Calhoun County, AL Calhoun County, ALOver the past few years, the cost of homes has soared. This has caused many to believe that houses are too expensive and that they are likely to crash down. Even though I’m a financial advisor who primarily assists others in investing in the stock market, I also follow the market for real estate quite close. Similar to the stock market, the real estate market is impacted by a variety of variables, and the majority are related to the economy.
The first step is to discuss why the price of homes increased in value so swiftly and radically over the past two years. As the COVID outbreak began at the beginning of spring in 2020 The Federal Reserve slashed interest rates to record lows. This was done to encourage borrowing, which increases spending and boosts the economy. It was also a way to boost the economy. U.S. government also enacted strategies to boost the economy. This include stimulus funds, granting funds to state governments as well as PPP loans to small-scale entrepreneurs. The outcomes of these initiatives proved beneficial in stimulating the economy however the rise in the supply of money and the sudden expenditure caused inflation. A combination of historically low interest rates caused the perfect storm for home costs. Mortgage rates were at a low level which made homes cheaper for potential buyers. Then, inflation is a natural phenomenon that made housing more expensive.
Many people remember the events that impacted the market for housing in 2008, and think that we’re due for the same thing. It’s crucial to be aware of what occurred in the past. Prior to the 2008 economic crisis, the banks as well as mortgage lenders were engaging with subprime loan. Regulations were less stringent and banks could loan to borrowers with poor credit scores. They also didn’t properly check the borrowers’ earnings and ability to repay the mortgages in time. Additionally banks were bundling mortgages into investment products and then selling the mortgages to investors. This way they were transferring risks to the investors, but they were claiming that these investment products were high-rated and secure. In the end, borrowers started to default on their mortgages, which caused a ripple effect across the economy. The failure of many banks, the unemployment soared, and many were forced to leave their houses. This led to was an abrupt oversupply of homes available for sale and a drastic decline in buyers and demand. So, home prices saw an enormous drop in value.
This leads an end to the thoughts about the current state of the housing market. The price of something is simply the place where demand and supply meet. It is often referred to as the amount the buyer is prepared to fork out. The issue with the market for real estate today is merely one of demand and supply. Yes mortgage rates are rising than they were years ago. We are beginning to see signs of the slowing of the real estate market. However, I wouldn’t expect a dramatic value drop for homes in the near future. The demand for homes is high however the number of homes available for sale is restricted. The new homes aren’t being constructed at the same pace as they were prior the financial meltdown of 2008. If demand continues to show a dramatic decline or supply is able to catch up to demand, I do not see major changes in the home price and anticipate that home prices will remain at the current levels.
To sum up this market for real estate is similar to every other market. Markets experience booms and busts, as well as ups and downs. As I advise my clients who invest on the market for stocks, predicting the market is a challenge and I do not recommend to try. The same is true for real property. If you’re shopping for a new home but are waiting to purchase “when prices drop” Be aware that it’s not a guarantee that this is going to happen anytime very soon. As long as demand isn’t met and especially in the area’s real estate marketplace in Calhoun County, AL, prices could remain at current levels for a long time, or even increase.
Editor’s Note: Jonathan T. Jones(r) is an advisor to local banks and is a contributing author to The Calhoun Journal. He will write financial articles to assist readers to understand the market and the many changes taking place in the world of finance.
Jonathan T. Jones, CFP(r)
Wealth Manager/Financial Advisor, RJFS
The 501 Quintard Avenue, Suite 17
Anniston, AL 36201
256-237-2300
Any opinions expressed are the opinions that of Jonathan Jones, CFP(r) and are not necessarily those that of Raymond James.
Securities are offered through Raymond James Financial Services Inc. which is a member of FINRA/SIPC. Services for investment advisory are offered via Raymond James Financial Services Advisors, Inc. Wealth and Retirement Services is not a broker/dealer registered with the FDIC and is not affiliated with Raymond James Financial Services.
