8/20/2012 2:15 PM ET|
Signs your home value could fall
The buy-versus-rent ratio. This ratio compares the cost of buying a home to renting a similar property for 12 months. Generally, the lower the ratio, the better the news for housing demand. Which makes sense: If buying is not much more expensive than renting, more people are likely to consider buying. When renting is a lot cheaper than buying, more people are likely to stay renters. A ratio of more than 20-1 could indicate prices have further to fall, Baker said. (This ratio doesn't work as a predictor in cities where rents are kept artificially low, through rent-control laws, for example.)
"If you're in a city that doesn't have rent-control protections and the ratio is over 20-1, that is not a good sign" for home prices stabilizing, Baker said.
Real-estate website Trulia calculates a rent-versus-buy ratio for 50 cities, while Zillow includes a rent estimate for many homes. You also can get a seat-of-the-pants number simply by asking a real-estate agent what a recently sold property would fetch in monthly rent. Multiply that figure by 12 and compare it to the sale price to figure the ratio.
Foreclosures and the shadow inventory. The number of other homes for sale has a big impact on your own home's value. A ton of for-sale signs means your property has a lot of competition, and competition tends to force down prices, everything else being equal. A lot of foreclosure activity in your market is even worse, because lenders typically slash prices of the houses they own to sell them quickly.
What constitutes "a lot" is a bit squishy, but you can be pretty sure that if more than half of the listings are foreclosures, that's a pretty bad sign. Both Trulia and Zillow can show you how many homes are for sale in your ZIP code, as well as how many are foreclosures.
That's not all you have to worry about, however. Economists also are concerned about the shadow inventory -- the homes in some state of delinquency that are likely to wind up in foreclosure but aren't on the market yet. Various foreclosure moratoriums, many prompted by the "robo-signing" scandals that revealed improperly processed foreclosures, have helped this number grow, and Humphries estimates it's now more than 5 million homes -- compared with the 3 million currently on the market. The greater the shadow inventory in your area, the longer it likely will be before home prices start to recover.
RealtyTrac may be able give you some idea of the size of this "pre-foreclosure" backlog, but in general, the more foreclosures on your market now, the more you'll see in the future and the further away a home price recovery is likely to be. (RealtyTrac's website includes "pre-foreclosure" listings in some markets when users search by ZIP code.)
Home price trends. What's happened recently often, though not always, indicates what will happen next. So keep an eye on sale trends in your ZIP code and in your specific neighborhood. Zillow, Trulia, RealtyTrac and other real-estate sites can help you monitor sales and prices.
Trulia's Ginger Wilcox recommends that armchair forecasters also look at price reductions -- how quickly home sellers move to cut their prices and how big a cut they make. Viewing those trends over time can help you determine if home prices are likely to continue to decline. When a growing percentage of home sellers reduce prices, values may have further to fall.
In December, for example, 26% of home sellers in Fresno, Calif., chopped their asking prices, compared with 12% a year earlier. Home prices in the area dropped 10% in March, compared with a year earlier.
All these data can give you some idea what might happen next for your market, but remember to take your own prognostications -- like those of the experts -- with a grain of salt.
"We have no national precedent for something like this," Humphries said. "This is new territory."
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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