How can I spot a "hot" neighborhood?
Location is often cited as the most important factor affecting a property's value. Well-located properties tend to hold their value. They are usually easier to sell than are similar properties in less desirable locations.
The best neighborhoods have the following features: close to a thriving economic center; good public schools, nearby shopping; good public facilities, convenient commute options to a major metropolitan area; well-maintained homes; and little crime.
It's not surprising that the prime neighborhoods are also usually the most expensive, often putting them out of reach for first-time homebuyers. You may be wise to sacrifice on house amenities, such as an extra bedroom or a remodeled kitchen, in order to afford a house in a better location. But the house you buy should suit your housing needs for at least several years.
First-time buyers with limited financial resources, who can't afford to buy in the top neighborhoods, should search out neighborhoods that are likely to be in high demand in coming years. Finding tomorrow's hot communities requires some research. And while there are no guarantees, there are some signals that a neighborhood is on the rise.
A "hot" neighborhood is one where there are more buyers looking to buy into the area than there are homes for sale. Excess demand tends to push prices up. If you can find a home to buy in a neighborhood that's on the verge of a popularity boom, you can increase your chances of earning some home price appreciation in your early years of home ownership.
FIRST-TIME TIP: A good place to start your search for tomorrow's "hot" spots is on the periphery of the most desirable, well-established neighborhoods. Often these marginal neighborhoods will be the next ones to experience a run-up in prices.
Keep the following factors in mind when you're comparing neighborhoods. A neighborhood with a lot of "pending sale" and "sold" real estate signs is usually one that's in demand. If homeowners in the area are remodeling, this indicates they're happy with the neighborhood. If houses are selling with multiple offers, this also indicates a healthy interest in the area.
Ask your real estate agent to research whether the gap between the list price and sale price is increasing or decreasing. If the gap is declining, this can indicate that the neighborhood is improving.
Other positive signs are: an increase in the number of out-of-area buyers moving in; an increase in local residents trading up within the neighborhoods; an increase in the percentage of owner-occupants and a decrease in the percentage of renters; a lot of local community involvement.
Dian Hymer's column is syndicated through Inman News Features. Send questions and comments care of Inman News Features, 5335 College Avenue, No. 25, Oakland, Calif., 94618.