Home Prices on the Rise

A tight supply of homes for sale and lower mortgage rates are pushing up home values. Sellers and homeowners are reaping the rewards.

Kaushik Mukerjee and Preeti Vasishtha faced stiff competition when they set out to buy a home last spring. The couple, who live in Northern Virginia and have an 8-year-old son, were looking for a home in a good school district, but they lost out to other bidders on two houses before their offer on a townhouse stuck. "In one case we competed against 10 other offers, and the home sold for $20,000 above list price," Mukerjee says. Ultimately, the couple paid $502,000—slightly above list price—for a 2,000-square-foot, three-bedroom townhouse in Burke, Va.

Furthermore, a large cohort of baby boomers are buying and selling, as many boomers downsize for retirement. Adding to the big squeeze on buyers is a huge housing shortage: The number of homes in the U.S. listed for sale on Zillow in December was down 7.5% from the previous year and is at the lowest level ever recorded by the company. The U.S. housing market is facing an undersupply of homes for sale of 3.8 million, which is driving up home prices and putting pressure on housing affordability, says George Ratiu, Realtor.com's senior economist.

For about one in four home buyers in 2019, the home-search process took more than a year, Realtor.com found. "The housing shortage is brutal," says Matt Parker, a Seattle real estate agent and author of Real Estate Smart: The New Home Buying Guide. "Buyers can go months without looking at any new properties."