What’s Causing Ongoing Home Price Appreciation?

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.

[Expert Quotes: Today’s Housing Market Forecast]

While Growing, the 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 in Chicago, Illinois that were built in this country going back to the 1970s.

[Click Here to See Graph]

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 left the industry or closed their businesses – and that led to a long period of underbuilding of new homes.

Even as more homes are built this year, resolving the housing deficit caused by 14 years of underbuilding will take time and can’t happen overnight.

Millennials Will Create Sustained Buyer Demand Moving Forward.

The frenzy the market saw during the pandemic was because there was more demand than homes for sale. That drove home prices up as buyers competed with one another for available homes.

Buyer demand has moderated in response to higher mortgage rates [data], but data shows it will remain strong as millennials enter their peak homebuying years (see graph).

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.

Worried about falling home values? Rest assured—Chicago’s top real estate experts forecast home prices will keep rising due to the ongoing imbalance of supply and demand.

That means home prices won’t decline.

What Experts Are Saying About What’s Causing Home Price Growth

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.

Have more questions? Let’s connect with real estate experts in Chicago at KM Realty Group LLC.

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