I have had a number of conversations with real estate clients – many of whom are energy industry professionals- regarding the real estate market. Whether the energy professional is overseas or here locally, or looking to purchase or sell, the conversation is one that is shared, as it applies to my current situation as well.
I too am in the market to buy. I found a builder who caught my attention in an area under construction, 37 homes inside a gated community. Although this development is not quite flourishing, still with half the number of lots available, my concerns of value outweigh the personal attachment I have to stone front elevations, tile roofs and1-story floor plans in an ideal location. The 2 most important factors to consider in determining value come down to location and timing. There are areas, which dictate higher values and will appreciate far faster than others. Some areas may not increase in price at all, even over many years and these are the reasons why.
If you are buying at a time when the market has already reached a peak (and how to know when that is-to be discussed in my next article), be cautious if you are paying full price. There are areas where new home construction is still going strong. The significant question to ask is whether an area is going to flourish right away or if it will take years for the value of your home to catch up to the number, which it was purchased at? If you buy in a new development where there is enough land to allow building for years, then chances are the value of your home will not increase until the community is completely finished. Supply has to be limited in order for prices to increase and the market needs to remain healthy. If the inventory is excessive, and demand is not, prices will lower or not increase.
If you buy in an area where there isn’t excess land for new development, and considering the location is attractive, your purchase may show a substantial increase over time. Areas where there is minimal room for new construction, leaving only existing lots for tear down and rebuild will help prices increase in the neighborhood.
Timing has a lot to do with value in a purchase because the dollar value at the time of purchase may or may not be in line with the position of the market. For example, if you paid full price for a home when the market was steadily moving in sales, prices may have been overinflated from where they would traditionally have been. When supply is low and demand drives a market, prices accelerate, and a furry in buying may have put you in a home, but at a disadvantage in the price you paid. Let’s be realistic. No market ever stays the same. Many economic factors will cause a rise or a decline in momentum, resulting in price changes in homes. The most important point is that real estate doesn’t change over night. It takes time for economics to affect a market and make an impact. So head the rush, as things in the market will change; it just takes time to see the turn.