As an investor, you need to be aware of what the real estate market is doing at all times. Interest rates, property taxes, demographics and supply and demand will have a direct impact on which way the market is headed. While it is important to stay on top of real estate trends that impact your business, you need to know that they are constantly changing. Once you think you have the market figured out or timed just right, it will take a left turn on you and force you to reevaluate everything. Trends are important, but you have to know which trends are important to you and your investing market.
What is happening on a national level may not be relevant to what is going on in your local market. You may have heard that home prices are rebounding, but not every market is appreciating at the same rate, if at all. This is an example of a national trend having little to no impact on your business. National figures deal with hundreds of thousands of properties, whereas your local market may only have a couple hundred. Unless you are a national investor, focus more on what is important to you. If your home values are still in decline, you need to adjust how you do business. Eventually, national trends may catch up with where you live, but until that happens they aren’t important to you.
In many markets, homebuyers are more concerned with affordability than luxury. One of the biggest components in determining this is what the property taxes are. Many towns are facing severe budget deficits. The easiest way to combat this is by increasing taxes. It is not uncommon for some towns to see a 25-30% hike in twelve months. As an investor, this is important not only in where you buy, but where you sell as well. You may get a great deal on a property, but unless you can sell it quickly, you won’t get the return you are looking for. If all other things are equal and the next town over has a similar property, but is $2,000 a year lower in taxes, that house should be purchased first. Taxes can always go down, but it is much more likely they increase suddenly.
This requires you to stay on top of where you invest. If there is news that a school is closing or the budget is upside down, you can expect taxes to rise. You can also see if new homes are being built in the area. New homes to the market will increase the supply, but it may also increase the appeal. If new homes aren’t hitting the market, buyers will look at the same inventory and may eventually start looking at new areas. Supply and demand is cyclical, but it does provide a good indicator as to the strength of a market. If supply is low, generally there is a good amount of demand. If the supply is high, buyers will have their pick of properties and sellers will have to lower their price to draw interest. All of this information is important and readily available if you know where to look for it.
Interest rates are another factor that have a direct impact on housing affordability. When home prices dropped, interest rates did as well, leaving buyers with the best opportunity they have had to buy in history. Even though prices have recovered and since gone up, interest rates have stayed low. The slightest increase in rates can deter buyers from buying and continuing the trend towards rentals. Mortgage interest rates can change daily, so it doesn’t do any good monitoring their movements hour by hour. However, you should know if they if there is any major increase. On properties priced under $100,000, an increased rate won’t have a huge impact, but for a loan of $250,000 or higher, a half point increase in rate can mean a hundred dollars or more higher payment. This can mean the difference between you having to lower your sales price to attract a buyer and getting top dollar. Interest rates have a direct impact on sales prices.
There are also many other trends regarding local demographics, foreclosures, new housing starts, delinquent homeowners and months of supply. Your realtor should have some of this information readily available. If not, there are many financial websites you can find them at. Keep in mind that local trends and numbers are more important than anything you will find nationally. Trends are just that in the sense that what is hot today may not be in a few years. We have seen this with short sales and foreclosure numbers dropping significantly over the past year or so. Trends should be a guide to help you invest today, but know that this may not be the case in the future.
The real estate market works in cycles and trends have a huge impact on these cycles. Look at trends and other data to help you make decisions, but never make blind assumptions at trends and think they will stay this way forever. The minute you think you have a market figured out, it will quickly change gears. Knowing the trends in your local area will help you stay on top of the market.
