The 2nd Half of 2008 & Beyond: Speculations About Inflation and Housing Prices
August 21st, 2008 categories: Assessing the Local Market
I’ve been hearing many people speculate about the housing market lately. Most are predicting a continued down turn and continued price reductions. No surprise there! It’s been happening all summer!
Elizabeth Weintraub’s 2008 Real Estate Prediction #1 is a great description of what has actually been happening, even here in the Texas Hill Country. She’s quite a poet and certainly got a good sense about her.
“Median home prices will continue to fall in softened markets. They won’t take a nose dive; though, they will float, ever-so-gently like a feather, slippling left to right, then left again, and closer and closer to a landing spot. Overpriced listings will die quick deaths.”
For the balance of her article, click Here
So … the short term answer is a NO BRAINER! According to Elizabeth Weintraub, prices are just looking for their landing spot! But what about the long term answer?
My mind has been going back to my college Economics classes. What ever happened to the idea that REAL ESTATE IS A GOOD INVESTMENT IN TIMES OF INFLATION! I found this article written by Lawrence Yun, Chief Economist, NAR Research (that’s the National Association of Realtors!), entitled Real Estate – A Nice “Commodity” Play. He seems to be pondering the same thoughts that I have been.
Here is a pretty lengthy exerpt:
“We are all well aware of high commodity prices in today’s market. Most tangible raw materials are commanding sky high prices. Oil, diesel, copper, steel, cement, and other construction-related costs (except lumber) are all up substantially…
We can see the effect in inflation figures. In the past five years the consumer price index has risen 18 percent; the producer price index for construction has increased 39 percent during the same period.
In light of the resource price boom, one interesting angle that has not been delved into deeply is that real estate could be a nice commodity play. Real estate — with all its tangible and concrete solid qualities (unlike paper financial assets) — has historically been a good hedge against inflation. High commodity prices — and high inflation rates in the late 1970s and early 1980s — led to double-digit gains in home prices. So why hasn’t that happened this time?
One reason goes back to supply and demand. Right now there are too many home sellers (some of whom are trying to sell one of several properties they own) in relation to home buyers. The short-term dynamics of high home inventory (of both new and existing homes) will require some time to work off. However, once inventory reaches a manageable level, does it then mean a that real estate prices will “catch-up” to reflect high commodity costs and the high costs of construction?
Think about two different households (one owner, one buyer) interested in homes situated where land is cheap and plentiful. How much are those homes worth? If a household desires to build a (new) home there, then the real price of that home will be the cost of construction.
But let’s assume that the home owner wanted to charge a much higher price (i.e., more than the cost of construction) to sell that home to a buyer. The buyer would do well by simply building a new home at the cost of construction rather than paying the higher asking price. So the long-term home price equilibrium can be viewed simply as the cost of production. If the cost rises, then so will the home price. In areas of the country where developable land is relatively widely available, the rising cost of construction will surely then lead to proportionately higher home prices.”
… For the full article, Click Here
Very interesting thought, don’t you think? Something for each Seller and/or Investor to keep in mind for the long term … which brings up another thought that has been rumbling in my mind from my College Investment classes: IT IS THE LONG TERM INVESTOR THAT USUALLY MAKES THE MOST MONEY, NOT THE SHORT!
So, let me encourage you to put on your “Long Term Focus Glasses”! Haste makes waste is the motto I learned and preach! Let’s just face reality and move forward! Not in panic, but in peace. For those who need to sell right now, the truth is you are probably going to take a “hit” to make your sale. For those who don’t have to sell, it’s probably a good idea to rethink your strategy. If you can stay in your home, consider giving your house a face lift. Staging works for homes that are being lived in too. For more information, read my article,
STAGING SERVICES – TEXAS HILL COUNTRY & SAN ANTONIO
Also, renovations can give your house a face lift and add value to your home. We can help there too!
Renting certainly is another credible option to consider. We, at Hill Country Home & Ranch Team, are adding property management to our list of services that we provide. For more information about how that works, give us a call at 830-995-2511.
And, for those buyers waiting around for the market to “bottom out,” you might keep in mind that your choices could soon be running out instead! Listen to another of Elizabeth Weintraub’s predictions for the year 2008:
“Inventory will continue to climb until mid-summer, at which point sellers will begin to realize they must either remove their home from the market or be reasonable. Most will choose to remove their homes from active status and inventory will begin to fall.”
Extremely insightful … given that it is currently late-summer now and we’re seeing this happen daily (e.g., Sellers are, in fact, taking their homes off the market).
Hope this stirred some ideas for you. Buddy and I have extensive experience in numerous areas. See my Resume for starters. Buddy, you’ll have to talk with directly. But he has extensive experience in construction matters. If we can help you or you need more information, give us a call at 830-995-2511.
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