THE LAG EFFECT

If you have been keeping a keen eye on the housing market, you have undoubtedly observed that in many of the U.S. Housing Markets inventories are beginning to increase.  However, all that glitters is not gold, many of these same areas still experience high home prices.  Why, you may ask, well let me explain.  It is  the Lag Effect.

The Lag Effect 

The Lag Effect is a real estate measurement of demand/supply dynamics in local housing markets.  Look at it this way: If demand exceeds supply, inventory goes down.  If supply exceeds demand, inventory goes up.

That sounds complicated!  There is another problem - the seller.   Often sellers are not sufficiently educated on the "ins and outs" of the housing market and are slow to react to changes in the housing market.  The result can be a delay of 12-18 months between the shift in inventory and the downward shift in prices.

Sellers who need to sell realize they need to reduce their price, but with rising interest rates and inflation, buyers and sellers are equally reluctant to relocate.  These are two other problems to contend with now.  

The Fed's highly aggressive rate increases have made borrowing costs more expensive across the economy, nearly doubling mortgage rates from a year ago.

Bottom Line

The pendulum will swing back as home prices retreat and inventory increases.  Interest rates and inflation will find a leveling off point adding to a new home buying up tick.