Electing for Lower Home Value?
October 6, 2009
Local Elections Affect Home Values
You know it’s election season when the yard signs start to pop up on every street corner, sometimes multiplied two, three, even four times for the same person. Some people pay attention to local elections and campaigns, others do not. But it may be wise to review some of the candidate’s history, especially if you’ve noticed a slight dip in your current home value.
The process of housing development approval falls upon these soon-to-be-elected city officials, but is rarely dependent upon factors such as supply and demand. As the supply of homes rise, it must be met by correlating demand. If not house values fall. It seems like an obvious concept, but judging by the nations current market - many were oblivious to this notion.
During one of the fastest appreciating real estate markets in history, local governments justified their seemingly endless approval of residential development projects by citing the increase in city revenues and the jobs that were created. Unfortunately, these affects didn’t last long and were soon eradicated by the concept of supply and demand. Once buyers’ demand could not keep up with escalating home prices, numerous builders began to reduce the prices of their homes in order to compete with one another. This caused housing prices to begin falling.
Home values began to drop so rapidly that foreclosures became the only viable option for many borrowers as selling or refinancing became impossible since all the equity in their homes had been wiped out by this excessive competition. Soon foreclosures began to flood the market driving supply up even further. Home builders were then forced to reduce their prices even further to now compete with banks that were offering their foreclosed homes for much lower prices. All the while the values of homes caught in the cross-fire were diminished to astonishingly low levels and the fear of continuous declines in housing prices kept buyers on the sidelines and the demand at historical lows.
Much of this could have been prevented by simply assessing the local statistics (population growth, income levels and current supply) before handing out the rubber-stamp approvals. In doing so they might have learned that supply was quickly outpacing demand.
On the brighter side, not all major cities have fully succumbed to the devastating market crash. Those cities that have traditionally regulated housing supply by more intensely scrutinizing proposed developments have managed to lessen the blow.
Still those candidates seeking office are now adopting smarter principals for their campaigns’ when it comes to residential development. It will then be our job to ensure that they maintain their pledge as lead the way to a once again thriving economy.