Getting Value for Your Money

In many parts of the country housing prices are falling.  Areas that were hit first were those that had a large escalation in price during the bubble period.  Now other parts of the country are getting hit as well due to the increase in unemployment.  With fewer people able to purchase and keep making payments on their mortgage and more houses coming on the market all the times, housing prices are bound to drop, its simple supply and demand.  Right now there is a lot of supply but not much demand.  So how do you know whether the property you are looking at will hold its value?

There is no absolute way to know whether you are getting a great price on real estate or if the value will fall further, however, by looking at certain factors about the area, you can determine whether the price asked is realistic for the area.  Sound confusing, let me explain.

1. Compare Average Income to Average Housing Prices

During the housing bubble, many times the housing values were much higher than the average incomes in the area (City, County, etc.) could support.  In Jacksonville, FL during that time, the average salary was around $30,000 per person but the average house was over $200,000.  How can a person making $30,000 afford a $200,000 house?  They can’t, that ‘s why we are in the mess we are in.  So when purchasing a house, you want to look at the average salary/income for people in that area.  Not only is this important to determine whether the house is overvalued but also when considering your ability to resell the property later.  If most people in the area don’t make enough to afford the house it could take a long time to sell.

2. Look at Number of Homes for Sale in Area

Another factor that you should look at when determining whether the house is overpriced is to look at how many homes are for sale in the area.  More houses available for sale drives down the price.  It is the basic economic concept of supply and demand.  If there is more supply than demand, the price goes down.

3. Look at How Long the Homes Have Been on the Market

When looking for how many homes are for sale, you will also want to know how long the homes have been on the market.  If 5 houses in the neighborhood just went on the market last month, the price of the house has likely not been adjusted yet to reflect the excess houses on the market.  If the house has been on the market for a year, it is likely that the house has been adjusted down from the original listing price, but it may still be a bit high since it is still on the market after such a long time.

4. Look at Employment Opportunities

Currently in Florida there is an interesting situation, communities are springing up with no real industry or jobs to support the local market.  If you don’t know the area, one tip that there might be an issue like this is when the town you are looking at has average housing prices quite a bit lower than neighboring towns.  Once the bubble burst, people realized that they couldn’t sell these homes because people needed jobs to pay the mortgage and there were little to no real jobs in these towns other than bagging groceries.  As a result, these housing prices have fallen much more dramatically than those of the surrounding communities and will be slower to return to their higher values.

The bottom line is there is no absolute way to know what the best price is, you need to go with what you think the house is worth and if the seller accepts it, yeah you got it, if not move on there are plenty of other properties available.