Why Are Your Houses So Expensive?

   There are several questions that for untold aeons have stricken fear into the heart of the new home salesperson.  They are, in order of significance:

   "Can we think about this and call you back?"
   "Does your leasing company have any restrictions against my rabid pit bull / hyena mix?"
   "Why are your houses so expensive?"

   While there is little the salesperson can do to help her customers with the home of their dreams when the first two questions arise, and small consolation for her loss of business save that which is to be found in a 10-mile run or a good stiff drink after work, the third question is a different matter entirely.  In our current economic environment, new home prices are not only an indicator of the direction your market is going in but are also an important component to your homebuying decision.  Here's what I mean.

   From 2008 to 2014, our economy was in a recession largely driven by housing.  We overbuilt new homes in the US from 2003 to 2006 by 2-3 million, and it took a few years for the market to correct itself.  At 1.2 million homes last year, builders are just now in 2016 starting to meet the growth needs in the marketplace.  But meeting the current growth needs does nothing about the 1 million new empty-nesters, families, singles, and disillusioned renters who became ready for homeownership during each of the last 4 years while builders were starting only half a million homes those years.  The result has been the most massive increase in pent-up demand our economy has ever seen.  Hence the Mortgage Bankers' Association's report on housing, outlining what should prove to be a very interesting next decade for new construction.

   It doesn't take an economist to grasp the idea that when more and more people want to buy something, the price is going to go up.  And that is not just due to demand.  In any recession when people stop buying things they need, they also stop paying for cost-of-living increases.  For 8 years the prices of lumber, and shingles, and blacktop, and earthmoving, and kitchen cabinets, and regulatory oversight have all been going steadily up - but nobody knew, because nobody was buying new homes!  Now that people are lining up to purchase a new home again, however, the invisible increases in the price of everything that goes into that product are showing up.  It's not because builders are mean; it's because carpenters and roofers and pavers and excavators and craftsmen and government inspectors all have to make a living too, and aren't going to lose money doing it.

   Now: My customers are not going to make their buying decisions based on what's best for the country's economy, they are going to look out for their own interests.  As well they should.  But price is not just a result of financial dynamics, it is also a signal.  You can find existing homes for sale in older neighborhoods at a discount, or built on cheap foreclosure lots in a blighted location that were taken over by the bank, or maybe in a distressed or a short sale situation, although there are not many of any of those categories still to be found.  But is that really where you want to place the largest investment you'll ever make in your life?  Wise investors look for opportunities to align themselves with forward motion in the marketplace so they can enjoy strong value appreciation and future benefits, by choosing the kind of property people want to own, in locations where people want to be.  That is the reason Question No. 3 hasn't scared me in the past and never will.

   Jeremy D. Vogan
   (540) 487-0480 | [email protected] | Sales Representative, Countryside HomeCrafters LC (Equal Opportunity Housing provider)
Photo credit: www.sdasia.co