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The Real Reason Grand Rapids Home Prices Are Increasing

There are many unsubstantiated theories as to why home values are continuing to increase. From those who are worried that lending standards are again becoming too lenient (data shows this is untrue),to those who are concerned that prices are again approaching boom peaks because of“irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.

However, the increase in prices is easily explained by the theory of supply & demand.Wheneverthere is a limited supply of an item that is in high demand, prices increase.

It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything more than seven months will cause prices to depreciate (see chart 1).

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes has been below six months for the last five years (see chart 2).

Bottom Line

If buyer demand outpaces the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.

Information provided by Benchmark Mortgage

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Marilyn

It’s no coincidence that Marilyn Hazard is at the forefront of the Grand Rapids real estate industry. She is a fierce advocate for her clients by providing effective negotiating skills, has an unbelievable ability to adapt to the ever changing real estate market and an unmatched work ethic. She is a full time Associate Broker with Keller Williams North and holds CRS, GRI & ABR designations, also a member of: GRAR, MAR & NAR.

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