There’s a lot of uncertainty surrounding the housing market. Is it going up? Down? A lot of people are making predictions, but they tend to look nationwide or citywide. But what about your specific farm area? Here is the best way to determine what YOUR housing market is going to do in 2010.
There are a number of factors that drive real estate prices up or down in any given area. Each market reacts to its own set of conditions, and even different neighborhoods and types of properties will react according to its own set of circumstances.
You want to look at homes that are within a 1 mile radius from the center of your farm area. You also should look at the at homes that are within 10% of the median square footage of the homes you would like to buy and sell.
Home prices are for the most part determined by the months of housing inventory available. Price changes tend to lag behind changes in inventory by about 6-10 months. So if housing inventory increases, you will see a decrease in prices about 6-10 months later. If the inventory decreases, prices will then rise about 6-10 months later. Real estate investors are able to use short sales to offer deeply discounted prices when they sell houses before the rest of the homes in an area catch 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.
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.
Higher property taxes or income taxes at the state and local level could drive potential buyers out of the market. Local and state governments might succumb to pressure to raise these rates in order to balance their budgets for 2011.
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.
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