Housing prices going up or down?
It seems everyone you talk to thinks prices are going to go down, the real estate bubble is going to burst. CNNMoney projected negative growth in 2006 and 2007 in some areas.
Yet, the current figures do not seem to bear this out. According to the Los Angeles Times , “average U.S. home prices climbed 12% over the 12 months that ended Sept. 30″ While it also says the home values appreciated only 2.9% during the third quarter from the second quarter of 2005,the annualized rate is still a double digit 11%.
So what can you expect in the coming year?
With the rise in interest rates, there will definitely be a hiccup in the purchase market. Buyers need some time to adjust back to reality. We are talking 6.5% to 7% interest rate, not the 12-14% that we had in the 80’s. We were spoiled by the incredible 4-5% interest rate which we really could not expect to continue. I don’t think a 7% interest rate for home loans will not kill the real estate market.
The second consideration is supply and demand. The last three years, we experienced an incredible increase in home prices literally daily. A house sells for $300,000 and the next door neighbor puts his house on the market the next day and sells it for $320,000. I don’t even know how to calculate the annualized increase, it is off the chart! We are certainly not having this same type of demand. However, I am still seeing low inventory is in the marketplace. A decently priced home will still sell within two weeks. This means there are buyers out there willing to pay a decent price. We are not having high unemployment figures; we are not having decrease in population in our area. We should continue to see appreciation in single digits or better.
(The houses that sit around on the market for over a month are sellers who think they can do what their neighbor did 3 years ago. They are either testing the market or will eventually lower the price to a realistic figure. When we do comps, we are not seeing houses selling below the last sold home in the neighborhood.)
After all the analysis and predictions, no one has a crystal ball. Just remember, real estate is a long term investment, and you won’t be disappointed.