Monday’s Big Answers

July 10, 2006 |

Well, I asked, but no one answered.  That’s okay.  I understand that perhaps those who read Friday’s Big Question may have been a bit too shy for comments.  Not to worry, you will have a chance to share your opinions on a different topic every Friday.  And don’t forget that you can comment any time that you want on any of the posts you may read on the blog.  I encourage it, as everything is better with a little conversation!

Now, for my own opinion:

On Friday, I asked if you felt that the rising interests rates are at least partly responsible for the slow down in the national real estate market.  Personally, I think that the rising interest rates have contributed a little bit to the slow down in the market, but there are much stronger forces at play.  Despite the fact that the Fed has been raising rates pretty routinely, 30-year mortgage rates still remain at historic lows.  The effect of the rising rates has been to stop people from entering the market that were enticed by the super-low rates of the past few years.  The low rates created a pool of buyers that would not have existed otherwise.  Most of those people have now completed their transactions, and are quite content.  As the rates have risen, it has caused the market to return to normal.  The market is filled with the usual amount and types of buyers that we see every year.  That is why the more accurate term for what we are seeing in the market is a "correction."  The market is always going to be searching for an equilibrium, that is the nature of free markets.  As the pendulum swings one way, it must come back the in the other.  The question on the minds of many is now, "how far will it swing?"

To me, the much stronger force at play, especially locally, is affordability.  Prices have risen to such a point that many people cannot afford today what they could have bought only 12 months ago.  And if you look back farther than that, the decrease in affordability becomes startling.  Many of the homes that are attractive to first-time homebuyers and young families are not affordable for those people.  As such, they continue to rent, or they move elsewhere.  There has been much talk about affordable housing, but the solution, at least locally, has been to sell condos that have been converted from old apartment buildings.  Sure, the prices may be "affordable," relative to what else is in the area, but to expect a family of 3 or 4 to live in a 900 sq. ft. appt. for $180,000 doesn’t seem reasonable.  On top of that, many of these condo conversions are being bought out by investors, who simply rent the units, which doesn’t do anything to acheive the goal of increased ownership.  I fully recognize that the cost of housing is determined by the market, my only concern is that the Charlottesville area market may one day become a victim of its own success. 

Posted by Daniel | Filed Under Finance, Monday Answers 

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