News

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. While experts say price growth
will moderate due to the shifting market, ongoing appreciation is
expected. That means home prices won’t fall. Here’s a look at two key
reasons experts forecast continued price growth: supply and demand.

While Growing, Housing Supply Is Still Low

Even though inventory is increasing this year as the market moderates, supply is still low. The graph below helps tell the story of why there still aren’t enough homes on the market today. It uses data from the Census to show the number of single-family homes that were built in this country going all the way back to the 1970s.

The blue bars represent the years leading up to the housing crisis in
2008. As the graph shows, right before the crash, homebuilding
increased significantly. That’s because buyer demand was so high due to
loose lending standards that enabled more people to 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. And even as more new homes are constructed this year and in the
years ahead, this isn’t something that can be resolved overnight. It’ll
take time to build enough homes to meet the deficit of underbuilding
that took place over the past 14 years.

Millennials Will Create Sustained Buyer Demand Moving Forward

The frenzy the market saw during the pandemic is because there was
more demand than homes for sale. That drove home prices up as buyers
competed with one another for available homes. And 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 (see graph below):

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

If you’re worried home values will fall, rest assured that experts
forecast ongoing home price appreciation thanks to the lingering
imbalance of supply and demand. That means home prices won’t decline.

Bottom Line

Based on today’s factors driving supply and demand, experts project
home price appreciation will continue. It’ll just happen at a more
moderate pace as the housing market continues its shift back toward
pre-pandemic levels.

Source: KeepingCurrentMatters