There is no US market

I was answering a question recently where someone wanted to know what the US market would do for the next 12 to 24 months. If we ignore the fact that no one can predict then we can focus on a different assumption behind the question. The person asking was expecting that real estate moves uniformly across the nation. Far from it.

The graphic shows how different cities have responded since 1988. Note that the data is specific to homes only (not condo, etc.). It also is based only on property that has been sold more than once so they are tracking the change for specific homes over the time range. Condition of the property and improvements are not factored in. Even with all of the above we can still see some things.

1. Some cities have really spiked. Note that about 3 years ago Las Vegas’ population grew by 49% so you might expect some price rises when demand spikes sharply.

2. Employment matters. Many of the cities that have been rising show good growth in jobs. The poster child for declining employment prospects would be Detroit where home prices have largely crashed based on the chart.

3. Some parts of the US (Midwest to Texas, upstate NY, parts of PA, WV and some regions of the Carolinas) missed out on the boom in property prices over the first half of this decade.

When we read the headlines about how the housing market is way off, that prices are dropping or other such news we do not hear about the cities that never saw a boom. A recent Realtor survey showed 79 MSRs down, 77 MSRs up and 8 flat. The bottom row of Midwest cities provides a long term picture of how prices in some cities do not rise just because Phoenix, Las Vegas and a few other boom towns spiked.

When investing you really need to look locally to see what is going on in the specific market. Even if the market is up or down individual deals can be found that do not follow the trend. Savvy investors focus on making their profit when they buy and getting the cash when they refinance or sell. They do not buy and then wait to make a profit if house prices rise.

Buying at a discount does mean working to find the deals rather than just paying retail. Discounts are found and maybe even created by restructuring the initial deal.

House price index

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6 Responses to “There is no US market”

  1. mike Says:

    What is your opinion of renting out to section 8 tenants? What are pros and cons? Please email me, thanks

    Mike – I have emailed you as requested. Some comments for others as this is a popular topic.

    Note that renting to Section 8 is not that different in some ways. You still need to check out the applicants to make sure you have the right tenant. Do not let your guard down because you think the government will relieve you of the major responsibilities of being a landlord. You definitely should expect to maintain the property as you will have annual inspections (inside and out) to deal with.

    In some markets the rents will be a bit above the average and in other markets they might be a bit below. Some people avoid any sort of government program and others focus on such programs.

    Focus first on being a good landlord (doing what it takes and knowing the laws, regulations and best practices). Section 8 is an option for those who feel their property is well suited to the pool of Section 8 tenants. There are limits to what the program will pay so higher end rental property is not going to work on the program. Check out the HUD site and the local HUD office to get specifics for your market.

  2. Ricardo R. Says:

    Hello… What its your personal opinion for real estate on Scottsdale AZ, have you invested there??? is it still a good market to start or it isn’t any more??? i was looking at it and i liked the area and it is expensive but could be good ^^…,

    I do not know the specific market. I know about the area and do know some investors in the greater metro area.

    Lets look at the bigger picture. What is going on in AZ? How about the major metro areas (Scottsdale and Phoenix)? Who lives there, where do they work, are there many second home buyers, what is the supply vs. the demand for housing like at this time? If we look at the graph earlier in this thread obvious Phoenix is coming down off a very large peak. Scottsdale is different but how different?

    If you are buying for appreciation can you afford to hold until the appreciation happens? Are there better markets to invest in over the same time period? Markets where you can expect break even or better cash flow without very large down payments?

    Do you know the local market? Are you going to be able to manage the property directly or hire it out? If you are investing remotely then why not consider other remote markets? Is there something special about Scottsdale that focuses you on that market? If so is that a good reason or will it blind you to the market vs. the alternatives?

    Do you have prior RE investing experience? Many people say to stick with bread and butter homes were real people with real jobs live. In my limited exposure to Scottsdale we are not talking about bread and butter. More high end, retirement and golf folks.

    After looking at the broad market conditions you need to drill down into details. Specific areas, streets, and properties. Even if the market is not the best place for a rental it could still be a place where you will find the hidden gems. More so if it is a buyer’s market with sellers who recognize they need to be flexible.

    One last question what do you think about Mexico real estate because some areas are emerging and are in a very good position….

    I have zero experience with Mexico. I have never been there.

    As someone who does invest outside the US and has looked at a number of countries you need to recognize a few things. It is what you do not know you do not know that can kill you. How mortgages work, what it means to have title to a property, can a non-resident legally buy, what is the tax structure, what about inheritance if you die, is there a tax on the value vs. the profits, and the rules for renting. In one country it is not legal to evict in the winter as it is too cold for the tenant to be throw out for non-payment. Such regulations can be a real issue with one’s cash flow.

  3. Beach_babe9711 Says:

    i also heard las vegas is going up right now. do you have any information on southern california. mostly los angeles overall. since house prices there are so high, would you say overall in the next 5 – 10 years it should keep going up faster than inflation. in the city im in, its apprecihating at 10% rightnow.

    are middle class neighborhoods that are nice and in good condition likely to always be apprechating over all each year?

    You are making too many assumptions about appreciation. Note that the Southern CA market has seen 3 declines in the last 20 or so years. Prices do not always go up.

    Did you see the graphs for the 12 US cities? Las Vegas is included. Notice how a number of cities are not averaging 10%.
    Here is the link to the graphic

  4. Beach_babe9711 Says:

    what is the best place to go to, to get the latest and reliable information on the market for apprechation?

    i never heard of standard & poor…… someone recomended marketwatch but i never had time to look at it?

    i wanted to see if theres one that most people go on to agree with, like what real estate agents and brokers use to sell a house for someone and see how its been aprechiating latley.

    could you explain apprechation more? say if i bought a house and sold it in 6 months, do i get half a years apprechation?

    to me most home owners that are not into real estate dont know how to see how much thier house whet up recently, they always depend on a real estate agent…

    There is little magic. Appreciation varies by time and location. Mostly tied to rising employment levels as most people live in their homes and pay the bills from what they earn. Many areas can rise faster than the average income but there are limits as to how long this can go on.

    S California has had 3 period since 1990 where prices have fallen across the region. Appreciation does not always happen in the short term. The very long term trends so positive appreciation. Be careful about the timing.

  5. Beach_babe9711 Says:

    does having a grant deed or a warranty deed make a house easier to sell that something that doesnt have any warranties like a quitclaim deed?

    and if i bought a house that was a quitclaim deed, could i turn that into a warranty deed without having to pay anything? or is that expensive?

    and it is easy to take over a loan like a preforecloser, with the lender if they have a due on sale clause?

    A quit claim deed says the person signing has no claim to the property. It does not indicate that they ever had an interest in the property. Title companies will some times refuse to write a title policy if all you have is a quit claim deed. Hence refinancing or selling could be blocked.

    CA does not use warranty deeds as a general rule.

    Best to get more than a quit claim deed. Also know what your favorite title company will say and what they expect.

    Due on sale can be used by a lender to call a loan if there is a change of title. Not required but possible. You are not legally taking over the loan. You are making a promise to pay the loan and the seller who has the loan in their name can come after you if you fail to pay. They might also do so if the loan is called due as it could impact their credit.

  6. Beach_babe9711 Says:

    is it ok to get cashback from the seller? he was selling for 480,000 and he said I could buy it for 450,000. I was going to take out a loan for 480,000 that im aproved for, and after it closed, the seller would give me 30,000 back. but somone told me that banks don’t like you doing that, but i seen a lot of people do that, and it’s like a side contract outside the closing, so if the seller wants to then he could?

    You would be committing mortgage fraud. It is a criminal act so jail time is a possibility if you are convicted.

    Like speeding on the highway, seeing others cuts little slack with the judge. If they really are doing what you are suggesting they are committing a crime.

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