House prices are determined by housing supply, housing demand, and housing affordability.
Housing Supply: What's the Outlook?
Housing supply measures how many months it would take to sell all the houses currently listed for sale, at the current pace of home sales. For example, if there are 600 homes currently listed for sale, and an average of 100 homes are selling each month, there would be a 6-month housing supply. This is because it would take 6-months to sell all the homes currently listed for sale. A buyer’s market is anything more than 6 months. A seller’s market is anything less than 6 months. In this case, sellers would have greater negotiating power, and buyers may have to bid higher than list price in order to compete with multiple offers.
Housing supply was below 6 months across the US from 2012-2018. This indicated a strong seller's market. Recently, housing supply broke above 6 months on a national level, which means that buyers are starting to have more negotiating power, and prices may start to stagnate. However, keep in mind that housing supply in the lower price ranges tends to be low, and housing supply in the higher price ranges tends to be high. So this metric really depends on your specific neighborhood or price range.
Housing Demand: What's the Trend?
Housing demand is expected to remain strong because the economy is doing well and people have jobs in most parts of the country. The chart to the right illustrates how there are more jobs available today than at any point in the past 15 years as measured by the Job Openings and Labor Turnover Survey (JOLTS) report.
Housing Affordability: Can Buyers Afford Houses at Current Prices?
Like housing supply, housing affordability is really the tale of two markets. The National Association of Realtors (NAR) publishes a "Housing Affordability Index". Housing affordability for move-up homebuyers is still near record highs, while housing affordability for first-time homebuyers remains a challenge.
Potential solutions for some buyers to consider could include the use of gift funds from relatives for a down payment, and/or the use of a low down-payment program. Also, keep in mind that recent statistics show that buying a home is still more affordable than renting a home for many first-time buyers. While house prices and mortgage payments may be higher than what many first-time buyers would like to see, the monthly payments are often on par with what they would otherwise pay in rent. Of course, housing affordability in your situation could be higher or lower depending on the amount of your down payment and the mortgage strategy you choose.
Conclusion: we anticipate stable house prices over the next several months because housing supply is likely to remain balanced, housing demand is likely to remain strong, and buying a house is likely to remain affordable vs. renting for many buyers. Please contact me for specific information on housing supply, housing demand and housing affordability in your local market.
Source: CMPS Institute