Across the nation, many cities and towns are in a state of recovery ‚ÄĒ from urban centers hard-hit by the Great Recession to rural towns rebuilding after natural disasters.
Residents and prospective homebuyers in and around recovering areas face a unique set of circumstances and challenges as they look to restore their distressed communities to their previous state. But they also face unique opportunities.
In this article, we‚Äôll explore what you need to know when purchasing a home in a recovering market. We‚Äôll tackle how best to navigate the process and ways to leverage this opportunity.
Generally speaking, a recovering neighborhood is one that has experienced some kind of decline that has impacted the area‚Äôs economy ‚ÄĒ but is now gaining back ground.
Even though we are now more than 10 years past the financial crisis of 2008 and the national average of home values has rebounded, many regions in the country are still on the road to recovery.
Nationally, home prices only reached their previous peak in September 2016, said Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney. That means there are probably a fair number of areas that haven‚Äôt reached pre-crisis values, he added.
The decline and its cause can vary. One major factor that can lead to an area‚Äôs decline is a loss of jobs resulting from the departure of a major employer or industry. Others could include damage to an area‚Äôs infrastructure due to a weather-related event.
While they are in all parts of the U.S., recovering neighborhoods are likely more prevalent in middle America ‚ÄĒ according to Kapfidze, home price increases have been greater on the East Coast and West Coast than in the middle of the country.
Recovering neighborhoods may also be more concentrated in rural areas as many cities are growing in population. ‚ÄúRural is usually cheaper than urban,‚ÄĚ Kapfidze said. ‚ÄúThe urban core is seeing faster appreciation than outlining areas.‚ÄĚ He went on to say that ultimately, price growth trends vary depending on the city and geographical area, as many urban areas are still regaining their home values.
Finding recovering neighborhoods is not an exact science. You can review the minutes of your town council meetings or research job postings for your area. Touching base with local real estate professionals or simply examining real estate listings for an uptick in prices and inventory can also shed light on the state and direction of a neighborhood‚Äôs economy.
Also, don‚Äôt underestimate the power of observation. ‚ÄúYou‚Äôve just got to drive around and get a sense and a feel for the neighborhood,‚ÄĚ Kapfidze said.
Prospective buyers looking to purchase a home in a recovering area can benefit from the multiple programs and incentives available ‚ÄĒ many of which were implemented in direct response to the financial crisis.
Some initiatives are directly accessible to individuals, while others are aimed at the town or city level and then trickle down to homebuyers. Some programs are nationally available, and others are only for certain states or localities.
Choice Neighborhoods: An initiative from the Obama administration, Choice Neighborhoods is a competitive grant program available to local leaders to help transform and restore distressed housing and communities.
HOME Investment Partnerships Program: This program provides grants to state and local governments and nonprofits to fund building, buying, or rehabilitating affordable housing for rent or homeownership.
Neighborhood Stabilization Program: Also available to states, local governments, and nonprofit organizations, this program offers grants to revitalize communities that have a high rate of abandoned and foreclosed properties. (As of the publishing of this article it is unclear if this program will continue, as Congress has not of late allocated additional funds.)
Many cities and states have unique programs designed to restore the health of their communities. Not only do they focus on bringing in new buyers, but they also offer incentives for existing homeowners to invest further in their neighborhoods.
Here is a small sampling of some city initiatives. To find more programs available in your area, search on your city or state government websites, or contact your local HUD office.
Vacants to Value ‚ÄĒ Baltimore, Md.: This city program employs multiple strategies to revitalize Baltimore‚Äôs distressed communities, including providing incentives to purchase previously vacant homes and by creating a straightforward process of selling city-owned properties to the public.
Additionally, the city‚Äôs Buying Into Baltimore program offers a $5,000 incentive via lottery to homebuyers purchasing anywhere in Baltimore city.
Detroit Land Bank Authority ‚ÄĒ Detroit, Mich.: The largest land bank of city-owned property in the country, the Detroit Land Bank Authority offers multiple innovative programs. Its Auction Program holds a daily online auction that sells properties for an average of $9,800 to $10,000, while its Side Lot Program allows community residents to purchase vacant lots adjacent to their own properties for just $100.
‚ÄúThe overarching focus of is to return our properties to productive use and to revitalize neighborhoods and increase occupancy in the city of Detroit,‚ÄĚ said DLBA director of dispositions, Reginald Scott.
Micro Market Recovery Program ‚ÄĒ Chicago, Ill.: This initiative helps to promote homeownership in struggling communities by reinvesting in vacant buildings, offering down payment assistance, and providing forgivable loans to homeowners who wish to make repairs to their property.
Re New Haven ‚ÄĒ New Haven, Conn.: This program offers first-time homebuyers down payment assistance up to $10,000, potentially forgivable, as well as forgivable loans for energy-saving home upgrades.
There are multiple indicators that a community is in a state of distress. But when considering whether to buy there, look not only at the signs of hardship, but also for evidence that revitalization is occurring.
Of course, there are both positives and negatives to purchasing in a recovering market. It‚Äôs important to weigh both sides as you make your decision.
Even though purchasing in a recovering neighborhood may lead to home appreciation, Kapfidze said buyers should be wary of counting on that happening ‚ÄĒ especially if buying in an area that has yet to rebound from the financial crisis.
Even if a neighborhood appears to be reaching a prior peak, that doesn‚Äôt tell you where price trends are going to go from here, Kapfidze said. Counting on home appreciation can be dangerous.
‚ÄúWhen people buy with the hope of future appreciation, that‚Äôs where they get into trouble. That‚Äôs how people got into trouble in the last crisis,‚ÄĚ Kapfidze said.
Ultimately, it‚Äôs not the home value or the direction of a neighborhood that should be the driving force behind your decision to purchase. Instead, consider your own ability to afford the home purchase and maintenance of the property.
‚ÄúEven a recovering neighborhood that‚Äôs more ‚Äėaffordable‚Äô may still not be good for a particular borrower depending on their financial circumstances,‚ÄĚ Kapfidze said. ‚ÄúSo it really boils down to your personal affordability. Nevermind the affordability of the neighborhood or city, what‚Äôs your personal capacity to handle this huge obligation that is owning a house?‚ÄĚ
This Cash Back Number May Surprise You
Best Travel Credit Cards With No Annual Fee
Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit
2 Credit Cards Charging 0% Interest until 2019