Homes Sales Down Significantly, But...

Let's just start off with the below graph showing home sales now and comparing it to the Housing Downturn in 2007 - 2012.

The above data is closed sales for single family and attached homes in the Chicagoland area. One would think that if you have the low amount of sales comparable to the last housing crisis then you might see a similar result in terms of home values going down.

Well, not only have home values not gone down but values have increased significantly.

You may be wondering why and how?

The short answer is inventory. Inventory is so low and demand for homes outweighs the amount of homes for sale. That has continued to put upward pressure on price. In 2008 there were 97,000 homes available in the Chicagoland area. Now there are only 10,000!

How does this correct itself? My opinion is there needs to be a reduction in demand somehow for the real estate market to have some balance. There will not be a large increase in supply as the cost to build a home is so expensive. That leaves demand being lower than supply to allow supply to build. My thoughts of how that would most likely happen is if we have a reccession and there are less people able to buy and / or interest rates going up higher. The higher rates go, the less demand there will be as the borrowing costs make it too expensive.

Some will say that if interest rates go down that will increase supply due to people being able to move from their current low rate mortgage to another. I don't buy that as I think if interest rates go down then the net will be more buyers entering the market than sellers selling.

I feel for buyers in this market right now and especially for the ones that have sat on the sidelines while this market has continued to shoot up.