Finding a Home With Appreciation Potential

Posted: Oct 17, 2008 12:01 AM
Finding a Home With Appreciation Potential

Real estate specialists who view the economy on a large screen are confident that those with the nerve to buy a home in the current market will one day be glad they did -- particularly if they're now able to capture a quality property in a desirable neighborhood at a bargain price.

"Throughout history, property markets have always gone through cycles. Buying smart now means picking one of those prime neighborhoods where values will be among the first to rebound," says Barry Nystedt, a real estate broker and president of the National Association of Exclusive Buyer Agents (

Nystedt -- who considers this a particularly opportune time for first-time buyers to make a purchase -- predicts that values in many coveted communities will very gradually begin rising during the next six to 12 months. In areas where the economy is weak, however, he says prices could remain stagnant for three years or longer.

" Right now there are too many properties for sale in lots of places. But in areas where inventories are starting to tighten, you should soon begin to see signs of recovery," he says.

Are you a prospective first-time homebuyer with money in the bank for a down payment and a strong urge to leave your rental unit for a nest of your own? Do you expect to be living in your first home for at least three to five years? If so, Nystedt encourages you to consider buying soon -- making sure you choose a neighborhood that seems posed for appreciation in the next few years.

"Watch out for the spin that some listing agents will put on the areas where they happen to be working. To a large extent, you need to educate yourself and do your own research," Nystedt says.

Here are pointers on neighborhood selection:

Seek out a community grounded by a strong job base.

Obviously, some segments of the economy, such as auto manufacturing, have been harder hit than others and have been shedding jobs at a rapid pace. Consequently, the communities around auto plants have experienced weakened housing demand.

Yet other neighborhoods with a stronger employment base are proving remarkably recession proof, says Sid Davis, a real estate broker and the author of "A Survival Guide for Buying a Home."

"Aging baby boomers need more health care, and this is one factor that has kept communities around medical centers strong in terms of housing demand. The nurses, doctors and technicians working there are not at risk for losing their jobs," Davis says.

He also recommends you consider buying in the vicinity of a major university.

Still another segment of the economy that should do well within the next several years: places where "green companies" are thriving. These are firms involved in environmental engineering work or alternative energy development.

Look for a "walkable" community.

Whether due to high gas prices or roadway congestion, many Americans are fed up with what Davis calls "the car life." They're tired of total dependence on cars to reach work, shopping and their kids' schools. They dream of living in a community where they could safely walk or bike to a good movie, a fine restaurant or a local ice cream parlor.

In reality, there are still relatively few areas outside big cities where people can walk to work or leisure activities. But an increasing number of communities are hooked into mass transportation systems that let people whiz to their destinations without driving -- whether by express motor coach service or rail lines. Davis says homes in these areas will do well in future appreciation.

Search for a subdivision with top-quality construction.

Is your plan to make your first home one that's new or nearly new? If so, you'll want to be sure you're buying in an area where the builder has a reputation for high-quality construction. That's because homes that are durable and weather well are more likely to gain value as the years pass.

"You've got to make sure you don't purchase a place in a community that's been plagued with plumbing problems, electrical issues or the premature roof failures," Nystedt says.

How can you determine if a subdivision that interests you is one with solidly built homes? To find out, Nystedt suggests you spend a few hours one Saturday going door-to-door in the area, quizzing local residents.

"You need to know if the builder has honored his warranties and fixed all the issues that need fixing," Nystedt says.

Find a neighborhood with sales momentum.

Davis says there's much you can learn about a neighborhood simply by examining its real estate sales data from the past three months.

One key set of statistics that he likes are "list to sale" numbers. These reflect the difference between the asking price and the final closing price for any given sale. If, on average, the gap between these two figures for local home sales is narrowing, then the area's market is apparently improving.

Another positive sign of momentum for the community should show up in statistics for "days on market." If homes are selling more quickly than in prior months, this likely indicates that a neighborhood is rebounding.

There are no guarantees that the home you purchase in 2008 will have picked up value by the end of the decade. But by studying the numbers and focusing on a neighborhood where the pros outweigh the cons, you stand a much better chance of making a good choice when you buy your first property.

"You don't need to be a Pollyanna to imagine that a home you buy for a good price in a well-chosen community should prove a good investment during your tenure in the property," Davis says.