Home Prices

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Housing seems to be booming across the U.S. Even Federal Reserve Chairman Alan Greenspan has commented on the increase in prices. And consider this information:

In 1956, the median price of housing in some parts of the U.S. was less than $10,000.

During the early 1970s, in many states a home could be purchased for $25,000 or less.

By the year 2000, median purchase prices were approximately $100,000. And in April 2005, the Commerce Department reported a median price of $230,800.

While the data also show declines or stagnant pricing during some periods, the overall trend, even when considering inflation, appears to be upward.

Will the climb continue? Here are three factors to think about when deciding how to answer that question:

  1. Regional growth—supply and demand impacts housing prices. An area experiencing growth needs housing to shelter the population fueling that growth. On the other hand, when people start leaving (think military base closings or factory shutdowns), housing prices usually decline.
  1. Changing interest rates—Lower interest rates can help home sales by reducing mortgage payments, which encourages buyers to purchase more expensive housing than they could otherwise afford. When rates climb, financing becomes more expensive and real estate sales may slow.
  1. Inflation and the economy—Prices increase when inflation rises. If a builder has to pay more for labor and materials, buyers pay more for the completed home. Since real estate tends to maintain its value during inflationary times, this may not be a problem. However, a weakening economy could lead to falling home prices, meaning sellers might not recoup those inflated costs.

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