8 Reasons Why Home Prices are on the Rise

Home Prices are on the Rise

According to CoreLogic, “Home prices nationwide, including distressed sales, increased year over year by 6.7 percent in June 2017 compared with June 2016.”

As the summer buying season nears its end, inflation remains below the Federal Reserve’s desired two-percent goal. Job growth continues to be strong, and while the Fed has been extremely cautious, adjusting upward only incrementally on a month-by-month basis, interest rates are on the rise. This leaves many homes that were under water only a few years ago suddenly less affordable. So now that the economy is back on track, why is it that potential homebuyers once again find themselves in a sellers’ market?

Here are 8 reasons home prices are rising:

1. Inventory Shortage: Prices rise when inventories are down. It’s a simple case of supply and demand.
2. Extended Stay: The economic uncertainty of the recent recession has left many homeowners deciding to stay put. While the average homeowner stay was previously 7 years, the average stay is now 10 years, adding to the inventory shortage.
3. Cascading Effect: Those homeowners who might want to make a move are reluctant to do so for fear they may find themselves unable to find a home at all, let alone one in their price range.
4. Stagnating Wages: While employment numbers are good, salaries remain stagnant, decreasing buying power as home prices rise.
   
   
5. Credit Crunch: Another factor to consider is the continued tightening of credit on the part of lenders, as a result of the many defaults the industry experienced.
6. Cost of Building: When it comes to new construction, the rising prices of building materials and land has driven the cost up for buyers.
7. Reluctant Builders: New development remains slow even in areas where growth is doubling, as many contractors fear false demand.
8. Land and Labor Shortage: Prices have increased in many major markets simply because there’s no longer the space or the labor needed to build new housing.

For those who may fear another housing bubble, it’s important to remember that lending guidelines were instituted following the 2006 crash. These guidelines make it harder for lenders to approve loans for individuals who simply can’t afford them. Buyers should keep in mind that the housing market could heat up again, should the current administration’s planned deregulation go too far, if rates rise too fast, or new construction suddenly skyrockets.