Table 2: Existing Home Sales (000’s) Seasonally Adjusted E isting Home Sales (000’s)
Supply and Demand To understand what is happening in a marketplace, it is necessary to understand Supply and Demand. With this understanding it is possible to look at what has been happening to prices, and to the quantity being sold, and make an evaluation of what might be causing the observed changes in prices and units sold. Anyone who has ever had a class in economics will fondly remember the typical supply and demand graph. (Figure 1) Next, we will examine the directions of the trends in both prices and units sold. Then we can draw our conclusions on what is happening in each market. As you review the data in the tables, the most important consideration is the direction of the trend. Is it up, or is it down?
Year 2018 2019 2020
U.S.
Northeast Midwest
South West
4,742 4,765 5,066
1,192 1,183 1,264 1,190
581 581 604 620
1,972 2,016 2,175 2,370
997 985
1,023 1120
2021 (Mar) 5,300 Direction UP
UP
UP
UP
UP
Existing home sales have demonstrated the same trend as prices over the past three years with substantial increases over the past three years. The directional indicator is based on the 3-year period ending in 2020, not the YTD number. Increasing quantities of units sold can be caused by two factors: An increase in demand, OR by an increase in the supply of homes being on the market. Figure 2 illustrates the normal situation where both Prices AND Quantity increase at the same time.
Figure 1: Supply and Demand Supply and Demand
Figure 2: Demand UP
National and Regional Market Trends Table 1 and Table 2, summarizes the price and sales trends for the national and regional markets. This data is reported by the National Association of Realtors.
The strong demand is quite remarkable when you consider the pandemic conditions throughout the country during the past year. In a period where people were afraid to leave their homes, home sales were still taking place at a brisk pace. National Inventory Table 3 shows the trends in the National Inventory. Inventory is a key indicator of what is happening on the supply side of the equation. The months of Supply indicate the rate of absorption for the market i.e., how many months it would take to completely sell off the current inventory at the current rate of monthly sales.
Table 1: Median Prices Median Prices
Year South West 2018 $261,600 $289,200 $201,700 $231,600 $388,600 2019 274,600 301,900 214,500 241,900 405,200 2020 300,200 341,700 235,400 265,100 451,500 U.S. Northeast Midwest
2021 (Mar) 334,500
251,000
370,900
291,400 502,800
Direction UP
UP
UP
UP
UP
The last three years the national and regional markets have seen substantial price increases. As you can see, prices are up across the board. Increases in home prices can be caused by either an increase in demand, or by a decrease in the supply of houses. The next table will give us a better indication of which is the key determinant.
Table 3: National Inventory (000’s) National Inventory (000’s)
Year 2018 2019 2020
Inventory
Mos. Supply
4.0 3.9 3.0 2.0
1,340 1,210
880
2021 (Mar)
900 Adjusted
Direction
DOWN
DOWN
14
Center for Business and Economic Insight
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