How Supply and Demand Prices Your Home

As anyone who has ever taken an Econ 101 class is familiar with, price of any item is predominately based on "supply and demand": how many items are available in relationship to how many people want to buy that item.  Houses are priced mostly with the same philosophy.

The trajectory of home values is estimated largely based by how much inventory is available in the market.  Year-over-year home appreciation numbers have been strong.  Demand for housing has been up and the supply of homes have been astonishingly low.  According to KCM blog, however, that is beginning to change.

 The National Association of Realtors has reported that the month's supply of available housing inventory has increased from 4.3 months (as of January) to the current number of 5.2 months.  Inventory is anticipated to increase as we are moving forward.

Realtor.com just released their National Housing Trend Report, which monitored the shifting in home inventory levels across the country.  Here are their two major findings:

1. The dramatic year-over-year inventory declines have evaporated.

National inventories in July are 5.24% below the level from a year ago, compared to 16.47% in January.

In Chicago, citywide inventories are just 5.4% lower than four months ago, in April 2013, but were down an incredible 44.8% from January 2012 to January 2013. (Source: MRED LLC.)

Real Estate Investors - Know Your Risks

Investing in real-estate can be a good move, and there are several options in the market for you.  Each option comes with its own set of risks and benefits.

Here is the breakdown, courtesy of Zillow Blog.

1) Direct ownership

Direct ownership entails buying property on your own (or with a spouse), and handling all operations - like maintenance, leasing, and property management - either by yourself or by hiring a property manager.

Benefits: You make all of the decisions and earn all profits, while directly controlling the asset.

Risks: Bad tenants other other management hassles, making a poor financial choice, losing money on the sale of the property  and assuming full liability past insurance coverage.

2) Partnerships with close or well-known associates

This involves partnering with a friend, or a small group of investors similar to yourself, or family members.  It is extremely important for you to understand your co-investors well, alongside their financial position, motivation, work ethic, and to what extent they want to share in the management of the property.

Two big suggestions for this venture:

1. Have a written agreement established between the parties
2. One party should be responsible for the management of the property (or managing the property manager), and should be paid for handling the management.  This eliminates the "who should deal with the issue" conversation, and help reduce tension amongst the members of the party.

Benefits: Shared decision making and profits, and all partners directly control the asset.  This can be a plus IF all partners are on the same page.

Housing Bubble Myth DeBunked

Is there really a "housing bubble"?  We agree with Keeping Current Matters (KCM) - we have no such thing.  It is still substantially cheaper to buy a home than to rent one (especially in Chicago), and buying is still 8% undervalued on a price-to-income ratio.

With figures like that, we can safely say that the idea of living in a housing bubble is pure myth.

Infographic courtesy of the KCM blog.