These days it’s hard to know what is happening in the housing market. Is it rising or falling? There are plenty of people out there trying to predict what is going to happen. The problem is that they are looking nationwide or citywide. Investors need to know what is happening in their specific farm area, though. Here are the top ways to determine whether your market go up or down in 2010.
Prices rise or fall in a specific market based on a number of different factors, and every market will move based on its own unique conditions. Within that market, even different property types and neighborhoods will react differently.
You should look at the trends within a 1 mile radius from the center of your area in order to make sure you are looking specifically at your market. You also want to look at homes within 10% of the size of the median home and lot that you are interested in buying and selling.
Generally, home price changes are determined by the months of inventory available. Price changes lag behind inventory by 6-10 months. As inventory decreases, you will see prices increase 6-10 months later. As inventory increases there will be a fall in prices 6-10 months later. Investors can use a Short Sale to get the price of a home back on the market at the lowest prices well before the rest of the MLS catches up.
There is a very simple rule of thumb you can use in your market in 2010. When there are 8 months or more of inventory available, prices will fall. If there are 2-3 months of inventory available, prices will rise.
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.
Members of Gen Y, those born between 1977 and 1994 are now in their prime home-buying years. A small increase in demand could spark new building in the areas of the country that were able to generate jobs and stay relatively stable during the recession.
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 some of the factors that will have an impact on home prices in your local market in 2010. Make sure to apply the ones that fit, because each market and micro-market will act differently this year.
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