Buying a property in the United States is expensive. Very expensive. The dream of owning a home is increasingly becoming a distant dream, especially for younger generations.
According to the United States Department of Housing, the average price of homes sold in the country has risen almost 63% in 10 years, jumping from $265,000 in 2013 to $431,000 in 2023. According to experts, there are two big villains in this story: inflation and high interest rates.
The impact of high interest rates
Although well below the Brazilian base rate of 12.25%, interest rates in the US rose from 0.25% in March 2022 to 5.5% in July 2023. Such high interest rates have not been seen in the country for over two decades. In the last four months, the rate has remained the same, but it remains too high for owners to want to change their home.
Suzanne Hollander, professor, real estate lawyer and real estate broker in South Florida who has taught courses at IBMEC, in São Paulo, explained the situation to Brazil in fact.
“High rates are making homeowners unwilling to sell and move,” says Suzanne. “This phenomenon is called ‘golden handcuffs’. It’s like your hands are handcuffed. They can’t or don’t want to sell, because even if they sell at a high price, and if they go to buy, they will buy the new property at a high price and the interest will be higher than those they had access to years ago.”
:: CIA and Mossad discuss extension of truce in Gaza ::
The objective of high interest rates, according to the Federal Reserve (FED), the American Central Bank, is to combat inflation. The FED wants the index, which is currently at 3.7%, to reach 2% per year.
The justification is that, with the financial aid given by the government during the pandemic, the increase in demand for goods and services overheated the economy, taking inflation from 1.4% in January 2021 to 9.1% in June 2022. .
The pandemic effect
This, however, is not the only role of Covid-19 in the current crisis. Itzhack Ben-David, a professor at Ohio State University, spoke to the reporter about the subject.
“We had a shortage of supplies,” says Itzhak. “If we go back to 2020, 2021, you will remember that there was a shortage of wood for new construction, as well as other materials. And all of this has made building new homes more expensive, which eventually affects the secondary market for existing homes, and this market also becomes more expensive.”
The crisis in the supply chain is another responsible for inflation around the world. With production being affected by measures to control the transmission of the Coronavirus, the supply of products fell, thus increasing prices.
Rent in the heights
The situation is also not easy for those who pay rent. In January 2020, the average monthly price for a 2-bedroom property in the country was US$1,093, today the same property costs an average of US$1,320 per month.
In large cities the situation is even worse. In August, New York broke an all-time record, with an average rent of US$5,600, according to a survey carried out by Douglas Elliman and Miller Samuel.
Since September 5th of this year, a law has come into force in the country’s largest city that prohibits renting entire apartments on Airbnb, or other online rental platforms, for less than 30 days. The measure aims to add new properties to the market and try to contain the rise in prices.
Furthermore, the greater difficulty in buying properties has increased the search for rentals. “The average value of a mortgage today is approximately 52% higher than that of rent, so many people are deciding to rent, or it is the only alternative”, explains Suzanne Hollander.
The Florida lawyer and broker also explains that another situation is becoming common: “We are also seeing another phenomenon, in which people are not becoming owners or renting, but rather moving to their parents’ or friends so they can save and improve their credit so that one day they can buy a property.”
Data recently released by the FED show that inflation continues to fall. For market analysts, this is an indication that interest rates should decrease in the first half of next year.
Ben-David, however, warns that the problem is likely to persist and that new factors are likely to negatively affect house prices in the not-too-distant future.
“I would think that inflation and interest are the main causes,” says the professor. “At a certain point we should start to see the effect of climate change. This is also a possibility, especially in relatively low-lying areas close to the Atlantic or Pacific. This should impact prices in the real estate market.”
Editing: Leandro Melito
Source: www.brasildefato.com.br
