An overview of the rental and housing markets can give us some insight of the direction of real estate and why it’s likely to change, but the rule of real estate is still location.
To compare rents to monthly mortgage payments is a good marker of the direction of real estate markets. It’s obvious that when rents are lower than monthly mortgage payments, it may not be a good time to buy, on the other hand, when rents are the same or higher than mortgage payments it makes sense to buy. This is called a rent-to-value ratio. When it’s compiled with information on specific pointers such as rents and home values for a specific location, it can help to clarify what areas of the housing market are weak or strong.
With housing prices still tumbling in what were hot investment markets like Nevada, Arizona, Southern California and Florida, what is real estate investor to do?
All he or she needs to do is look for smaller markets with strong growth prospects.
One example is Raleigh, North Carolina.
The properties bought exclusively for investment purposes was off just over 18% from 2006, according to the National Association of Realtors, and dropped to almost 29% from the sky high levels of 2005. But area investors are still getting into duplexes, multiplexes and single-family houses in Raleigh, N.C. at prices so low, that the rents are more than covering their mortgages from day one.300% over the last three years.
How is that possible?
Raleigh and other parts of North Carolina were hit hard by layoffs in the downturn of the tech stock bust of 2001 and 2002, so local real estate prices missed the upturn that was enjoyed on both coasts at that time. Now, wealthy pharmaceutical companies opened up labs and offices and Fidelity Investments recently opened, which brought with it more than 5,000 jobs in all.
This has resulted in a high demand for housing and in turn, pushed up rents, but houses can still be picked up at reasonable prices.
A house bought in a foreclosure auction for example, at a price of $135,000 in June leased out that same month for $1,200 a month — almost 70% more than the projected principal and interest payment on a 30-year loan with 15% down.
Home prices have appreciated by about 6 percent in the last 12 months in the Raleigh area, but out-of-town investors are not clambering in. This is due in part, likely a matter of fear that is surrounding the real estate market throughout the country.
It may feel uncomfortable sometimes, as we read the daily news, but there are pockets of real estate gold to be harvested and this is one of them. If you do the research, look at the local economy and find the right location, you could hit pay dirt.
Is there eastern promise?
As with the US market, Europe still holds some gems of its own.
Only cave dwellers would not be aware of the global economic downturn that has brought property markets to their knees across the world. But in Europe, a contrast is emerging between the Baltic States and their Eastern European neighbours.
As house prices slumped in the Baltic, they rose at an annual rate of 32.2% in Bulgaria, from March to June, making it one of the world's fastest growing property markets, according to real estate firm Knight Frank, which recently released its Global House Price Index. Slovakia was a close second with 31.3%, and Russia with 26.5%. These countries leapt far ahead of the other 43 nations on the global index, which in total rose by only 4.8% during the quarter, from 6.1% in the previous quarter, suggesting that housing markets around the world were slowing.
Eastern Europe's housing markets contrast sharply with those of the Baltic States. Latvia was the worst performing country on the index, with property prices falling by 24.1% during the second quarter, even worse than the United States, where prices fell by 16.8%, according to the index. In Estonia, prices fell by 16.0% and in Lithuania by 9.9%.
In the past year, foreign investment has poured into Bulgaria, influenced by its growth as a manufacturing base, while house prices have also benefited from the country growing in popularity as a holiday-home location, with beautiful coastlines waiting to be built on.. Similarly, prices in Slovakia were driven upwards by a booming economy, as gross domestic product grew by 10.4%, last year. In Russia, higher wages, driven by oil and commodity boom, sent house prices soaring in Moscow, home prices jumped by 18.2%, in the three months to June.
It will be a few years before we see another boom; however by 2010 it is predicted that the market will stabilize. In the meantime, keep looking for those pockets of real estate gold that can still be found in all parts of the world.