The Real Reason Home Prices are Increasing

    Blog ×Did you know?! You can now EMAIL any KCM Blog Post! Click the blue email icon below to get started! Use the buttons below to share with your Personalized Posts profile...                  The Real Reason Home Prices are Increasing The Real Reason Home Prices are Increasing | MyKCM 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.

    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.

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    Jordan Forney

    Jordan is a recent graduate of Lenoir-Rhyne University where he received his BA in Multimedia Communications while also playing football all four years that he was enrolled. Jordan has experience in writing and photography from his time working for the school newspaper, Lenoir-Rhyne News (LRN). He also has marketing experience with WLRZ 99.3 where Jordan produced and aired PSAs and was in charge of marketing with the social media accounts. He was a part of the marketing team for the Lenoir Oiler's baseball team as well where he had a lot of the same responsibilities. Now Jordan works at Rinehart Realty where he is increasing his experience by posting blogs, maintaining social media accounts, and working directly under the Director of Marketing.

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