The Rising Cost of Housing Across the U.S. and What it Means for Investors

The demand for housing is high and the supply is low, so the price of housing continues to rise. As hopeful homeowners wait for a drop they think is sure to come, prices continue to increase. Let’s take a look at the factors contributing to the current state of the housing market and whether it makes sense to invest in real estate now or not.

Why Cost of Housing in Rising

As of January 31, 2022, the US median home sales price was up nearly 32% from the same date in 2020. From 2018 to 2020, the increase was only 10%. This significant jump is due to a variety of factors.

It’s impossible to ignore the elephant in the room; the COVID-19 pandemic drove people to hunker down in the suburbs, and look for larger spaces with home offices and plenty of room for everyone to “shelter in place.” This increased housing demand.

The pandemic also influenced the market in other ways, though. For example, government spending during the past two years combined with supply chain issues and the reopening of society has led to staggering inflation. One of the most affected sectors? Housing.

Another example is the transitory nature of remote work, which has become the new normal. This has driven up the cost of housing in areas where nature seekers and storm chasers who were once chained to corporate HQ in places like Seattle and Silicon Valley are now free to flock to lower cost-of-living cities such as Denver and Salt Lake City.

For these reasons, the cost of housing across the U.S. has been steadily on the rise, although the increases in certain areas are more notable than in others.

Should You Wait to Invest?

There are two opposing trains of thought coming from experts on whether now is a good time to invest in real estate or not.

The “wait to buy” point of view is based on the theory that what goes up must go down. Or rather, that the real estate market is cyclical and prices can’t rise forever. However, this ignores the fact that the invisible hand is driving prices higher: lack of supply and incessant demand.

It’s also based on the fact that rising interest rates will likely slow the speed at which people are purchasing homes, which would decrease demand. This will, of course, make housing more attainable for all-cash investors, but less attainable for the average person.

On the flip side of the coin are those who think now is still a good time to buy. There are multiple reasons for this POV.

For one, there’s the matter of inflation to consider. Typically, tangible assets such as real estate are a good hedge against inflation. There’s also no guarantee that prices will return to what they once were. Rather, given inflation, it’s unlikely that we’ll see a big dip in the housing market. Perhaps price increases will slow, but the odds of a real estate investment you make now plummeting in value are pretty unlikely.

Of course, real estate isn’t the only promising investment in the current market. As an accredited investor, you’re able to invest in private offerings, according to Rule 506(c).

According to the accredited investor definition, verified accredited investors can invest in private equity, private placements, venture capital, hedge funds, and equity crowdfunding. These types of investments allow you to diversify your current portfolio and realize gains even amid inflation.