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Thursday, May 05, 2005

Why Are Real Estate Prices so High?

I'm thinking "out loud" so bear with me. Also, if you have something to add to this, feel free to post a comment.

I was driving back from an errand and I took a drive through a housing area around where I live. There was a decent house for sale. It didn't look like anything fancy (at least from the outside). They were asking $140,000. The neighborhood was nothing to write home about.

This got me to thinking. Why are home prices so high? What is driving the housing market? Here's what's been rolling around in my head:

1. Is the growth coming from low interest rates? If this is true, would the apartment rental market be hurting? If that is true then why has apartment construction been so robust lately? With all the new houses being built in my town, you wouldn't think we have a housing shortage.

2. Is the population growing? I don't know the answer to this. Perhaps the population is relocating (moving from one area of the country to another).

3. Are Boomers driving the housing market by buying 2nd homes?

4. Or, is this all being propped up by real estate tax appraisals? THIS is my theory. I think appraisals are on the rise because cities and counties desire the increasing tax base and the resulting revenue. Appraisals are raising the threshold price of homes. Builders are motivated to build more houses because they have the "insurance" of a high appraisal. I THINK I SMELL A BUBBLE!!!!!

The last point is just my theory. I haven't researched this enough to know whether or not it holds water. I would be interested to know what my readers think.

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