Real Estate News and Investment Property

The housing market is still far from bubble territory, according to a new report that finds home prices are still undervalued by 3 percent nationally. For the second quarter, Trulia’s Bubble Watch factors in home price values by comparing prices today with historical prices, incomes, and rents. In the first quarter of 2014, home prices were about 5 percent undervalued, and they were 8 percent undervalued about a year ago. At the current pace, home prices are expected to be in line with long-term fundamentals—neither over- nor undervalued—by the last quarter of 2014 or the first quarter of 2015, according to the study. Three-fourths of the 100 largest metros analyzed are still considered undervalued. Source: Forbes.com

Good news for apartment renters: Rent hikes are finally starting to slow, a huge relief for those who have put up with annual increases over recent years. A big reason for the slowdown is the increased supply of new apartment units on the market, said Hans Nordby, managing director of CoStar Group, a provider of information and analytic services for the commercial real-estate industry. “The first quarter of this year, 54,000 new apartment homes were delivered to the market [nationally] and demand was about 27,000 apartments,” Nordby said. “That causes vacancies to pick up a bit.” Increased vacancies mean that landlords can’t be as aggressive in raising rents, if they want to keep their units filled. It’s important to remember that all markets are different. In some areas with short supply, rents could continue to rise sharply. There’s another factor playing into landlord decisions too. “Some rents have gotten so egregiously expensive, it puts an artificial ceiling on rent growth,” said Ryan Severino, senior economist and associate director of research for Reis, Inc., also a provider of commercial real-estate information. When rents are rising faster than incomes, at a certain point, tenants can’t stomach meaningful rent increases, Severino said. And when enough of them push back to their landlords, apartment companies may begin scaling back their rent hikes, he added. Make no mistake, most landlords are still hiking rents, Severino said. They just may not be able to increase them quite as steeply as they were able to previously, he added. Rising rents are also causing people to make different choices about the neighborhoods in which they’re willing to live. Instead of searching for a home exclusively in the city, young people are much more likely to consider rentals in suburban areas. Already, some suburban markets getting hotter. Source: Market Watch

Economic Outlook Real Estate Report

Do You Remember Inflation?

While some may consider this a sarcastic question...we have not had really high inflation in the United States for some time. For example, in the past twenty years the retail inflation rate has averaged approximately 2.25% with an even lower number for the past decade. Two points about this. First, even low inflation rates can cause increases in the cost of living. For example, a 2.25% inflation rate over 20 years will increase the cost of living over 50%. Secondly, though low inflation rates can create issues in the long run, those who are older remember a U.S. inflation rate of near 10% per year from the period of 1973 to 1982. That was real "old fashion" inflation.

So if raging inflation has not been a problem for ten years, why bring it up now? Because the real reason we have had really, really low interest rates for the past ten years is the lack of inflation we have experienced. And if we really want to know when rates are going to go up significantly, we need to watch the data on inflation more closely. The reason rates trend up when we get good economic news is the fact that the markets feel that the Federal Reserve Board will raise short-term rates in response to the threat of inflation.

There are actually two stages here. The Fed has kept short-term rates near zero in response to our deep financial crisis and lackluster recovery. So the first move is to move rates to a low inflation normal. The second move is the one we should worry about in the long-term. That is a move to head off inflationary expectations if the economy heats up. We expect the first move and should worry about the second move. For right now the sale on money to finance cars, houses and investments continues. If we keep creating jobs, we should keep a wary eye on the inflation number because we know the Fed is doing just that when they meet next week.

From CBC National Bank