At the end of the 1970s, ’80s and ’90s, homeowners in many areas cashed in big profits when they sold. This enabled them to trade up to a bigger home, sometimes in a better neighborhood.
Homeowners used their homes as piggy banks through the use of home equity lines of credit (HELOCs) to buy cars, pay for vacations and medical bills, renovate their homes, and pay for college educations and retirement.
The recent housing recession brought a halt to this as home values dropped 30 percent or more, depending on location, wiping out equity for some and leaving many who bought with a low cash down payment with negative equity. More than 24 percent of homeowners in the U.S. today have a mortgage value that exceeds the market value of their homes.
2012 may be a pivotal point in the housing market. The decline in home prices has subsided and prices are actually moving higher in some markets. Buyers, instead of being reticent to buy a home that may lose value, are now anxious to buy before prices rise further. Lawrence Yun, chief economist for the National Association of Realtors, projects that home prices nationally will rise 5 to 10 percent over the next three years.
Does this mean that we’re moving back to a housing market that will enable homebuyers to treat their homes as an investment opportunity rather than just as a place to live?
There are still possible bumps ahead for the housing market. Millions of foreclosure properties have yet to come to market. The global economy is slowing, and U.S. economic and job growth are meager. Even so, some buyers who purchase in choice locations today could realize substantial gain when they sell.
HOUSE HUNTING TIP: High-demand neighborhoods are usually located close to centers where job creation is high. A good transportation system enhances home values, particularly if your neighborhood is near a hub that provides the means to travel in several directions. Some areas have benefited from foreign homebuyers.
Location has been touted as the key factor determining home value. That is still the case. Buyers want quality housing in close proximity to green spaces, recreation, good shopping and transportation.
One strategy is to buy a home that lacks curb appeal and could use updating that’s located in a neighborhood of superior homes. The neighborhood is already known as a winner. Your challenge is to bring the property up to the quality of the neighboring homes by making cost-effective improvements.
Shoddy renovations will be seen for what they are when you sell. Hire quality contractors at a reasonable price. Some homeowners do not make back what they paid for improvements when they sell. To ensure you don’t overimprove for the neighborhood, find out what buyers want and how much they’re willing to pay for it before you renovate.
For example, in California, a study conducted by UCLA and the University of California, Berkeley, showed that homes with a "green label" sold for approximately 9 percent more than comparable nonlabeled homes. A green-label home is labeled by Energy Star, Leadership in Energy and Environmental Design (LEED), and GreenPoint Rated.
There’s a certain amount of luck involved in making a profit on a home sale. For instance, buying a home in the next hot spot and waiting for the neighborhood to turn around before you sell could yield a tidy profit. A neighborhood that’s adjacent to one that’s already highly desirable might be a good place to look.
Patience will work for you if your aim is to come out financially whole or ahead of the game when you sell. Plan to hold for the long term. Don’t sell in a down market.
THE CLOSING: If the market presents an opportunity to sell sooner, take it, unless your home means more to you than profit.