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House prices are determined by housing supply, housing demand and housing affordability.

Housing Supply: What's the Outlook?

Here is a chart illustrating the supply of homes for sale as reported by the US Census Bureau. This measurement of housing supply illustrates how many months it would take to sell all the houses currently listed for sale, at the current pace of home sales. For example, if there are 400 homes currently listed for sale, and an average of 100 homes are selling each month, there would be a 4-month housing supply. This is because it would take 4-months to sell all the homes currently listed for sale.

More than a 6-month housing supply is a buyer's market.  Less than a 6-month housing supply is a seller's market.  Housing supply is running at 4.8 months on a national basis. This indicates a seller’s market. In many parts of the country, buyers are competing with multiple offers… in some cases dozens of offers on the same house. This tells us that house prices are scheduled to go up significantly in the next several months.

Also, the new home construction market is coming back strong, with new housing starts showing a large increase over last year.

Housing Demand: What's the Trend?

Housing demand is usually created when:

• People have jobs and are employed;
• Real estate investors are optimistic about purchasing houses as an investment; and,
• Homebuyers are confident enough to jump into the market and purchase a home.

We expect housing demand to increase from current levels throughout the summer of 2015 because the jobs market and overall economy is improving.

Housing Affordability: Can Buyers Afford Houses at Current Prices?

The National Association of Realtors publishes a "Housing Affordability Index". A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, today’s reading in the 170 range means that median-income families have 170% of the income required to qualify for a mortgage with a 20% down payment.

As you can see from the chart, the housing affordability index was generally between 70 and 110 in the 1980s. People were really struggling to afford houses!

In the 1990s, the affordability index was generally between 120 and 140. During the housing bubble, the affordability index hit a low of 100. All this makes today’s reading in the 170 range VERY affordable by historical standards.

We expect the housing affordabilty index to go down from it's current level as house prices and mortgage rates continue to increase. Please see our article entitled, "Summer 2015 Guide to Mortgage Rates" for more information on why we believe interest rates could go higher.

Also, keep in mind that housing affordability in your situation could be higher or lower depending on the amount of your down payment and the mortgage strategy you choose.

Conclusion: we anticipate a strong increase in house prices over the next several months because housing supply is likely to remain low, housing demand is likely to increase, and houses will continue to remain affordable for most buyers. Please contact me for specific information on housing supply, housing demand and housing affordability in your local market.