On September 10th Dr. Elliot Eisenberg addressed the audience at the 2014 Housing Outlook on September 10th, sponsored by Herrman Lumber and presented by the HBA of Greater Springfield and the Greater Springfield Board of Realtors.
Be watching for the video of this conference coming soon at HBASpringfield.com.
Following is a brief summary of what Dr. Elliot Eisenberg covered at the 2014 Housing Outlook:
Unintended Consequences of Government Regulations
Behavioral changes will always change the intended results of a rule. You may think a rule change will result in a specific way, but you need to remember to factor in how behavioral changes will affect the end result. For example, if you raise the price of bananas from $1/pound to $10/pound, the general assumption would be that the seller of the bananas will make more money, but you need to factor in the concept that people will ultimately purchase far fewer bananas, resulting in the seller making less money. This is an extreme example, but it gets the point across. An example for the housing industry is passing a law requiring fire sprinklers . One reason given to require fire sprinklers in single family residences is to increase life safety, which appeals to everyone. But when you research the topic, you learn that the majority of fires in single family residences occur in homes built prior to requiring hard wired smoke alarms. The new rule could marginally increase life safety, but it also dramatically increases the cost of the home resulting in fewer homes being built and sold.
Whoever you are, it is best to involve those in the industry by asking what will happen if you do X, Y or Z. Then ask yourself, are we going to get enough from passing this law that will offset all these new burdens from these unintended consequences.
New rules and regulations will raise the price of new housing. A result of that would be the reduction of construction activity and a rise in the prices of existing houses because if new housing becomes too expensive people will move in to existing houses which will raise the price of existing homes with increase in demand or cause people to live elsewhere outside of Springfield.
Have no illusion that you will get something for nothing and that the regulation will only change the one thing you are interested in changing.
Economic Outlook – Forecast 8-12 months
There is no sign of inflation yet and the labor market is slowly improving with unemployment continuing to fall. Wage inflation will hopefully start occurring when unemployment falls a little more. With that in mind, we can expect interest rates to go up around the middle of the year and the process of raising rates will last several years peaking out around 3.5 – 3.75 percent near the end of 2017. If inflation and wage inflation occur simultaneously they may raise rates as early as March.
Multi-family housing is doing quite well and will continue to do well while single family housing will continue to improve at a much slower rate along with the overall economy.
For the complete discussion of the Unintended Consequences of Government Regulation as well as the Economic Outlook and Housing Outlook, watch for the video of the Housing Outlook 2014 on HBASpringfield.com coming soon.