Perhaps you are pessimistic in general or just when it comes to your real estate investments and the housing market, which probably include housing. With everyone saying the market has hit bottom, and prices are as low as they will get, do you worry that this is too much good news?
I do. At least I did until the Kiplinger Report.
This is not among my usual reading material but the Kiplinger people sent me a free copy of the new report with a temporary user name and even a password. Their letter summarized the current situation:
“Home prices soaring by 20% or more over the past 12 months. Bidding wars. Houses sold just days after the for-sale sign goes up. Is another housing bubble developing?”
(if you don’t want to read the rest of this column, such as why, etc., you can skip to the next paragraph which gives the basic answer):
No. Kiplinger does not foresee any bubble. The heated up market is a short term phenomenon, “born of a temporary imbalance between supply and demand,” say Kiplinger economists.
“There are huge differences between what we see happening today in even the hottest of real estate markets and the tulipmania of last decade.” (Sorry here, reader, if you don’t know what this is and are curious, you’ll have to read the rest of this blog).
For investors, the news from Kiplinger is the acknowledgement that cash-paying investors are continuing to comb listings for rental properties as investments in the usual pattern but in larger numbers these days.
Low interest rates are also a factor. Another factor is that new home construction is only slowly recovering.
So Kiplinger predicts the pace of price hikes will ease next year as supply and demand come into better balance. The national increase in prices is likely to be half the 8.5% rate this year.
“Then, a gradual return to the historical norm, with average home values rising by about one percentage point more than the inflation rate each year,” the site predicts.
But it suggests that you consider the starting point here in some areas. Extreme price hikes of up to 22% (Phoenix and Las Vegas) from 2012 to early 2013 are still more than 40% below their peaks.
Interest rates are also likely to stay low.
And only creditworthy borrowers are getting loans.
So it all adds up to a conclusion: home prices will go up but in zoom-like fashion.
As for the “tulipmania,” (not defined in the newsletters but I looked it up) that is a reference to the 17th century when tulips bulbs were introduced into the market in Holland. Speculation from buyers was so rampant that prices were pushed up to unrealistic levels by people who never had any intention of planting them. Property, animals and even money were all traded for tulip bulbs, at least for a time.
Speaking of money, if you want more from the Kiplinger site, it’s $199 for the first year or a cut rate of $263 for a three-year subscription. If nothing else, you can learn more about Tulipmania.