Dolan Media Newswires
Portland, OR – If you own a home, it’s probably worth less today than it was two years ago. Home values have declined by as little as 5 percent in some areas and as much as 30 percent in others.
Home sales and prices increased every year from 2000 to 2005. Developers and entrepreneurs invested heavily in the land development business during this prosperous time.
It was not uncommon to double the value of a property simply by taking it through the approval process.
Once approvals were in place, a developer would flip the property to another developer or home builder, who would then build the lots. Developers were able to make huge returns for minimal financial commitments.
During these peak market times, developers and builders were paying record prices for land and finished lots.
Those record prices were fueled by a lending environment that allowed almost anyone to qualify for a loan.
Banks did not require proof of income or any money down. Interest rates were extremely low, which added fuel to the fire.
In 2006, the market began to change. Home sales took a downward turn. The market was showing signs of a slowdown; however, buyers remained caught up in the mindset that prices would continue to go up.
The housing market crash and failures of financial institutions have led to turmoil in the market, particularly in the past six months. In order for the market to fully recover, a few things must happen. The glut of vacant lots must be addressed. Some of these lots will be sold by banks to homebuilders directly, but many will be sold to investors.
And eventually the market will return. There will continue to be a demand for new homes, and builders will have a demand for new lots. Patient investors will make tremendous returns over the long run.
Roger Qualman is an executive vice president at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management firm.