When will equity gains again be the norm in real estate?
Bobby Coats, an economist and professor at the University of Arkansas’ Dale Bumpers College of Agriculture & Life Sciences in Little Rock, said the investment minded buyers may be in luck in the current market. Why? His opinion is that homes will start gaining in value before too many years.
Coats said real estate is going through a deflationary period and believes that could last another two to five years. After that deflationary period is over, Coats believes we’ll enter another inflationary period and homes will start gaining in value again.
In other words, investors guided by the age old maxim of “buy low, sell high” may find a number of advantages in the current market. Those who purchase homes today may find them for a bargain and may see returns on their investments a few years down the road.
Coats said it’s not hard to understand why home prices are declining right now. Between 2003 and 2007, credit was easy to get. Lending requirements at some banks – many of which are now out of business, by the way – were very loose and people could qualify for more expensive homes then they could have in years past or, in fact, now.
When people don’t care how much things cost, the values of items such as homes tend to rise. When we go through an environment where credit is easy to obtain to one in which lending requirements are stricter, people tend to care about how much things costs and the amount they are willing – or able – to pay for those items tends to drop.
That’s exactly what we’re seeing now. The death of the subprime lending market brought about both a lot of government regulation and a good deal of self-regulation from banks wanting to avoid risky mortgages.
Coats did point out that Arkansas housing markets have fared better than others across the nation. One of the reasons, he said, is that Arkansas mortgage bankers were generally more conservative in their lending policies throughout the “boom years,” thus keeping prices from skyrocketing too much in most markets in the Natural State.
Still, it’s clear that housing prices across Arkansas have declined since 2006 and speculation runs rampant that they may fall some more now that inflationary measures such as government tax credits for first-time and repeat buyers have been pulled out of the system. In addition to the expected market dynamics coming into play, it’s no secret that foreclosures and short sales are still coming at a relatively high rate in Arkansas, thus weighing further on sales prices.
That, Coats said, may come as good news for both investors looking to turn profits in a few years and buyers who merely want to pick up homes for good prices and live in them. Look at it this way – would you rather purchase a home now when interest rates are low and prices are declining or wait a few years and risk both higher interest rates and inflated prices?
Home Sweet Home is written by Ethan C. Nobles and is distributed weekly by the Mortgage Bankers Association of Arkansas.
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.