What’s Causing Ongoing Home Price Appreciation?

If you’re thinking about making a move, you probably want to know what’s going to happen to home prices for the rest of the year. The graph below uses data from the Census to show the number of single-family homes built in this country going back 40 years. While Growing, Housing Supply Is Still Low.

During the housing crisis, buyer demand was so high due to loss lending standards that more people could qualify for a home loan. The resulting oversupply of homes for sale led to prices dropping during the crash and some builders leaving the industry or closing their businesses – and that led to a long period of underbuilding of new homes. While buyer demand has moderated today in response to higher mortgage rates, data tells us demand will continue to be driven by the large generation of millennials aging into their peak homebuying years.

Odeta Kushi, Deputy Chief Economist at First American, explains:

 “. . . millennials continue to transition to their prime home-buying age and will remain the driving force in potential homeownership demand in the years ahead.”

That combination of millennial demand and low housing supply continues to put upward pressure on home prices. As Bankrate says:

“After all, supplies of homes for sale remain near record lows. And while a jump in mortgage rates has dampened demand somewhat, demand still outpaces supply, thanks to a combination of little new construction and strong household formation by large numbers of millennials.”

What This Means for

Home Prices Based on today’s factors driving supply and demand, experts project home price appreciation will continue.