Property market in dire straights, what will happen next?

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A couple of years ago, a close friend of mine purchased a beautiful three-level townhome in a high-traffic part of town. At the housewarming, I remarked about how amazingly decorated the place was, with its fresh paint, and other cosmetic enhancements. Since not too many of my friends are homeowners just yet, I was thrilled for her---and for the great deal she had apparently gotten. I just knew that in a few years, the market value on her new home would practically skyrocket, leaving her with a prized piece of real estate on her hands. In speaking with her recently, my thoughts could not have been farther from the truth. In fact, her property value had decreased instead; and she was considering selling the place, making a clean break, and forging a new start somewhere in another part of town. It was then that I realized that the time, money, and effort you put into a home purchase could be moot where property values are concerned. And the bad part is that it could be through no fault of your own...

You Can Pay Your Mortgage-But Can Your Neighbors Pay Theirs?

In speaking with my buddy, I was informed that a few of the condos in her area had been foreclosed upon; thus, she informed me that refinancing for her would be nearly impossible. In essence, foreclosed homes in your neighborhood are not good for business. Unless the homes are renovated and/or quickly resold to another party, their empty status will do nothing but drive down the value of your own property.

Consider the fact that these homes will lack the upkeep needed to meet the standards of others in the community. Things like necessary repairs, peeling paint or siding, and unkempt landscaping all bring down the overall appearance of the area. And if a home is left unoccupied for a lengthy part of time, there is also the potential for squatters and thieves to vandalize the home. This in and of itself will decrease the property values of adjacent homes.

College Blues

Most families looking to buy homes are primarily concerned with the schools that are in that part of town. A good majority of the time, subdivisions and other communities which are close to schools help to drive up general property values. The same concept also applies to colleges and universities---most of the time.

One thing that people fail to consider is that many college students these days are moving away from dormitory settings, and opting for alternate housing. That housing just may be in your neighborhood, where one or more houses are being rented instead of sold. If this is the case, your property values may decrease. The bottom line is that renters in general do not take the kind of care of property that homeowners do. Students rooming together in a residential community typically have transitional living arrangements. In addition, heavy partying could possibly increase the wear and tear on the rental property, thus adversely affecting the other homes in the neighborhood.

The Times Are A-Changin'...

One of the things that is tough to predict, is the way a neighborhood will change once you've bought your house and have gotten settled in. It is assumed that one would not choose a home in an area with a particularly high crime rate since it is no secret that neighborhoods known for shifty behavior contain homes that sell at lower prices.

But there are sometimes unforeseen factors that could affect your community's property values. For instance, my friend moved into her neighborhood during a time when the adjacent areas seemed to be thriving. But with certain economic changes occurring in the community, the kinds of new businesses and residents the area has seen have actually created a housing market with decreasing worth.

Something else that people fail to take into consideration is Megan's Law, which requires registered sex offenders to notify the public when they move into an area. This law in and of itself has shown to decrease property by at least 4 percent.

How to Come Out on Top...BEFORE You Buy

There are few distinct ways to ensure that the property you intend on purchasing will help you to reap financial rewards later on down the line. But there are some things to consider when looking into a particular area for home buying:

Ride through the neighborhood a few times and check out the other homes. Notice how many are for sale. But also observe the upkeep on those homes. If too many are in need of repair, look unkempt, or are empty, you might want to consider another area.

Check out the businesses opening in the neighborhood. What kind of demographic do the new franchises seem to cater to? This may be an indication of what kinds of residents will be making the area home in a few years (or months) to come. Lots of fast food restaurants or flashy boutiques may point toward a younger demographic moving into the region. It's also a good idea to look into thecrime and foreclosure rates in the areas. Increasing crime rates almost dictate decreasing property values.

But you will also want to consider thenumber of properties available for rentin the neighborhood. Since rental homes are sometimes not kept up as well as homes lived in by the owner, you might want to consider how a heavy turn-over rate will affect your property value in the future. You may not be able to predict the exact fate of your home's value. But with a little forward thinking, you may be able to avoid some of the hidden pitfalls of home ownership.