The Real Reason Home Prices are Increasing
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).
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.
Get your free home value estimate today!
- Homeowners & Appraisers See the Most Eye-to-Eye on Price in 3 Years - June 11, 2018
- Did Tax Reform Kill the Luxury Market? NOT SO FAR! - June 11, 2018
- UPDATE: The Cost of Renting vs. Buying [INFOGRAPHIC] - June 11, 2018
- Days on The Market Drops to New Low in April - June 11, 2018
- Moving Up to Your Dream Home? Don’t Wait! - May 22, 2018
- Renters Under 50 Want to Buy a Home! - May 22, 2018
- Is Your First Home Within Your Grasp Now? [INFOGRAPHIC] - May 22, 2018
- Don’t Wait to Sell Your House! Buyers Are Out Now - May 22, 2018
- How Current Interest Rates Can Have a High Impact on Your Purchasing Power - May 22, 2018
- How Much Has Your Home Increased in Value Over the Last Year? - May 13, 2018