How’s your housing recovery?

This article is by staff writer Richard Barrington.

They say real estate is all about location, location, location, but I think it may be even more specific than that. The condition of the real estate market can vary from house to house.

The backdrop for this topic is a series of stories about the recovery of the real estate market. The S&P/Case-Shiller 10- and 20-city composites recently posted their best year-over-year gains since 2006. The National Association of Realtors reported that existing-home sales jumped by 6.5 percent in July, to post a 17.2 percent year-over-year gain. Those existing-home sales have now exceeded prior-year levels for 25 consecutive months.

All very nice, but what does this mean to you? How much you will benefit from the housing recovery depends on several things specific to your situation:

1. Where do you live? Nationally, the housing market peaked in July 2006, and then went into a long and deep slump from which it didn’t start to recover until early 2012. The extent of that recovery varies greatly according to where you live. Home prices in Dallas and Denver are now ahead of where they were in July 2006, while in Las Vegas they are still down by 51.3 percent. Since March 2012, most markets have posted double-digit recoveries, with San Francisco leading the charge at 33.71 percent. In New York City, though, prices since then have rallied by only a modest 5.1 percent. Clearly, this housing recovery hasn’t been the same for everybody.
2. How’s your home’s value? Given the movement in home prices, this might be a good time to make an updated assessment of the value of your home. Real estate sites like Zillow.com can be a decent start, or you might want to do your own research into what comparable properties in your neighborhood have sold for recently.
3. Who are your neighbors? This isn’t simply a question of good neighborhood vs. bad neighborhood, though obviously that matters. The stability of real estate values in your neighborhood depends greatly on the stability of your neighbors. For example, are they owners or just renting? Are a number of properties nearby sitting vacant? One concern about the real estate recovery is that investors have been aggressively buying up properties. That creates short-term demand for housing, but unless those investors can ultimately find occupants for those properties, that demand will collapse, and so will prices.
4. How’s your equity? Once you have a feel for what your home is now worth, you can determine your equity by subtracting the remaining amount you owe on the home, including any home equity loans. The amount of equity you have is a key measure in how secure your home ownership situation is. It can determine your future flexibility for things like refinancing or home equity loans, and overall, home equity is a measure of how much progress you’ve made toward owning your home free and clear.
5. How will you use your home’s equity? Experts often say that a home is the average American’s most valuable asset, but too often people are willing to trade in part ownership of that asset for short-term needs. Don’t look at your house as a piggy bank. Unless you are borrowing for something that also has long-term value, be very leery of giving up your home equity by borrowing against it.
6. Have you refinanced? The recovery in home prices has been largely fueled by low mortgage rates, and any improvement in your financial situation depends in part on whether you have been able to take advantage of those low rates. Poor credit and underwater mortgages have prevented some home owners from refinancing, but with interest rates now rising, you may want to take one last look at refinancing if you still have a high interest rate.
7. Do you have a fixed- or adjustable-rate mortgage? Again, low mortgage rates have been a key to the housing recovery, but for anyone with an adjustable-rate mortgage, the financial benefit of low rates may be only temporary. Adjustable-rate mortgages have an immediate appeal: at any given time, their rates are likely to be lower than those of fixed-rate mortgages, especially 30-year mortgages. However, you have to balance what may be a temporary benefit against the risk of your monthly payment becoming unaffordable someday. If your financial situation is better today because of low interest rates, you can only really count on that improvement if you’ve locked in your mortgage rate.

Stories about the housing market naturally tend to focus on sales activity and price levels. That’s fine for anyone who happens to be buying or selling a house this year, but for the vast majority of people who are staying in their homes, the condition of the housing market boils primarily down to this: having an affordable and stable mortgage payment, and steadily building equity.