How to spot a recovery in your town
Home prices are stabilizing in some cities, yet sliding in others. Here's how to know whether it's time for you to sell, buy or rent.
© Fuse/Getty Images
Real estate appears to be turning a corner, oh, so slowly.
Not that the long, dark bust is over:
● Millions of foreclosures will hit the market in the next couple of years.
● Unemployment is improving, but 8.5% is still a big number.
● Home prices continue to decline: Prices in 20 major cities were down 1.1% in December 2011 from November, and were 4% lower than in December 2010, according to the S&P/Case-Shiller Home Price Index (PDF).
Yet a number of analysts believe a slow thaw may be in the works: Values, nationally, are expected to hit bottom halfway through this year, then rise slowly. (Bing: Has a housing bottom hit your area?)
"I think some markets are moving toward recovery, even some of the worst hit," says Mark A. Calabria, a housing expert at the Cato Institute, a libertarian think tank.
Knowing when to act
If you've put housing plans in the deep freeze for a while, you now may be wondering: Should we buy or rent? Or sell? This spring? By summer? Next year? How will we know when to act? The answers depend on the changing health of your local housing market. You'll know when to hunker down and stay, invest or refinance, or flee by keeping an eye on it.
- On our blog, 'Listed': New-home sales fall for second straight month
It's not hard to spot signs of an impending recovery once you know what to look for. We gathered tips from three national housing experts: Calabria of the Cato Institute; Jonathan Dienhart, director of published research at Hanley Wood Market Intelligence, a real-estate analytics company; and David Crowe, chief economist at the National Association of Home Builders.
Start your assessment by figuring out if your neighborhood appeals to homeowners and businesses as an investment. Strong, well-organized, active residential neighborhoods will recover faster and retain value, since they're magnets for homebuyers.
Gauge walk-away potential
"Knowing what your neighbors are going to be doing can be a very valuable tool," says Dienhart, adding that foreclosures pull down neighborhood values by about 20%.
Owners who are current on their mortgage payments may "strategically default" when a home is deeply underwater — when a loan is worth more than the property and there's little chance they'll recover the loss. "The potential for more strategic defaults is massive," says Daren Blomquist, spokesman for RealtyTrac, which estimates that 12 million U.S. mortgage loans are 25% or more underwater — more than a quarter of all outstanding mortgage loans.
Will it happen next door? You can only guess. Did lots of homes nearby change hands at the top of the market, roughly 2004 to 2007? Those buyers paid top dollar and probably financed much of it. If prices have fallen, they could be underwater.
For example, if home prices fell 20%, someone who bought in 2006 with 5% down could be 15% underwater now. They may be wondering if they'll ever get that money back since, at best, prices aren't expected to rise more than 2% to 3% a year, nationally. At that rate, it would take five years to break even and they'd still lose money in a sale, with taxes and agents' fees. The same calculation is true for people who bought before the boom but borrowed substantially from home equity.
If you're planning to sell or refinance and you think neighbors may default, try to act before they walk away. A lower appraisal value for your home could kill your chances of refinancing, for instance.
Gather local intelligence
The most useful questions to answer at the neighborhood level are:
- Are prices up, down or flat?
- How long do properties stay on the market?
- What percent of sales are bank-owned, especially in your home's price category?
- Are these indicators getting better or worse?
- What do others think about your neighborhood's prospects?
Article continues below
Try picking the brains of a couple of outstanding real-estate agents who specialize in your locale. Agents have information about city- and neighborhood-specific sales that's not typically shared with the public. But remember:
- Any agent can crunch local sales data, but not all will understand local and regional economic trends.
- Agents are hungry for sales, so don't be surprised if one insists that the time to act is now. Nevertheless, an agent may be happy to share a realistic assessment of market conditions.
- Approach agents as a researcher. Explain that right now you just want to understand the market. Offer to buy lunch. Save discussion of plans for buying or selling for another conversation.
Engage your curiosity. When walking the dog, driving to the store or talking with others at parties or children's events, observe, ask questions and listen carefully to information affecting the neighborhood. "Try to get in the mind frame of looking for things that indicate people have jobs and can continue to pay the mortgage," Dienhart says. When neighbors sell, try to figure out if they accepted a lowball offer or came close to their asking price.
Daily life is full of clues:
- Yard signs: Real-estate signs that say "auction," "foreclosure," "bank-owned," "tax property" or "bank sale" tell you the property is owned by a bank. Many of these indicate downward pressure on prices, a tip that recovery is further away. Watch for homes for sale in different segments of the market, Crowe says. It's a signal of people regaining confidence in trading up. Also, pay attention to how long for-sale signs stay up. If an agent plants a sign on a property and the next month there's a "sold" or "pending" notice on it, it's an indication that properties are moving.
- Street-level activity: During normal working hours, cars in driveways, lit TV screens and grocery stores full of shoppers could be signs of joblessness. Other bad signs: empty storefronts, rundown cars on residential streets, news reports of business closures and industry exiting the area. Welcome signs: Busy rush hours on neighborhood streets and in shops, newer medium-priced cars in driveways, businesses filled with customers.
- Community pulse: Scan bulletin boards at grocery and hardware stores. Check out community centers to take the pulse of the neighborhood. Announcements from groups centered on family activities and fun pursuits like crafts and gardening are good. Notices of job fairs and credit counseling reveal economic stress.
Learn to track neighborhood listings online. Fewer days on the market and stronger prices are clues to an improving market. Online valuations of individual home prices can be wildly off target, Dienhart says. Instead, observe sale prices of several properties similar to yours to learn the approximate value of your home.
- MSN Money: Hidden costs of homeownership
Here is key information to track online:
- Asking prices.
- Days on the market.
- Pending sales.
- Price reductions (see "property history" in online listings).
- Final ("closed") sale prices (or search your county assessor's online tax records (Example: the Bergen County, N.J., searchable electronic database of tax assessments).
- Short sale or foreclosure status.
- Local insights on community forums.
The worst housing market in history out here in rural Nv. You'd think by the asking prices for homes on the market you were in Silicon Valley.
In six months after the real estate boom my property appraised for twice what I paid for it.
Six years later it went down to where it was before the boom.
Some are still clinging to the hope that they can sell at boom prices. They're just not under water, they are run aground at the bottom of the sea
The market won't change until sellers get realistic. Market forces work both ways despite what we might wish otherwise.
gettinitagain I agree, the appraiser is so worth the money, good advise. I think the housing market will keep falling until Dec, then when it picks up people who dumped property might be asking themselves, "why?"
Seems odd, 2006, three pages of homes for sale in newspaper, 2012, three pages of sheriff sales in newspaper. The more propaganda published the worst it looks. I see the ads in the paper for houses for sale, half a page once a week, now they have jacked up the asking price thirty percent. Kinda stuck myself too, but I wouldn't buy a house these days for more than 40 percent of the listed price.
Used to have families living in all houses on our street...
Now have two empty from foreclosures, and two empty and up for rent..?
Housing Don't look better here, Looks worst..
Also have two houses where they have been laid off from work during the last month...?
.I do not feel it was a well thought out plan...it is based on multiple add-ons to those that must 'pay the freight'. For many Americans...., My home is for sale and like many Americans this market has destroyed the 'dream of equity" a home once provided. In Obama care homes sold after 1/13 will be taxed an additional 3% at the sale. That tax is to support Obama-Mans health care. Where are the taxes on the Rich ??? I paid every mortgage bill, every tax increase and now when we need the money most heading for our retirement I must subsidize this F(*&)%$ ING mess. The real kick in the azz is that the same bassturds that pushed this through, voted to exempt themselves and have a lavish medical plan paid for by the rest of the nation.....If it was for the good, why didn't they get on the bandwagon as well...