Tags: real estate | home | price | sales

Increased Supply of Homes Signals Stall in Home Prices

By    |   Friday, 02 May 2014 08:08 AM

Real estate is a market just like any other. Prices crashed when homebuilders built too many homes and the supply exceeded the demand. It's true that demand was artificially inflated by lax mortgage underwriting standards, but the market kept going up until the supply of homes exceeded the artificially high demand.

We've seen a nice rebound in home prices, and the supply of homes in the past few years has been relatively low. In recent months, the supply increased and the pace of price gains fell. This is what we'd expect based on the laws of economics.

The supply of existing homes for sales currently meets approximately 4.8 months of buying demand. That is a little high. Prices tend to rise fastest when supply is lower than four months of demand.

As prices crashed several years ago, supply rose to eight months or more of demand. Simply put, high levels of inventory are bad for prices.

Real estate agents know this, but they have taken the initiative to convince potential customers that the housing market is healthy. A recent news release from the National Association of Realtors was titled “National Growth in Housing Inventory and Days on Market Signal Healthier Market for Spring Home Buyers.”

Increased inventory and slower sales activity are bad for prices no matter what real estate agents tell you. Agents are trying to spin the news in an effort to shift sentiment with propaganda. Unfortunately, the laws of supply and demand trump rhetoric.

If you're a seller, be prepared to accept a price cut, and if you're a buyer, make a low offer in this market.

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MichaelCarr
Real estate is a market just like any other. Prices crashed when homebuilders built too many homes and the supply exceeded the demand.
real estate, home, price, sales
270
2014-08-02
Friday, 02 May 2014 08:08 AM
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