Home Prices: It’s All About Supply and Demand in Nutley

Home Prices: It’s All About Supply and Demand

As we enter the summer months and work through the challenges
associated with the current health crisis, many are wondering what
impact the economic slowdown will have on home prices. Looking at the
big picture, supply and demand will give us the clearest idea of what’s
to come.

Making our way through the month of June and entering the second half
of the year, we face an undersupply of homes on the market. Keep in
mind, this undersupply is going to vary by location and by price point.
According to the National Association of Realtors (NAR), across the country, we currently have a 4.1 months supply
of homes on the market. Historically, 6 months of supply is considered a
balanced market. Anything over 6 months is a buyer’s market, meaning
prices will depreciate. Anything below 6 months is a seller’s market,
where prices appreciate. The graph below shows inventory across the
country since 2010 in months supply of homes for sale.Robert Dietz, Chief Economist for the National Home Builders Association (NAHB) says:

“As the economy begins a recovery later in 2020, we expect housing to play a leading role. Housing enters this recession underbuilt, not overbuilt. Estimates vary, but based on demographics and current vacancy rates, the U.S. may have a housing deficit of up to one million units.”

Given the undersupply of homes on the market today, there is upward
pressure on prices. Looking at simple economics, when there is less of
an item for sale and the demand is high, consumers are willing to pay
more for that item. The undersupply is also prompting bidding wars,
which can drive price points higher in the home sale process. According
to a recent MarketWatch article:

“As buyers return to the market as the country rebounds from the pandemic, a limited inventory of homes for sale could fuel bidding wars and push prices higher.”

In addition, experts forecasting home prices have updated their
projections given the impact of the pandemic. The major institutions
expect home prices to appreciate through 2022. The chart below, updated
as of earlier this week, notes these forecasts. As the year progresses,
we may see these projections revised in a continued upward trend, given
the lack of homes on the market. This could drive home prices even
higher.

Bottom Line

Many may think home prices will depreciate due to the economic
slowdown from the coronavirus, but experts disagree. As we approach the
second half of this year, we may actually see home prices rise even
higher given the lack of homes for sale.

To read more about the Real Estate Market Go Here.

Matthew De Fede - Broker/Owner | Realty Executives Elite Homes