The Reason Home Prices Keep Rising in These Cities

After bottoming out following the financial crisis, home prices in the United States have jumped around 20% higher. The reason behind the rising prices is the lack of supply in many markets coupled with moderate demand and low mortgage rates. 

In the following video, Motley Fool analyst Brendan Byrnes sits down with Spencer Rascoff, CEO of Zillow, to discuss the state of the housing market. Rascoff highlights the fact that around 20% of all mortgage holders in the U.S. have no equity in their homes, which means they can't list their home, even if they want to. The lack supply may only be a temporary issue in some markets because eventually more inventory will come online and home builders will build more inventory.

However, Rascoff points out why New York and San Francisco have different dynamics at work. In Manhattan, there's only one place to go, which is up, and and in the Bay Area, home builders are geographically constrained by the typography and the geography of that area.

Finally, Byrnes and Rascoff touch on mortgage rates and why higher rates will hamper demand, somewhat, over the next twelve months, but if you take the long-term view, again, they're still pretty low rates.

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  • Report this Comment On May 26, 2014, at 12:55 PM, BelindaLin wrote:

    Home prices are WAY too high these days.... Just more the reason to rent!

    When all cash flows are considered, renting costs less, which means you'll have more money to save & invest. Over the long run, the stock market averages +10%/yr.

    So the 20% downpayment, 3-5% closing costs, 5-6% selling costs every time you move (average US home borrower moves every 7 years), property taxes, maintenance, insurance, is all money that could have been invested.

    If you look at everything (all cash flows considered), you spend less money when you rent! Between property tax, insurance, maintenance, mowing the lawn, fixing the roof, etc. etc. plus the extra utility costs you're spending a lot of money that could be invested instead. What's wrong with renting??

    Learn from the past people! (Of course they look at me like I'm crazy when I suggest they cut a $100+ a month cable bill. Or drive a car that is 3 years old. Or only fill up their tank from the cheapest place according to GasBuddy. Or get $25/month budget car insurance from Insurance Panda. Or cook their own food instead of spending a hundred a week on restaurant food (or far more if they like the bar).)

    Nobel Prize winning economist Robert Shiller was one of the few people who accurately called both the stock market crash of 2000, AND the real estate crash of the late 2000s.

    And he says that owning a home is a terrible investment.

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