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Real estate has traditionally been considered a safe investment. But recessions and other disasters are testing that theory—making investors and would-be homeowners think twice. Prior to , historical housing price data seemed to indicate that real estate prices could continue to rise indefinitely.
In fact, with few exceptions, the average sale price of homes sold in the U. By , the average sales price of homes sold in the U. For the next several years, the uptrend looked promising, until when prices flattened, and then began to fall slightly in Prices saw a dip in but housing prices have been climbing since later that year.
Of course, real estate prices depend heavily on the market location, location, location , and national trends can tell only part of the picture. A boom in California can mask a bust in Detroit. Even within the same city, numbers can vary widely. Areas that experience new growth or gentrification can show significant price appreciation, while areas across town can be in decline. The chart below shows how the south, west, northwest, and midwest regions experience different trends in real estate prices.
When looking at the national and regional statistics, be sure to account for the reality of the market in your local area. Rising prices at the national level may not help you if your city, state, or neighborhood is in decline. Home prices in have increased at unprecedented rates as the economy has reemerged from the downturn of Record low mortgage rates and a shortage of homes for sale have been primary drivers of this phenomenon..
At the same time, temporary shortages in lumber and skilled construction labor has added to the upward movement of prices, though these impacts should be mitigated in the second half of the year.
Of course, it's important to consider that factors other than supply and demand can affect real estate prices. For example, even before the numbers began to go the wrong way in , the National Association of Home Builders reported that the average home size in America was square feet in , 1, square feet in , and peaked at 2, in This trend continued in the first half of the s, after which it began to decline somewhat. Still, with homes getting bigger and inflation adding to the cost of building materials, it is only logical that home prices would rise.
Other trends can drive prices up, too, such as buyer preferences for more expensive flooring, appliances, fixtures, and the like. National trends may not give you the whole picture, as real estate values and prices vary between states and neighboring cities. Because home prices tend to rise over time, buying a home has traditionally been viewed as a safe investment. Still, an important point to consider when looking at a home as an investment is that it won't ever pay off unless you sell it.
From a practical standpoint, even if your primary residence doubles in value, it probably just means that your real estate taxes have gone up. All of the gains you experience are on paper until you sell the property. Of course, for many homeowners, that's alright. A home that doubles in value is a nice asset to pass on to the kids and grandchildren. If you decide to sell and buy another home in the same area, remember that the prices of those other homes have probably risen, too.
To truly book a gain from your sale, you will likely need to move to a smaller home in the same area, or move out of the area and find a less expensive place to live. Of course, downsizing is an attractive option for many retirees and those who no longer have children living at home. Between and , twenty more metropolitan areas, including New York and Boston, were added.
Cities that have experienced explosive growth but remain outside the superstar category, like Las Vegas and Phoenix, are distinguished by their ability to build enough housing to moderate price increases. As the U. The process of bidding to live in high-demand, low-supply cities changes the composition of residents as rising house prices mean that lower-income families are crowded out of the hottest areas and replaced by higher-income households.
Nationwide, the average growth in that income group was 9 percent. Overall, the fraction of high-income families in superstar cities is 43 percent higher than in average cities, and those cities' share of poor families is 11 percent lower.
Recent movers into superstar cities are more likely to have high incomes and less likely to be poor, than recent movers into other cities. The higher share of rich and lower share of poor also holds true for superstar places, that is, desirable towns with a relatively fixed housing stock within a metropolitan area. With more relatively wealthy people bidding on a limited housing stock, the price of entry-level houses, and the price-to-rent ratio, accelerates when cities fill up and approach superstar status.
Entry-level prices and the price-to-rent ratio also increase at higher rates when the number of high-income families increases nationally. In short, residence in superstar cities and towns has become a luxury good. The cities' increases in housing price appear to outstrip known productivity increases and the value of any additional amenities. That is because, as the population increases, the demand for rental apartments also increases, thereby leading to a boost in the rent.
The rate of this fee varies according to the location as well as the municipal area. If these municipal rates are high in a particular city, the rent prices are also likely to be high. Similarly, if the municipal rates are low, rent prices will also be low. Families also are looking for a place to move since the kids are out of school and many other such factors. When the demand is low, prices will also be lower. Some areas are more impacted than others. The proximity of a major university, for example, might increase the pricing pressure on rental units available at the start of terms.
Similarly, people are less likely to move in the winter in areas with more severe weather than they would be in places like Florida or Southern California. This is another reason why the rental market is so different from city to city.
On the other hand, if a similar kind of apartment is located in a less-popular area, rent prices are likely to be lower. Other factors like proximity to public transportation or fun restaurants and stores can also have a significant impact on rent prices in a neighborhood, as does relative crime rates and even the availability of parking.
Be sure to keep that in mind during your rental search. The rental prices are also directly related to square footage.
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