The housing market is in a league all its own as it pertains to pricing. In fact, the housing market is stuck in a perpetual cycle known as a “boom-bust” cycle. Boom-bust means that housing prices rise and then they fall only to rise again and then fall and the cycle repeats over and over again. Prices rise for many different reasons and some are common knowledge that will also apply to other markets like supply and demand. But the housing market also relies on the economy which relies on employment rates and inflation plays a factor as well. All of these factors affect Orange County home prices rising as well as home prices in any part of the country.
Why are Orange County home prices rising and how can you better make a decision about when to buy your new home?
Understanding Supply and Demand
When Orange County home prices increase many people go straight to supply and demand to blame. While it is true, supply and demand will affect the cost of a home, there is much more at play.In fact, supply and demand really only affects specific areas of the market. For example, some neighborhoods become trendy due to upgraded parks, shopping, schools etc. and homes in that area may be scarce. The prices of homes in that specific neighborhood may become costlier than in a different neighborhood, even if they’re right next to each other. This is how supply and demand work in the housing market, there is never a shortage of places to live but every neighborhood has a specific number of homes it can fit.
How Unemployment Affects the Housing Market
Employment rates affect the housing market on a broader spectrum than supply and demand. However, it’s easier to understand this when you think about it in terms of supply and demand. When the housing market is supplied with more qualified buyers, banks commonly raise interest rates. This is because more people are qualified for the loans and can handle the payments easier. While it is true that some people are priced out of the market, more job opportunities will affect the market. If there are no opportunities out there, the market will reflect that but when job opportunities are in abundance, the housing market will reflect that as well as either higher housing prices or higher mortgages.
Inflation and Interest Rates
There always seems to be a balance between housing prices and interest rates, that’s a sign of a healthy economy. But inflation plays a big role when deciding if housing prices or interest rates rise. In high inflationary periods, housing prices usually increase just like most other things. However, if interest rates rise during high inflationary periods, housing prices fall. Since most buyers strongly rely on the affordability of mortgages, if inflation and interest rates increase at the same time housing prices will fall. On the other hand, if interest rates fall during high inflationary periods, housing prices will rise.
There are many reasons Orange County home prices rise and fall. When you know why prices fluctuate you have a better understanding of the housing market. In fact, knowing why could help you make a better decision as to when is a good time to buy and when to wait.