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What Effect Does Supply and Demand Have On the Housing Market?

When demand for an item is high, prices rise. When the supply of the item increases, prices fall. That’s what we call the law of supply and demand. When demand is very high and supply is very low, prices can rise significantly. This explains what’s going on in our current market.


Understanding the impact both supply and demand have can provide the answers to a few popular questions about today’s housing market:


  • What is causing the rise in prices?
  • Where are prices headed?
  • What does this mean for homebuyers?


What is causing the rise in prices?


According to the latest Home Price Insights report from CoreLogic, home prices have risen 18.1% since this time last year. But what’s causing this uptick? Recent buyer and seller activity helps answer that question.


When we take buyer activity data and compare it to the seller traffic during the same timeframe, we can see buyer demand continues to outpace seller activity by a wide margin. In other words, the demand for homes is significantly greater than the current supply that’s available to buy. This combination of low supply and high demand is what’s driving home prices up.


What will prices look like in the near future?


Where prices head over the coming months depends on the supply of homes for sale. Many experts forecast prices will continue to increase, but they’ll likely appreciate at a slower rate.


If you are hoping to purchase the home of your dreams, you may see this as good news. In this case, perspective is important: a slight moderation of home prices does not mean prices will depreciate or fall. Price increases may occur at a slower pace, but experts still expect them to rise.


What does this mean for homebuyers? Don’t wait for prices to drop. You may end up paying more in the long run. Even if price increases occur at a slower rate next year, prices are still projected to rise meaning the home of your dreams will likely cost even more in 2022.


At this point in the current market, high demand and low supply are driving up home prices. While prices may increase at a slow pace in the next few months, experts still expect them to rise. If you’re a potential homebuyer, connect with one of our agents to discuss what that could mean for you.