The economy of any country is driven by what people expect and what they are willing to pay for. Unfortunately the expectation of nonstop prosperity and focus only on monthly payments here in United States has allowed many industries to make an absolute killing by devaluing price and emphasizing monthly payments in their place. This is seen with pricing of vehicles, furniture, utilities, and other services now able to sell for prices which increase at a far greater rate than the rate of inflation.
Nowhere can this be better seen than in the housing market. At the turn of the century, a recovering economy combined with very low interest rates caused housing prices to skyrocket. Customers looking at low monthly payments were willing to purchase houses in high demand areas at increasingly higher prices. The only problem is that now that interest rates have increased by roughly 50%, so have house mortgage payments, and the ability of the average US consumer to afford that same house has gone down by about the same 50%.
In a supply and demand market, if the ability of the customer to purchase and thereby the demand goes down to where he was when prices were 50% cheaper, then either supply must be cut or prices must go back down by 50% percent. No one wants their house to lose value, and neither do the realtors or bankers, so therefore we now have a housing bubble which will either be eventually resolved by years of stagnation or by housing values actually dropping.
Wait until either housing prices drop or interest rates significantly drop before investing in real estate.
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