The direction and health of the housing market is on everyone's mind. We tackle the 25 biggest real estate questions
Ming Dong, a 37-year-old biochemist at Lawrence Berkeley National Laboratory near San Francisco and a regular reader of housing blogs, needs some answers before placing his bet on real estate. He'd be happy with an unbiased answer to one question in particular: "Has the housing market hit bottom?"
"I'm waiting for more information to make a decision whether to buy now or a couple years later," said Dong, a renter who hopes to buy his first home for about $500,000. "Different bloggers and different experts give different perspectives. And if you listen to the National Association of Realtors, it's always a good time to buy. Even in 2008, they said it was a good time to buy. How can you believe them?"
This week's BusinessWeek.com real estate slide show takes a crack at answering Dong's question, and 24 other housing questions, including another handful posed by readers: Which direction are interest rates likely to move in the next year? Why are homebuilders starting work again when they still have homes left to sell? What home improvements add the most value with the least investment? Can the National Association of Realtors' housing data be trusted?
(We'll admit that our answer to Dong's question is a bit of a cop-out. We provided strong arguments from optimists and pessimists and—like Fox News says—we thought we'd let you decide).
Declines for Inflated Home Markets?
Tom Stratton, a 26-year-old Purdue University PhD candidate, thinks the market as a whole has probably stabilized but wonders whether price declines are in store for markets where values are still inflated compared with local incomes. Stratton is especially interested in Berkeley, Calif., where he'd like to start his academic career. The median home value in Berkeley in July was $665,000, down just 4% from a year earlier, according to Zillow.com. And the median income for a family in 2007 was $93,297, according to the U.S. Census.
"You have families out here making $150,000 a year but can you really afford an $800,000 home on that salary?" Stratton asked.
Existing residents can afford to live in pricey markets such as Berkeley because many of them bought houses decades ago before property taxes and home values reached stratospheric levels. Once longtime residents leave (a likelihood if unemployment rises), prices could take a dive. Berkeley has the advantage of being home to the University of California; college jobs have been relatively recession-resistant. Real estate consultant John Burns said the worst-hit markets have already fallen back to 2002-2003 prices. The other high-priced markets could follow.
Baby Boomers' Influence on Prices
Wes Dumey, a 31-year-old software engineer in Tampa with a graduate degree in economics, wonders how the aging baby boomers will determine future housing trends. Dumey's parents, now in their late 50s, recently told him they'd likely leave their three-bedroom home and find a smaller condo when they retire. Dumey questions whether younger buyers will step in to fill the large homes the boomers vacate.
"From my personal experience, there's no way I would buy a large house like that," Dumey said, "when you factor in insurance, property taxes, utilities, and—if you look at the state of Florida—you can have a $400 or $500 electric bill for air-conditioning a house for 10 months out of the year."
Burns expects that homes smaller than 3,000 square feet will be in greater demand in the future. So-called echo boomers prefer urban digs to suburban sprawl and they prize energy efficiency, not only because it's good for the environment, but because it's cost-efficient.
"Baby boomers are going to be interested in downsizing because smaller homes are easier to maintain," Burns said. "Generation Y is much more interested in urban environments and not spending their time on the freeway."
Click here to find the answers to today's biggest real estate questions.