The supply of housing is an important barometer to effectively keep home prices constant, and to avoid a boom or a bust. Pricing in today’s real estate market is determined by the concept of ‘supply and demand’. It’s an undeniable and begrudgingly fact that if supply continues to increase and demand droops (or even remains constant) prices will continue to fall.
There is no guideline that applies to home pricing in every category. Below is a criteria that will help you understand the impact that supply and demand has on home prices. 1-4 months’ supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed.
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5-6 months’ supply creates a balanced market. Historically home values appreciate at a rate a little greater than inflation.
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7-8 months’ supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows.
