By Brian Summerfield, Online Editor, REALTOR® Magazine
Recent news stories have pointed out that increases in the value of commodities such as oil and food may lead to alarming levels of price inflation. At the same time, the cost of renting has gone up, and is expected to surge even more this year.
As rising prices gobble up more of the American consumer’s budget, buying a home will be a more attractive proposition. Values have fallen precipitously these past few years, which initially — and, some would say, justifiably — damaged the perception of homes as an investment. But now, affordability is looking as good as it has in decades, especially in relation to renting. In fact, in many metro areas, it’s now considerably cheaper to own than rent.
Combine these pricing trends with moderate improvements in employment, and we’ve got a recipe for a housing turnaround over the next couple of years, with a few caveats:
- Interest rates will have to remain relatively low (no higher than, say, 6-7 percent).
- Some mortgage financing system that continues to offer accessible, fixed-rate loans will have to be implemented.
- Housing supply will have to be somewhat low — that is, no sharp, sudden increases in the shadow inventory or new construction.
- There are no broader economic crises that negatively affect the industry.
If those criteria are met, then we could remember 2011 as a comeback year for residential real estate.