Home Prices Shoot Upward, Inventory Low: What’s Next?

Home prices escalated rapidly across most parts of the U.S. in the second quarter. The National Association of Realtors’ 2nd quarter report revealed an increase of 6.2% in home prices over the same period in 2016. The housing report follows a 2017 first quarter report which saw home prices increase 6.9% over 1st quarter 2016.

Home Prices Shoot Up

Key Takeaways in 2nd Quarter Home Prices Report

* Single-family median home price is now $255,600, up from $240,700 in 2016
* Home prices increased in 154 out of 178 cities across the U.S.
* Home inventory was at 4.2 months, down from 4.6 months 2nd quarter 2016
* Inventory shortages will continue and potentially cause sales to slow

What we see happening is home prices rising in part due to low home inventory levels. The housing supply is hauntingly low in many metropolitan areas. Houses for sale are scarce causing homes to sell fast and sometimes resulting in bidding wars.

Home Prices Wreaking Havoc On Affordability

We have already established the fact that home prices are rising. But, what’s next on the horizon? Mortgage rates are currently hovering around 4%, roughly a half point increase from last years interest rate of 3.5%.

Home affordability has become a major concern. The housing inventory is at a twenty year low. An inadequate supply of homes is likely to continue. An important topic that’s often overlooked is the cost of building new homes. The three L’s are driving up the price of residential construction. As it relates to home building, the 3 L’s are land, labor and lumber. All three are spiraling upward!

First time home buyers are getting kicked out of the market. It’s either rent an apartment or they have to settle for a smaller home like a condo. National Association of Realtors chief economist Lawrence Yun noted:

The glaring need for more new home construction is creating an affordability crisis that needs to be addressed by policy officials and local governments.

I believe it’s not building more homes, rather it’s building new affordable homes. An example of this is the Atlanta Real Estate market where I work. New townhomes are popping up everywhere and they are starting at $500,000…and they’re selling. This is not only the City of Atlanta but also its suburbs. I do agree it’s imperative for politicians and local governments to create policies to alleviate these housing issues. Let’s work together and get the first time home buyer house hunting.

What’s Next for the Housing Market?

Another theory suggests there could be a price correction in the next couple of years. In a report just released by ValueInsuredIn, the Modern Homebuyer Survey showed that 57% of Americans believe that homes in their area are over-priced. They also said that current prices of homes could not be maintained. The survey indicated 58% of Americans expect a housing bubble or price correction in the next 2 years.

Applying the law of supply and demand we know when demand for houses is high and inventory is low, that home prices will rise. There comes a point when the high prices of homes will cause demand to wane. Therefore, it’s plausible that home sales will begin to creep down and home prices along with it. But with over 2 million new jobs created over the last year and real estate experts projecting home price appreciation for the next several years – don’t count on it.

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