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Study: Higher home prices lead to more sales

SAN FRANCISCO – Oct. 29, 2013 – If home prices edge higher, the housing market will see higher home sales, according to a new paper by two senior economists with the Federal Reserve Bank of San Francisco. The economists note that it’s not that the higher prices entice buyers as much as the higher prices entice owners to sell their homes, thereby helping to alleviate current inventory shortages.
Many sellers are still waiting out the market until home prices rise more, economists William Hedberg and John Krainer write in an article in the Federal Reserve Bank of San Francisco’s Economic Letter titled “Why Are Housing Inventories Low?” In the past year, existing-home prices have edged up 11.7 percent, according to the National Association of Realtors®.
Still, despite rising appreciation, some sellers are underwater on their mortgage or do not have enough equity yet to motivate them to sell. Research has shown that counties with a high share of underwater mortgages tend to have the smallest for-sale inventories.
The economists say that a distinct pattern exists in housing inventories, with the number of homes for sale rising in good times and falling in bad times. Some of it can be explained by credit, ... more

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