Home Prices Are Rising Due to Natural Supply and Demand Forces
When it comes to the state of the housing market, everyone has a theory. Whether it involves concerns about re-approaching boom peaks or lending practices becoming much too lenient, home values are increasing.
The truth is that lending practices have remained much tighter than they were 15 years ago when "creative lending" was contributing to the housing crisis that followed, and housing prices are appropriate when inflation is factored into the equation. In short, the market is not being artificially manipulated.
So What’s the Reason Home Prices are Rising?
The real reason behind the current increased prices is simple supply and demand. Market stability in real estate requires about a six-month supply of existing salable inventory. This is the level needed for a neutral housing market without any wild swings up or down. Anything less than that, and what will typically happen is home values will go up. This is known as a seller's market, where people are competing for available homes, and the sellers reap the benefits by getting top dollar for their house.
On the flip side, if there is seven months or more of available homes on the market then values will trend downward. This is known as a buyer's market. In this case, the buyer can enjoy getting a good deal on a quality home.
This explains the last four years where we have seen an increase in perceived home values. There was 5.3 months’ worth of inventory at the end of October in 2014. At the same time in 2015, there was 4.8 months’ worth on the market. This was followed by 4.4 months’ worth in 2016 and 3.9 months’ worth at the end of October 2017.
This shrinking supply of homes on the market creates even more demand, and the pricing of homes reflects that. Given that housing prices are still at appropriate levels with inflation adjusted for, the chances for a housing market crash are quite slim.
The Brunner Burkhart Group is more than willing to about the endless possibilities of homes that are on the market today!