It’s not just a lifestyle you’re choosing when you pick a home. Your personal fortune could also be at stake.
That’s the seasoned advice of Susan Hudson-Wilson, chief executive of Property & Portfolio Research, an independent firm that tracks trends for some of America’s largest investors in residential and commercial real estate.
Hudson-Wilson urges individuals to think the way Wall Street investment managers do when they put money in a real estate portfolio.
Sure, you want a home that speaks to your preferences in architectural style and other features. But you also want some assurance that the place will grow in value–or at least not sink if another real estate recession should hit.
“You should approach home buying the same way you would any serious financial investment–though unfortunately few people do it that way,” Hudson-Wilson says.
Real estate experts don’t foresee a downturn in property values any time soon. Nor do they think that the notoriously cyclical real estate market will mean the same deep drops in home values that plagued some of the hardest-hit communities in the early 1990s. When the next housing downturn eventually arrives, it will be softer in its impact, predicts Hudson-Wilson, the founder of her own consulting firm.
Not only does the U.S. economy have intrinsic strength, Hudson-Wilson says. But she’s convinced that corporations will face an ongoing labor shortage that will keep unemployment low. Why? Because the labor pool will shrink as more Baby Boomers move into retirement and the smaller “baby bust” generation follows.
A low jobless rate, in turn, should keep household income high and permit more people to enter the home-buying market or rise on the ladder, Hudson-Wilson says.
What do economic trends have to do with your choice of a neighborhood? A great deal, says Edward P. Pariseau Jr., the co-owner of four Century 21 real estate offices. “Supply and demand have always driven housing markets.”
Still, studying economic trends in the abstract will do little to help typical home buyers pick a community that offers protection against value drops over the long term. Buyers need practical methods to judge which communities will hold or gain value better than others, says Gina Romm, a Coldwell Banker agent, who recalls vividly the early 1990s, when home prices fell in many neighborhoods.
Romm recommends that home purchasers searching for an area with durable values seek what she calls a “first-choice” community–a sort of Tiffany among neighborhoods.
What qualities distinguish a first-choice area? Typically it’s a mature, tree-lined neighborhood where attractive and solidly built homes are maintained with pride and flowers bloom in public spaces. Preferably it’s within a 10- to 50-minute commute of an important commercial center–an established city or town or, alternatively, a newly created “town center” where the employment base is strong, stable and diversified.
Such a blue-chip neighborhood should have police officers and firefighters who are responsive and reliable. It should have ready access (usually no more than a 5- to 15-minute drive) to a supermarket. And a regional shopping mall should be no more than 20 to 30 minutes away.
Most first-choice communities are characterized by a population that is heterogeneous in terms of age–a factor the average home buyers considers more desirable than, say, a neighborhood where seniors, young couples with small children or singles are the dominant group. (There are exceptions to this rule, however. For instance, there are some very strong urban neighborhoods where most people are single and child-free.)
Generally, a first-choice community is also a place where cultural attractions are readily reachable and at least one high-quality university is nearby. In addition, access to quality public transportation–such as a subway stop, train service, a light-rail station or premium bus service–is becoming more important. That’s because traffic congestion and “road rage” are increasingly annoying to many.
Reigning over all these factors, however, is the vital importance of top-flight schools. Indeed, a first-choice community is virtually defined by the high quality of its public schools, says Romm.
If you want a place where property values will endure and grow (even if you have no school-age children of your own) look for a neighborhood where most high school students go on to higher education and, as a group, students score in the top 15 percent of the U.S. population on college-entrance exams, Romm recommends. A local school system enriched with prized programs for gifted and talented students is also a coveted feature, she adds.
Here are three other pointers on finding a community of enduring value:
– Go to a neighborhood coffee shop or deli to meet the real “experts.”
Granted, your real estate agent should have a good feel for a particular neighborhood and its pros and cons. But unless she actually lives there, she won’t be as knowledgeable as those who inhabit the enclave.
Is the local elementary school on the incline or decline? Is its principal nasty or nice to the students? The folks at the neighborhood coffee shop are likely to help you learn the unvarnished truth. They’ll also tell you whether the neighborhood is friendly, strong on civic pride and relatively crime-free. In addition, they’ll help you assess the quality of local services, ranging from police protection to garbage collection.
– Look for objective as well as subjective data sources.
There’s no reason why you, as a prospective home buyer, should feel timid about asking local government authorities for public information on a neighborhood. That includes test scores from a school superintendent’s office, crime statistics from a police department or information on the local government’s plans for changing zoning and roadway patterns in an area of interest to you.
– Consider the supply side of the equation in selecting a neighborhood.
Anyone who has taken a course in basic economics knows that both supply and demand are factors in the price of nearly any product.
More home buyers should consider future housing supply when picking a neighborhood, advises Hudson-Wilson.
You may have selected a new-home community in an attractive suburban setting. But if builders are flocking to that area and land is abundant, it’s possible that the supply of homes could well outstrip demand there. How quickly and easily are construction permits being granted to builders in the region? Again, the local government authorities should be a good source of information.
Suppose you wish to buy into a particular area (perhaps because you’ve been transferred to a new job nearby). But you worry about new supply swamping the market and keeping a lid on values. In that case, you may wish to underinvest in that area–perhaps by buying a smaller-than-expected home or putting more money down on the property in the event that values might one day slip there, Hudson-Wilson says.
