Appreciation
With strong demand and an incredibly low inventory, the market will continue to lean heavily in favor of sellers, resulting in home values rising.
One of the most popular toy fads in the 1980’s was the Cabbage Patch Doll. The dolls were a “must have” for Christmas. Eager parents flocked to stores only to be met with empty shelves. Tactical shoppers knew when shipments would arrive and would be first in line to purchase as soon as the dolls were unloaded from the truck. It was common for people to offer $100 or more in the parking lot for a Cabbage Patch Doll that was still in the shopping cart in route to the family car. They retailed for $30. Why would someone pay over three times the original price for a doll? It was simple supply and demand. Coleco could not manufacture and ship enough dolls to match the unquenchable demand. As a result, retailers charged more for the dolls suggested MSRP and prices went up.
When there is a scarcity of something popular for sale, the price goes up. More people are desirous of a good than the number of goods available. If that sounds familiar, it is from the echoing lecture halls of Econ 101. It is basic supply and demand. When very little supply is matched with unbelievably strong demand, prices go up. That is precisely what is occurring in the housing market today.
There is a scarcity of homes for sale. Multiple offers are the norm. It is not uncommon to hear that 15 offers are generated on a home that just hit the market. When this occurs, a bidding war ensues. It is as if a mini auction occurs. The highest and best offer wins and 14 buyers must go back to the drawing board and continue their search for a home. More buyers are desirous of homes than the number of homes available. As a result, home values have been on the rise since June. That is when the Expected Market Time (the time between pounding in the FOR-SALE sign to opening escrow) first dropped below 60-day threshold, a Hot Seller’s Market.
Excerpt taken from an article by Steven Thomas.
