With Housing, Supply Is Not Meeting Demand

It’s a simple rule of capitalism that when supply fails to meet demand, prices rise. According to the National Association of Realtors, this goes a long way toward explaining what’s happening in housing markets across the country.

A new report from the NAR finds that the median existing single-family home price increased in 87 percent of measured markets, with 155 out of 178 metropolitan statistical areas (MSAs) showing gains based on closed sales in the third quarter compared with the third quarter of 2015.

Twenty-two areas (12 percent) recorded lower median prices from a year earlier.

The report also revealed that seven of the 10 most expensive housing markets in the U.S. are in the West.

“Mortgage rates around historical lows and solid local job creation created a winning formula for sustained homebuying demand all summer long,” Lawrence Yun, NAR chief economist said in a statement.

“Unfortunately for house hunters in several of the top job producing metro areas around the country, deficient supply levels limited their options and drove prices higher – especially in markets in the West and South.”

In fact, the economic fundamentals are favorable to rising house prices. Job growth is steady, if unspectacular. However, third quarter economic growth was quite strong, as were wage gains. The unemployment rate now stands at 4.9%.

All of these things tend to put upward pressure on house prices. Combine them with a lack of housing inventory and we have a recipe for continued price increases nationwide.