Micro Markets Shine in Gloomy Times

Written by: Steve Cook   Wed, June 10, 2009 Beyond Today’s News, Opportunities

These days, it’s hard to find much to cheer about in the Case-Shiller top twenty or NAR’s quarterly metro market report. Yet far beneath the radar of the national or MSA level data, some folks are smiling.

A few choice small pockets of real estate-micro markets that constitute the most basic units of the residential real estate economy-are booming today even as values continue to drop in the neighborhoods nearby.

In fact, it’s the price declines that attract smart buyers to select locales. Smart buyers looking for investment value know that location trumps everything else. They bypass “fires sale” areas where banks and builders are slashing prices to move inventory and look for quality, quality that they could not afford three years ago. They do their research and choose the very best location for their dollars. Suddenly prices stabilize and even rise in a very discrete area that might be only three or four blocks.

Usually these hot spots are in urban centers close to work and entertainment venues, or have access to reliable public transportation. They are often in gentrifying neighborhoods, where housing values hold steady or appreciate as the stock is rebuilt.

Most micro-market booms are invisible at the zip code or metro market level. Many are known only to local residents and real estate professionals who track local sales. Here are a few hot micro markets, all in California where steep price declines and buyer appreciation for location gave birth to the micro market phenomena.

• In San Diego, the Eastlake area is in very high demand, because you can get an almost new highly upgraded 3000 square foot house for half what the developers were selling them for five years ago. The North County Coastal region-the strip between Del Mar and Carlsbad- and Rancho Santa Fe are choice.

• In March, Venice tripled sales volume over March ‘08, while nearly matching April ‘07 and media prices surged to $1,200,000 from $969,000.

• In Sacramento, where prices fell 27.5 percent in the MSA in the past year, the declines in home values in the community of El Dorado Hills were only a modest 7.9 percent loss for the year, far surpassing the 19.3 national decline over the same period.

• San Jose has as many as 20 different micro markets. One of the better performing is San Jose’s Willow Glen neighborhood, with good schools, higher income levels and fewer first-time home buyers.

1 Comments For This Post

  1. Tim Says:

    By :RE: When you ONLY count the houses that have reosld in recent history, vs all sales, aren’t you mostly counting the ones that weren’t good enough to keep?When you ONLY count the houses that have reosld in recent history, vs all sales, aren’t you overweighting the short sales and foreclosures?Seems all inclusive data would be at least equally relevant.The MLS median price methodology does not address changes of quality in the sales mix through time, while the Case-Shiller is specifically designed to address this.You might be surprised, but including less recent sales pairs in the data has no significant change on the overall valuation. However, the inclusion of homes purchased with low-priced non-Enterprise loans has a significant depressive effect on the measure. This is most likely due to foreclosure pricing at a discount as well as lower income homeowners performing less improvements, maintenance, and repair than more well-off homeowners. It could also be due to lower priced homes appreciating more percentage-wise than higher priced homes; thus, they have further to correct in order to get back to realistic valuations.At the end of the day, the Case-Shiller isn’t perfect, but it does a fairly good job at addressing the major weakness of MLS median price when used as a valuation measure. Typically MLS median price data is not used by professional economists as a tool to track changes in the valuations of houses because Case-Shiller is much better suited for this purpose. Rate this comment: 0 0

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