Home Prices - The Topic on the Minds of Many

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 @JosephLazzaro
on January 12 2012 3:50 PM
U.S. Housing Sector
It’s question that dominates the suburban dinner-party set these days: where are U.S. home prices headed? REUTERS

Unlike the Washington, D.C. years, yours truly these days is more likely to attend a dinner-party in the New York City metro area for marrieds and other couples, rather than a dinner at an association event or convention.

And the question I get the most at these dinner-parties? Is now a good time to buy a house?

That's a good question, which is Latin, by the way, for There's no simple, unqualified answer.

One month, the U.S. housing sector, including home prices and home sales, shows signs of stabilization; the next, retrenchment.

With the above in mind, since it's unclear regarding whether the housing market has stabilized -- conditions vary by city/region -- perhaps a more-utilitarian question concerns, How can I best-position myself / my family, should I chose to buy a home now?

Here are a few tips:  

As a preface, it should be noted that very few rules will stop a couple or someone whose found their dream house.

Hence, if you've found it, and you feel you're going to be in the house for more than a decade, market conditions and cautions listed here aren't likely to stop you from purchasing it. 

However, for those who haven't identified their dream house, keep in mind the following:

1-The mantra today is not how much house you can afford, but the minimum amount of house you need. True, if the market suddenly recovers, that $500,000 luxury home could appreciate into a $700,000 bonanza. However, if your local market stagnates, that luxury home could be worth $450,000 -- or even less -- in real terms, which means you'll struggle to recoup your initial investment.  Lesson: These days, the bias is toward taking on only as much house as you need, to minimize your downside risk.

2-Have you researched and evaluated the local economy of the town, city, or county your prospective home is in? In politics, there's an axiom: All politics is local. The same with real estate. If the local economy is strong and likely to experience job growth, the value of your home will benefit. The reverse, the opposite.

Hence, research the local economy carefully. Determine what the major industries are and their prospects. Are they likely to add employees in the next five to seven years or more likely to shed employees? 

Of course, it's almost impossible to predict macroeconomic condition 10 years out, but you get the idea: based on what you know about the local employers, does the local economy have decent prospects for growth?  In other words, does the local economy look more like Boston, where the prospects for growth are decent? Or like Las Vegas, where the outlook for the local economy is not as strong?

3-Have you bought the best house or almost the best house in the neighborhood? In today's housing market, you have to get everything right, from a home purchase research standpoint. And one key research item is the value of your home vis-à-vis those on its street and in your potential new neighborhood. That's because a sub-par neighborhood can decrease the value of your pricey home...and also make it harder to sell. Ideally, you want a house that's roughly in the middle, value-wise. 

Tip: Evaluate two houses to the left, two houses to the right, and a few across the street: if most are in worse condition than the one you're considering, skip it, and evaluate another house in a different neighborhood.

4-Did you factor-in another oil shock into your commuting budget? True, oil prices have dipped slightly in recent day, to about $99 per barrel, pushing regular unleaded gasoline down to about $3.35 per gallon. Hence, for now $5 per gallon gasoline is out of the picture. For now. But what about 2013 and beyond?  A $5 or $6 per gallon gas price is possible in the U.S. -- particularly if the nation's supply of oil from the Middle East is disrupted for a sustained period.  Lesson:  Stress test your commute. If the commute budget from your prospective house can't tolerate $6 per gasoline, consider a house that's closer to work and/or near a mass transit system.

5-Did you assess your, or if two people are working in the household, each person's ability to shift to a second career, if required? If you're thinking about buying a home, odds are you're pretty secure and/or established in your job/career field. However, in the globalization era, most citizens realize that economic conditions can change relatively quickly, and healthy sectors can become not-so-healthy in a hurry. Or as professional recruiters say these days, In the globalization era, everyone has to have two fields.

Hence, if the town/city/county you've chosen to buy a home, evaluate how quickly you could switch to a second line of work, if your first field experiences an unexpected downsizing. Does your second field's work exist within a commutable range of your prospective new home? If not, you may want to consider a home that would allow an easier transition to a second field.

Brave New Housing World

The Great Recession and the changes triggered by globalization have removed much of the economic tailwind from the U.S. housing sector -- realities that have made it much harder to realize home price gains.

Hence, it goes without saying that thorough due diligence is required when considering a home purchase today, and the above five factors represent a good start.  

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