Are drastic property increases bad for homeowners?

12 Jul

If you purchased a home in the last few years, or have been a homeowner for decades, in the last few years you have probably seen your home value shoot up dramatically. According to a report from the National Association of Realtors, home prices across the nation have increased a whopping 30%. This has pushed the price of the typical home up about $80,000 since the beginning of the pandemic.”

While most homeowners should be happy about rising home prices as it adds to their net worth, not everyone is thrilled. Here are a few reasons why rapidly increased home prices are not great for everyone.

Baby boomers may find it harder to downsize

Baby boomers looking to downsize from the homes they raised their families into smaller properties may find it more difficult. While their current home has probably increased in value, the smaller homes they are considering have also jumped up in price, making it more difficult to downsize.

In addition, as interest rates have climbed, many boomers will be paying significantly more for a mortgage then they did on their current home, which may make downsizing much more expensive than they planned for in their retirement. A 30-year mortgage is currently running at around 5.46% which is almost double the average rate from a year ago.

Cost of homeownership is headed up

As home values head up, so do property taxes as well as insurance premiums. This can make running your household more expensive, particularly as inflation is pushing up the cost of most household goods, further squeezing many household budgets. 

These higher costs can also have a major impact on potential homeowners who are trying to purchase their first home. Higher property taxes and insurance premiums combined with dramatically more expensive household goods may push some hopeful home buyers out of the market.

Moving can be difficult

Rising prices and mortgage rates can make some homeowners feel trapped in their current home as moving can be too expensive. They face dramatically higher interest rates on their new mortgage if they move as well as paying an inflated price for their new home. 

Some current homeowners have mortgages with rates as low as 2.5% which means they will take a major hit when they purchase a new home and have to pay around 6% for a new mortgage. While they will most likely sell their current home at a premium due to rising prices, they will have to pay an inflated price for any new home they are considering. 

All of this can make moving very expensive, forcing some homeowners who may want to move to stay in their current home.

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