During the pandemic, home prices surged and hit new records. Because of this big jump, many people are concerned that there is a real estate bubble. And, as a result, some would-be buyers are waiting to jump into the property market in hopes of a coming crash.
But if you are waiting for prices to fall, you could find yourself disappointed and faced with lots of regrets if property values continue to rise instead.
Personal finance expert Dave Ramsey believes this is the most likely outcome, and recently took to Twitter to offer several big reasons why he doesn't think home prices are going to decline anytime soon.
Dave Ramsey’s simple explanation for why home prices won't go down anytime soon
According to Ramsey, there's one big reason why home prices are not going down.
"House prices are caused by one thing and one thing only. Supply versus demand. How many houses are for sale versus how many buyers there are," Ramsey explained.
Now, you may think this is good news since there are likely to be fewer buyers right now than there were last year as mortgage rates have been rising dramatically. While rates fell below 3% during the heart of the pandemic, they're now closer to 6% on a 30-year fixed-rate mortgage. And Ramsey did acknowledge that high rates are going to reduce the number of people who want to purchase homes.
However, he doesn't think that will lead to falling prices because, as he explains, "There has to be less buyers than supply for homes for prices to go down. And that's not going to happen."
Ramsey provided some data showing why the demand for houses is not likely to drop below the level of houses for sale anytime soon. As he explained, millennials are in the prime age to buy houses and there are millions more 35-year-olds in need of houses now than there were in 2007. And, even though there are more people who are likely ready to buy a home, there are fewer new homes being constructed.
According to Ramsey's data, while 12 million more people need houses now compared with 2007, there are 50% as many houses for sale now as there were back then. Because of this "the number of buyers would have to go down so dramatically before the house market prices go down."
Rather than declining, Ramsey believes home prices will continue to go up for the next five years. And this is after they went up 32% in 2020, 18% in 2021, and 7% already in 2022.
What does Ramsey believe you should do?
Since Ramsey believes home prices are going to continue rising, he urges people who are prepared for property ownership not to wait. "If you're ready to buy, you're in good shape financially, you need to buy now. Don't wait on house prices to go down, they're not going down," he warned.
While there's no sure way to determine if he's right or not, the data he presents makes a compelling case that the most likely outcome is rising costs. If he turns out to be correct, you'll be very glad you acted ASAP if you hope to own a home soon.
The Ascent's Best Mortgage Lender of 2022
Mortgage rates are on the rise — and fast. But they’re still relatively low by historical standards. So, if you want to take advantage of rates before they climb too high, you’ll want to find a lender who can help you secure the best rate possible.
That is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, with no hard credit check, and lock your rate at any time. Another plus? They don’t charge origination or lender fees (which can be as high as 2% of the loan amount for some lenders).
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.