Home prices are up, but why? Some academic perspectives

Why Are Home Prices Back on the Rise?

Chris Kissell | Bankrate.com | June 17, 2013 | link

After many years of falling, home prices appear to be back on the rise. Meanwhile, mortgage rates are near historic lows. Do you have any thoughts about what is driving the price increases, and whether the rising trend is likely to continue?

Ping Cheng

Ping Cheng

Associate professor
College of Business
Florida Atlantic University in Boca Raton, Fla.

 

Associate professor
College of Business
Florida Atlantic University in Boca Raton, Fla.The rising price is a good sign, and it is probably going to continue next year if interest rates remain low. I think the recent sales increase is mainly driven by low interest rates, rising rents and an influx of cash buyers from overseas, coupled with very few new constructions on the supply side. The absorption of foreclosed properties also helps reduce the supply, and it pushes up prices.

The long-term trend is difficult to tell, as the data (are) still too short.

Karen M. Gibler

Karen M. Gibler

Associate professor
J. Mack Robinson College of Business
Georgia State University in Atlanta

The drivers behind rising prices may vary in different parts of the country.

 

Associate professor
J. Mack Robinson College of Business
Georgia State University in AtlantaHowever, one general contributor is the supply side. When the recession hit, single-family housing construction halted, so we have experienced several years of very minimal construction of new units. Thus, existing houses do not have to compete with so many vacant new houses in the market. Also, some vacant single-family houses have been converted to rentals and currently are not competing in the owner-occupied market and reducing available for-sale supply.

A second general contributor is consumer sentiment. When companies cut jobs and employees — not only those who lost their jobs, but also their friends and co-workers and those who just saw the news reports on the television and in newspapers — took precautionary measures, such as delaying homebuying or moving up.

People remained living with relatives or renting rather than taking on the financial burden of buying a house. Some of those wanting to move up were afraid they would be unable to sell their current home. Over time, some of this pent-up demand has been released as people decide it is worth the risk to buy houses at current prices.

As more people move into the market, inventory is being removed, competition is increasing and prices are being bid up.

In some traditionally high-priced housing areas, residents with sufficient savings and credit are using the recession as an opportunity to buy in a market they previously could not afford.

And a few markets are starting to experience new job creation, which always leads to population migration and new households adding to local demand and bidding up house prices.

Michael J. Highfield

Author: kimhuntkw

We specialize in Real Estate in the Pleasanton, Dublin and Livermore areas of the East Bay in California

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