It’s inexplicable to the average American… But home prices are tearing higher.

The median price of existing homes bottomed in January at $361,000. It has risen almost every month since. And in July, that figure hit $406,700.

That’s a double-digit percentage increase in just six months. And this renewed boom is likely to continue.

It all boils down to simple economics. As I’ll explain, thanks to supply and demand, home prices only have one direction to go from here… up.

Let me explain…

Housing has been a roller coaster in recent years. We went from an insane sellers’ market in 2021… to a frozen market as mortgage rates soared in 2022. And now, we’re back to rising prices and a buyers’ market.

Many thought home prices would collapse in the process. But that never happened for a simple reason – one that even a dramatic rise in mortgage rates couldn’t change…

The supply-and-demand equation is completely broken in the housing market. The U.S. just doesn’t have enough homes available right now.

We need to look no further than housing inventory to see this. In July, a little more than 1 million homes were up for sale in the U.S. That figure has edged slightly higher from the worst of last year. But it’s still crazy low compared with history. Take a look…

Housing inventory has been on a one-way trip lower since 2007. A big reason for that is the financial crisis. Homebuilders slowed home construction dramatically after the bust.

Housing starts crashed by nearly 80% from the 2006 peak through the 2009 low. And it took a decade for starts to recover to a normal level.

In other words, we underbuilt for 10 years. Homebuilders have been putting up fewer homes – while the U.S. population has been rising. So housing inventory has only gone down.

Let’s look at this another way to see how crazy this shortage is right now. The chart below shows housing inventory, just like the one above. But the additional line shows the number of owner-occupied housing units in the U.S. Check it out…

This additional data shows how wild this setup is today. Overall, housing inventory is down by 51% since the data began in 1999. Meanwhile, the number of owner-occupied homes is up 24%.

Even more, the overall U.S. population has increased a similar amount since 1999. It grew from 279 million to 340 million. That’s a 22% increase.

The story in U.S. housing really is that simple… We have more folks than ever in this country. And they’re chasing darn close to the lowest housing inventory on record.

That kind of supply-and-demand imbalance can only lead to one outcome: Home prices are headed much higher.

That explains why housing defied most folks’ expectations and didn’t crash last year. And it explains why anticipating a major decline anytime soon is foolish.

Investing usually isn’t this simple. But in the case of housing, the age-old case of supply versus demand has won out… And that means home prices have nowhere to go but up.

Good investing,

Brett Eversole

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Source: Daily Wealth