Residential real estate investors base their investment decisions on data and trend lines, so when something happens to disrupt expectations, investors may need to reassess their strategy. This is what happens when a neighborhood or community unexpectedly declines.
Oftentimes, a residential area declines because of an impactful event that gets major media coverage. A predominant employer in the community may shut down, for instance, resulting in a residential mass exodus. A rash of crimes produces a narrative that a neighborhood is unsafe, so property values drop in response. Environmental issues, such as odors from a landfill or toxic contamination of a creek, raise health concerns for the surrounding area and cause a dearth of homebuyers.
Should You Stay, or Should You Go?
If you are invested in a market affected by this or another disruptive event, you will need to decide whether to stay or move on. If you feel the ramifications are short-term, you may be able to tough out a temporary downturn until the area makes a recovery. If you are concerned the fallout may be long-term, your best course of action may be to exit the market at your earliest opportunity.
Disruption can also create opportunities, however. If you are not invested in an area, should you consider picking up a bargain as other investors flee the market? Again, you will need to assess the community. If you enter the market at a low point, an eventual upturn could allow you to reap better-than-average gains down the road.
Weathering Negative Publicity
Sometimes a community is rocked by intense media coverage of a singular event. There is perhaps no better example of this than Ferguson, Missouri. After the police shooting of Michael Brown on August 9, 2014, the city faced weeks of protests, riots, looting, and racial unrest—all with wall-to-wall coverage on cable TV.
In the aftermath of the unrest, Ferguson became regarded as a troubled community. Never mind its previous reputation as a small, quiet suburb of St. Louis, where people bought homes, raised families, shopped at local stores, and ate at nearby restaurants. Because of the community’s sudden notoriety, investing in Ferguson was largely considered inadvisable.
However, within a year, Ferguson began to rebound. Scores of businesses started investing in the community again, and housing values remained steady. This coincided with an overall improvement in the housing market.
In August 2014, Zillow pegged the median housing value in Ferguson at $62,100. A year later, the median housing value was at $63,200. After a decline of 3.3 percent in 2017, housing values are expected to rebound over the next year by 2.5 percent.
The lesson learned with Ferguson is that a singular news event does not necessarily doom a community. It’s prudent for investors to consider looking beyond the headlines and paying attention to the long-term picture.
Communities like Ferguson can and do survive, even when things look bleak. Such communities value your investment dollars. Steering the course until the media furor dies down and long-term ramifications are known is often the best strategy.
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