Foreclosure Crisis: Is Your City Getting Away? - II

July 30th, 2008

The foreclosure situation, or broadly, the overall real estate market situation has been a topic of much discussion of late. Some of the important points to track your city, whether it is on a rebound soon or not, have also been discussed. However, here are more points to track for predicting the local housing market conditions.

Notice, whether the rate of home prices falling is about to slow or not, you can opt to visit the official site of National Association of Realtors, where you will get the required data for almost 150 metro areas. To narrow down your search, ask a real estate agent or association for their help. If the process of slowing down lasts for at least 3 months, you could expect a recovery. Being a buyer, resume your search for at least that tenure. However, a seller should wait longer for a good deal.

Go for a simple calculation called P/R ratio or price to rent ratio. Consider the cost of a house in a particular locality. Then ask a broker about the annual rent of a similar house in that area. Now, divide the cost of the house by the annual rent. If it is less than or equal to 15, expect a stabilization in the real estate market. In the country, the current average ratio is 12.5. Review P/R ratio of key markets. Ask agents and rental agencies for the rates during the year 2000. For an example, in Miami (Florida), it was 12 in 2000 but rose to 30 in six years, though now it is 22.

Another important factor to help predict a bounce back is the housing opportunity index. For simplification, how many households can actually afford a home? After analyzing, the National Association of Home Builders has fixed the index. A home is affordable only when not more than 28% of the total family income is needed to pay for it.

The national average is 53.8% - that means only half of the total houses purchased recently were deemed buyable. However, consider it locally, and not on a national scale. Check whether the index is climbing or not. Most of all, see the rate of foreclosures in the local housing market.

Nowadays, many borrowers are facing foreclosure, as they have no equity to refinance. For refinance, they have to wait until prices start rising again.

It’s really good that probably the worst is over. The real estate market does seem to have bottomed out, at a time when foreclosures peak, and then start declining. Now it’s time for a turn-around. For buyers, however, the best deals are probably over.