Why are home prices so high?

The median sale price of a residential home in Thurston County was $342,000 in Oct 2019, up almost 9% from $314,100 in Oct 2018 and up over 22% from $280,000 in Oct 2017.  What’s causing this increase and will it continue?

This steady increase is a simple supply and demand issue.  The demand for housing is very high caused by a stable job market in the area, low interest rates on mortgages (high 3 to low 4%), the steady population of JBLM, and higher housing costs in northern counties, pushing people south.

Supply on the other hand is extremely low.  I use “months of available inventory” as a gauge.  This number is calculated by dividing the number of current active listings on the market by the average number of homes sold in a month.  At the end of Oct 2019 there were 476 active listings in Thurston County.  In 2019 there were an average of 447 homes sold per month.  Divide 476 by 447 and you get 1.1 months of inventory available at the end of Oct 2019.  A balanced market is said to be around 4 months of inventory.  This means if no new listings came on the market and homes sold at the same rate, all the inventory would be gone in about 33 days.

Will this continue?  I don’t see any of the factors mentioned above that affect demand going away anytime soon.  The only way for supply to increase is for builders to build new homes faster than demand and/or to have more current homeowners list their homes for sale.

If you’ve ever dealt with Thurston County you know the bureaucracy, costs and challenges involved with building in the County.  Not the mention the protection of the Mazama Pocket Gopher.  Though I’m sure most builders would love to have more inventory available, they simply can’t keep up with demand.  Though many current homeowners would love to list their home and take advantage of this market, they still need somewhere to live and would likely have to buy in this market.  With very little choices to buy, staying put and remodeling tends to be a great alternative.

Long story short, I don’t think this issue of supply and demand will level out anytime time.  What do you think?