Clicks and Mortar

A Real Estate Blog - Est. 2009

Three Indicators of A Housing Market Recovery

Posted on 21, June 2011 by csadmin

David Crook of the Wall Street Journal reports that there are three big clues to look for when determining the general outlook of a housing market.  Unfortunately, the real estate crystal ball is still mired in the patenting process, so don't look at this a perfect method.  As I wrote before, real estate is local and what may be true for one area may not necessarily be true for another.  Consider these rough guidelines.

#1: Employment

As you may have guessed, the greater amount of people working, the better the local housing market.  The areas in the US where housing prices took the lowest fall from the peak have a few industries in common.  They are the bright spots in the economy, which include military/defense, government, education, and energy jobs.  So if you come across a city that's a government center, contains a military base, has some great universities, and contains a few oil wells, I'd take a second look.

#2: Rents

Crook also indicates rents as a marker of real estate health.  Usually, in communities that have best weathered the housing crash it's cheaper to buy than rent.  This is calculated by using a price-to-rent multiple; the equation typically multiplies annual rents by 15.  If home prices are greater than this multiple, it makes more economic sense to rent than buy.  Crook warns that markets with extremely low price-to-rent multipliers can indicate a seriously depressed market with a glut of properties (here's looking at you Las Vegas).

#3: Foreclosures

It's no secret that foreclosures are real estate poison.  A major key to the real estate recovery is getting them off the market.  Take the article's winner for lowest home value drop from bubble-era peak: Jacksonville, North Carolina.  There, the drop was a measly .1%.  The foreclosure rate there in 2010?  .41%, whereas nationally the figure was 2.23%.  Compare that to our friend Las Vegas, where the foreclosure rate was 12% and values jumped off a cliff by 50%  Looks like some people took quite a gamble...

Posted in Foreclosures, Housing News

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