Why Home Prices Are Increasing

Dated: 04/30/2018

Views: 4

Why Home Prices Are Increasing | MyKCM

There are many unsubstantiated theories as to why home values are continuing to increase. From those who are worried that lending standards are again becoming too lenient (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of “irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.

However, the increase in prices is easily explained by the theory of supply & demand. Whenever there is a limited supply of an item that is in high demand, prices increase.

It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything more than seven months will cause prices to depreciate (see chart below).

Why Home Prices Are Increasing | MyKCM

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes for sale has been below six months for the last five years (see chart below).

Why Home Prices Are Increasing | MyKCM

Bottom Line

If buyer demand continues to outpace the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.

Blog author image

Mike Stearns CalBRE 01305251

Mike's Real Estate Team Trust, Integrity, Friendship Broker: DRE# 01878277 Agent: DRE# 01305251....

Latest Blog Posts

Why Have Interest Rates Jumped To A 7Year High

Interest rates for a 30-year fixed rate mortgage have climbed from 3.95% in the first week of January up to 4.61% last week, which marks a 7-year high according to Freddie Mac. The

Read More

How Current Interest Rates Can Have A High Impact On Your Purchasing Power

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 4.61%, which is still near record lows in

Read More

Dont Wait To Sell Your House Buyers Are Out Now

Recently released data from the National Association of Realtors (NAR) suggests that now is a great time to sell your home. The concept of ‘supply & demand’ reveals that the best

Read More

Is Your First Home Within Your Grasp Now

Some Highlights: According to the US Census Bureau, ‘millennials’ are defined as 18-36-year-olds. According to NAR’s latest Profile of Home Buyers & Sellers, the

Read More