Signs of a real estate microclimate

Mood of the Market

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 13, 2011

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Mood of the Market

Tara-Nicholle Nelson
Inman News™

You might have heard a real estate commentator, analyst, or even broker or agent utter a relatively recent addition to the real estate lexicon, the adage that real estate is hyperlocal. It is usually used to indicate that all markets are not the same, and do not operate in the same direction at the same time.

This was the basis for the widespread belief that it was impossible to have a nationwide real estate recession, because markets are so different.

While that was clearly an overgeneralization, it is the case that we've seen different markets hit their peaks and troughs at different times and to widely varying degrees, based on the peculiarities of their local market. Las Vegas homes have lost about 60 percent of their value since their peak, while homes in Pittsburgh have lost less than 1 percent of their value, on average.

That's hyperlocal.

Nature offers an interesting parallel to this real estate phenomenon: microclimates. Wikipedia defines a microclimate as "a local atmospheric zone where the climate differs from the surrounding area. The term may refer to areas as small as a few square feet (for example, a garden bed) or as large as many square miles."

An urban gardening book I just reviewed defines microclimates as "small areas that experience their own weather conditions," and goes on to explain that even in your backyard, "there are tiny climates that are each affected by sun and wind exposure, soil type, and houses, fences and other landscape features."

Slopes, proximity to water, trees, buildings and a variety of other elements might cause, for example, weeds to grow more quickly in one area and snow to melt more slowly in others.

The San Francisco Bay Area, where I live, is well-known for its microclimates: It's usually about 10 degrees warmer in Oakland than it is in San Francisco, and another 10-15 degrees warmer by the time you drive 20 minutes inland to Pleasanton.

As I planned my kitchen garden, I took some time out to consider all the various features -- from the creek at the top of my yard, to the olive tree at the side, to the various slopes -- that create the microclimates around which I should plan my plantings.

And, as always, my mind wandered to the parallel real estate question: What creates real estate microclimates?

I came up with a relatively short list of factors that cause a neighborhood, city, county or state to have its own real estate environment that operates independently from nearby areas or the national market at large:

Jobs: Areas that are job centers and have major employers in the area, with low unemployment rates and current or projected job growth, have different real estate market dynamics than other markets, largely because people want to buy homes where jobs are.

Universities: College-town real estate tends to be recession-proof compared to other towns, as towns anchored by one or more large universities tend to have a relatively steady and robust economic center and a constantly replenished demand for housing both for sale and for rent, in the form of students, faculty and staff members, and the workforce of the businesses that support the school(s).

Population booms: Districts that are experiencing an uptick in population -- whether by birth or by incoming migration -- also often experience their own real estate microclimates. It may come as a surprise that there are many cities and states in the U.S. that are actually experiencing net population decreases, as people move out for various reasons, including lack of jobs and affordable housing. Again, it's all about demand.

Overbuilding: Where homes are vastly overbuilt, as they were at the top of the market in the Sun Belt foreclosure hot spots like Arizona, Nevada, Florida and some parts of California, a microclimate of oversupply can develop.

And there's more -- next week we'll take a look at another set of elements within the ecology of an area's economy that cause it to have an independent real estate market microclimate of its own.

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