

Experts observe that home sales in the US have now been declining for three months. Economists had expected sales of more than 6.09 million homes for March this year, however, the NAR Association of Real Estate Agents officially announced these numbers and the sales only reached 5.85 million. The rate of price increase for house sales was 19.1 percent in just three months. Now, the average price is $341,600 per standard home.

Price Bubble and Housing Shortage
Price Bubble and Housing Shortage

In assessing this situation, economists cannot come to one united agreement about the crisis. Some of them are talking about a new housing bubble, while others do not see any danger in the industry yet. But this housing crash is not a purely American phenomenon. In Europe, property prices have recently risen by a significant amount too. The reasons are similar to those in the USA as the property crisis has caused many people to reassess their living situation. Many Europeans want to get out of the city and move to rural areas, similarly, this leads to enormous demand pressure for housing of that type. At the same time, the gap between purchase and rental prices is widening; the average amount of renting an apartment has remained stable for the same period, while simultaneously people are struggling to find funds to buy.

As in many regions the situation of housing shortage is getting worse day by day, large cities such as Frankfurt are no exception. There have been a lot of discussions about the property market overheating for a long time before, but nothing was done to control that. Many people are looking for a bigger apartment and at the same time, rates of interest remain very low everywhere, which makes it easy to finance your purchase on credit.

Such a situation brings people back to 2007 when mortgages triggered a global economic crisis. When people could no longer follow through with their credits, they started an avalanche that became a crash after an increase in interest rates. The real estate crisis was followed by a banking crisis and then the Euro crisis. The current situation is also signaling about this danger. After all, almost all banks are involved in mortgage lending and when the market volume is enormous, as a result, any shock could be dramatic. Some experts see an end to the real estate super cycle on the horizon, so the boom may end in a few years.