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Will Home Prices Continue to Increase?

Mandy Kruse

I joined the real estate industry in 2000 and enjoy sharing my knowledge and experience with both first time homebuyers, move up buyers and all seller...

I joined the real estate industry in 2000 and enjoy sharing my knowledge and experience with both first time homebuyers, move up buyers and all seller...

Oct 23 2 minutes read

There are many unsubstantiated theories about what is happening with home prices. From those who are worried that prices are falling (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of â€œirrational 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 greater than seven months will cause prices to depreciate (see chart below).

Will Home Prices Continue to Increase? | MyKCM

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes for sale has been below six months for the last five years (see chart below).

Will Home Prices Continue to Increase? | MyKCM

Bottom Line

If buyer demand continues to outpace 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.


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