Monday, August 28, 2006

A Housing Bubble


Nationally, there is apparently a slow-down in the market for homes, both new construction and existing homes. The graphic from the NY Times article shows the dramatic increase in values over the past few years.

Now, with a decrease in demand from buyers, and nervousness by sellers over rising interest rates and/or looming balloon payments, prices are beginning to come down. Inventory (of unsold homes) has doubled in Key West by some reports. Prices are abating here more slowly than in other regions. In fact, those who bought more than two years ago are very probably still in positive territory insofar as assessed values are concerned. But assessed value isn't at all the same as selling price, so the risk is high for potential sellers, those who may have over-extended themselves in order to profit in a relatively short time from the rapidly increasing market of just a year ago. They're known as flippers in the trade, short-term investors, rather than buyers who intend to live in the homes they buy.

I pay attention to these things, not because we own property here, nor because we want to. We're happy renters. Our landlords are fair. We have the "comforts of home" at a price we can afford. The reason I pay attention is that I'm part of an organization that works to preserve affordable housing for those who already own a home here, whether through inheritance or a long-ago purchase, and for those who can't afford to pay market rents in order to remain here.

The vehicle for this is what is known as a Land Trust. In a land trust, the land and the buildings are separated (legally). The land, which carries the largest portion of the value of a property, is placed in trust with the local non-profit land trust for 99 years. The land trust then sells the "improvements", the buildings on the land, to those who can qualify to purchase a property that is much lower in cost than would be the case if they were buying both land and improvements. Or else, the land trust acquires properties that may need rehabilitation, makes them habitable, then rents the resulting homes or apartments, once again at rents that require income qualification.

In this model, preservation of existing housing is a primary consideration, and preservation of affordability for lifetimes is a benefit. Those interested in knowing more about the Land Trust model can find information here and here.

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