In February the average sales price of a home was $112,035 up slightly from January’s $111,598 according to the Memphis Area Association of Realtors. This reflects some demand from 1st-time home buyers executing on the soon to expire tax credit.
While this number is good, it’s still down 5.5% over February 2009 as home prices struggle to recover. Also inventories increased slightly as foreclosure pace picks up.
I’m seeing inventories increase more in the lower end where I think investors will continue to see prices drop. The strong sales activity seems to be near the average sales price. That $100,000-125,000 range is hot right now for first time buyers, people moving up from smaller homes and those downsizing to lower their cost of living.
Of course I’m slightly biased as that also is the average value of the investment homes Investor Nation offers for sale here in Memphis. I’m a huge proponent of investing in what is the highest in demand and average sales price is that product.
With the lack of new homes being built it, foreclosure inventory will be absorbed quickly in 2010. Unfortunately that doesn’t mean someone who wanted to build a new home in the $125,000 range isn’t going to purchase a $30,000 home in place of it. My strong belief is that the inventory swell will be in highest on the low end and lowest near the middle. The people in the middle will buy near the average sales price when they can’t build a home.
You’ll see appreciation this year in Memphis near this average sales price and slightly higher. So target investments with multiple exit strategies that have appraised values $90,000 and higher. This should catch the bottom of the owner occupant contingent. If long term value is not on your list, then take a closer look at the lower end. Keep in mind the equity on the lower end can be false as the exit strategy is usually to another investor versus an owner occupant. You also need to pay attention to socio-economic factors such as crime, unemployment, schools, and education levels. These can impact your cash flow significantly. Analyzing the numbers along isn’t enough.
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