As Budgets Get Squeezed – How Will Housing Be Affected?

Trends in new construction have pointed to American’s changing attitude about building big, new houses.  Perhaps that is just a short term reprieve of the larger houses because of the recession.  However, I think many people need to give thought to how much they should buy when it comes to housing.

The costs to operate that house are only going to go up even if oil and gas are in a bubble.  With the increasing likelihood that the Fed will have to inflate its way out of our financial mess and given that there are a lot of entities that want higher gas prices, expect to pay a lot more for your gas and electric bill for your house.  Also expect to pay higher property taxes.  And if you own an older house, especially one built before 1978, expect to pay significantly more money to have any work done on your home due to the lead ruling issued by the EPA.

Did I forget to mention water?  I know we live in Minnesota and it appears that there is water everywhere, but rest assured, at some point in the near future, it will be cost prohibitive to water your lawn.   I think there might be a fantastic opportunity for a landscape company to come up with a relatively cost-effective way to hard scape an entire yard.  Certainly something like the turf found at any top rated high school football field might work for many lawns.

For the older 4000-5000 square foot homes that are 20-40 years old and out of date, the cost to improve all of that square footage will become cost prohibitive for many future buyers.  Discount accordingly.

When The Sprawl Stopped – Star Tribune

I somehow missed this story last week, but saw it when a friend posted it on LinkedIn.  The Star Tribune has been doing a periodic series on life Beyond the Great Recession.  In the story I am linking here, it’s about the collapse of communities in the northern reaches of the Twin Cities.  The were boom towns during the real estate bubble.  The Strib happens to be talking about Isanti in this story, but there are several others that they could have written about.

The northern exurban areas seem to have been hit harder than those in the south although they have been hit as well.  The reason the north has been hit so hard is it was home to so many construction related workers.  Since that has stopped and gas prices have skyrocketed, there is no more need for housing in these cities.

Many of these small cities will have troubles for decades I  believe.  Foreclosures beget more foreclosures until you have a total wipe out and the system is flushed.  Since the banks are controlling the flow of foreclosures rather than letting the market work, this pain will go on for years and years.

There are also many forces that  want gas prices to remain high – i.e. $4-$5 per gallon.  I do not believe it’s just a Democrat/environmentalists thing.  The Republicans appear to have no interest in leading the country toward more drilling for oil prospects on our own shores and land.  So, the result will be very expensive gasoline.  And if that’s the stated policy of the U.S. government, there will be no recovery in these outer cities.

Eventually the housing market will recover, but in the Twin Cities, I believe that we’ll see recovery on everything inside the 2nd ring suburbs.