Home Price Appreciation For Homeowners
For those who are planning on selling their home in 2022, the tremendous price increases we have seen is beneficial. However, prices do not just increase for no reason, and there is a driving factor to why prices are increasing. Sellers have the benefit of having access to an asset that is in high demand as of today. The major factors in rising home prices is the supply and demand factor. Home price appreciation for homeowners leads to increased equity, and more money to you when selling.
Supply Versus Demand
In any business or industry, when demand outweighs supply, you can see some crazy moves in the market. The first thing you usually see when you have more demand than supply is a scarcity, or lack of inventory. This leads to increased prices for people who are selling. If you are fortunate enough to have access to an asset in demand, you can benefit from the demand and price increases. Buyers are usually willing to continue to pay more for a product that they are looking for and cannot get their hands on. This is exactly what is happening to real estate, and it is easy to see.
Selma Hepp, an Executive at Research & Insights and Deputy Chief Economist at CoreLogic, says this:
“With so few homes, buyers are once again left with fierce competition that’s driving the share of homes that sold over the listing price up to 66% . . . With the continued imbalance between supply and demand, home prices are likely to have another year of strong gains and are expected to average about 10% growth for the year.”
Supply Constraints And Prices
Because we are looking at a supply problem that could last years, this type of market looks to last for a while. In order to go to a neutral market again, we would need to see a 300% increase in inventory. That is to just get to a historically average market, one where sellers and buyers actually both are in favor. Experts are predicting that prices will continue to increase because of the lack of supply that could last for months to years.
The latest Home Price Expectations Survey allows us some insight of what experts are predicting for the future of home price appreciation for homeowners. Experts are suggesting that home prices will continue to grow over the next 5 years, albeit at a slower, more normalized rate than we have seen. As the graph posted below shows, the rate of appreciation will moderate over the next few years, but prices will continue rising through the period.
Home Price Appreciation For Homeowners Means Equity
For a seller, the projected continued price increase allows you some time to wait if you are on the fence about selling. This greatly opens up your opportunity to move. A large equity increase just from living your life in a home you purchased can make you very wealthy. Equity is the difference between what is still owed on your loan and its market value. In some instances, so people are in the position where they owe way less than ever expected in comparison to their home prices. Equity can increase through your monthly payments, and rising home prices can move up the market value for your home.
Buying With Higher Prices
However, today’s rising home values spells trouble for when you are going to buy. Home price appreciation for homeowners is great, but for sellers and buyers alike, it is very hard to make the move. As prices continue to increase, especially alongside mortgage rates, affordability will be hurt. While you should still look to buy a home, you should expect slower returns on your investment than we have seen in the past two years. Real estate continue to be the best investment according to Americans, so buying a home should still be the priority moving forward.