The goal of real estate investing is to make an intelligent investment that maximizes returns while minimizing risk. With so many financial resources and so much market data and information available on the Internet, it is no longer necessary to hire a real estate broker to analyze markets and measure the potential risks of a real estate investment – if you want to take the time to learn how and do it yourself.
Real estate data provider CoreLogic reported a 12 percent increase in the home price index from August to September. Alongside the price index, rates on 15- and 30-year fixed mortgages also rose slightly in September. Investors can spot investment opportunities by keeping an eye on mortgage rates, the home price index, and the market factors below.
- Population growth
- Job growth
- Unemployment rate
Low Risk
Low-risk investments usually yield lower returns. Low-risk real estate investment opportunities can be identified by analyzing changes and trends in the market area. They can be identified by looking at a city’s housing price index, their unemployment rate, population growth and job growth.
The Austin, Texas, housing market is a low-risk investment when taking into account the current trends. The housing demand is outpacing housing growth in Austin, yet prices are relatively low compared to other areas of the U.S. A growing employment rate is good news for real estate investors. According to Forbes, Austin atop the list of top cities for future job growth through 2015, with major companies such as Accenture, AT&T, and Time Warner Cable announcing their plans to expand to the Austin area. The unemployment rate in Austin has fallen from 6.8 percent in July 2011 to 5.2 percent in July the following year.
During the same period Austin’s unemployment rate improved, the city also experienced explosive population growth. Between 2011 and 2012, more than 25,000 people moved into Austin’s population. The Austin house price index has been on an upward trend and is expected to continue on an upward trend as the population influx creates higher demand for homes in the area.
These factors work together to create an increasingly high demand for homes in the Austin area with a projected increase in home market prices, making an investment in such a market low-risk.
High Risk
On the other end of the real estate investment spectrum, high-risk real estate investment markets are cities in which the housing markets have seen huge year-over-year losses.
For example, the housing market in Detroit has been hit hard by failing industries, resulting in a high unemployment rate and huge population losses. Detroit’s population has been in decline over the past 20 years, losing more than 200,000 residents from 2009 to 2012 alone. This factor, along with the 2008 housing crisis, led to a failing housing market and a large number of foreclosures on Detroit homes.
Since January 2012, the housing market in Detroit has shown some improvement month-over-month, with the home price index rising 17 percent in July. Though the market has shown some signs of improvement, home prices are still around 30 percent lower than they were before the crisis.
Industry growth is slowly picking up again in Detroit, and more jobs are being created. Many investors claim they are making great money in the Detroit housing market. Small indicators of improvement in housing markets, like that of Detroit’s, give investors hope for continued market growth and larger returns. The current low home prices in Detroit, and the smaller signs of market improvement, make Detroit seem like an attractive investment opportunity with a potential for huge gains. But the signs of market improvement are still weak, making real estate investments in cities like Detroit risky.
