YOU Magazine - May 2006 - Predicting Your Homeís Appreciation Itís More About Trends Than Clairvoyance Subscribe to YOU Magazine and other timely market alerts from Your Name Here .

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May 2006

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Predicting Your Homeís Appreciation
Itís More About Trends Than Clairvoyance

Predicting Your Homeís Appreciation - Itís More About Trends Than Clairvoyance

When it comes to your finances, predictability would be the equivalent of a dream come true. Knowing the amount of money you'd earn, spend, and save over any given amount of time would be useful to say the least. Think about how that information would positively influence your financial decisions and, in turn, bring you complete peace of mind. The good news is this type of predictability is possible, especially when you're talking about the earning potential of a home's equity.

Over the last ten years, the world of real estate has been an exciting one. The corresponding booms have been unprecedented in terms of low interest rates, the number of homes purchased, and overall appreciation in home values. The current sticker price on homes in major cities may be a shock to the system, but you may be even more surprised to learn how well some of the smaller markets have fared.

We've seen a few scenarios develop as a result of the overall growth in the real estate market. One is that homeowners in larger cities are purchasing smaller market homes not only as investments but for future retirement living. Another is longtime homeowners with major equity are cashing out of their home in the city and exchanging the shorter drive to work for a bigger house. And a third trend worth noting is that first-time homeowners are carefully seeking out purchase areas based on specific features as well as affordability. If there is one thing all of these people have in common, it's a greater need to know that they are making the right decision.

Fortunately for all of us, accompanying the booms has been a lot of research as to why, when, and where they take place. This research has shown several societal trends which have had a positive impact on the appreciation of homes in certain areas. If for any reason you, a family member, or someone you know is considering relocating to another city or state, purchasing investment property, or simply buying outside of their comfort zone, here are some things to consider when making such a decision.

A city's ability to create as well as keep jobs has a major influence on the appreciation in price of its surrounding homes. The Milken Institute does a yearly study on this subject and recently came out with its ranking of best performing cities for 2005. One state which did remarkably well was Florida, boasting 9 cities in the top 25. Of those 9, Orlando, Ocala, Tampa, Sarasota and Daytona all cracked the top 10 in cities which saw the greatest appreciation in the price of homes. For a complete list of best "job cities", visit the
Milken Institute's website.

This factor comes into play when a city experiences newfound tourism or a resurgence in tourism. Two good examples of this would be the boom in Nevada, mainly around Las Vegas and Reno, and the boom in Honolulu. Las Vegas has cooled down somewhat from its staggering 2004 increase of 52%; but home prices in Hawaii's capitol are up 26.5% from last year, with a median price of $620,000.

An influx of retirees has a huge impact on the appreciation of homes within a city. In the last few years, a state which has experienced this significantly is Arizona. Both Phoenix and Tucson made last year's top 10 in home appreciation with the former occupying the number one spot. The areas of Phoenix-Mesa-Scottsdale saw a whopping increase of 48.9% in the value of their homes with a median price of $268,000. This means it wasn't only a good investment, it was also affordable.

Population Increase
It's a pretty simple concept, when the demand for houses grows so do their prices. Southern California residents know this scenario very well. The population of SoCal grows on a yearly basis and in return, the populations of surrounding cities also grow. Two such areas in the midst of both a population and home appreciation increase are Riverside-San Bernardino-Ontario (also known as the Inland Empire) and Los Angeles-Long Beach-Santa Ana. In the case of the Inland Empire, some experts claim that over the next 15 years its population will grow at a rate higher than that of most states.

The Rolling Boom
Whenever a major city begins to experience a boom, there's a reasonable chance that the surrounding areas will follow suit. Eventually, potential home buyers get priced out of the most desirable neighborhoods and end up looking at more moderately priced homes in neighboring cities. It's important to know that the rolling boom never happens right away. It takes a while for people to realize the disparity in prices before they start acting on it. This "rolling boom" trend is currently taking place in South Florida.

West Palm Beach, a city experiencing a big boom, has reached a median home price of over $390,000. North of West Palm Beach is Port St. Lucie, a city with a median home price of $254,000. Port St. Lucie actually ranks slightly higher than WPB on the job growth chart but is just now starting to boom. It's safe to say that Port St. Lucie is experiencing positive fallout from its booming big city neighbor to the south.

Schools and Demographics
Other factors which exert an influence on home appreciation include schools and general demographics. It probably doesn't require much explanation, but good school districts equal rising home prices. People not only like the idea of sending their children to better schools, they are willing to pay for it.

With demographics, it's a numbers game. Baby Boomers, this nation's largest generation, bought a lot of homes in the 1980s. They've now hit their peak earning years and are either trading up or purchasing vacation homes and investment properties in other locations. The children of the Baby Boomers are now preparing to make their mark, especially in the area of starter homes. Don't be surprised if prices of homes start rising in cities with a large Generation Y demographic.

While predicting a home's appreciation is never a sure thing, the aforementioned trends may be used as strong indicators. When buying a home in a new city, it's important to do your research, both on the Internet and through your real estate agent and mortgage professional. By examining these trends as they pertain to the cities you're considering, you'll be better able to make the right decision. The bottom line is that all of these trends are indicative of other, very positive characteristics. If you don't end up buying in an area that eventually booms, at least you'll wind up in a great city.

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