Experts may not be able to agree on whether the U.S. housing market has truly hit bottom – meaning that a recovery is imminent – but what most can agree on is that prospective homebuyers should disregard the matter entirely when looking to purchase a home. Real estate professionals say that national or even regional claims are irrelevant and that homebuyers should focus on individual zip codes to gauge whether a price is right with regard to potential future value or loss, all the while still being wary of putting too much stock in what the neighbors’ homes are doing. For more on this continue reading the following article from TheStreet.
New data from Zillow.com shows that the housing market really has hit bottom. Cue the applause. Signal the all clear. Get Warren Buffett to pile on and say something encouraging about the U.S. economy. Then head back to reality, and eye the headlines about the housing market's inevitable recovery with caution, especially if you are a prospective homebuyer. Conditions can vary widely from one neighborhood to the next.
The question isn't ever whether the market has bottomed when it comes to housing -- that's good for journalists and economists and TV pundits, but near-useless, or at least dubious, for those involved in or contemplating real estate transactions. The relevant question is whether the market has bottomed in your neighborhood.
All politics are local, all real estate, too. So local, in fact, the outlook for your metro area can matter less than the outlook for your five digit zip code (and vice versa: improving home values in a specific zip code don't imply that an overall metro area is on the mend, too.) And sometimes, improvement within a zip code doesn't mean the home in that zip code you are interested in -- or looking to sell -- is in the improving part of the "code."
As Zillow puts it in the details of calling a bottom in the housing market, "The recovery is a highly local process." Still the headlines won't ever say, (Highly Local) Housing Market Hits Bottom.
This isn't to say the news on housing isn't good, especially for some of the most underwater markets:
"The United States has hit a bottom in housing values, and a majority of metros that the Zillow Real Estate Market Reports cover have also experienced their bottom," Zillow's recent report states. "Some metros showed signs of a healthy pick-up in appreciation, such as Phoenix and Miami with a V-shaped recovery. Others are undergoing more of a soft landing and are currently coasting in positive value growth territory."
Zillow compares home prices from June 2011 to June 2012 in 167 metropolitan areas, with breakdowns by zip code. While the results are encouraging overall, some zip codes and metro areas continue to fare poorly. Zillow uses red to show where prices have fallen and green for where they've gone up. In addition to the year-over-year maps, there are maps showing price trends in the most recent quarter and month. Using these visual aids, one can see, for example, that a positive trend over the past year has not been reversed in recent months.
So how can one make use of the data? By zeroing in on individual zip codes, prospective buyers can assess the risk that a home bought today might be worth less in a year or two -- a good reason to postpone a purchase. There's no way of knowing for sure, but if prices have been holding steady or begun to rise, the area is a better bet than if they are continuing to fall.
Similarly, signs of an upturn might encourage sellers to get off the sidelines and list their properties. If the market warms, there are likely to be more buyers willing to move quickly before prices rise even more. Of course, a prospective seller who's not in a hurry might be wise to wait for prices to go even higher.
Still, it's important to keep data in perspective. Like most surveys of this type, Zillow calculates average prices of homes sold in a given area during a given period. If only a small number of homes sell, the results can be skewed by just a few sales with especially high or low prices. Don't put too much stock into a trend that's only evident for the past month or quarter, as there may not have been enough sales to guarantee a statistically significant result.
The ideal survey would look at prices of individual homes that have changed hands more than once, but not many homes sell more than once in a 12-month period, so average prices for the area are generally the best data available.
People using the data should also keep in mind that a zip code-level look is really not detailed enough, as a given zip code will have many neighborhoods quite different from one another. Before making a final decision to buy or sell, look carefully at comparable homes that have sold, or are on the market, in the same neighborhood.
So when you read the next headline calling a bottom in the U.S. housing market, it would be best to ignore it as anything other than a way to re-frame the debate and begin the real detailed work of answering the more important question, Does that call apply to your neighborhood?
This article was republished with permission from TheStreet.