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.
As a general rule, prices will fall if there are 8 or more months of inventory available. They will rise if there are 2-3 months available. This is a solid rule to use for your market in 2010.
In many areas the first round of the First Time Homebuyer credit could not quench the high demand for starter homes. If your are is one of them, the feeding frenzy for lower end homes could continue. Since the credit was expanded to all buyers, sales and prices may be boosted because there will be a larger supply of both homes and buyers available. The impact of the credit might not be that large, though. Only 6% of people who bought homes this last fall said that they did it because of the tax credit.
People born between 1977 and 1994, also known as Gen Y’ers, are entering their prime home-purchasing years. Areas that are able to generate jobs for people in this age group or have remained stable during the recession will probably only take a small increase in demand to spark building.
The cost of ownership is another factor that directly drives up the price of homes. In 2010, the U.S. Treasury will play a very important role in determining whether the market will rise or fall. There was been little incentive shown by the Federal Reserve to raise interest rates in 2009, but it might be different in 2010. The Fed might experience pressure to raise interest rates in order to attract more buyers of U.S. debt. Even just a small increase in interest rates could drive potential buyers out of the market.
State income taxes and local property taxes could increase in the coming year as the local governments face pressure to balance their budgets in 2011. Any increase in property taxes will decrease the number of buyers in the market.
Last, but certainly not least, will be the impact of foreclosures on the housing market in many communities. I believe there will be spikes that occur in markets that heavily used the Option ARM for mortgages between 2004 and 2007 that are going to reset higher as interest rates push payments up. Communities still drowning in unemployment will also experience higher foreclosure levels.
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.