financialcounselor

Real Estate: The Industry that’s too good for Reality

In Opinion on November 25, 2010 at 12:14 pm

I was recently talking to a friend who has been looking for a home to buy, and he told me how houses are priced much higher than he expected them to be.
His words surprised me, considering what’s gone on with real estate: First, the country experienced a massive building boom over the past 15 years. Sprawling subdivisions and large scale condo developments went up all over the place. Many of these brand new dwellings never sold and sit vacant, as asking prices were determined before the housing meltdown, and developers refuse to lower them. With foreclosure rates setting records since 2008, there are tons of vacant, bank-owned homes out there. So all this points to an oversupply. And on top of all that, a great number of people are concerned about the safety of their job. Fear of a job loss is keeping many aspiring home buyers from purchasing, which obviously lowers demand.
With high supply and low demand should come rock bottom prices. At least that’s what my Economics 101 teacher told us. But let’s look at what else is going on with real estate.
There are many news reports of a shadow inventory of vacant homes held by banks. Some reports estimate that banks are only listing for sale about half of all the foreclosed properties they own at a given time, for fear they would need to further lower prices on these homes.
And then there are all the government housing programs. For the past year, the government was giving $8,000 to people as incentives to get them to buy homes. There are government programs where tax dollars are given to people who buy and fix up foreclosed home. And it seems every week there is a new government program earmarking millions of dollars for banks so they will halt or stall foreclosure action.
Taking all this into account, it’s no wonder my friend experienced sticker shock. I advised he keep renting until some semblance of reality returns to the real estate market. Or until the government announces another program that pays people to buy homes.

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