Gauging Value In Real Estate
Gauging Value In Real Estate As Prices Slide. From another WSJ article, written by Jeff Opdyke 3-13-08.
In this battered housing market, choosing the right neighborhood is more important than ever.
Maybe you can't pick which region you move to, but you can pick where you live within it, and that could have a big effect on whether or not your home turns out to be a winning investment. Home-price declines can last for years. There are signs the current decline could be bad. NAR statistics indicate that housing prices in 2007 experienced their first year-over-year decline in at least 40 years. Prices are expected to fall further this year -- and possibly next year, as well -- as the housing crisis broadens.
But even in this brutal landscape, cities such as Seattle; Austin, Texas; and Wichita, Kan., are still seeing price increases. And even in hard-hit cities, certain neighborhoods are holding up better than others. One factor is well-known to home buyers: schools. Houses in high-ranked school districts generally retain their value better.
But don't overlook perhaps the most important variable of all: supply and demand. Prices were hit hardest in places like Phoenix, Miami or Las Vegas, which were smothered in recent years by new construction. If you're moving to one of these cities, be wary of areas where lots of new homes are soon to be built or scheduled to go on sale soon.
During the boom, builders plastered the Phoenix region with houses that were snapped up quickly, many times by speculators who were looking to score a quick profit. Today, the metro area has more than 18 months of supply, compared with a national average of 11 months. Yet it is apparent that some parts of Phoenix are substantially weaker than others.
Buckeye, a suburb west of Phoenix, sprawls across 600 square miles of desert. Town planners have approved roughly 400,000 houses. But already the supply of homes stretches to nearly 20 months, and that means buyers are "more at risk for [further] decreases in property values".
By contrast, Tempe, with no room to expand and a location closer to Phoenix's job centers, has an 11-month supply of houses.
In many cities during the housing boom, developers ventured far afield to buy cheaper land, expecting that if they built it, buyers would come. And buyers did. But now they aren't so eager for two reasons: Gas is topping $3 a gallon, increasing their commuting costs, and the necessary infrastructure such as schools and retail and medical facilities often haven't sprung up yet.
Though buyers generally get more house for their dollar in more-remote communities, many buyers today are forsaking size for the conveniences of being close to the city, often in areas that are redeveloping.
Don't forget that home buying is always a street-by-street exercise, and that is particularly true in a weak market. In a strong market, buyers scarf up homes on busy streets or less-than-desirable locations. But in a down market, things change. Just about anything sold in the hot market of 2004 and 2005, but now it's location, location, location -- more than ever.
In this battered housing market, choosing the right neighborhood is more important than ever.
Maybe you can't pick which region you move to, but you can pick where you live within it, and that could have a big effect on whether or not your home turns out to be a winning investment. Home-price declines can last for years. There are signs the current decline could be bad. NAR statistics indicate that housing prices in 2007 experienced their first year-over-year decline in at least 40 years. Prices are expected to fall further this year -- and possibly next year, as well -- as the housing crisis broadens.
But even in this brutal landscape, cities such as Seattle; Austin, Texas; and Wichita, Kan., are still seeing price increases. And even in hard-hit cities, certain neighborhoods are holding up better than others. One factor is well-known to home buyers: schools. Houses in high-ranked school districts generally retain their value better.
But don't overlook perhaps the most important variable of all: supply and demand. Prices were hit hardest in places like Phoenix, Miami or Las Vegas, which were smothered in recent years by new construction. If you're moving to one of these cities, be wary of areas where lots of new homes are soon to be built or scheduled to go on sale soon.
During the boom, builders plastered the Phoenix region with houses that were snapped up quickly, many times by speculators who were looking to score a quick profit. Today, the metro area has more than 18 months of supply, compared with a national average of 11 months. Yet it is apparent that some parts of Phoenix are substantially weaker than others.
Buckeye, a suburb west of Phoenix, sprawls across 600 square miles of desert. Town planners have approved roughly 400,000 houses. But already the supply of homes stretches to nearly 20 months, and that means buyers are "more at risk for [further] decreases in property values".
By contrast, Tempe, with no room to expand and a location closer to Phoenix's job centers, has an 11-month supply of houses.
In many cities during the housing boom, developers ventured far afield to buy cheaper land, expecting that if they built it, buyers would come. And buyers did. But now they aren't so eager for two reasons: Gas is topping $3 a gallon, increasing their commuting costs, and the necessary infrastructure such as schools and retail and medical facilities often haven't sprung up yet.
Though buyers generally get more house for their dollar in more-remote communities, many buyers today are forsaking size for the conveniences of being close to the city, often in areas that are redeveloping.
Don't forget that home buying is always a street-by-street exercise, and that is particularly true in a weak market. In a strong market, buyers scarf up homes on busy streets or less-than-desirable locations. But in a down market, things change. Just about anything sold in the hot market of 2004 and 2005, but now it's location, location, location -- more than ever.
posted by Mike Bell at
10:05 AM
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