Rate of Inflation - Posted by Maria Hornung

Posted by John Corey on March 13, 2006 at 04:45:41:


There is very little connection between specific property prices and inflation other than in broad terms. Hence you can not calculate the value of a house, a neighborhood or a city by starting with the prior price(s) and an inflation rate.

Interest rates are more important in determining the value than the inflation rate.

The value of a property is what someone will pay in the open market. If you think the property is overpriced and someone else does not they put their money where their mouth is and buy the property. Time will tell but even then it might not be really clear. If they always wanted to live in that specific house (its has some unique appeal) and they plan to stay for 30 years the price they pay is not the biggest factor to the buyer.

When prices get soft they do not go down a lot as many people will continue to receive value just by living in the same home. Hence sellers tend to stay put rather than sell in a soft market. Inventory goes down more than the prices. Only people who are forced to sell experience the lower value. Hence many folks will never know that they value of their home went down before it went back up as they were no in the market.

Sorry if this is a bit long.

You are wasting your time if you are trying to use the inflation rate to determine what a home is worth. Other factors matter a great deal more in driving prices up or down (mass lay offs, Love Canal, lower interest rates, rising employment, influx of people because of retirements benefits). Supply and demand but not inflation generally.

John Corey

Rate of Inflation - Posted by Maria Hornung

Posted by Maria Hornung on March 11, 2006 at 22:19:31:

I am considering the possibility of buying a property. The asking price is $168,000; however a year ago, properties with the same characteristics were sold around $130,000. Where can I consult what was the real-estate CPI (Consumer Price Index) for 2005, in order to know what is this year’s fair market value of a property like this? I know there a lot of bubbles going on.
I know also there are public record to do the market analysis. Is there a web-side were I can pull this information?