How to Capitalize on the Housing Recovery
Even when government policy is making the road muddy.
If the charts below were of stocks, which one would you buy?
Click here to enlarge
Click here to enlarge
I'll give you a hint, you'd much rather send your kids to school in 94702 than 94608.
These two neighboring zip codes in San Francisco illustrate the ongoing dichotomy in the housing market. Low-end markets, boosted by cheap prices and artificially constrained supply (thanks to government programs), are seeing stabilizing, if not rising, prices, as buyers rush to miss the next boom. Higher-end markets, slower to correct during the meltdown of the past three years, are drifting slowly downward as prices return to more healthy levels.
94702 is a swath of Berkeley, California, a somewhat affordable (by Bay Area standards) yet desirable area to put down roots. Prices didn't start to slide until the beginning of 2007 and we're now back to where values were around 2004, right in the middle of the housing boom.
94608 is the northern chunk of neighboring Oakland, an area that, while quite a bit rougher than Berkeley, is seeing fundamental growth due to local development and an influx in more affluent buyers into a formerly undesirable part of town. Prices got ahead of themselves, to be sure, but after tumbling all the way down to 2001 values, both investors and owner occupiers have stepped back into the market.
Ultimately, even zip code-level metrics like these mask the movements going on in individual neighborhoods, but they're useful to pick up the broad trends at play across the country. Just as Minyanville's Kevin Depew likes to look for stocks that diverge from the trends displayed by the broader equity markets, when looking for opportunities in real estate on the other side of the housing bust, you want to look out for neighborhoods that have fundamental catalysts for growth -- not just prices that have come down 50%, 60%, or even 70% from the peak.
The elephant in the room, of course, for any argument that homes may not be a terrible investment right now (no matter where you're looking), is government policy. Interest rates, rumblings of tightening FHA mortgage programs, and regulation all loom large over our nascent, albeit manufactured housing recovery. The future is indeed murky, but more opportunities are presenting themselves every day, if you know where to look.
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