How sustainable are prices on the West Side right now?

Question

I've been following the market for the last 3 months, looking to buy my first home. I watched Edgewood/EAV appreciate like mad in the last 3 years and am seeing the same thing happen in Westend, Westview, Adair park, etc. I was at an open house in Bush Mountain this weekend that has 20 people sitting outside waiting on the realtor and the home already had an offer.

We're seeing fix'n flips in the $260-$350k range in areas that a few years ago were $150-200k. From a buyer's perspective there are no homes of value left unless you do a 203k and the work yourself. I've got the resources to pull that off so that is a possibility, but how much further are these prices going to raise and how long will they stay there? My rent is $8400/year, and I'm trying to figure out if it's worth it to rent for another 1-3 years and see what the market does and try and get a home around $200-250k instead of $275-$325k.

Yeah, the belt line is coming, blah blah etc, but what real development has occurred? I think prices are inflated on speculation and it's not wise to buy a house and essentially pay for the speculated future appreciation. You investors are lucky, you only have to speculate a few months out and rake it in! Ha. I'm on the wrong side of the table.

Thoughts? Advice?

Asim Alam · Answer

I am wondering this exact same thing!! I am skeptical about the West End but man, a lot of rehabbers are putting their eggs in that basket.

Dan Mahoney · Answer

I know I'm a couple days late to this thread but had a couple thoughts to share.

The rapid price appreciation in the neighborhoods @Patrick Young described isn't random, it's what happens when an intown neighborhood transitions from being primarily rentals to being primarily owner-occupied.  This changes the basis of valuation from return on investment (how investors think) to mortgage availability/affordability (how homeowners think).

It seems like the beginning of this transition happens when retail price of a typical home crosses $100k.  Next thing that happens is the vacant and boarded up houses get fixed up.  Then the renovations start getting a nicer and the homes sell for $200k+.  When average values hit $300k nearly all of the rentals have been converted because it doesn't make sense for anyone to hold a $1,200/month rental anymore and the investors all sell.

To @Michaela G. 's point, if you move to a place that you think is in the path of this transition you will see significant appreciation if you are right.  If you are wrong, you will probably be no worse than where you started and will probably have a nicer place to live than whatever you are paying $700/month for today.  Compare that to spending $250k on a neighborhood that is halfway through the transition and then a recession hits, foreclosures start happening, and home values drop back to rental levels.  You could get upside down pretty easily in that scenario.

I get that you actually have to live in the place so that may override your investment considerations.  All depends on your objectives, I suppose.

Asim Alam · Answer

Excellent point, @Patrick Young. I'm really wondering about the size of the buyer pool. Next time I look at a West End property, I'll take a look at the Days On Market on the comps.  Do you have any tricks or preferred methods for assessing an available buyer pool.

My ulterior motive for asking is there's a sweet deal in Stone Mountain for $85k with a slightly-more-than-cosmetic rehab needs in a upper-middle class pocket where the surrounding houses are in the $150-$160k range. But no comps because no sales in that area. I'm not sure how to interpret that: Stable area where residents don't leave? OR is it that there is soft demand with no buyers?

Patrick Young · Answer

Yeah, but they only have to speculate long enough to rehab and flip.. 3-6 months. I'm betting that we see prices increase for next 2-3 years while the area continues to gentrify and then there will be a strong correction. Depends on how much of the redevelopment and retail areas actually happen perhaps. I think short term 1-3 years will be strong buy, but 5-7 years may find a slump. If you plan to hold 10+ years probably fine.

Paul Kennedy · Answer

It's basically just the process of gentrification, so prices may level off once the neighborhoods move from being trendy to becoming established. Although, It's hard to imagine anywhere that has 20-25% appreciation per year isn't overheated and headed towards a correction. For a first house, I'd keep away unless you really know the area well and have a pretty good idea of what you are doing -- unless you have a fairly high risk tolerance -- otherwise you may get caught in an inevitable market correction.

Michaela G. · Answer

Nobody can predict the future. If you aren't sure about buying you'll always find a reason why you shouldn't buy right now. Maybe you need to start locking at areas that haven't turned yet instead of the ones that are hot now.

How sustainable are prices on the West Side right now?

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