|
MORTGAGE NEWS
What Makes a Market Bubble-Proof?
By
KENDRA TODD, winner of "The Apprentice 3"
January 10, 2007
As I discovered after a recent column, to the list of subjects best avoided if you want a civil discussion -- religion and politics -- you can add the real estate bubble. Plenty of people disagreed with my take that, overall, the "bubble" was nothing more than a long-overdue correction expected in markets across the board. That's only natural after the run-up in prices we've seen over the last few years. Yes, some markets are experiencing considerable value declines that can be classified as a "bubble," but I could probably count those markets on one hand.
Avoiding the Pain of the Next Correction
What does this mean? It appears that we have hit the low of the market's down cycle and are slowly recovering. Median prices on resale homes nationally are down 3.6 percent from a year ago, but we should start seeing prices stabilize. As prices bottom out, the buyers who have been sitting on the bench waiting for the best deal on a home will get into the game, increasing competition and driving prices back up again, though I wouldn't expect another boom any time soon. But real estate is a local phenomenon. If you're stuck with a house in a market where the prices have dropped noticeably, like San Diego, Las Vegas or Miami, and homes are languishing on the market for six months and beyond, this is scant comfort. For you, the bubble is real. So because real estate is cyclical, the question becomes, what area can you buy in that will not be subject to the next bust cycle? How can you spare yourself the pain and stress of the next correction?
Bubble-Proof Markets
Business 2.0 magazine has its own list of the top five "bubble-proof" markets -- areas where annual appreciation outpaces the national average by at least 30 percent. These perennially healthy markets will come as no surprise to anyone:
- San Francisco
- Los Angeles
- Seattle
- Boston
- New York
The trick is finding markets with similar traits and investing in them before they become boom markets themselves.
Here are some of the keys to locating bubble-proof markets:
- Income growth. Prices will continue to appreciate in markets where people are continually competing for a shrinking share of higher-end homes. The five markets cited by Business 2.0 are rich cities. Look for regions where the demographic data suggest a steady increase in personal income (you can find such information at the Commerce Department's Bureau of Economic Analysis website, www.bea.gov); greater activity in the move-up housing market is likely to follow.
- Limited housing stock. One of the reasons markets like Boston and San Francisco are so inflated is that there's little land to build new homes. Look for regions where either physical constraints or political concerns -- a strong environmental lobby, for instance -- have prevented large-scale construction of new housing or infill.
Denver's geographic building limitations, for example, may bode well for market recovery and value stability in the future. At one time, Las Vegas's governmental land holds helped jumpstart the market's growth and staggering 50-percent-plus annual appreciation in 2005. This is simple supply and demand: The fewer homes, the higher the prices. Avoid areas where massive new residential construction has flooded the market.
- Job growth. New companies moving into an area or expanding are an excellent harbinger of future real estate demand. Watch the news media covering regions of interest to you and look for stories about medium to large employers moving into the area, or about companies that are hiring.
- Migration to a region. Some places have attributes that will always keep demand for residences high unless the economy tanks. Oceanfront areas are always hot, but are often priced beyond the means of most buyers. Other factors that can bring a steady flow of new residents to a place are great schools, a world-class university, spectacular weather, national parks or a thriving arts scene.
No Market is Change-Proof
Information is always your ally in looking for markets that will give you the smoothest ride over the years. Get as much information as you can and don't worry about the "hot" markets on the coasts. Chances are you can find more than one bubble-proof market within 100 miles of where you live. Keep in mind, however, that while some markets are bubble-proof -- I define this as being unlikely to experience a decline in prices of more than 5 percent in a single year -- no market is change-proof. The real estate market is fluid, and no boom lasts forever. You must always remain alert and have good information so you can weather the ups and downs that are always on the horizon.
Kendra Todd is the first and only woman to win Donald Trump's smash hit NBC show, "The Apprentice" on NBC. Additionally, she is Broker of Florida-based The Kendra Todd Group, host of the popular HGTV Show "My House Is Worth What?" and a regular real estate contributor on Fox News Live. Her first book "Risk and Grow Rich: How to Make Millions in Real Estate" has been an instant success. |
