Chart of the Week: Why Home Prices Are So High

Chart of the Week: Why Home Prices Are So High

We often get asked when home prices will stop rising. The short answer: When more houses come onto the market.

This week’s chart was inspired by Bill McBride’s Calculated Risk blog—my go-to resource on the housing market. The chart neatly shows the Econ 101 relationship between supply and demand. When supply (the inventory of homes for sale) is low, prices go up. When supply is high, prices fall (or rise less quickly).

The darker blue circles in the chart represent the relationship between the number of existing homes for sale and the average price of homes sold nationwide each month from 1999 through 2021. On average, home prices rose 0.4% each month over the past two decades or so. And while it’s not perfect, the trend—shown in the dashed berry-color line—is clear.

The light blue diamonds represent the first four months of 2022, showing we’ve been in nearly uncharted territory this year. Inventory (supply) has been extremely low and—surprise, surprise—prices have risen more than usual: 1.9% on average each month since the start of the year.

Like Bill, I’m watching for signs of inventories rising, and when they do, I expect to see home-price increases slow.

Note: Chart shows monthly relationship between existing home resale value (price; represented by the S&P CoreLogic Case-Shiller U.S. National Home Price NSA index) and the inventory of existing homes for sale from January 1999 through April 2022, along with the linear average trend over the period. Sources: S&P CoreLogic, the National Association of Realtors, Adviser Investments.

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