Why Are Houses So Expensive in the US? 4 Reasons

Why are houses so expensive in the US? It’s no surprise that US house pricing has only gone up in the past decade. Since 2018, prices have increased by 7%. According to Zillow, the median home price (for homes listed for sale on the market) in the US stands at $289,000, a figure higher than the average US citizen can afford. And it’s not only your average citizen who’s affected by this, but it’s also real estate investors whose living depends on these nationwide industry trends. And while the increase in real estate prices is a worldwide trend, we’re going to be tackling the US housing market 2020.

So why are houses so expensive right now? And is there a way you can take advantage of this as a real estate investor? Can you find a cheap investment property for sale? Read through to find out!

Demand Is Cooling, But It’s Still High

The higher the demand for property, the higher the prices will be. Simple economics. High demand and low supply for property describe a seller’s market in real estate. Quite contrarily, lower demand and higher supply for properties describes a buyer’s market. Most real estate markets in the US are currently considered seller’s markets, although the trend may be moving towards a buyer’s market in the US in 2020.

The fact that demand and real estate prices are high is actually not a bad sign. It means that there’s an opportunity to make a profit when investing in real estate– one investors should seize.

The Land Used to Be Cheaper in the US

There’s not much to say here other than one of the reasons why houses are becoming more expensive in the US is that the land is becoming more expensive. Simple logic, if the land increases in price, so will property. And why does land price increase? Usually, it’s due to an increase in demand, which is the case in the US real estate market.

Government Subsidies

The US government subsidizes housing. And while the government’s aim is to make housing affordable for everyone, they eventually hike up the property prices. Real estate analysts argue that before the government began to subsidize housing, prices were much cheaper. The argument is that because of subsidies, buyers are able to pay more for a property, and sellers are able to charge more.

The example can be seen in education (where the government gives loans), healthcare, among other areas in the country.

Location Matters

When addressing housing prices nationwide, it’s important to also address where you’re looking. Check out these two examples and why they’re expensive real estate markets.

Seattle Real Estate Market

Some locations like the Seattle housing market are especially booming. The city has some major employers, including Amazon, Boeing, Joint Base Lewis-McChord, among others. Seattle has also become home to several of the nation’s startups. The city is undergoing rapid growth which has caused a significant increase in population, and thus, house values and prices.

California Real Estate Market

why are houses so expensive in California

And while Seattle real estate is one example, big cities and states tend to follow these real estate market trends. Another example is the California housing market. Real estate investors constantly find themselves asking “Why is housing so expensive in California?” In California, housing inventory is low relative to demand, which is high with more and more people moving to the state’s major cities. The Los Angeles real estate market, for example, is one of the most competitive and therefore expensive markets in the state. Moreover, costs are higher in California than in the rest of the country. Labor, land and raw materials are all more expensive in California – all factors which drive up prices, including those of housing. Real estate developers in the area would need to charge higher to cover the high cost, which makes it difficult to build “affordable” housing.

Why is it that both of our examples are of cities in the West? Simply because it’s the most expensive location to buy property in the US. If you go south and east, it could be cheaper, and it’s cheapest in the Mid-West. That’s a very general breakdown. Of course, you’ll find cities and states here and there that don’t follow this general breakdown for the costs of rental property investing.

You Know the Reasons, Now What?

Now that you know why property prices are expensive in the US housing market, what can you do as a real estate investor?

There are still ways to find more affordable housing in the US real estate market. Consider one of the following for how to find cheap real estate:

Foreclosures: Foreclosure homes are ones that are taken over by the bank after the homeowner can no longer pay off their mortgage. The lender, usually a bank, evicts the owner and puts the property up for sale. While foreclosure is a devastating process, it can be quite the opportunity for real estate investors.
Bank-owned properties: Banked-owned properties, or real estate owned (REO) properties, are properties that have undergone foreclosure but didn’t sell in an auction. In this case, the bank takes ownership of the property. The bank’s purpose, in this case, is to sell the property to recover the loan taken. Again, this is a good opportunity for investors to find investment properties that the bank is trying to sell fast.
Fixer upper: A fixer upper, or a fixer, is an investment property that an investor buys with the aim to renovate and sell it at a higher price. This is usually a good strategy to find cheaper real estate deals when buying an investment property.
Short sales: Short sales are sales of real estate properties with a “short” in debts secured by lenders. If a lender accepts less for a property, a short sale goes through.

Mashvisor is one way you can find affordable real estate investments. You can find every property type – from foreclosures to bank owned to auction properties to short sales. We’ve got you covered. Simply use our investment property search bar, click “Start Analyzing”, and we’ll find the best properties for you.

To find cheap properties for sale in the US housing market, click here.

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