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House Prices

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House Prices

House prices are determined by the interaction of housing demand and supply factors. 

Major housing demand factors include the number of households, household income, the demographic structure of the population and availability and cost of financing.

Keeping all else constant, population increases lead to increases in the number of households and the demand for housing units. Thus, markets that attract population from other areas, because of their attractive climate and other quality-of-life amenities that they offer, are more likely to experience population increases and increases in housing demand.

Notice though that population increases do not necessarily lead to increases in housing prices. House prices increase when demand exceeds supply. So an area that is experiencing rapid population growth will not experience housing price increases, if there are many houses available for sale, or if the inventory of houses in the market increases faster than the rate by which the number of households increases.

Increases in household income and availability of financing help boost demand for housing and, if the local supply of houses remains limited, such increases should lead to price increases in the local housing market.

On the contrary, increases in mortgage rates reduce housing demand

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