Is Housing Demand Outpacing Supply?

The cost of living is going up: that much is certain. But are home prices really on the rise? Well, after quite the healthy pace in April, the US housing market appears to have momentum, despite slowing just a bit in the past couple of months.

According to the Standard & Poors CoreLogic Case-Shiller 20-city home price index, home prices increased by 5.7 percent in April after near 6 percent increases in both March and February. These have been the highest gains in this index in almost three years. Moreover—and somewhat unsurprisingly—Seattle (12.9 percent), Portland Oregon (9.3 percent), and Dallas (8.4 percent) all reported the most dramatic year-over-year gains. Cleveland—also somewhat unsurprisingly—reported the smallest gain, at 3.4 percent.

David M. Blitzer is the managing director and chairman of the index committee at S&P Dow Jones Indices. He comments that the April increase in prices shows continued demand for homes, and that supply simply cannot keep pace. With that, then, he notes, “Since the demand is exceeding supply and financing available, there is nothing right now to keep prices from going up.”

Looking more closely at the numbers, the National Association of Realtors says that available homes nationwide last year fell by 8.4 percent, to about 1.96 million. At the current pace, all of these homes should find occupants/owners within the next four months; but a healthy market typically has a enough homes for a six-month supply.

Now, many people have been reluctant to sell their home because prices have been rising so dramatically. Indeed, it makes it hard to sell a home, today, when it could fetch a much higher price in just a month. Other owners are reluctant to sell because they currently have a much lower mortgage rate than they would probably be offered if they sold their existing home and bought a new one. Also many single-family homes have been converted to rentals, which are much harder to sell, of course.

Blitzer also goes on to say, “The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them? For the moment, conditions appear favorable for avoiding a crash.”

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