If you only read the news headlines right now, you’d think every real estate market in the country was experiencing an upswing. For example: “Home Prices Rise for the Fifth Month in a Row.” That’s the headline making the rounds today. But this is based on national trends and averages, so it’s essentially useless to an individual home buyer.
Take Denver and Las Vegas, for example. From a home-value standpoint, these two cities are on opposite ends of the seesaw. Prices in Denver have been rising pretty steadily for the last few months. On the contrary, home prices in the Las Vegas metro area continue to fall, with no “bottom” in site.
So a headline proclaiming a rise in home values would be irrelevant to a buyer in Las Vegas (or one of the many other declining markets in the United States).
As a first-time home buyer, there is only one real estate market you need to worry about, and that’s the market where you plan to buy. Here are some of the key factors you need to know about home prices and other factors, before you buy a house in a particular area.
5 Things to Know About Your Real Estate Market
- Home-value trends for the last 12 – 18 months. This will give you a general sense of what has happened in your area (bubble or no bubble), and will also help you understand the other items below.
- Changes to home prices in recent months. This gives you a more accurate idea of what’s happening in your real estate market right now. Combine this with item #1 above, and you’ll know whether a home purchase is a good or bad investment right now. If you buy a house in a declining market, you could be losing equity from day one.
- Price differentiation for the neighborhoods / areas you are considering. In some areas, prices are fairly consistent across the board. But in other cities (like San Francisco), you can pay 25% more for the same house just by going across the street. You need to know how neighborhoods affect pricing in your area, in order to make an educated decision.
- Foreclosure rates in your area. Do you live in a high-foreclosure area? If so, home prices are less likely to rise (due to the increased surplus). Also, if you’re up for the challenge of buying a foreclosure home, you could save money by purchasing below market value. The first step, as always, is to understand what’s happening in your local real estate market.
- Property taxes in different neighborhoods and communities. I live in Round Rock, Texas, which was recently named the second-fastest growing city in the U.S. Property taxes here are ridiculously high. But if I had purchased a home in the subdivision across the street (a Municipal Utility District), my taxes would have been much higher. Taxes are the ‘T’ in the PITI acronym that makes up your mortgage payments — principal, interest, taxes and insurance. So a higher tax rate means a larger mortgage payment each month. You need to research this for your area.
National real estate trends help us understand what’s happening in the country as a whole. And that’s all well and good — there’s certainly a need for that kind of information. But for an individual home buyer, they are not nearly as important as local real estate trends in the desired area.