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Is the recent 10% house price increase going to stick?

Summary:
Last year, house prices in my zip code increased by about 10%; and they are forecast to increase another 10% this year.  This "tightness" or "seller's market" is indicated by the small available supply relative to demand, as indicated by the 2.1 months of inventory.  [NOTE:  months of inventory=(# houses for sale)/(selling rate per month)].  In the scatter plot below, we see that an inventory of 2.1 months (vertical axis) is normally associated with about a 1.5% monthly price increase (horizontal axis).  The increase in housing demand caused by the lockdowns, as working from home increases demand for bigger living spaces, or for owning a bigger home instead of renting a smaller apartment, is probably behind the price appreciation.  And if you can explain a price change with demand and

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Is the recent 10% house price increase going to stick?

Last year, house prices in my zip code increased by about 10%; and they are forecast to increase another 10% this year.  This "tightness" or "seller's market" is indicated by the small available supply relative to demand, as indicated by the 2.1 months of inventory.  [NOTE:  months of inventory=(# houses for sale)/(selling rate per month)].  

In the scatter plot below, we see that an inventory of 2.1 months (vertical axis) is normally associated with about a 1.5% monthly price increase (horizontal axis).  The increase in housing demand caused by the lockdowns, as working from home increases demand for bigger living spaces, or for owning a bigger home instead of renting a smaller apartment, is probably behind the price appreciation.  And if you can explain a price change with demand and supply it is likely due to "fundamentals," rather than a "bubble," prices not tied to fundamentals.  

Is the recent 10% house price increase going to stick?


If this is a permanent increase in housing demand then the 10% price increase will likely "stick."  But if this is a temporary increase in demand, which reverses when the pandemic and lockdown ends, we may see a drop in price.  

BOTTOM LINE:  housing price changes are explained by demand and supply changes, but adjustment is relatively slow in this market.  

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