The REAL Reason Home Prices Are Increasing

By
Real Estate Agent with eXp Realty of California, Inc. BRE#01423218 & 01796570

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.

 

What is the value of my home?

 

The Friedrich Real Estate Group

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Rainmaker
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Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI
HomeSmart Real Estate - Scottsdale, AZ
Arizona Homes and Land Group/ Buy or Sell

Ah yes, supply is low so prices rise. Economics 101. Supply and Demand 

Nov 30, 2017 09:29 AM #1
Rainer
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Maic "Mike" & Renee Friedrich
eXp Realty of California, Inc. - Sacramento, CA
Bridging Your Way Home!

Exactly Jeffrey! Thank you for your comment. Is this ringing true in your market as well?

Nov 30, 2017 09:39 AM #2
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Rainer
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Maic "Mike" & Renee Friedrich

Bridging Your Way Home!
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