Home Prices Grow 2 Times Faster Than Income

The spring market is upon us and things aren’t just picking up in the DMV, but around the nation as well.  Home prices are rising to such an extent that they are now 6% higher than the they were at the peak before the housing crisis in 2006.  This brings up the question, what is causing it and what could this mean for the coming months and years?

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First things first, where are these large price increases coming from?  In the DMV, and around the nation, the answer is actual quite simple.  Supply is low, and demand is high. So much so that when a listing is properly priced and shows well, we are seeing many multiple offer situations that pushes the price that much higher.  Typically there is an increase in homes for sale in the spring months so this could affect the pricing increases but that isn’t expected to offset the vast difference in buyers and sellers.  

The next question is how demand is being affected?  This question is answered in 2 parts.  The first part comes with earning power and income rates.  As it stands the government employment reports shows that wages have increase by 0.10%.  This is much lower than what was expected and obviously affects demand when coupled with the higher prices.  As we see though, this hasn’t been enough to even out buyers and sellers.  Next we see that mortgage rates are at a 4-year high which has an effect on the amount buyers can qualify for.  Again, this obviously hasn’t had much of an impact either.  These two pieces won’t seemly affect the difference in supply and demand.

One last thing that makes these increases in pricing and demand interesting is the fact that the millennial generation hasn’t reached the age that usually comes with first-time homebuyers.  This means that over the next 5 years, as millennials reach that age, the demand should continue to rise. 

To sum everything up, what is going on and what should we expect?  Home prices are at a high, even when compared to the peak before the housing crisis.  This comes due to the fact that supply is so low and there are so many buyers circling.  In the short term mortgage rates and wages are expected to have a small impact on demand, but unless this continues things shouldn’t change too drastically.  Finally, the millennial generation should be entering the market in the next 5 years allowing for more demand assuming the above doesn’t unexpectedly alter.