Home Prices: It’s All About Supply and Demand

Boston real estate

Making our way through the month of June and entering the second half of the year, we face an undersupply of Beacon Hill homes on the market. Keep in mind, this undersupply is going to vary by each Boston neighborhood and by price point. According to the National Association of Realtors (NAR), across the country, we currently have a 4.1 months supply of homes on the market for sale. Historically, 6 months of supply is considered a balanced market. Anything over 6 months is a buyer’s market, meaning prices will depreciate. Anything below 6 months is a seller’s market, where prices appreciate. The graph below shows inventory across the country since 2010 in months supply of homes for sale. Robert Dietz, Chief Economist for the National Home Builders Association (NAHB) says:

“As the economy begins a recovery later in 2020, we expect housing to play a leading role. Housing enters this recession underbuilt, not overbuilt. Estimates vary, but based on demographics and current vacancy rates, the U.S. may have a housing deficit of up to one million units.”

Given the undersupply of Boston condos for sale on the market today, there is upward pressure on prices. Looking at simple economics, when there is less of an item for sale and the demand is high, consumers are willing to pay more for that item. The undersupply is also prompting bidding wars, which can drive price points higher in the home sale process. According to a recent MarketWatch article:

 “As buyers return to the market as the country rebounds from the pandemic, a limited inventory of homes for sale could fuel bidding wars and push prices higher.”

In addition, experts forecasting Boston home prices have updated their projections given the impact of the pandemic. The major institutions expect home prices to appreciate through 2022. The chart below, updated as of earlier this week, notes these forecasts. As the year progresses, we may see these projections revised in a continued upward trend, given the lack of homes on the market. This could drive home prices even higher.

Boston Real Estate and the Bottom Line

Many may think home prices will depreciate due to the economic slowdown from the coronavirus, but experts disagree. As we approach the second half of this year, we may actually see Boston real estate prices rise even higher given the lack of homes for sale

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