Assessing Economic Concerns to Your Property Market

Your property market is not immune to the greater swings in the economy of your area and nationwide. Some markets are more resilient to poor economic performance. Other areas, however, are more subject to boom and bust swings. Depending on where you are located, you will learn your property value is either relatively stable or very vulnerable.

Vacation or Resort Towns

The areas experiencing the biggest drops in a bad economy are those places where many residents are vacationers or second-home owners. When the economy slows, many of these property owners will attempt to either rent out or sell off the asset. Those people who were considering buying a second home in the area are likely to put these plans on hold for some time. The result is rapidly-depreciating home values. For example, during the recession of 2007, homes in Florida and Las Vegas experienced the greatest drops in value. Other locations, such as the resort towns in the Blue Ridge Mountains, experienced 30-50% drops in home prices in just two or three years.

Transitional Areas

Areas in transition tend to be some of the most vulnerable property markets on the books. In transition means you have reason to believe the area will attract wealthy home buyers in the future, but it has not yet developed that base. Common transitional areas are those located in downtown or depressed areas undergoing a revival. While the hope is always that the revival of arts, restaurants, bars and retail districts will boost the performance of these markets, it can take some time for this infrastructure to take hold. Transitional areas pose the greatest potential profits because they are low-priced initially. However, if the economy turns south, then these areas will be some of the first to experience a decrease in prices as development slows.

Effect of School Districts

While vacation towns and transitional areas tend to be very vulnerable to market concerns, established neighborhoods and districts will not see large changes. One primary reason some areas are stable over time is the presence of a good public school district. During the 2007 recession, suburban neighborhoods with highly-rated school districts saw a stable home pricing index. The home values crept up at the same rate as inflation, meaning home owners neither lost nor gained equity during this time period. If you are in a good school district, your property will remain desirable for families even in a recession.

Sustainability of the Local Economy

Another large factor to sustaining home prices is sustaining economic activity. A town with a lot of industry and a lot of jobs will have a better chance of constant home values despite the economy. Detroit is the ultimate example of how a dying economy can drop home values. When the car manufacturers cut jobs, the property prices simply did not hold up. On the other hand, the Silicon Valley area has a plethora of sustainable technology jobs. This means the value of homes remains relatively consistent in this California area despite swings in the output of the economy at large.

 

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