Hidden Risks In Your Local Housing Market

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Safe as houses. That’s what the British call a sure thing. And that’s how many Americans have felt about real estate.

Then they watched the value of those houses melt away, along with their own net worth. Las Vegas at one point saw home values fall 63 percent.

But housing isn’t a gamble only in the nation’s boom-and-bust centers. If you’ve got a mortgage, even a small price decline can wipe out your equity. The bank still expects the same check every month.

In the wake of the housing crisis, a number of academics and investing experts are urging homeowners to take a more sophisticated approach to the risks of real estate. A home can be as risky as a stock, and it needs to be treated that way. That means considering how much risk you’re taking before you buy. And, after you buy, it means seeing your home equity in the context of all the other risks you’re taking with your money.

While no place is immune to housing risks, certain markets have been especially wild. Las Vegas, Phoenix and Riverside, California, are the most volatile, according to a Zillow.com analysis of quarterly home value fluctuations from 1985 to 2012. The stablest markets include Pittsburgh, Cincinnati and Detroit. (Zillow’s calculations include the entire metropolitan areas, not just the central cities.)

People who buy only for investment reasons can cause big spikes in home values — take Miami. Local economic conditions can also add real estate risk. In Riverside, a housing bust in the 1990s coincided with cutbacks at defense contractors.

 

 

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