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  • Writer's pictureSang Han

Chapter 3. Predicting the next hot spot (Zillow Talk #3.)

Updated: Dec 19, 2021

Disclaimer: This is a very personal review of a real estate book that I've been very impressed with. Please be advised in advance that all data shared is from the book.



Zillow analyzes not only the data accumulated through their system but also previous real estate market data. And it explains that the following three factors are characteristics of regions where real estate prices rise relatively quickly.


Downtown Effect



The closer you are to the center of a big city, the faster your house prices would rise. In fact, this is obvious for everyone.



On the other hand, the price difference depending on the distance from the city center decreases over time. The table below shows the change in house prices in Arizona Pheonix over the period 1970-2000. The table shows the real estate value of the area within 0 to 10 miles from the city center as 100%, and the value of the house in the remote area is expressed as % of the 100%. As you see, the area 40-50 miles away could be sold for 7% of urban real estate in 1970. However, the gap decreased over time and the 40 – 50 miles price became 19% of urban real estate price in 2000.


One thing that was not described in the book is that 20 to 40-mile zone house prices rose faster than 10 to 20-mile zones. This exactly happened at least in those big cities where I have lived (New York City and Chicago). If I see the two cities, the neighborhood tends to get worse as it gets closer to the last stops of ​​subway lines. After the last subway stops, there are cushion areas and good suburbs start. And these good suburbs are around 20 miles away from the metro areas.



Halo Effect



The real estate price of the immediate neighborhood of where the commercial district is well developed is rising quickly.



The book explains the reason is that everyone is looking for affordable real estate, but they want to enjoy all the benefits of an already developed area. It is so true. In fact, it happens where I am living now. Parts of Aurora (east side) and Plainfield (north side) where kids going to Naperville schools are great examples. Because people in these areas can easily enjoy the great living conditions and great schools in Naperville, house prices of these areas have risen faster than other Aurora and Plainfield areas.



Gentrification

According to my research as an investor, house prices have risen rapidly when all three conditions listed above are met. And it will be in the future as well. Therefore, I am sure that making a real estate investment plan with these three things in mind will help you increase your chances of success.


If you need any real estate information or help with your house purchase, sales, or investment, please feel free to reach out to me. Have a wonderful day.





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