10 Disadvantages of High House Price
High house price is hailed worldwide as it makes the people rich without any major effort. The abnormal real estate boom of the least few years has increased property millionaires worldwide. But there is another side of the picture. People should also know the problems caused by abnormal house prices. Here are the top 10 disadvantages of high house price.
The first disadvantage of high house prices is the slowdown of the economy. The high prices make homes un-affordable. Less people apply for mortgages and bank loans as they have to save more for deposits. Another factor is that every housing boom is followed by a crash due to which foreclosures increase. All these factors slowdown the banking sector and start recession.
Rich poor gap increases
The second disadvantage is the widening of rich poor gap. Without any hard work home owners become rich due to the house price increase. Whereas people who want to buy homes have to wait longer. This creates the frustration as money shifts to few hands and rich poor gap increases. This leads to social unrest in the society with terrible consequences.
Key workers are affected
Key workers like doctors, engineers, nurses and teachers are the backbone of every society. Ideally they live in city center just near to their work. But when property prices increase they are unable to afford the high rents and shift to the peripheries. This increases the traveling time due to which society suffers. Therefore high home prices are not good for the societies.
Home ownership decreases
The second disadvantage is the decline in home ownership. Some people buy homes with cash whereas others with mortgages. In both cases when property price increases people can’t afford to buy homes. This is because they need more cash to buy homes and also need to save more for deposits. Therefore home ownership decreases with the rise of property price.
By observing the home buying trends worldwide we will notice that cash buyers are less as most people buy homes with mortgages. High house price leads to high interest rates due to which mortgage monthly payment also increases. Due to the sudden increase in monthly loan payment many home owners can’t pay the mortgages on time due to which foreclosures increases.
People struggle to pay rents
House rent depends on its value. When house price is affordable, the rents are also affordable. But when house price is high so are the rents. Most people spend up to fifty percent of their monthly incomes on rents. Due to increase in house price, monthly rents also increase. This makes the rent payment difficult for many people. So another disadvantage of high house price is that people struggle to pay the rents.
Houses stay longer on the market
The average selling time of a home is 65 days. But due to high prices, houses stay longer on the market. This is because most people can’t buy the houses at inflated prices. Even people stop buying homes out of the fear that prices might crash further in near future. So another disadvantage of high house prices is that houses don’t sell quickly.
Construction activities stall
Most people build own homes worldwide as it helps them to control the construction cost and quality. But when house prices increase the land cost also increases. After buying the land people are left with little money to construct a home on it. Most people just postpone the home construction. Therefore due to high home prices, construction sector growth slows.
Developers are worst hit
The developers build homes and apartments to sell at a profit of approximately 20-30%. But high house prices reduce their profits. Builders sell their ongoing projects at the rates when prices were normal. But after the price rise builders are left with less money to buy the land for next projects. Therefore the profits of developers decrease.
Incomes of realtors decrease
The real estate transactions depend on the house prices. When house prices are affordable, more transactions are recorded. But when house prices are high, fewer property deals mature. Real estate transactions are the bread and butter of the realtors. The decrease in property transactions reduces the incomes of estate agents. Due to low income many property dealers close their agencies.