Key Factors to Watch for Recovering Local Real Estate Markets
While it certainly may seem as though the housing market news around the country is going from bad
to worse, there are some areas of the country where the housing market is actually beginning to turn
around. In reality, the health of a housing market can actually be quite dependent on many local factors.
As a result, your own local housing market might actually be recovering, despite recent news that homes
values experienced the largest deterioration during the first quarter of this year since the same time
period in 2008.
How do you know whether your own local market is about to experience a turnaround or whether you should
expect housing values to remain dismal for a while longer? The key is to know which factors to look for
and to keep a keen eye on them in the coming months.
Interest rates are often another critical area to watch when trying to determine the direction of your
local real estate market. Experts have predicted that they do not anticipate a significant increase in
interest rates in the United States through the rest of this year or even next year. As a result, low
interest rates are likely to remain available even when the values of homes finally begin to rise. This
can make it quite beneficial for homeowners who may be interested in refinancing in the near future or
even selling their home.
Perhaps one of the most important factors to evaluate when determining the direction of your local real
estate market is the number of foreclosures taking place in your particular area. Throughout the country,
many areas are still experiencing heavy levels of foreclosures. High numbers of foreclosure can easily
inundate an area with low home values. The good news is that once the large numbers of foreclosures in
an area begin to decline and those homes are bought up by buyers looking for deals, the decline of property
values should at least stop declining if not start rising once again. Why exactly is this? Home values are
largely driven by the sale prices of comparable homes in the local area. Once there are fewer foreclosed
homes in the neighboring area, the effect on overall home values should begin to level off.
Sales of New Homes
Another area to carefully watch is the sale of new homes. Homeowners looking to sell their homes have frequently
experienced problems with competition from new homes. Due to the real estate crisis that has swept through the
country, the inventory of new homes available on the market has become drastically limited since 2008. When fewer
new homes are available to prospective buyers there is often hope that values for existing homes will soon begin
to recover. Like almost everything else, the real estate market is based on supply and demand. When there are fewer
new homes left to purchase, interested buyers will have no choice but to look toward existing homes; driving the
ball back into the court of homeowners looking to sell.
Cities Experiencing Recovery
While foreclosures in an area are often indicative of the local real estate market, another important factor to
keep an eye on is very specific parts of the country. There are often certain areas that typically experience the
impact of the economy much sooner than other areas. For instance, Miami was one of the first markets to experience
a crash in housing prices during the early days of 2006. As we now know, other parts of the country quickly followed.
Along the same lines, areas of the country that are the hit early on often are the first to begin experiencing a
recovery. This is precisely what is currently happening in Miami as well as San Francisco, another area hit early
by the housing crisis. During the first quarter of 2011, both cities reporting a rise in home prices.
Finally, make sure you are watching local rental prices. Typically, when rents begin to rise you can expect that
home prices will as well. This is precisely what is currently happening in the Central Florida area where the average
rent for apartments in the Orlando area are expected to increase by almost 3% this year. This is because home
ownership tends to grow in direct proportion to the way in which renters to begin to purchase home and there is
often not a better motivating factor for renters to look toward home buying than increasing rental prices.
While the housing market may not be ready for recovery yet in some areas, understanding the critical factors to
watch will help you recognize when your local housing market is on the upswing.