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Why Are Home Prices Going Up?


Increase in property values

If you’ve been keeping a close eye on the nation’s housing market, you’ve seen that average sales prices have been going up lately. In fact, the nation’s home prices rose 6.3% in October – giving us the biggest increase we’ve seen since 2006. But the good news doesn’t end there. Prices have been going up steadily for quite some time. October actually marked the eighth consecutive month that we saw a month-over-month increase in average home prices. While you don’t want to question good news, you probably can’t help but wonder why!

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Why now? What’s the reason for the increase? And, more importantly, is this a sign of bigger and better things to come? Let’s focus on the October increase because it was the biggest and the most recent (at least, it’s the most recent data we have to go on). One of the primary reasons for the October increase may be a bit confusing at first. Experts say we saw prices go up because October is traditionally slow time for home sales.

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Wait… what? Think of it this way – the kids are back in school, people are starting to get ready for the holidays, and as a result, people decide to wait to put their homes on the market because they’re afraid no one’s serious about buying a home and moving right now. So, we wind up with fewer homes for sale. In the end, it makes for a smaller supply to choose from. And, as you probably learned in high school economics, the smaller the supply is, the more people are willing to pay for it!

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As a general rule, realtors say a “balanced” housing market is one in which there’s a six-month inventory of houses (or, the time it would take for all of the houses to sell if no more were put up for sale). In that case, the market wouldn’t favor buyers or sellers. However, in many places, the inventory wasn’t nearly that high in October. In some places, it was much lower – which led to all-out bidding wars between buyers. When you have buyers fighting over homes, it drives up prices. As you may have guessed, the inventory hasn’t skyrocketed since. So, you can probably expect to see similar results when the November numbers are released in a few weeks. (Although, the number of serious buyers may go down a bit due to the holidays drawing nearer.)

But we’re not done yet. There’s another reason for the October price increase – mortgage rates. With rates sitting at such low levels throughout the month of October, buyers could afford to spring for more expensive homes. After all, they knew they would be saving thousands of dollars every year in interest!

Will that trend continue when the November and December numbers come out? It certainly looks that way. Right now, the average 30-year fixed mortgage rate is sitting at 3.47%, a 22-year low. The average 15-year fixed mortgage rate is 2.85%, a new record low.

So, what does this mean for you? Sales prices aren’t going up equally everywhere. Luckily, though, the gains we’re seeing are very broad. Ultimately, though, if you’re getting ready to put your home up for sale, the offer you get will depend on the health of your local housing market.
However, no place exists in a vacuum. The better the nation can do as a whole, the better it means for everyone!

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