Chart of the Week: Why Home Prices Are So High

Chart of the Week: Why Home Prices Are So High

July 5, 2022

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.

This material is distributed for informational purposes only. The ideas and opinions contained herein  should not be viewed as recommendations or personal investment advice. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2022 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.