How Much Will Your Home in the West be Worth Tomorrow?
Written by: Lankarge/Nahorney for HomeInsight
What will your San Francisco home be worth in six months? How long will it take to sell? If you are considering buying a home in Las Vegas, will you be in the driver's or passenger's seat? And how long is all of this going to take?
Too Much Information?
With the availability of a myriad of economic data, it is easy to get overwhelmed with information, some of which holds few, if any, clues as to the future direction of the housing market. Additionally, the West housing market not only shows a wide disparity in pricing from those areas along the coast to those miles inland, but also within growing metropolitan areas that are dramatically transforming the character of surrounding communities.
The West is home to the highest average home prices in the country. According to the National Association of Realtors the average single -family home in the West cost $312,600 in the second quarter of 2005, up 12.1% from a year earlier. The next closest region in terms of price is the Northeast at $243,100.
Areas across the west, specifically those in California, from San Francisco to Los Angeles, and San Diego, all have seen rapid price appreciation over the past few years, prompting economists to warn of housing bubbles. And those metropolitan areas, as well as those surrounding other Western cities such as Las Vegas, Phoenix, and Denver have seen such rapid appreciation, that people who work in those communities have moved further away from the congestion, into the suburbs, dramatically changing the character of those communities.
If you are a resident of the West and have seen your home value grow by 25 percent or more in the past several years, you will want to keep an eye on the data discussed in this article to determine your future home value.
It is relatively easy to find out what a house was worth six months ago, or what it might be worth today. But trying to determine what a home in the Northeast will be worth in six months or a year isn't quite so easy. Read on and we'll help you to get some answers.
You know that housing values don't increase forever, but where do you start to determine values going forward? Review the following five prime indicators of future housing values.
1. Time on market.
One of the leading indicators of future home prices is the length of time that houses are on the market. When houses are quickly moving on and off of the market, that means that the market is hot, and demand is likely outstripping supply. Over the long run, when demand outstrips supply, prices increase. Click here to get a market snapshot of how long homes have been on the market and how long it took for homes to sell.
Of course as prices increase this can lead to more people putting their homes on the market, as they attempt to lock in big profits. Growing families might be looking to trade up to a larger home, while empty nesters might be considering trading down to a smaller home or to a lower priced and/or warmer region. Find out what kind of homes are for sale and in which areas by clicking here.
2. Consumer confidence.
Another piece of information that can help you to determine future pricing is consumer confidence, another leading indicator. Consumer confidence that is increasing or holding steady at a high rate generally supports the housing market, because people who are confident about the future direction of the economy are more likely to be active buyers. Of course the opposite is true - a drop in consumer confidence can often lead to a softer housing market in which prices stop increasing, and can decrease.
3. Mortgage rates.
Of course a big factor in the housing market is the current mortgage rates. While 30-year mortgage rates plummeted to 40-year lows in 2003, they have since increased but still remain historically low (30-year rates were more than 9 percent in January 1995). But rapidly increasing mortgage rates can have a dampening affect on a slowing housing market. Additionally, should underwriting begin taking a more conservative route to writing mortgages, those with poor credit could get squeezed out of the market, and cut demand.
4. Unemployment rate.
A lagging indicator that often helps to influence consumer confidence is the unemployment rate. Trends in the unemployment rate are often as important as the level of unemployment, as a sudden increase or decrease in the unemployment rate will affect home values. As a lagging indicator, by the time the unemployment rate shows a substantial move in either direction (for example a half point), a trend in housing prices has often already established.
5. Regional housing values.
Finally, learning the overall direction of housing values in your region can help you to make educated buying or selling decisions. Housing values don't increase forever, nor do they drop for long periods of time, but, historically speaking, flat or slow growth of perhaps 2 percent per year is a widely quoted long-term average.
Putting It Together
So now you have a look at economic indicators that may help portend what future housing prices in your region might be, how do you analyze the information? In Sacramento in 2003, interest rates were at 40-year lows, consumer confidence was strong, the unemployment rate was low, and homes went on and off the market in days. That led to a market that economists characterized as overheated, because values increased at double-digit rates. But you might not always have indicators that all point in the same direction.
The indicator that you should look to first is the length of time that houses are on the market. If this indicator increases from, for example, an average of 60 days to 75 days and then to 90 days, it is clearly indicating that the market is slowing, that values will likely be no better than flat, and, should the trend continue, prices may decrease.
Where You Live
Housing values in your region can help determine the general direction of the housing market in your area, but how about exactly where you live? Click here to get more specific information about housing values in your area. Getting detailed information about housing values in your neighborhood can help you make educated buying and selling decisions, and is often helpful when deciding whether to add on to your home or simply find a new home with the new options you seek. Click here to get home values and sale prices in selected cities.
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