Real Estate Investment in 2010: Will Your Market Rise Or Fall

These days it’s hard to know what is happening in the housing market. Is it rising or falling? There are plenty of people out there trying to predict what is going to happen. The problem is that they are looking nationwide or citywide. Investors need to know what is happening in their specific farm area, though. Here are the top ways to determine whether your market go up or down in 2010.

Prices rise or fall in a specific market based on a number of different factors, and every market will move based on its own unique conditions. Within that market, even different property types and neighborhoods will react differently.

To narrow the trend data down to your area, look at trends within a 1 mile radius of the center of your area and look at homes that are within 10% of the square footage of the median size home and lot that you are looking for.

Generally, home price changes are determined by the months of inventory available. Price changes lag behind inventory by 6-10 months. As inventory decreases, you will see prices increase 6-10 months later. As inventory increases there will be a fall in prices 6-10 months later. Investors can use a Short Sale to get the price of a home back on the market at the lowest prices well before the rest of the MLS catches up.

If there are 8 months or more of inventory, prices will fall; if there are 2-3 months of inventory, prices rise. Use this as a rule of thumb in your local market in 2010.

The First Time Homebuyer credit was not able to quench the demand for starter homes in many areas. If you are investing in one such market, the feeding frenzy for lower end homes may very well continue. Because the credit was extended and expanded to include all buyers, both sales and prices might increase because there is a larger inventory of homes available and many more buyers in the market. The impact of the tax credit should not be overstated, though. Of all people who bought homes last fall, only 6% said they did so because of the tax credit.

People born between 1977 and 1994, also known as Gen Y’ers, are entering their prime home-purchasing years. Areas that are able to generate jobs for people in this age group or have remained stable during the recession will probably only take a small increase in demand to spark building.

Another factor that drives prices is cost of ownership. The U.S. Treasury will play a part in determining whether 2010 is naughty or nice to homeowners. The Federal Reserve showed little incentive to raise interest rates in 2009, but things may change in 2010. There may be pressure on the Fed to increase interest rates to attract more buyers of U.S. debt. Even a small increase in interest rates will drive potential home buyers out of the market.

State income taxes and local property taxes could increase in the coming year as the local governments face pressure to balance their budgets in 2011. Any increase in property taxes will decrease the number of buyers in the market.

Lastly, foreclosure rates could play a very important role in your area. There will be spikes in foreclosure rates all around the country. Especially in those areas that relied heavily on Option ARM mortgages to sell homes between 2004 and 2007. Their payments will adjust up as interest rates necessarily increase. Communities already experiencing high unemployment will also be facing an increase in foreclosures.

These are just a few of the factors that will impact your local market conditions in 2010. Apply the ones that fit. Every market and micro-market will be different.

Learn more about real estate investing. Stop by Bob Massey’s site to get your FREE copy of his ebook on how to find motivated sellers.