Home price appreciation continues to accelerate. Today,
prices are driven by the simple concept of supply and demand. Pricing of any
item is determined by how many items are available compared to how many people
want to buy that item. As a result, the strong year-over-year home price
appreciation is simple to explain. The demand for housing is up while the
supply of homes for sale hovers at historic lows.
Let’s use three maps to show how this theory continues to
affect the residential real estate market.
Map #1 – State-by-state price appreciation reported
by the Federal Housing Finance Agency (FHFA) for the first quarter of 2021
compared to the first quarter of 2020:
As the map shows, certain states (colored in red) have
appreciated well above the national average of 12.6%.
Map #2 – The change in state-by-state inventory
levels year-over-year reported by realtor.com:
Comparing the two maps shows a correlation between change in
listing inventory and price appreciation in many states. The best examples are
Idaho, Utah, and Arizona. Though the correlation is not as easy to see in every
state, the overall picture is one of causation.
The reason prices continue to accelerate is that housing
inventory is still at all-time lows while demand remains high. However, this
may be changing.
Is there relief around the corner?
The report by realtor.com also shows the monthly change in
inventory for each state.
Map #3 – State-by-state changes in inventory levels
month-over-month reported by realtor.com:
As the map indicates, 39 of the 50 states (plus the District
of Columbia) saw increases in inventory over the last month. This may be
evidence that homeowners who have been afraid to let buyers in their homes
during the pandemic are now putting their houses on the market.
We’ll know for certain as we move through the rest of the
Some are concerned by the rapid price appreciation we’ve
experienced over the last year. The maps above show that the increases were
warranted based on great demand and limited supply. Going forward, if the
number of homes for sale better aligns with demand, price appreciation will
moderate to more historical levels.