Will Home Prices Continue To Rise?
Last week, a very well-respected real estate analytics firm surprised many with their home price projection for the next twelve months. Home experts, CoreLogic, in their latest Home Price Index said:
“The economic downturn that started in March 2020 is predicted to cause a 6.6% drop in the HPI by May 2021, which would be the first decrease in annual home prices in over 9 years.”
The forecast was surprising as it was strikingly different than any other projection by major analysts. Quite frankly, we disagree. Six of the other eight forecasts call for appreciation, and the two who project depreciation indicate it will be one percent or less.
Why?
From our own research, the only reason CoreLogic is the outlier, is because their data includes mortgage data. Current, temporary, COVID forbearance policies have the potential of increasing early stage delinquencies. Delinquencies on a mortgage can sometimes lead to the necessity to short sale a home, which is what they are considering in their numbers. In short: including post-sale predictions skews their data specific to the actual home prices. What happens after the home sells has nothing to do with the actual price a person is willing to pay. It would be like counting a basket of applies and throwing in a few oranges.
Here is a graph showing all of the projections:
There’s a simple formula to determine the future price of any item: calculate the supply of that item in ratio to the demand for that item. In housing right now, demand far exceeds supply. Last week mortgage applications to buy a home were 33% higher than they were at the same time last year. The available inventory of homes for sale is 31% lower than it was last year. Normally, these numbers should call for home prices to continue to appreciate.
Bottom Line
Because of the uncertainty with the pandemic, any economic prediction is extremely difficult. However, looking at the limited supply of homes for sale and the tremendous demand for housing, it is difficult to disagree with the majority of analysts who are calling for price appreciation in home prices over the next year. This is great for folks looking to sell their home. The prices should continue to rise, but they are at their highest since 2005. If you don’t want to take a chance that the outlying agency is correct, now is certainly the time to sell! Give us a call today to see what your home is worth.