The housing market right now is a “crapshoot.”
Economist Karl Case—co-founder of the heavily-followed S&P/Case-Shiller home price indices—told CNNMoney that today’s housing market is nothing like the predictable pre-crash housing markets, where you could bank on small but reliable price appreciation every year.
“You’ve got much more negative vibrations in the housing surveys about homeownership than we ever had before,” Case told CNNMoney. “I think it’s because people got hosed. They thought that housing prices will never go down. That’s just bull — you know what.”
According to Case’s partner Robert Shiller, home prices increased by an average of about a half a percentage point every year from 1890 to 2008. But that is no more.
Instead Case said that the real estate market is “segmented,” meaning that only certain markets are guaranteed to go up in the future. So rather than buying a home and knowing you’re going to sell at a profit, you have to be a little more strategic about it.
Here are three steps to buying in an area where home price appreciation is a little more stable:
1. Look for population growth on a regional level. Cities that have seen shrinking or even static populations will see dropping home prices, or at best, home prices that struggle to grow. According to the U.S. Census Bureau, several cities in Texas have led the way in population growth, and home prices in the Lone Star state reflect that. Meanwhile, Rust Belt cities are shrinking and so is their price growth, if there’s any at all.
2. Zero in on a thriving neighborhood. Of course you’re looking for an area where empty storefronts and vacant homes are rare, but if you really want to see long-term price appreciation you have to dig a little deeper. Look for the spots in a city where there’s a thriving job base and expanding incomes that aren’t reliant on one industry or the local government. The lower the unemployment rate, the better.
3. Find a combination of construction and limited inventory. Neither of these two factors on their own indicate a great real estate market, but their congruence can predict home price appreciation. An area with limited available inventory could mean that people are still waiting for home values to increase before they sell, but if you see limited inventory coupled with a lot of remodeling and homes going up on every lot, that could be a sign that these homeowners are here for the long-haul. Talk to people in the area to get a real sense of what’s going on.
While these won’t guarantee home price appreciation—as Case said, there are really no guarantees anymore—they can allow you to put the right foot forward.