Jim Valentine: Inflationary times

Jim Valentine on Real Estate

Jim Valentine on Real Estate

As these times of high inflation impact our collective pocket books it is interesting to hear the tales of experience from customers that have experienced past inflation-caused recessions. Most such discussions center on the early 1980s when inflation soared in a manner equal to what we are currently experiencing and interest rates soared.
Interest on a VA loan in November 1980 was 18% and 9 points. Each point was 1% of the loan amount. Even if a person could qualify for a loan they usually were not inclined to borrow at that rate to buy a home. The market froze and calamities happened. That market was turned around in 1987 when Congress approved a tax bill that allowed the market to flow again.
We in Northern Nevada benefited greatly from that tax bill as it mandated that states could not reach out to tax people receiving retirement income from a California source but living in another state. When that happened retirees were able to move to Nevada and not have to pay California income tax on their retirement income. The market ran for a bit, stalled in the 1991 time frame, and turned around in 1993. Since then we’ve had other recessions, but it wasn’t necessarily inflation that caused the damage to the market.
Markets come and go over time. They always have and always will. There are many things that impact markets, but inflation and interest rates combine to make for rapid and drastic changes. We haven’t seen it impact us yet, but be aware that things are setting up for a change if we continue on this high inflation route we are currently experiencing. What typically happens is the interest rates increase causing home prices to drop. It is an offset, but your timing is critical to maximize your position. If you buy at a lower price at a higher interest rate, you can refinance when rates drop in the future … if they actually drop.
The Federal Reserve has already said it will raise interest rates in March. Though it is said that doesn’t directly impact real estate interest rates, it always does in reality. There is talk about the Fed raising it as many as 5-7 times over a period of time. They are serious about reining in the inflation and that seems to be their go-to approach. Logically, the increases in interest rates will cause prices to drop, but one must remember that we have high housing demand by buyers in Northern Nevada and a small inventory. As long as the demand exists we think the prices won’t drop as much as they otherwise would in such Fed-induced conditions.
Interest rates are an important factor in market price, but there are other things that affect a market. Building materials have soared, dropped, and soared again in recent months. The high cost of new construction is impacting the resale market, another reason for values to not crash if rates bump a bit. Lot development costs, too, are higher which contributes to increased new home prices in newer subdivisions. We are fortunate to have buyers coming from a different market where they are selling for great profit at higher prices. They don’t mind paying a bit more to get what they want which contributes to higher pricing than one would normally expect.
Real estate is a long-term investment. Unless you are looking to buy, remodel, and flip, you are buying for a longer term. Make a long-term plan and work your plan. You are buying in the current market, whatever that is or will be when you are ready, so plan accordingly. Every market has its nuances. Talk to your agent about how they affect you and your wants and needs.
A plan with clearly defined wants and needs will help you achieve your home ownership goals. Pay attention to current events, both local and national, and stay in close touch with your agent. You, too, will soon enjoy the many benefits of living the American Dream, owning your own home.
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless!  Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704.   dpwtigers@hotmail.com

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