Real estate market trends in 2013
The U.S. real estate market seems to have a relatively steady progress toward recovery in 2013.
During 2012 area residential and commercial property sales hit their highest level in five years for some regions throughout the country.
Coastal town real estate market boom tendency, the U.S. apartment shortage and the high rents, along with the Extension of the Mortgage Debt Forgiveness Act of 2007, low mortgage rates and the deduction for mortgage insurance premiums revived by the fiscal cliff deal, all of these facts seem to lead to a real estate market growing trend.
Under these circumstances, for real estate brokers it is important to have a good multiple listings service (MLS) for their websites. An interesting article on Internet Data Exchange (IDX) provider Boomtown ROI is published on Real Geeks blog.
According to real estate research firm Reis Inc., low apartment vacancies and high rents may encourage more renters to become home buyers.
There have been three years of vacancy declines and in the last three months of 2012 the national apartment vacancy rate dropped to 4.5 percent. That was the lowest vacancy rate since the third quarter of 2001, according to Reis data. Also, the average effective rent of $1,048 was up 0.6 percent from the prior period, and marked the twelfth straight quarter of rising rent.
“You’re starting to see the initial signs of rent versus own calculus that takes place. You’re starting to see it in New York and San Francisco, where people are paying $3,000, $4,000, $5,000, a month to rent. They look at it and say, ‘All right, I’m already dealing with 8 percent, 10 percent rent increases from year to year, how much longer do I really want to put up with this from landlords?” said Ryan Severino, senior economist at Reis.
Home values in Metro Detroit, while rising, remain low compared to the rest of the nation, and are also still below pre-recession levels.
“Southeast Michigan’s real estate market is making great strides. Without question, we are on the road to recovery,” Jeanette Schneider, vice president of RE/MAX of Southeastern Michigan, said in a press release.
Coastal town real estate market has a boom tendency.
Home prices are on the upswing, according to the S&P/Case-Shiller index. Home prices rose 4.3% in October 2012 in comparison to October 2011. While some states are still struggling, others are making huge progress. Massachusetts home sales have increased 38% from November 2011 to November 2012, while home prices also increased 2%. The number of home sales in the month of November throughout the state was at a level that has not been seen since 2005.
In Louisiana, both residential and commercial property sales reached their highest level in five years during 2012. The outlook for 2013 looks very promising in Terrebonne and Lafourche parishes, according to Bill Boyd, Bayou Board of Realtors president. Data for existing and new properties in Terrebonne, Lafourche and St. Mary parishes, plus part of Assumption Parish, shows sales of $343.8 million for 2,086 units in 2012, compared to $313.3 million for 1,934 units in 2008 when the national recession started.
In Florida and California, beach homes are quickly leaving the market as investor demand is rising, which is turning the “buyer’s market” into more of a “seller’s market.”
How to calculate real estate return on investment (ROI)
To determine a property is a good investment, you need to calculate the real estate return on investment (ROI). Before you begin, gather all relevant information, such as tenant payments, any property costs such as taxes and insurance fees and the original amount of your investment.
1 Calculate how much you would earn from the real estate. Let’s say you make $1,000 per month on one property. Multiply by 12 to get the yearly total. This means $12,000 per year.
2 Add up your expenses for the real estate. Include taxes, insurance, mortgage payments and repairs and any other expenses pertaining to the property. Let’s say you pay $1,500 a year for taxes, $1,500 a year for insurance, $500 a month ($6,000 a year) for mortgage payments and $500 a year for repairs. That would be a total of $9,500 a year for expenses.
3 Calculate the investments. Down payment and costs of repairs made before renting or leasing the property are considered investments. Let’s say you put $20,000 down on the real estate and made $5,000 in initial repairs then your total investment is $25,000.
4 Calculate the net operating income. Your net operating income (NOI) can be found by subtracting the total expenses from the total amount that you would earn from renting or leasing the real estate. Using the examples above, if your yearly earnings were $12,000, your NOI would be $12,000 – $9,500 = $2,500.
5 Use the NOI to get the ROI. Divide the NOI by your total investment amount. The number that you will get will need to be converted to a percentage by moving the decimal point two places to the right. Using the examples above, $2,500/$25,000 = 0.10, which would be 10 percent for the ROI.
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