Home Prices | As simple as supply and demand

Are you worried about the housing market? It’s time to relax.

Home prices are determined by supply and demand. Today, it is simple to explain the strong year-over-year home price appreciation because of this concept. As more people want to buy houses than there are available homes on the market, buyers have no choice but pay a premium for those few that do exist. This causes house values in fantastic neighborhoods like Beverly Hills or Palos Verdes Estates soar while poorer regions see their property stocks stagnate or decline in value as they compete with each other for scarce resources.

Here are three maps that show the effects this theory has had on residential real estate:

Map #1 – State-by-state price appreciation reported by the Federal Housing Finance Agency (FHFA) for the first quarter of 2021 compared to the first quarter of 2020:

As the map shows, certain states (colored in red) have appreciated well above the national average of 12.6%.

Map #2 – The change in state-by-state inventory levels year-over-year reported by realtor.com:

Housing inventory is at all-time lows while demand remains high and this proves to be a recipe for higher housing prices. In fact, states with the most change in listing inventory also experience greater price appreciation than those without such drastic changes. The best examples are Idaho, Utah, and Arizona where both increased by more than 30%. This correlation between changing listings inventories and state’s property value increase can easily be seen when comparing different maps of each individual U.S state – especially as it pertains to these three cases.

The reason prices continue to accelerate is that housing inventory is still at all-time lows while demand remains high. However, this may be changing.

Is there relief around the corner?

The report by realtor.com also shows the monthly change in inventory for each state.

Map #3 – State-by-state changes in inventory levels month-over-month reported by realtor.com:

As the map indicates, 39 of the 50 states (plus the District of Columbia) saw increases in inventory over the last month. This may be evidence that homeowners who have been afraid to let buyers in their homes during the pandemic are now putting their houses on the market.

We’ll know for certain as we move through the rest of the year.

The rapid price appreciation we’ve experienced over the last year has some people concerned. The maps above show that this is warranted if you look at how much demand there was for homes and what limited supply existed. Going forward, as long as more houses are put on sale to meet the higher level of demand it will be a bit easier for prices to moderate towards their historical levels rather than continuing up so quickly like they have been recently.

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. The Arbor Move Team does not guarantee or warrant the accuracy of any claims made herein. It is your responsibility to perform due diligence before making an investment decision for yourself or anyone else on behalf of a third party that you may have fiduciary duties with respect to such person’s finances.

The content located here was created by one member from our team at ARBOR MOVE (Please note: This content contains personal opinion)