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Why are home prices going up?

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A reader of The JOLT emailed me to ask,

  • “What do you think is driving these rapid price increases?
  • “Are people fleeing big cities for less urban areas?
  • “Are Thurston County people not putting their homes on the market, limiting supply?
  • “Has construction slowed down?
  • “Is the Covid-19 pandemic behind all this?”

Short answer all of these questions:  Yes.

It's the perfect storm. Definitely Covid-19 has fueled price increases. And it began years before 2020. 

The longer answer...

Real estate prices are driven primarily by two factors; supply and interest rates. Both are at historic lows.

The national housing supply never recovered after the 2008 recession that put many builders out of business. Going into 2008, we had a 2 million unit oversupply. By some estimates, we had a 4.5 million unit UNDERsupply entering 2020.

A global pandemic meant lower interest rates, encouraging more buyers (demand) in an already low-supply, seller’s market. Listings (supply) decreased due to homeowners’ concerns for health and safety. High demand, low supply is a formula for price inflation. Because the divide is go great, the prices soared.

Then came January 2021. Word was finally out about the low rates, which hit their bottom in January/February. Buyers who had been waiting until after the holidays jumped into the market, sellers were preparing for spring listings.

Other factors:

  • Too few houses on the market
  • More national moves for political and environmental reasons (a new high)
  • Growing demand for larger homes with more property, a home office, gym space, etc.
  • Remote working enabled people in Seattle and Portland to cast a wider net -- with a new radius of 1.5 hours from work instead of 30 minutes

It's going to take years (4 – 6 according to some local industry experts) and some serious national policy to help address the low supply and growing affordability concerns. In the meantime, if you own a home or are selling a home, it's going to be great news for you for a while.

See the chart, above, for more perspective about how 2008 and today are so different.

More questions?  Just ask -- KWoodford@kw.com -- or call me on 360-508-2800

Kristy Woodford is CEO of Holistic Home Group, which is affiliated with Keller Williams South Sound. She has more than 10 years of experience as a broker of residential real estate in Thurston County and leads a team that represents buyers and sellers here. 

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