Are we headed toward another housing "bubble"?
Why are home prices on the rise?
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Why are home prices on the rise? There are many theories out there as to why home values continue to increase. From those who are worried that lending standards are becoming too lenient again, to those who are concerned that prices are again approaching "bubble" levels. However, data shows that lending standards are even more stringent than in recent years and prices are not at peak levels when adjusted for inflation. The increase in prices is simply a result of supply and demand.
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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 below).
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 below).
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).