Posted on Tuesday, December 21, 2010

I always say don't be fooled by the broad national real estate stats or by the micro MOM version that don't reflect broader more important trends. Real estate is specific to area, price range, property type and features. And there are plenty of opportunities. Zillow’s hot zip code report reflects this as does the 'demand' referenced in this AM Washington Post article regarding rentals – rental income has increased well into the double digits.

The reason for this particular change is that, overall buyers lack confidence in the real estate market and credit scores and ability to qualify continue to struggle. A recent FNMA survey also revealed that folks consider renting ‘financial advantageous.” And of course in the DC area there’s been a huge influx due to jobs.

Certain markets like those reflected in Zillow report are doing well. And if you bought in them in 2010 you’re making money. In DC and other areas rentals continue to be a great opportunity for investor. DC rents up 12%. But even US rents are up 8%. If you can buy a property for a price that makes sense to rent, do it. Ditto under replacement cost. Developer cut backs in building supply will drive this trend into 2011 as will rising interest rates.

Each time you hear on the news that a bank has written off a huge dollar amount of values have dropped for folks, you’re hearing about an investment opportunity. With the losses coming out of the closet, banks are willing to let properties go for less. And many of the ‘surprises’ that resulted in these losses have been fleshed out meaning a safer investment for you now.

That’s not to say this game is entirely without risk. In the big picture Zillow estimated $1.7 trillion in value lost during 2010 (63% more than 2009 $1 trillion). A total of $9 trillion since the bubble burst. And this same time last year Zillow predicted prices would bottom in 2010 which in some markets is still not the case. Whatsmore, Zillow’s Home Value Index is only one of several price indicators which includes Case Shiller, OFHEO and others based on median sales price. Generally price lags sales, but it all depends on which stats you’re watching.

In looking for the best markets to invest in, consider the good old fashioned price to income ratio, rent to buy ratio and look for areas where price drops seem to have leveled off, foreclosures seem to be falling but where there are still enough foreclosures on the market to benefit from the purchase values that additional supply drives for investors.

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