Understanding the Current Housing Market: Why Home Prices Are Rising
webadmin • June 30, 2024
Understanding the Current Housing Market: Why Home Prices Are Rising
The housing market has been a hot topic of discussion lately, with many experts and online commentators predicting an imminent crash.
Despite these gloomy predictions, residential home prices have hit a new all-time median price record high in May and have been on an upward trend for 11 consecutive months. How is this possible? Let’s break it down.
Economic downturns, like the Great Recession, have long-term impacts on home construction, and recovery to pre-crisis levels of building activity has been slow. This enduring shortage fuels competition among buyers, thereby inflating prices further.
These supply constraints are not just a recent phenomenon but part of a longer historical trend influenced by economic cycles and policy decisions.
The Basics: Supply and Demand
The key to understanding why home prices continue to rise lies in the basic economic principle of supply and demand. From 2012 to 2022, the formation of new households significantly outpaced the construction of single-family homes, creating a pronounced deficit. This gap has been worsened by high interest rates and demographic shifts, such as millennials entering the market for larger homes suitable for family living. Historically, the average number of homes listed for sale in the United States over the past 40 years has ranged between 2 to 2.4 million. Currently, we have about 1.2 million homes for sale—just half of the historical norm.Debunking the Myths
Contrary to the grim forecasts of a market crash, the persistent rise in home prices is largely due to the significant imbalance between the dwindling supply and robust demand.Economic downturns, like the Great Recession, have long-term impacts on home construction, and recovery to pre-crisis levels of building activity has been slow. This enduring shortage fuels competition among buyers, thereby inflating prices further.
Historical Context
Looking at the historical context, we see that the current number of homes for sale is drastically lower than the average over the past 40 years. This reduced supply in the face of steady demand continues to push prices upward, even as demand shows signs of cooling.These supply constraints are not just a recent phenomenon but part of a longer historical trend influenced by economic cycles and policy decisions.
The Future of Home Prices
Given the current supply constraints, it is expected that home prices will continue rising in the foreseeable future. While it’s essential to remain cautious and informed, ignoring the noise and focusing on the fundamental economic principles can provide a clearer picture of the housing market's direction.The situation is compounded by high mortgage rates, which discourage existing homeowners from selling, further straining the available housing inventory. However, as economic conditions evolve and construction rates potentially increase, there may be a gradual stabilization of prices.
Conclusion
In summary, the rise in home prices is not a mystery but a straightforward result of supply and demand dynamics. Despite what the doom-and-gloom predictors say, the reality is that until the supply of homes increases significantly, prices are likely to remain high. As always, it’s crucial to stay informed and make decisions based on data and fundamental principles. For those looking to navigate the market, whether buying or selling, an understanding of these foundational economic principles is crucial. Remember, the key to success in any market is staying educated and aware of the underlying factors driving changes.
Here at Luminate Home Loans, we’re always looking for ways to offer more value to our clients and partners. That’s why we’re thrilled to announce that we’re now a wholly owned subsidiary of Luminate Bank®—and soon, we’ll officially transition under the Luminate Bank® name.
For years, homebuyers have been hoping for a return to the ultra-low mortgage rates seen during the pandemic. But as we move through 2025, it’s becoming increasingly clear that today’s rates—hovering between 6% and 8%—aren’t going anywhere.
Luminate Bank® Welcomes Josh Eifert as Chief Financial Officer, Honoring Legacy of Dave Turk [Minneapolis, Minn.] – [2/4/2025] – Luminate Bank® is proud to announce the appointment of Josh Eifert as its new Chief Financial Officer, succeeding Dave Turk, who has played a pivotal role in shaping the company's strong financial foundation. Josh brings a wealth of experience and strategic vision to Luminate Bank, with 26 years in the banking industry. Most recently, Josh served as CFO at Tradition Capital Bank in Edina, Minnesota, where he led the financial strategy during its remarkable growth from $300 million to more than $2.5 billion in total assets. Before his tenure as CFO, Josh contributed to Tradition Capital Bank in other key financial roles. He began his career with Norwest and Wells Fargo Banks, gaining extensive expertise in financial and operational capacities. Luminate Bank's leadership transition reflects the company's thoughtful succession planning, ensuring its financial strategies remain robust and forward focused. Under the leadership of Dave Turk, Luminate Bank has built an exceptional financial infrastructure, delivering consistent results and creating a foundation that positions the company for continued success. Luminate Bank's CEO, Marc Campbell, shared his confidence in the appointment: "Josh not only brings exceptional financial acumen and strategic insight to Luminate Bank, but he also embodies the principles that define our organization: integrity, innovation, and a steadfast commitment to excellence," Luminate Bank's CEO, Marc Campbell, shared with confidence. "His leadership will ensure our financial strategies succeed and inspire confidence across all who depend on us." "I am honored to join Luminate Bank at such an exciting time. The company's remarkable history of financial excellence and its forward-thinking approach align perfectly with my values and vision," stated Josh Eifert. "I look forward to collaborating with the talented leadership team to build on this strong foundation and drive continued success for our customers, employees, and stakeholders." Josh graduated from the University of Minnesota with a degree in finance and completed the Graduate School of Banking at Colorado. CEO Marc Campbell expressed gratitude for retiring CFO Dave Turk's contributions, saying, "Dave has been instrumental in positioning Luminate as a financial leader. His dedication, insight, and stewardship will always be a part of our company's legacy." Josh Eifert will officially assume his role on February 18, 2025. About Luminate Bank® At Luminate Bank, We Open Doors—empowering individuals and families to achieve their financial dreams through personalized service and innovative digital solutions. As a nationwide bank headquartered in Minneapolis, Minnesota, we are committed to helping our clients meet their financial goals with a blend of modern technology, traditional values, and the trusted guidance of experienced professionals. Known for our exceptional commitment to customers, we take pride in delivering a seamless, supportive experience for every step of the journey. Our dedicated mortgage division has branches and a team of loan originators across the US, making expert home financing solutions accessible to communities nationwide. Luminate Bank is committed to safeguarding your money and accounts with FDIC insurance coverage up to applicable limits. Learn more about how we can open doors for you at www.luminate.bank , follow us on Instagram, LinkedIn, and Facebook, or call (952) 939-7200. For media inquiries, please contact: Debbie Schwake, CMO debbie.schwake@luminate.bank
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