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Navigating this volatile market can be difficult. Specifically, the erratic housing industry, which seems to fluctuate from month to month, scares many people from buying their home. Through January 2000 and April 2006, the average U.S. home price nearly doubled. Since then, the average has fallen 30%. Therefore, protecting the value of your investment is as important as the terms of the loan itself. According to the Mortgage Bankers Association, about 13% of mortgages are behind their payments or in foreclosure. So, the value of your home depends more upon your neighbours keeping their jobs than whether the house has enough bathrooms and parking. Here are a few things to look for when purchasing a home.
Demand depends heavily on the job market. For that reason, purchasing a home in places such as Las Vegas, Atlantic City, or Florida—who depend heavily on tourism during healthier economic times—is not a good idea. Consequently, the average home price has dropped 53% in the Las Vegas metropolitan area in the last three years. So, understand the local economy. Ask yourself: is it slumping as bad, or worse, than the rest of the country? Or is it doing fine even in these bad times.
There are a few ways to answer these questions. First, get a sense of the home supply in the area. You can do this by asking a good real estate agent for statistics about the amount of homes listed for sale and how long it will take to absorb the supply. Anything over six months is a bad sign because, after that, sellers will have to cut prices. You as well, if you wanted to sell your home, would strongly consider cutting the price of your home if no one was to buy it after six months on the market. Furthermore, if it takes six months to sell a home, it is a sign that people are moving away faster than the are moving into this area—a sign of joblessness.
Second, if you don’t want to bother with a real estate agent, take a look around the area and count the “for sale” signs. If there are more than a couple per block, this is a bad sign. Again, if people are eagerly moving away from the area, the prices of homes will fall.
Third, take a look at the job market in the area. One way of doing this is the U.S. Bureau of Labor Statistics provides unemployment numbers by metro area. State and local agencies provide job-market data, as well. One thing you can do is while your looking for “for sale” signs, look for “help wanted” signs.
Always remember: If there is money in the area, jobs in the area, people will want to move or stay in the area. If people want to come to the area, they will buy homes. If people buy homes in the area, supply will shorten and demand will increase. Therefore, the value of your home will retain its value or increase as well.