The simple economic sense provided in this blog makes me wonder what the national real estate reporters are thinking when they write the articles they do...
Unfortunately, house prices will continue to fall for quite some time. The imbalance between housing supply and demand can only be cured by an increase in the number of people wanting to live in Tallahassee houses, not by shifting people from the leasing side of the market to the owning side of the market.
When I read national real estate reports talk about the real estate recovery hinging on interest rates, tax incentives, and even on consumer confidence, I ask myself …
Where Are These Buyers Living Right Now?
I mean after all, we have a simple problem of falling house prices due to an over-supply in real estate. All those previously mentioned things are great stimulants for demand, but I’m not so sure that real estate is any different than other commodities. If there is too much supply, you must “grow” the demand side. A shift just isn’t going to help.
A shift occurs when tenants become owners or when owners become tenants. Nothing changes in the market in terms of consumption or supply and demand, because the “resident count” does not change. Getting all the people in Southwood to move to Killearn Estates is not going to positively affect Tallahassee house prices either. We need more residents in our local markets in order to consume the glut of homes for sale before the housing market truly embraces a recovery.
3 Possible Solutions For Falling House Prices
The way I see it, there are only 3 ways to fix our current situation. They are:
- Get more people to move to Tallahassee – Currently, Tallahassee is not growing. It historically has grown by less than 2 percent each year (and that is why the additional homes had been built), but experts believe that growth will be minimal for the next few years (and last year Tallahassee actually saw a reduction in the population). If you are in another market area, what is your population growth doing?
- Encourage a lower per-capita rate in each home – Other than encouraging our children to move-out and get their own housing, what can we persuade parents to do to help-out in this difficult market. Maybe create a colony for 16-18 year old children? [note: Sarcasm]
- Destroy existing homes – This option would have been a great federal program (rather than the Homebuyer Tax Credit), as it would have had an immediate impact on the supply of homes in Tallahassee. The government could have executed a strategic plan to buy homes in all price ranges, destroy them, and then hold the remaining lots until they could be resold for growth in the future. This would have saved the government money and fixed house prices much quicker.
Why Demand Stimulants Won’t Fix The Issue Of Consumption
When you create a stimulant, you encourage people to do something. Other than creating more people who need more housing though, these fixes will really just shift the housing market. Tenants who are encouraged to buy a home do so by vacating a rental property. In the market place, a vacant “for sale” home is replaced by a vacant “for rent” home. The long-term affect on the market is nil.
Unless we see our societal morals change, option #2 is not going to happen. And the Federal Government has already failed us. It dumped its load of money on the market (for a temporary reprieve of current market conditions), and thus we cannot expect a smart solution (like #3) to ever come about. This leaves us with option #1; we have to grow our way out of the current over-supply of homes.
Population growth has been the traditional solution to falling house prices due to glut conditions. More people move to Tallahassee and either buy or rent a home (or apartment/condo/etc.), and thus we chisel away at supply. Last year, Tallahassee did not grow and most of the State of Florida saw similar drops in population. How are you going to stimulate somebody to buy a home if they are moving away?
How To Determine What Is Going To Happen To House Prices
Believe it or not, this is relatively simple. [continued here]