With home prices rising current homeowners are looking to ditch their homes are in for a pool of cash. But those who are looking to buy need to come up with a lot of it. And they might not be able to.
Not only are home prices up right now, but there’s also a 95 percent chance they will increase by 2020, says a study from insurance company Arch Capital Services. Every state is projected to have a boost in home growth in the next two years.
“Fewer people are selling starter homes to trade up to bigger houses, and that’s a trend that will continue now that the majority of homeowners have lower mortgage rates than they could get on a new loan,” says Arch Capital Services executive Ralph DeFranco. “With fewer new starter homes, the most likely scenario is continued [with] rapid price growth of existing homes.”
Did the Great Recession hurt our homebuying chances?
Millennials are becoming the biggest group of homebuyers. They want to buy, but they just might not be able to afford the scraps left behind by more wealthy, interested buyers. There simply isn’t enough supply to meet the demand.
Previously, homeownership rates were higher than the desire to buy, according to insurance company First American Financial Corporation.
First American Chief Economist Mark Fleming says in the early 2000s, buying a home was simple: potential homeowners had an easier time getting credit, which meant those with less-than-stellar scores could buy a home. It was great for new homeowners but terrible for lenders since financially irresponsible people were getting mortgages. As Americans owed more than they could afford, the housing bubble burst in 2008. And then the Great Recession started.
“Speculation, easy access to credit, and exuberance during the housing boom spurred the homeownership rate to record highs,” Fleming says. “As the housing market turned in 2008, the homeownership rate exceeded potential homeownership demand, with the gap reaching almost 9 percent at its peak in 2010.”