Local Trends Matter Most When Making a Home-Buying Decision
When it comes to real-estate investment decisions, national housing figures are largely irrelevant. But state numbers don't matter much, either; and even city numbers are of limited value. What matters is what happens within a 10-mile radius of where you want to buy.
Why 10 miles? That's about as far as most people want to commute every day to work -- and job growth, more than any other factor, is what determines the health of a housing market. So if a major employer decides to build a new plant near your neighborhood, or conversely, announces layoffs, that will have a direct impact on home prices in the area (the exception, of course, is in vacation-home communities). From local chambers of commerce, you can also find out what the median income is in the place where you want to buy. If rapidly rising housing prices have grown out of whack with incomes, that's a red flag. As a rule of thumb, assume that most home shoppers won't want to take on a mortgage that's more than three times their annual income.
Among the local factors you should check are inventory levels, which measure how long it takes for houses to sell, assuming no other houses were listed. (Equilibrium is between five and six months -- anything shorter indicates tight supply, which tends to lead to higher prices). Also check out housing starts and permits -- rising numbers could mean that a market is becoming overbuilt, which can cause prices to drop. Also, take a look at time on the market -- if this number is rising, it can be an early warning sign that a market is cooling. The local Board of Realtors or multiple listing service are good sources of these numbers; these figures often are reported by the business sections of area newspapers, too.
Of course, you'll want to find out if prices are being cut in your target neighborhood. Realtors can help you with that, but you can also easily track this information online. Our website, www.NewAlbanyOhio.com offers a feature that alerts you whenever properties you are interested in have a price drop. Just visit it and sign up for automatic email updates.
All of these factors are, to my mind, just as important as whether prices have been puffed up over the last few years, if not more so. After all, you don't just want to know where a market has been -- you want to know where it's going.
Article from column written by June Fletcher, Real Estate Reporter for the Wall Street Journal