Why, Today is the Perfect Time to Invest in Real Estate, Part 2!
HOW MUCH IS IT REALLY WORTH Beyond the strong rental income potential, the current dynamics of the housing market point to signs of a dramatic future price appreciation.
First, current price levels are 70% lower than the average area housing prices over the last 15 years.
It is reasonable to expect that once banks are able to unload their portfolio of foreclosed properties over the next few years, prices will likely begin to revert back to that 15 year average.
This would point to appreciation of more than 300%.
Second, the current market rental rates, which average $750 per month for a three bedroom home within the city of Detroit and significantly more in the suburbs, suggest that home prices are significantly undervalued.
It is currently 50-70% cheaper to buy than it is to rent.
While the metro Detroit area does face negative economic pressure as a result of the declining auto industry, the continued strength of the local rental market is evidence that the effect on the underlying value of area housing has been somewhat overblown.
Consider this, "More than 99 percent of [Detroit's] metro population has remained intact...
People in this region are very tough and resilient.
Many have roots that go back decades.
Unlike other, more transient regions, people live here for reasons that often transcend the economy.
" (Nuwire Investor: Rediscovering Detroit Real Estate, June 2008) In light of the relative stability of the metro Detroit population, it is likely that average rental rates will not fall significantly from the current levels.
In fact, according to recent reports from Crain's Detroit Business newspaper, rental rates have increased by 1.
9% on a year-over-year basis.
Thus, over the long-term, home sale prices should increase to reach equilibrium with the rental market.
Using the rental market as a guide to the underlying value of homes in the area suggests that home prices should appreciate by 200-300%.
While no one can be sure exactly when the real estate market will normalize, it seems reasonable to expect significant price appreciation for properties located in desirable neighborhoods within metro Detroit given the above factors.
Stabilization will likely begin to occur as the supply of foreclosed properties on the market declines.
Appreciation should then accelerate further as demand from former homeowners increases as they rebuild their credit and begin to look to purchase homes they are currently renting.
First, current price levels are 70% lower than the average area housing prices over the last 15 years.
It is reasonable to expect that once banks are able to unload their portfolio of foreclosed properties over the next few years, prices will likely begin to revert back to that 15 year average.
This would point to appreciation of more than 300%.
Second, the current market rental rates, which average $750 per month for a three bedroom home within the city of Detroit and significantly more in the suburbs, suggest that home prices are significantly undervalued.
It is currently 50-70% cheaper to buy than it is to rent.
While the metro Detroit area does face negative economic pressure as a result of the declining auto industry, the continued strength of the local rental market is evidence that the effect on the underlying value of area housing has been somewhat overblown.
Consider this, "More than 99 percent of [Detroit's] metro population has remained intact...
People in this region are very tough and resilient.
Many have roots that go back decades.
Unlike other, more transient regions, people live here for reasons that often transcend the economy.
" (Nuwire Investor: Rediscovering Detroit Real Estate, June 2008) In light of the relative stability of the metro Detroit population, it is likely that average rental rates will not fall significantly from the current levels.
In fact, according to recent reports from Crain's Detroit Business newspaper, rental rates have increased by 1.
9% on a year-over-year basis.
Thus, over the long-term, home sale prices should increase to reach equilibrium with the rental market.
Using the rental market as a guide to the underlying value of homes in the area suggests that home prices should appreciate by 200-300%.
While no one can be sure exactly when the real estate market will normalize, it seems reasonable to expect significant price appreciation for properties located in desirable neighborhoods within metro Detroit given the above factors.
Stabilization will likely begin to occur as the supply of foreclosed properties on the market declines.
Appreciation should then accelerate further as demand from former homeowners increases as they rebuild their credit and begin to look to purchase homes they are currently renting.
