Why do housing prices in Walla Walla keep climbing? Is there a housing bubble about to burst or will values continue to increase? As realtors we regularly face these questions. To answer them we must take a look at what makes housing prices rise.
Housing prices are subject to two main influences. The first is the law of supply and demand. When there is a greater demand for homes than there is supply, prices will continue to increase. The second influence is that of speculation. When people begin purchasing homes they do not need, simply in the hope that the price will increase and they will make a profit there is a speculative ‘bubble’ in the prices of homes.
One major sign of a speculative bubble is excessive appreciation. Some major southern cities such as Las Vegas, Los Angeles, and San Diego have recently seen appreciation of greater than 50% per year. We have heard of people who bought homes, or townhouses, kept them for 6 or 8 months without even moving into them and reselling them for profits of 20 to 25%. A speculative bubble is subject to major fluctuations when minor changes in the market occur. A minor reduction in demand, or a change in interest rates can very easily impact the cash flow of a speculator who must quickly get rid of investments if they are not increasing in value. This, then multiplies the impact of the underlying change causing the speculative bubble to burst.
A supply and demand increase in values is much more sedate and changes will be much less dramatic.
The housing market in Walla Walla appears to be on a demand driven slope of increasing values. There does not appear to be many speculators just buying homes in the hopes that their values will increase and the supply of homes is growing slower than the work force. If you look at the following graphs of the County Work Force and the issuance of residential building permits you will see that the demand for homes is growing faster than the supply of homes. Although there are many issues that go into the demand for homes a simple analysis reflect that over the last five years building permits reflect about 1,138 new homes were built to support a work force increase of 4,090 people. See our next newsletter for some additional analysis of the Walla Walla housing market.
Sources: Washington State Employment Security, Port of Walla Walla, City Planning Departments.
Written by Lloyd Sampsel, Realtor with Coldwell Banker First Realtors in Walla Walla.
Make One Smart Move
Posted on November 01, 2005 09:11 |
Real Estate
