Real estate is one of the key facets of the economy, able to make it boom and bust, as so many of us so painfully remember from the 2012 great recession. Homeownership is a pillar of the middle-class dream, and investing in real estate is the big ticket many Americans hope can carry them up and out of the middle class.
But as with any other aspect of the economy, real estate is a tricky business that can be difficult to understand, and even more difficult to take advantage of. Where should you buy? When should you buy? When should you sell? These are all key questions to answer before you start dabbling in the world of real estate. Today we’re going to focus on just a couple, though. We’re going to run through what makes real estate prices rise in a given area and which are on the rise today.
Let’s start with the basics. Like any other commodity, real estate increases in value the more demand outpaces supply. To use a crude example, if ten people want a beach house, but there’s only one beach house, the beach house is worth as much as the highest bidder is willing to spend.
The example of a beach house is actually very realistic. The old axiom of “location, location, location” is completely accurate when it comes to real estate value: the quality of the house, the actual physical construct, is much less important to the value of the real estate than the location (though there are outliers, a mansion will always be worth more than a shack).
A nice view isn’t the only factor that location determines, though. Location determines commute times, proximity to cultural events and centers, school districts, and even something as simple as the quality of air. All those factors combined determine the value of a location, and the value, in conjunction with how scarce it is, determines how high the price of the location will rise.
Now that we understand the underlying principles, let’s cut to the fun part: where are real estate prices rising today? According to studies, the five states in the US with the fastest rising prices in real estate are Nevada, Delaware, Washington, California, and Colorado. While those may seem like states that don’t have a lot in common, what they do have in common is that they’re experiencing around 10% growth in median housing price.
The reasons for each state’s growth differ from state to state. In Washington, for example, the Seattle tech boom is attracting jobs and wealth from around the country as three of the largest tech companies in the country have their headquarters there: Boeing, Amazon, and Microsoft. California, by contrast, is seeing a rise in housing prices because of tax incentives and growth in rental properties.
While you may be excited to go and start researching and investing today, one important thing to bear in mind is that that you should never try and use real estate to get rich quick or solve any immediate financial challenges. That’s what installment loans are for. Don’t invest in real estate to try and fix problems in the now, but instead invest for long-term dividends.