Why Home Prices Aren’t Going Down Any Time Soon

September 8, 2022

I want you to think back to the first-time supply and demand reared its ugly head and became evident in your life. It could have been when there was only 2 pieces of cake left and three kids who had not had any yet or maybe it was watching price of gas going up and down. Homes are no different. The recent increase in prices is because there aren’t enough homes for the amount of buyers that are looking to purchase a home. So, when there is one home and more than one buyer, someone will be willing to pay more than everyone else to get that home. As long as there is more buyers than sellers we call this a seller’s market. What we saw the last two years was an EXCEPTIONAL difference between the number of sellers and buyers. This caused the EXCEPTIONAL increase in prices seen across the country. Even though the supply of homes available for sale has gone up this year it is still way below normal amounts. This graph shows how that compares to the last two years which were both seller’s markets. Inventory nationally is up over 30% compared to the same week last year. The big difference is if you look at the number compared to 2017-19, which shows inventory is still down by over 40% compared to those years.

So why does this mean prices won’t be going down any time soon? At this point we don’t have a good way for more houses to come on the market to make up that gap quick enough to fill the need of the buyers already in the market looking for a home. Let’s go through some of the ways we might add an influx of new available homes to the market. The first option would be we just start building a bunch more homes. This isn’t happening for a number of reasons. The biggest one is there is still major supply chain issues for construction materials. No wood? No homes. 

The second is too many home builders got burned by our most recent housing crisis and either closed up shop or learned not to over extend themselves. They are being very careful not build too many homes and in turn not flooding the market with new homes. The last thing builders want right now is for a housing surplus to exist. 

The last thing to address is the possibility that a massive number of foreclosures are about to hit the market because the forbearance has ended. What we have seen is anything but that. The last influx of foreclosures was created by a lack of strict lending standards and the financial collapse that followed. In those years we saw the number of foreclosures per year reach into the multi millions for the first time ever. Before the pandemic the number of foreclosures per year had come back down into normal numbers and was steadily decreasing due to stricter and stricter lending standards. Then when the pandemic hit the government issued a forbearance program that was incredibly successful. As the program ended 4/5 people were able to avoid foreclosure completely by either getting caught up or coming up with a new payment plan. 

The graph below shows the number of foreclosures in the first half of each year. While we have seen a huge increase compared to last year, if you go back to pre-pandemic we are still down in total numbers.

TLDR:

Although we will have more inventory than last year (which is greatly needed) it is still not enough to cause any sort of price decreases. We won’t see the stupid price increases we saw the last two years repeated this year.