Prices are determined by supply and demand, and that basic law of economics applies to home prices as much as any other market.
Several indexes are available to follow the trend in home prices, and these reports tend to grab headlines when they are released every month.
Last week, the Census Bureau reported that the number of new homes sold reached an all-time low. The median price of new homes fell to $202,000, about the same level it was at eight years ago. This means half of the new home sales were above that price and half were below.
Median home prices are believed to more accurately measure the market than the average value because the average would be skewed upward by a few relatively high-priced sales.
Prices and sales measure demand, but supply is also reported each month. The last sentence in the Census Bureau news release shows that there is almost a nine month supply of new homes available nationwide. Under normal conditions, the average is about six months.
Researchers have found that home prices tend to bottom when the supply of new homes falls below four months of the sales activity.
Clearly, the current supply seems to be high by historic standards, and that indicates a bottom in prices may not be in place yet.
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