Despite Wall Street volatility and indications of a national economic slowdown, average home prices across the U.S. continue to rise. Good news for REALTORS? That bears looking into.
In its Third Quarter 2000 House Price Index, the Office of Federal Housing Enterprise Oversight (OFHEO) announced early this month that home prices had increased 7.3 percent nationwide over the third quarter of last year.
Housing on both coasts led the way, with an 11.9 percent increase in New England and a 10 percent increase on the West Coast. Lowest gains were in the East Central sector, with 5.7 percent in the northern bloc and 4.1 percent in the southern. Five-year increases in home prices ranged from 38.7 percent in New England to 22.6 percent in the Middle Atlantic states.
HUD, meanwhile, reported that home ownership had reached an all-time high of 67 percent while unemployment figures from the Bureau of Labor Statistics hover around a record low 4 percent. The prolonged period of U.S. economic expansion continues.
Now, the climb of housing prices would seem to be cause for REALTOR celebration. What could be better for real estate? Higher-priced properties mean higher commission income. What could possibly be wrong with that?
Seasoned real estate professionals – who remember wild rides on the economic roller coaster since the 1970s – caution new agents to keep the party noise down and just appreciate this part of the ride. Veteran REALTORS well remember how unpredictable sales became in the recession of the early ’80s, when volatile interest rates soared as high as 18 percent.
Yes, the overall economy is still healthy, but the 7 percent increase in home prices over the last year is at least double the current inflation rate. In recent years, home appreciation has tended to outpace the nationwide rate of inflation, and there are signs that individual markets are overheating, pricing buyers out of the market. San Francisco, boasting average home prices of half a million dollars, is a case in point, and smaller markets such as Denver have reached the $250,000 average mark. Rents, too, are rising faster than wages in booming urban areas.
The bottom line for real estate is, of course, that when prospective home buyers cannot afford to buy, sellers do not sell. In markets across the country, workers are finding it increasingly difficult to accept jobs in areas where housing is unaffordable. And so the cycle continues.
The Fed continues to slow inflation with incremental adjustments to interest rates,
but with nationwide housing prices averaging twice the rate of inflation, REALTORS need to look beyond today’s markets to the years ahead. Past experience with economic peaks and valleys has taught us that in robust periods such as the one we are enjoying now, real estate professionals need to focus on their futures.
Now’s the time to retain or regain contact with former customers and reinvest in their own career development by pursuing advanced professional education to provide the best consumer service they can, regardless of the market.
Is inflation good for real estate? Up to a point, sure. After that, it depends on whether you’re talking about the short term or the long term.
Published: December 18, 2000
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