Housing Market’s Rough Road Ahead: How to Prepare for Rising Price Increases

Are rising home prices causing you to become concerned? Has the increase in real estate in the post-recession housing boom got you worried? Your worries and concerns are not unfounded; there is a general increase in real estate prices over a sustained period since the housing crisis of 2008-2010.

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The reality that must be understood is that there is no one-size-fits-all price forecast for real estate in America. The price of real estate differs not only from state to state, but it also varies from county to county and city to city. Let’s take a closer look at the nature of pricing in the housing market, and what to do when the market price rises in your community.

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How Housing Prices are Determined

Before we get into what to do about rising home prices, you need a firm understanding of how real estate prices are determined. Real estate values are assessed by licensed appraisers that are familiar with the county that they assess. Appraisers must value the properties based on previous home sales in the area of the subject property.

When the housing market crashed, this is the reason that home prices dropped nationally. When it was exposed that notes connected to risky home loans were being bundled and sold to unsuspecting foreign investors, those investors refused to further invest in the housing market.

Combined with foreclosure on the subject properties of these high-risk loans, a wave of below-market-value sales began reporting in practically every market in the nation. This resulted in the rapid decline in property values nationwide. As properties began being purchased and placed back on the market for increasingly-higher prices, the value of homes started to rebound and increase, which is where we are today.

Watch Housing Price Trends

Depending on where you are in the nation, you may or may not be in an area that is faced with rapidly-increasing values. While overall real estate prices have risen 50% above the values seen in 2009, some values are still on a steady incline. For instance, median home values in Boise, Idaho rose by 17% in 2018 alone, while home prices in Seattle, Washington declined by 2.4%.

You have to stay abreast of the price trends in your particular neck of the woods. You cannot take the opinions or reports of those that are not familiar with your specific market seriously. What is good advice for one area may be horrible advice for another.

Scour the Market for Good Deals

Regardless of how much overall prices increase in homes, there are always good deals lurking or popping up for sale at any given time. Your real estate agent may be able to locate a property that has just been listed for a great deal or maybe even spot a fixer-upper that will save you a considerable amount if you are willing to put a little TLC into the property.

For-sale-by-owner (FSBO) properties are often for sale for lower than the market price. The prices are often based on what the owner owes on the property. In these instances, there is no realtor involved, so there is no pressure to pay an agent—which is an additional 6% that they don’t have to include in the price.

Prepare for Unexpected Maintenance Costs

If you are indeed in an area that is facing a consistent rise in home values, you need to look at ways to save where you can. It was Ben Franklin that said, “A penny saved is a penny earned.” Whether you subscribe to this concept or not, you must agree that when you save money, it can be used towards something else. Keeping this factor in mind is important when experiencing a rise in real estate values.

Unexpected maintenance expenses can occur without the slightest bit of warning. You need to anticipate this reality when you buy a new home. Purchasing a home warranty will keep you insulated from excessive appliance replacement and repair costs.

Is the Nation in the Midst of a Real Estate Price Bubble?

The main question that economists that are focused on the real estate market are asking is if we are in the midst of a housing bubble. A bubble is the ending of what is called a boom-bust cycle. This happens when a market or sector becomes overvalued, and the unrealistic price increase leads to a collapse in the market.

Conclusion

Some homebuyers may think that they should wait until the market collapses to purchase a home. The error in this logic, is that trying to predict a market collapse is like trying to catch a falling knife. As long as you are purchasing a property that is priced fair for the current market, regardless of what happens to the market, history has proven time and again that the market will rebound within ten years or so.



About the Author

Brendan Byrne
While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. To contact Brendan or give him an exclusive, please contact him at theflask@gmail.com