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Property Values in a Slow Market

Posted by: Chesley Payne
June 28, 2009
Topic: Consumer Information

I am attaching a link below to an excellent story from the Birmingham News from June 14, 2009, about declining market values. While the story is depressing for current home owners, I see a silver lining to this story. From what I remember from my college economics class, a boom period in the economic cycle is good for everyone until the time comes when inflation becomes an issue due to the presence of too much money in the market. In short, more people buy things, more things are made, more people are employed to make these things, and the price for these things continue to rise because demand continues to rise. A recession is basically a way for the market to hit the brakes once prices are too high for people to buy things. Prices drop, the amount of money in the market drops, the people who were hired to feed the demand find themselves on the short end of the downturn.
 
The same applies for real estate sales. What we are seeing is real estate values retreating from those highs of the last few years. This is bad for homeowners as they cannot get the same price for their house they could 2 to 3 years earlier. However, once the scare goes away, the declining prices are what help buyers get back in the market.  From what I have observed, the one area of home sales that has remained steady and even grown over the past few months are first time home buyers buying foreclosed homes. Why is this a positive? These homes are usually way underpriced. Therefore, it is important that these homes be purchased and removed form the market. Once this is done and the amount of affordable existing homes begins to decline, the home builders can begin building homes again. This in turn will cause them to start hiring electricians, plumbers, real estate agents, etc. How long will this take? I have no idea, but from what I am observing, we are only in the first stages of a recovery for the real estate market in the area. Keep in mind however, all the numbers point to Birmingham recovering before the rest of the country. So, homeowners can take comfort in one point, we are probably at or just past the bottom of the cycle. Stay patient and endure for a while. You should be rewarded from a long term perspective.
 
 
 

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