Why the Housing Market Isn’t on an Upswing Just Yet

The housing market is a difficult thing to time. Prices are always rising and falling, sometimes in response to unpredictable developments like stock market crashes, and sometimes in response to more stable, long-term trends. Add in the fact that homes require substantial down payments, which most people don’t have sitting around, and it becomes even more difficult.

Forecasters have been predicting a rise in home prices to compensate for the major dip they took back in 2008, and though there’s been a moderate recovery, home prices haven’t really grown in a significant way. Why hasn’t the housing market hit an upswing?

Current Predictions

Look for predictions about how the housing market is going to develop over the next few years, and you’re likely to find dozens of answers, ranging from those that forecast a major upswing around the corner to those that predict a new bubble developing in the near future. Obviously, not all of these predictions can be right, but they all have reasonable bases for their claims. Why? Because the housing market is based on a number of interrelated factors, making it a complex, living, breathing system. No one set of variables is enough to sufficiently predict the future of home prices—though some may argue otherwise.

Why Home Prices Haven’t Skyrocketed

There are several reasons why the housing market hasn’t fully recovered or “taken off” recently:

• The financial burden of home ownership. First, it costs a lot of money to buy a new home. In addition to fronting the down payment, fees associated with storage and moving and ongoing repair and maintenance costs can be scary to prospective homebuyers. Combined with the financial crash of 2008 and only moderate recovery since then, it’s no wonder more people aren’t interested in taking on the responsibility of buying a new home.
• A lack of millennial homebuyers. Millennials, for a number of reasons, aren’t buying homes. Typically, the housing market is dependent on up-and-coming generations, as young homeowners buy starter homes and people in starter homes move out to find bigger and better ones. But millennials are living at home with their parents, or they’re renting, or they’re seeking alternative living arrangements. They aren’t a driving force in the housing market, so the market suffers.
• Home price inequality. Home prices are rising—but only in certain sectors. The unfortunate reality is that there’s startling inequality in the housing market. Home prices for high-priced homes tend to be incrementally inching upward, while prices for low- to moderately-priced homes remain consistent. This is allowing easier entry for middle-class prospective homeowners, but it’s also driving further economic inequality.
• Fears over another crash. The market crash of 2008—both in stocks and in housing—has left a new generation scared of such an event unfolding again. Millennials and current homeowners privy to the first crash have a lingering fear that another bubble will burst in the near future, and as a result, they’ve been more conservative in their investments.
• Increasing consumer debt. Consumer debt has been on a consistent rise for decades now, leaving the average consumer sacked with tens of thousands of dollars in debt from student loans, credit cards, and other forms of lending. This makes it extremely prohibitive for new consumers to enter the home buying market.
• Increasing rental trends. Possibly independent from these other factors, but possibly related to them, is an increasing trend that favors renting. As demand increases, rent prices are increasing, which could lead to some interesting and unfortunate economic developments—but rent prices are just as fickle as home prices, and are therefore hard to concretely predict.

Feel free to keep watching predictions and trends from leading financial analysts, but always take them with a grain of salt. Housing prices vary too frequently, and have too many factors, for even an expert to accurately predict or analyze them. Thanks to the stock market’s recovery and generally more optimism, we may be in the midst of a new rising tide for home prices, but only time will tell.