How do I know if Home value is likely to go up?

Question

When looking for a home to purchase, I have heard that location is an important factor in determining whether the home value will go up or not.

What things would I need to look for when purchasing a home with the the intent to move within the first 5 years? I wouldn't want to move in and then have the home value drop, would I?

I am looking for resources I can use online to aid in researching whether an area is good or bad.

What thing should I look out for that would be signs that a particular area will have decreasing home value? Where could I find trend history of this for specific communities?

Answer 1

In the 24 years I have been a homeowner, only the period of 1999 to 2006 saw big increases in home prices. For most of the rest of the time there were either small increases, no increases, or big drops as bubbles burst. Yet overall the direction of the value of the houses has been positive.

There can be 5 year periods where every house goes up in value regardless of your location. There can be 5 year periods where every house loses value regardless of your location.

The past is no guarantee of what will happen in the future. In fact the past can be vastly different from the future. A history of growth may mean that it will continue or it may mean nothing.

You need to pick a house that meets your needs (size, style, price, location to import things) and hope for the best.

Halfway though the last bubble people made good decisions, and saw the value continue to rise for several more years. When the bubble burst they were still in good shape for several more years. Until they need to sell. Then they realized they couldn't sell when they wanted. They were still going to make money but it would take months to sell, not days.

That is the biggest risk. That you can't sell when you want.

Answer 2

Over a 5 year time-frame you aren't doing much more than speculating/gambling. Any information that is publicly available that could drive home values is likely already going to be priced into the house.

In short, if we knew the answer to your question we would be out shopping for Mink car covers for our Ferraris and not answering questions here.

Answer 3

If you rent, you won't have to worry about whether or not the property value goes up or down.

The transactional cost will be around 6% of the sales price when you sell, plus any other concessions you make to the buyer. How much would the property have to go up for you to break even? Or, if you're interested in keeping a rental around instead of selling it, will the numbers work out on that?

Renting may be more expensive but it does remove your price risk.

Answer 4

Usually a good location would be a location you would like to live in and many others would too. It could be close to areas like the beach, shops, schools, transport and other facilities. Another thing to look at is places where there is a growing population and plenty of work available, as these will increase demand for housing in that area.

Another thing that you should be considering is what you are going to do when you sell in 5 years. Are you looking to buy another house? If so it won't matter as much if your property goes up or down, as usually the new house would also follow in the same direction, especially if it is in a nearby area.

There is no gaurantee that the value of your house will increase over a certain period of time, however if you are able to do plenty of research before you buy (at least 6 months) you maybe able to get a better deal for a house you do buy (maybe 10% to 15% below current market value), giving you a head start from the first day you buy the house.