The Real Reason Home Prices Are Increasing

Dated: 12/01/2017

Views: 13


The Real Reason Home Prices are Increasing

The Real Reason 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 1).

The Real Reason Home Prices are Increasing | MyKCM

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes has been below six months for the last four years (see chart 2).

The Real Reason Home Prices are Increasing | MyKCM

Bottom Line

If buyer demand outpaces 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.


Feel free to like and share my blog post....

April Shackelford

Latest Blog Posts

If The Next Recession Is In 2020 What Will Be The Impact

Next Recession in 2020? What Will Be the Impact?Bottom Line:A recession is probably less than two years away. A housing crisis is not.  More Here >>  http://bit.ly:/

Read More

House Buying Power At Near Historic Levels

Bottom Line:Even though home prices are increasing rapidly and are now close to the values last seen a decade ago, the actual affordability of a home is much better now. AsChief EconomistMark

Read More

Rising Interest Rates Have Not Dampened Demand

Bottom Line:First-time homebuyers know the importance of owning their own homes and a spike in interest rates is not going to keep them from buying this year! Their biggest challenge is finding a

Read More

How Long Do Most Families Live In A House

What does this mean for housing?Many believe that a large portion of homeowners are not in a house that is best for their current family circumstance; they could be baby boomers living in an ,

Read More