These days it’s hard to know what is happening in the housing market. Is it rising or falling? There are plenty of people out there trying to predict what is going to happen. The problem is that they are looking nationwide or citywide. Investors need to know what is happening in their specific farm area, though. Here are the top ways to determine whether your market go up or down in 2010.
Prices rise or fall in a specific market based on a number of different factors, and every market will move based on its own unique conditions. Within that market, even different property types and neighborhoods will react differently.
You should look at the trends within a 1 mile radius from the center of your area in order to make sure you are looking specifically at your market. You also want to look at homes within 10% of the size of the median home and lot that you are interested in buying and selling.
For the most part, changes in home prices tend to be determined by the inventory of homes available. There is typically a 6-10 month lag time in price changes. That is to say that if inventory increase, prices will decrease about 6-10 months later, and if there is a a decrease in inventory, prices will increase about 6-10 months later. Investors benefit because they can use low short sale prices to sell houses quickly before the rest of the inventory catches up.
If there are 8 months or more of inventory, prices will fall; if there are 2-3 months of inventory, prices rise. Use this as a rule of thumb in your local market in 2010.
The First Time Homebuyer credit was not able to quench the demand for starter homes in many areas. If you are investing in one such market, the feeding frenzy for lower end homes may very well continue. Because the credit was extended and expanded to include all buyers, both sales and prices might increase because there is a larger inventory of homes available and many more buyers in the market. The impact of the tax credit should not be overstated, though. Of all people who bought homes last fall, only 6% said they did so because of the tax credit.
Gen Y’ers (1977-1994) are in their prime home-buying years. It will take a relatively small increase in demand to spark building in those parts of the country that generate jobs for this age group and have remained relatively stable during the recession.
Cost of home ownership is a factor that helps determine the price of homes. In 2010, The U.S. Treasury will be instrumental in helping determine whether the market will go up or down. They showed little incentive to raise interest rates in 2009, but things could be very different in 2010. The Fed will probably face pressure to increase interest rates in order to get more people to purchase U.S. debt. It would only take a small increase in interest rates in order to squeeze some potential buyers out of the housing market.
Local and state governments may succumb to pressure to raise local property taxes and state income taxes in order to balance budgets for 2011 and beyond. Higher property taxes will drive more buyers out of the market.
Last is the impact foreclosures will have in your specific market. There will probably be spikes in foreclosures occurring in markets that relied heavily on Option ARM mortgages to sell homes from 2004-2007. These rates will reset soon as interest rates increase, causing foreclosures to spike. Those communities that are already drowning in unemployment will also face another rash of foreclosures.
These are just a few of the factors that will impact your local market conditions in 2010. Apply the ones that fit. Every market and micro-market will be different.
Learn more about real estate investing. Stop by Bob Massey’s site to get your FREE copy of his ebook on how to find motivated sellers.