Is your town a real estate microclimate?

Mood of the Market

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 20, 2011

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Mood of the Market

Tara-Nicholle Nelson
Inman News™

I've said it so often, it could be my theme song: Real estate is hyperlocal.

This means, as we discussed last week, that markets move up and down on their own time frames, and to varying degrees depending on factors like their job markets, whether or not the area happens to be a college town, patterns in population growth (or decline), and whether homes are overbuilt in the area.

The fact that real estate is hyperlocal also means that there are no national rules of thumb in American real estate; for example, I'm often asked by buyers in various cities how much below asking. Should they offer 5 percent? Or 15 percent? There is simply no one answer that applies across the board, or even across a state or within a single city.

At the same time it's a buyer's market in Atlanta, for example, a seller's market could still prevail in Manhattan or San Francisco, or even in Boulder or Pittsburgh.

Hyperlocal also means that real estate market dynamics can be different even in different areas within the same city. Even when markets are moving roughly in sync, as now, when home prices and sales activity are relatively depressed everywhere, there can be multiple offers in some neighborhoods while across town it's nearly impossible to move a property.

Last week we saw the parallel between real estate's hyperlocality and the natural microclimates that can cause weather patterns and ecological conditions to differ significantly in areas as small as a few square feet or as large as dozens of square miles. Things like slopes and the proximity of a space to a building or tree can cause a big difference in temperature and sunlight -- even in your backyard!

While deciphering my own yard's microclimates, I brainstormed a list of elements that I've seen create real estate microclimates, the first half of which we covered last week. Here's the last half:

Scarcity. There are conditions that limit building and cause real estate to be scarce, relative to the population that wants to live in a locality -- whether those conditions are natural (like proximity to water, which prevents any more building) or man-made (like strict land use regulations).

Popularity. This is the issue I explored recently in a column on what makes real estate "prime." Sheer popularity of a place, its plain-old desirability, can cause it to have its own real estate microclimate. Usually we see this with particular neighborhoods -- and the most common evidence of this we see right now are those neighborhoods where homes for sale have continued to command multiple offers throughout this real estate recession.

Culture of financial conservatism. There are just some areas where subprime loans never took off, where there were never multiple offers at the top of the market, where home prices never skyrocketed. And while, at the peak, it seemed like these places were laggards, the fact that they never had a bubble meant they had nothing to burst, so that these areas' home values just never plummeted. Pittsburgh, Pa., with its virtually nonexistent depreciation through the recession, is one example.

On the flip side, sometimes an area's popularity and scarcity interact to create a culture on the opposite extreme of the spectrum: in Seattle, the desire to live there caused many to take subprime loans at the top of the market, resulting in a high rate of foreclosures a few years down the road.

Affordability. By affordability, I mean more than just low prices and great interest rates. Affordability signifies housing costs that are affordable to a large part of the area's population, so it's really prices and interest rates as they relate to the area's average household income. Places where homes are highly affordable to a large number of the area's households tend to have their own real estate microclimates.

Understanding what causes an area to have its own real estate microclimate helps us understand how the real estate news and ubiquitous data reports apply to our own real estate decisions, if they do at all. It can help you decide whether to buy in one town or the town over, in one neighborhood or the one across town, and whether you'll need to compete for homes or can wield major bargaining power wherever you decide to buy.

Real estate microclimates help us understand the need for nuance -- real estate decisions can be simple, but they're not always. Understanding the seemingly small details that make a place its own mini-market? Priceless.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   
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