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Home Prices are Rising, but Not Home Sales—Why?

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Jan. 20 2016, Updated 12:56 p.m. ET

Series overview

In our previous series on the US housing market, we discussed the rising home prices, the causes, and the implications for potential homebuyers and corporations. In this series, we will discuss how the lower inventory is keeping housing away from the reach of many people, as well as what ails the housing industry. We will begin the series by exploring affordability issues.

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Affordability is the key

Housing costs comprise a large percentage of the household budget. In fact, a home is usually the most expensive asset that consumers can hold, and owning a home is among their lifetime goals. The question arises—why can’t more people own a house despite the availability of so many properties in the market?

The answer hinges on affordability. Most of the houses available in the market are just not affordable to many individuals for a variety of reasons. They are simply out of their reach.

Lack of housing affordability can affect people in profound ways. Rather than being able to own a single-family home near their workplace or the best schools, many families must move to suburbs and beyond to find affordable housing. Many other individuals and families become—and remain—renters.

Likewise, a high-priced market becomes unattractive to many corporations, who must move their operations to new locations in order to control their operating expenses.

Positive to homebuilders

Rising home prices are generally considered a positive proposition to homebuilders like Lennar Corp. (LEN), D.R. Horton (DHI), and PulteGroup (PHM).

Investors can take exposure to the residential real estate sector by investing in residential REITs like Equity Residential (EQR). The iShares Cohen & Steers REIT ETF (ICF) invests 6.7% of its portfolio in Equity Residential (EQR).

What is ailing the housing sector in the country? Let’s explore this issue in the next part of this series.

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