2012 will be an interesting year watching how different markets develop at different rates. Local employment generated by economic growth will drive housing market recoveries, and the markets that generate more jobs will see property values and rents go up much quicker than others that don’t.
In many of the markets with high foreclosure rates, foreclosure inventories will cause temporary price swings as inventories rise and fall, but even in these cities, in the long run, local economies will be the key.
The evidence is now clear that a slow but continuous economic recovery is underway, but housing markets won’t feel much benefit until next year. Consumers are in no particular hurry to buy a house because they don’t see home prices going up. But at this time, no market has seen an increase in prices.
“Local price increases of 3 to 4 percent are possible, but 1 to 2 percent are more likely. Markets that are struggling with employment are going to have a hard time while others will do noticeably better.
Monitoring a market is popular with investors who rent out their properties because of the local data and forecasts on rents. Statistics show that more people today want to rent than to buy, and some leading real estate economists believe that many retirement and second-home markets that are flooded with foreclosures are going to take a ten years or more for prices to recover.
“In markets where investors are active, like Miami it’s not so bad because the demand is great.
Housing markets are going to continue to improve as long as there is job growth, even 2% a year, and economic growth will determine rental increases as well as home values. Overall rents are going to reflect population flows. “In a recession people tend to sit still. When things pick up, people are more willing to move to where there are jobs,” he said.
For long term investors, however, projecting rental cash flow ten or twenty years down the road is difficult even at the local level because of the sensitivity of rents to local economic conditions.
My advice to the long term investor is to reduce risk by buying a more expensive property in a desirable neighborhood where you will be able to charge a premium rent. In lower cost properties, rents may become comparable to the monthly costs of owning a home. Renters in a lower cost property are more likely to buy than those in a higher cost property.
From Real Estate Economy Watch January 2012
