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    The Truth Behind Increasing Home Prices

    There are many unsupported ideas 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 unreasonable excitement, there seems to be no shortage of opinion.

    However, the increase in prices is easily explained by the theory of supply and demand. It is quite simple – whenever there is a limited supply of an item that is in high demand, prices increase.

    In real estate, it takes a six-month supply of existing marketable 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.

    According to the Existing Home Sales Report from the National Association of Realtors –  The monthly inventory of homes has been below six months for the last four years

    Bottom Line

    If buyer demand outpaces the current supply of current homes for sale, prices will continue to appreciate. Nothing immoral is taking place. It is simply the philosophy of supply and demand working the way it should.

     

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