INFLATION AND HOW IT AFFECTS THE REAL ESTATE MARKET
As the government continues to spend
in record amounts, the threat of inflation looms ever large. Continuing the printing of money devalues it, that is an economic reality. What does this mean to the real estate market? Most likely rough times will continue. The cyclical nature of the real estate market is upon us. There are many things in play here that we haven’t seen before. The collapse of the housing market, banks, financial institutions and the constant bailouts by the Federal Government of businesses “too big to fail”.
The unrealistic increase in property values which we saw several years ago was not a good thing — it was unrealistic and unsustainable. The overvalued prices of real estate have left many homeowners upside down with regard to value vs. debt. Many who are not able to ride it out, are walking out….as in foreclosures and short sales.
In the Phoenix area we are still seeing foreclosures, but sales have picked up lowering the number of homes on the market. The vast majority of buyers are first time home buyers. The government induced $8,000 tax credit has spurred much needed interest in homeownership, as well as the affordability and lower interest rates which make it very attractive to buy a home.
The rise in inflation will make it harder for people to purchase a home in the coming years as wages seldom keep up with inflation. Dennis Torres, a California realtor and adjunct professor at Pepperdine University claims that he predicted what is currently happening about three years ago. At a conference organized by the University, Torres “spoke of an impending housing market collapse…..we would soon see housing values decline 35 to 40 percent”. He was not a very popular person at that convention.
In addition, Torres believes that prices will continue to decline throughout 2009 and then we will experience several years — perhaps up to five — of stagnant housing prices. It’s a dark forecast indeed, but if one is prepared one can dance in the rain.
