House Pricing is Still about Supply and Demand

Knowing how much inventory is for sale is crucial to determining where home values are headed. Pricing of any item is determined by supply and demand: how many items are available in relationship to how many want to buy that item. The reasons for the strong year-over-year home appreciation numbers we have been seeing is simple to explain: demand for housing is up and the supply of homes for sale has been at historic lows. But that is beginning to change.

The months’ supply of available housing inventory, as reported by the National Association of Realtors, has increased from 4.3 months this past January to the current number of 5.2 months. And it seems inventory will continue to increase as we move forward.

Last week, Realtor.com released their National Housing Trend Report which looked at the movement in inventory levels of homes for sale across the country. Here are two major findings of the report:

1.) Dramatic year-over-year inventory declines have evaporated.

Nationally inventories in July are only 5.24 percent below the level of a year ago compared to being down 16.47 percent year-over-year in January.

2.) Inventory declines decrease in local markets.

The number of markets with decreases in year-over-year inventory declined from 125 in June to 118 in July. This suggests that fall inventories in some markets may return to levels of a year ago.

In the report, Steve Berkowitz, CEO of Move, Inc. explains the impact of these findings on home values:

The recovery is entering a new phase where inventory shortfalls are no longer the driving force behind changes in housing prices in many markets. Larger inventories, especially in the hotter markets that experienced rapid price increases in the spring, are expanding buyers’ choices and helping to moderate price increases.

Don’t get carried away with recent news headlines when pricing your home. Let a real estate professional explain what the above information means to the current value of your house.