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Car Prices Rising Fast

Car and truck sales have slumped since 2008. Spiking gas prices and the onset of a recession that brought heavy job cuts were the main reasons behind the slump. Many production plants were therefore taken off line immediately. After three challenging years, however, vehicle production in the U.S. is making a slow comeback.

The chief reason behind this recovery is the fact that vehicle prices have been shooting up very fast. The demand has come back a bit, but the price increases appear to stem from a lack of new inventory.

Comparing that market to the housing market, we see the housing market is not recovering in quite the same way.   Home prices have not been rising on a consistent basis.  The past four consecutive months of home price increases as measured by Case-Shiller and the government (FHFA) price index have only been modest. Housing starts today are at the lowest since World War II and the inventory of newly constructed homes is at a 40-year low. The overall existing home inventory is still above normal but has been steadily falling to more manageable levels. Now that the housing market trends of new home construction closely resembles something like the trends of new car production, will a recovery in housing demand lead to a response in home prices  like that seen in car prices?

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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