Avoid Buying a Home with Declining Value During a Real Estate Boom
Posted on February 20, 2008
Filed Under Home Finances |
If an area like Phoenix, AZ, or Las Vegas, NV, or Frisco, TX is growing while the real estate markets in the rest of the US are cooling, you might think that buying an established home in a growing area would be a good move, right? But, that is not necessarily the case. There are some important things to think about when you go to get your mortgage quotes.
Let’s say you buy a nice home in an established neighborhood. It is maybe 10 years old and in good repair. You see new stores and schools being built all around, and the area has a good track record for growth. And it continues to grow. That is good, and in general it is good for the value of your home.
But let’s say you need to sell your home for some reason after 2 or 3 or 5 years…Here is the potential problem… The home builders have continued to build because they saw the same economic growth you did. And now there are lots of unsold homes in the new developments. NEW homes - brand spanking new ones that the builders are willing to negotiate down on because they have too many that have not sold, and the market is in a cooling cycle. (Remember, even in a growth economy, there are cycles, and they include cooling). So, while your house is on the market for an otherwise reasonable price, the home shoppers see the brand new homes across the street. You mention that you just remodeled your kitchen and your bathroom, but they tell you that they can still pick out the appliances and the color of the paint and carpet in the new home, and that they can get the same or better price than you are asking.
What I am really trying to say is, be careful when you buy an established home in a growth area, as well as before you remodel one. Things are a bit different when buying an established home in an established area where everything has been built up for years, because there aren’t a bunch of new homes being continually built, because all the land has already been sold for decades. However, there will be teardowns and rebuilds that change the dynamics.
All the best!
Stephen Dunbar
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Good points Stephen!