THE MONEY POT Y O U R H O M E I S A N I N V E S T M E N T; B U I L D A N D L E V E R A G E I T S VA L U E | B Y J A M E S H O U C K The end of the rainbow might not be as far, far away as we perceive. In fact, the pot of gold may be at your feet—assuming you’re standing or sitting within your own home. In the last three years, the Chesapeake Bay real estate market (and the entire nation’s) experienced quite a boom—so much so, in fact, that homes have been selling like hotcakes. Those sitting on desirable properties saw their home values soar to levels not seen since the early 2000s—and the opportunity to cash in, bigtime, convinced more than a few to sell. Low inventory coupled with low interest rates created both a sellers’ and competitive buyers’ market, so to speak. Home prices soared during the pandemic as fewer homes were on the market. Yet, buyers were plentiful, as they could borrow great sums of money at some of the lowest interest rates in history. Bidding wars ensued. Available properties sold in a flash. Some of them resold for even higher prices. And the expectation of a flood of foreclosures coming to market in the aftermath of the pandemic hasn’t come to fruition…yet. Low supply and high demand remain. But—and there’s always a “but”—how long will this market continue? Afterall, we saw similar activity up until 2008 when the subprime mortgage market crashed, triggering the Great Recession. Are we due for another market correction? The Federal Reserve thinks so, effectively raising interest rates by a half-point in early May and another three-quarters of a point in June—moves intended to curb excessive borrowing by making it more expensive, thus softening consumer spending and helping
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What’s Up? Eastern Shore | August 2022 | whatsupmag.com
mitigate additional variables that trigger recession. In fact, 30year fixed interest rates subsequently climbed to the 5 percent rate—the first time we’ve seen this in more than a decade. Economist Anirban Basu states the effect on the housing industry bluntly: “When interest rates rise, the quantity demanded of homes goes down. That also drags down sales prices. But let’s keep things in perspective. The average price of a new home is up 48 percent since February 2020 (they increased just 35 percent over the preceding decade).” The interest rate increases also indicate we may have learned enough lessons from 2008 to forge ahead, promote market stability, and help create growing property value over the long term. The consensus among economists and realtors is that we won’t fall off the cliff a la ’08, but that, yes, the real estate market will start cooling off sooner than hoped. However, there remains plenty of upside. After all, inflation is temporary. “We were addicted to low interest rates and massive stimulus,” Basu says. “And now we’re about to go through withdrawal. The sweating and cramping has begun. The sooner it starts, the sooner it ends.” So, let’s dive into how current homeowners can develop property value in the short-term, with a keen eye on long-term growth beyond a potential recession. Plus, we offer strategic advice for bringing a property to market.
