Last of the Red-Hot Markets
by Joe Light

December 13, 2007

[Continued, page 3]

What It All Means

You're not going to pick up and move to Wenatchee, Wash. just to get into its housing market. But today's hot markets can tell you a great deal about the value of your own housing investment.

IF THE ECONOMY'S OKAY, YOUR MARKET WILL BE TOO...
You needn't worry about house prices collapsing if local industries are doing well. By merely reading the business section of the local paper, you get a sense of the economic climate. Announcements that companies are expanding or building new factories—or conversely, moving operations to Uttar Pradesh—can tell you where house prices are headed. For example, a headline in the Beaumont Enterprise last year proclaimed that the Beaumont, Texas area was "poised for economic progress." The expanding petrochemical industry was looking to recruit 18,000 new employees. And in the year ended June 2007, the average price of a house in Beaumont/Port Arthur rose by 10.6%.

...AS LONG AS SPECULATORS AREN'T DUMPING PROPERTIES
If they are, your local market could be headed for a bubble pop. Signs that investors are rife? FOR RENT signs lining the streets and no cars in the driveways at night. If you're buying a new home, make sure the developer restricts investors from buying up too much of the inventory.

HOT POCKETS EXIST EVEN IN CHILLY MARKETS
Even après-bubble, prices in some neighborhoods will be on the upswing. For example, in the Boston metropolitan area, home values dipped 4% in the past year, according to Zillow.com. But in Newbury (pop. 7,000), another Boston suburb, where the median value of a home is $491,000, prices appreciated 8%.

Typically, such trend-upsetting enclaves are lukewarm neighborhoods that haven't seen the rocketing prices of "hot" markets down the road, says Stan Humphries, vice president of data and analytics for Zillow.com. "As some neighborhoods become radically more expensive, prices push buyers to the formerly less attractive places and put upward pressure on prices."

THE LAWS OF ECONOMICS STILL APPLY
Cycles happen. Five years ago it looked like fat year-to-year gains in home prices would continue forever. That assumption came crashing down earlier this year when a Standard & Poor's report showed that home prices in the first quarter had fallen for the first time in 16 years. That too will end. But since housing generally has a 10-year price cycle, you shouldn't rely on prices rising much for the next decade.

If you've owned a house for a while, you don't have to worry. The gains you've enjoyed in recent years are huge compared with recent price downturns. Even if the median price of a single-family home in Miami—now $393,000—falls by 20%, the price on that house would still be about $20,000 higher than it was at the end of 2004. "With all the sound and fury associated with the recent downturn, in the places with the most dramatic price declines, they've only erased a few quarters of appreciation," says OFHEO's Leventis. "Long term, prices still tend to go up."

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The opinions and views expressed in this publication are for general information only and are not necessarily those of Mutual of America Life Insurance Company.

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