We recently reported that home prices are continuing to rise across most of the nation. This has created concern in some pundits that a housing bubble, like we saw ten years ago, is forming again. We want to explain why these concerns are unfounded.
The current increase in home values can be easily explained by the theory of supply and demand. Right now, the number of families looking to purchase a home is greater than the supply of homes on the market.
Here is a chart that explains how the months’ supply of housing inventory impacts home values:
According to the latest Existing Home Sales Report from the National Association of Realtors, there is currently a four-month supply of inventory. That puts us in the blue section of the above graphic. Home prices should be appreciating.