What’s Causing Ongoing Home Price Appreciation?

While experts say price growth will moderate due to the shifting market, ongoing appreciation is expected. That means home prices won’t fall. Here’s a look at two key reasons experts forecast continued price growth: supply and demand.

Even though inventory is increasing this year as the market moderates, supply is still low. Right before the 2008 housing crash, homebuilding increased significantly. The resulting oversupply of homes for sale led to prices dropping during the crash and some builders leaving the industry or closing their businesses – and that led to a long period of underbuilding of new homes. It’ll take time to build enough homes to meet the deficit of underbuilding that took place over the past 14 years.

On the other hand, the frenzy the market saw during the pandemic is because there was more demand than homes for sale. That drove home prices up as buyers competed with one another for available homes. Demand will continue to be driven by the large generation of millennials aging into their peak homebuying years.

That combination of millennial demand and low housing supply continues to put upward pressure on home prices. As Bankrate says, “After all, supplies of homes for sale remain near record lows. And while a jump in mortgage rates has dampened demand somewhat, demand still outpaces supply, thanks to a combination of little new construction and strong household formation by large numbers of millennials.”

If you’re worried home values will fall, rest assured that experts forecast ongoing home price appreciation thanks to the lingering imbalance of supply and demand. That means home prices won’t decline.

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