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Using NAR Research to Address Prospective Buyer Concerns “What Will Housing Prices Do? Is it Safe to Buy?”

No one really knows what housing prices will do in the short run:  to quote J.P. Morgan on the stock market, “They will fluctuate.”  Experience during the Great Recession showed how markets become unpredictable during a crisis.  However, for a number of the underlying drivers of housing prices the longer-run outlook appears good:

  • Jobs:  The U.S. continues to add jobs.  Real estate and jobs vary together.  A growing economy helps home sales.
  • Households:  Home sales were slightly under their year 2000 level in 2014, but the United States added an additional 17 million households over the intervening time period.  As the millennials mature their demand for apartments is expected to decline as they move into homes.
  • Housing Supply:  The country needs to add 1.5 million housing units a year to accommodate population growth and housing demolitions.  However, housing additions have recently been under 1 million a year:  there are fewer available homes, which is a positive for home prices.

Three major drives of home prices seem to support current and rising home price levels.  All real estate is local; in fact, in some areas of the country home prices appear to be increasing at a rate that may be too high.  Put differently,  everyone needs to live some place, and right now housing markets are tight in some areas—inventories of homes for sale are low.  Homeowners tend to hold onto their homes for approximately 10 years after purchase.  So housing market trends and an extensive holding period suggest that worries about short term temporary price fluctuations do not appear to be of great importance.

NAR’s economic outlook is at http://www.realtor.org/research-and-statistics.

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Jed Smith, Managing Director, Quantitative Research

Jed Smith is Managing Director, Quantitative Research with the National Association of Realtors®. He has worked on real estate issues for the past 20 years, providing input on a variety of housing, commercial real estate, tax, and planning issues. Recently he has been involved in several international studies.

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