Home Prices Rise as Inventory Gets More Scarce

Back in March, I noted that housing supply had become very tight in San Diego, a situation that would pressure prices upward were it to continue.  I cited the following graph to support my argument (please read the original article for a more in-depth explanation of the graph):

In the two months that followed, supply has gotten even more constrained — and prices have indeed been on the rise:

Of course, we are in the traditionally strong spring season, where price increases are typical.  But as the blue line in the graph (months of housing supply, inverted) shows, March and April sported the lowest housing supply in six-plus years of available data.  This tightness of inventory will continue to apply upward pressure to prices for as long as it continues. 

That’s not to say that the low inventory will necessarily continue, nor that some other factor might not eventually come along to exert some offsetting downward pressure on prices.  But as it stands right now, the supply and demand situation argues for prices to keep creeping upward in the months ahead.

Rich Toscano is a financial advisor with Pacific Capital Associates*.  He can be contacted at rtoscano@pcasd.com.