A buyer is comparing two areas in Dallas, Texas. Should he choose for affordability or appreciation?
Hi Ms. Evans,I just read your article from Feb. 2005 about Dallas' Lakewood area real estate and found it very informative. My wife and I are currently looking for our first home and that is one area we really like, for a lot of the reasons you stated in your article.
As this is our first home purchase it is an exciting and scary time. Because of your extensive knowledge of the market I would appreciate your opinion on something. We have found a home we like in the Cross Creek/Chimney Hill area just northeast of lake highlands. The neighborhood is very nice and the houses are a good value, but I have a lingering concern for the appreciation of homes in this neighborhood. Do you have any thoughts regarding this area versus the more expensive (but more desirable) Lakewood area?
I am sure you have many other responsibilities and would really be thankful for any information you can provide me about the area as we are relatively new to Dallas.
Thank you for your time,
-- Jeremy
Realty Times responds:
Hi, Jeremy,
It's likely Lakewood will appreciate more because it is closer to downtown Dallas, White Rock Lake, the Arts District, hospital district, and urban revitalization, but Lake Highlands north of the lake has a lot going for it, too.
Prices change because of in-migration and out-migration. While prices in certain areas appear to be deteriorating, and others escalating, it's natural that you would be concerned if you're shopping for homes in the area that appears to be appreciating less.
Affordability is a real issue. You can only buy what you can afford, or you'll have to sacrifice something. You may have to settle for less space, an older property in need of rehabilitation or a property that is so expensive that you can't meet other financial goals.
Only you can decide what's more important to you. The best way to choose is to think in terms of quality of life. Which neighborhood is going to be closer to work, friends, family? If you spend more, what are you willing to give up -- a better car, some retirement savings, nicer furniture?
Keep in mind that our nation provides generous homebuyer subsidies in the form of tax-free gains on homesteads after two out of five years of occupancy, property tax and mortgage interest rate deductions off of income tax. In addition, there are first-time homebuyer programs through Fannie Mae and possibly through the city of Dallas that can allow you to get into more home than you might imagine. The point is you don't have to actually make money at resale to enjoy great value from a home.
There's also no crystal ball on appreciation. As one area becomes more expensive, so do the areas that surround it because affordability knocks out buyers who then choose the next best thing. So if one neighborhood is too expensive, look nearby. It may not be as desirable, but by putting improvements and upkeep into your home, you're less likely to lose money at resale. Everyone appreciates a well-maintained property.
A good way to see if a neighborhood is likely to appreciate is to examine how it's maintained. Look at how homeowners care for their homes. If they are kept updated and landscaped, that pride translates into better resale prices.
If you choose to buy a less expensive home in a less desirable neighborhood, do you have the discipline to save and/or invest the difference you would have spent on a more expensive home? Or would you spend the difference on things that don't appreciate like a fancier car or furniture? On the flip side, are there other financial goals you want to meet where you'll need cash, such as having a baby, paying off a student loan, or starting a business? In that case, the lower your bills, the better, but I wouldn't worry about appreciation if that's the case. I'd buy and hold and possibly turn your home into rental property after a few years. Then depreciation becomes your friend.
Back to cars, does it make sense to buy a car for $30,000 that is only worth a quarter of that in four years? Yet people continue to buy cars, trade them in, and rebuy. No one expects to make money on a car. Yet, we expect to use a house for years and make money on it when we move out. Thanks to today's relaxed lending standards, you can buy a lot of house without much down, comparatively low monthly payments, and long terms up to 50 years. So before you nix either neighborhood, talk to your Realtor and see what you can truly, comfortably afford in a home and still meet your other goals.
A good buyer's agent should be able to help you run the numbers on neighborhood appreciation and the costs of ownership and operation of individual houses. That will help you make a good investment no matter where you choose to live.
