Property Values have they Hit Rock Bottom

Many people are wondering if property values have reached their bottom yet, and if it is now a good time to buy. The short answer- no one knows. The longer answer is that values probably will not sink much further, due mainly to efforts by the current administration to assist homeowners in trouble and shore up banks with toxic assets already on their books. There is a caveat, however. Some areas will continue to see increased foreclosure rates as the economy tries to get its footing. Many of the foreclosures that will be seen in the upcoming months will be due more to employment conditions instead of bad mortgages.

Existing home sales in Florida are seeing a jump as bargain hunters sweep in to get homes now at 30%-40% below their 2007 values. This will, in turn, stabilize home values generally. Arizona and Nevada may recover also as those looking for retirement homes snap up the bargains. California, however, may see a further slip in value as government layoffs cause a further rise in foreclosure rates.

Real estate site finds a decrease in foreclosure filings of 10% in January 2009, still up 18% from January 2008. The leading states in foreclosures are still California and Florida, with Arizona and Illinois next in line, and Ohio and Michigan close bringing up the rear in highest foreclosure rates.

Detroit has recently been in the news, with home values at an all-time low, with median home values at $7,500. This is considerably less than a new car, an area of the economy where loans are still hard to get. The Chicago Tribune recently did an article on the subject of Detroit home values (January 29, 2009) where they suggest, in jest, that home prices are so low there, they can be bought on a credit card. This, however, would not be a good use of your credit, as none of the interest could be deducted from your income tax. Their point remains, however. If one were to have a bit of cash laying idle, a Detroit property might be good for investment. Unfortunately, the employment situation in itself makes the return on that investment dubious for some extended time into the future.

In purchasing property, the problem with having a lot of foreclosures in the area is that it gives the property around it a bad feel. Buyers are loathe to enter a neighborhood that is peppered with For Sale signs, and the neglect these foreclosed properties often suffer while empty affect the entire neighborhood around it. For those with strong stomachs and hope in their hearts, however, a foreclosure sale or short sale makes good financial sense, and may be the only way they can get into the housing market.

As in all property decisions, location-location-location is key. If property is close to employment centers, has good transportation, and has community features that people traditionally desire, the property will eventually yield a return. If not, your risk is likely to overwhelm your return.

It is inarguable that home values will recover to some extent in the future. Homes essentially have value relative to everything else in our economy. The problem becomes guessing how much they will recover and at what price one should take the plunge. With many people nervous about their own continued employment, it may be that home values will go dormant for a few years. But if you have time to wait, and no upcoming need to sell the property to move elsewhere, it can be financially rewarding to make the move now while prices are low.