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Why Home Prices Are Rising

December 5, 2012 |  Article By :   | 

According to the Wall Street Journal there are 5 reasons why home prices are rising.  It is not just here in the Twin Cities that we have seen a turn around in the housing market, but rather across the United States.  What are the main causes of this turn around in the housing market?

  • Good housing affordability – because home prices have fallen so low and mortgage rates are also at record lows a house payment is much more affordable to people. The average monthly house payment in the US last month was $720 – at the end of 2005 it was $1270.
  • Increase in household formation – it is estimated that the US will add about 1 million new households this year – the average over the past 5 years is about 570,000. Add this to the pent up demand that is coming back to the market and we are looking at close to 1.2 million new households this year looking for homes.
  • Rents are increasing – rental properties are hard to find and rents are increasing rapidly so it makes sense to buy a home if you can swing the down payment and qualify for a mortgage.
  • The number of distressed properties is on the decline – distressed properties drove down the price of homes in traditional sale situations, so with these properties on the decline, traditional sellers can ask for more money for their homes.
  • Very low home inventory – new home inventory is at a low point equal to about 50 years ago, existing homes are at a 10 year low point.  With the decrease in inventory and increase in buying pool, sellers are finding themselves in multiple offer situations which drive up prices.