Novice Buyers: Finding the Right Home to Build Wealth

Most homeowners who bought their property prior to the pandemic have ample reason to feel good about their purchase. That’s because the red-hot real estate market ushered in by COVID-19 has led to a stunning increase in home values.

A new study by CoreLogic (corelogic.com), a Californiabased housing analysis firm, says homeowners with mortgages gained a remarkable 29.3% increase in equity within the last 12 months alone. For average U.S. homeowners, that marks a $51,500 gain in their ownership stake.

“Home equity wealth is at a record level and will bolster economic activity in the coming year,” says Frank Nothaft, CoreLogic’s chief economist.

Several factors explain why home values have risen so dramatically. One is that the pandemic has driven up demand for homes with larger living space. Another factor is that new home construction has been severely constrained due to global supply chain issues, which have pushed up the cost of building materials.

“Prices have soared because demand has outstripped the supply of available properties. Simply stated, that’s economics 101,” says Sid Davis, a real estate broker and author of “A Survival Guide for Buying a Home.”

Of course, the euphoria over rising values among prepandemic-era homeowners is hardly shared among those still striving to fulfill their aspirations for a first property.

“To a lot of prospective buyerss — including those who’ve lost property to other bidders — ownership can feel like an exclusive club they’re unable to join,” Davis says.

Still, real estate analysts now see slowly emerging causes for optimism among buyers still trying to buy a place.

Susan Daimler, the president of Zillow, a national real estate company headquartered in Seattle, foresees “a healthy rebalancing of the market, giving homebuyers out there some much needed relief.”

“We’re seeing inventory rise month after month for the last four months, and we’re seeing home price appreciation cool down a little bit,” Daimler says.

Of course, the current generation of first-timers doesn’t only want to obtain a house. Ideally, they also wish for a place that will gain value going forward.

Here are a few pointers for those in search of appreciation potential:

Look for an area with a strong job base.

The pandemic has brought with it much turmoil for multiple U.S. industries. But economists believe these COVID-era disruptions will likely ease once the overall economy normalizes. Eventually, areas with a strong employment base can expect a faster rebound and stronger home values.

Davis is bullish on the growth in home values around major medical centers or near pharmaceutical companies.

“Aging baby boomers need more health care, and this is one factor that has kept communities around medical centers strong in terms of housing demand,” Davis says.

He also recommends you consider buying in the vicinity of a major university.

Still another segment of the economy that should do well within the next several years: places where “green companies” are thriving. These are firms involved in environmental engineering work or alternative energy development.

Consider a “walkable” community.

Whether due to volatile energy prices or roadway congestion, many Americans are fed up with what Davis calls “the car life.” They dream of living in a community where they could safely walk or bike to a good movie, a fine restaurant or a local ice cream parlor.

“Walkability should be one password for you when you’re looking for a neighborhood,” Davis says.

In reality, there are still relatively few walkable suburbs outside major metro centers. But an increasing number of communities are hooked into public transportation systems that let people whiz to their destinations without driving.

“The option of remote work, which has become commonplace during the pandemic, has intensified interest in small, walkable communities” Davis says.

“People in all generationss — but especially 20-somethings, 30-somethings, empty nesters and retirees — are keen on the access that comes with life near a well-positioned town center. Expect homes in these areas to do well on future appreciation,” Davis says.

Screen for top-quality construction.

Is your plan to make your first home one that’s new or nearly new? If so, you’ll want to buy in an area where the builder has a reputation for high-quality construction. That’s because homes that are durable and weather well are more likely to gain value as the years pass.

“Some subdivisions are extremely well built, and others are just the opposite. You’ve got to make sure you don’t purchase a place in a community that’s been plagued with plumbing problems, electrical issues or premature roof failures,” says Barry Nystedt, the president of a realty firm that works solely with buyers.

How can you determine if a subdivision that interests you is solidly built? Nystedt suggests you spend a few hours one Saturday going door-todoor in the area, quizzing local residents.

“I strongly encourage my clients to do neighborhood walks to ask the current owners if they’re satisfied with their houses. You need to know if the builder has honored his warranties and fixed all the issues that need fixing. There’s no such thing as a development with totally perfect houses. But some subdivisions are much better candidates for appreciation,” Nystedt says.