What makes real estate ‘prime’?
Mood of the Market.
I’m fascinated by the concept of “prime real estate.” In fact, I apply it in all areas of life — some of which would cause quizzical looks in a crowd of real estate professionals. When dealing with difficult people and relationships, I’ve been known to evict them from my prime mental real estate.
What my mother might call tailgating, I call the highest and best use of prime, rush-hour, freeway real estate. I’ve taught my son that the whole foods I want him to eat — mostly produce and proteins — occupy the prime real estate in the grocery store.
(In turn, he has informed me that the processed foods he wants to eat — mostly hot Cheetos and Mountain Dew — are just a few aisles in.)
The subject of prime real estate jolted into mind for me, recently, after someone invaded my freeway real estate, rear-ending me in a (blessedly) minor fender bender. Bizarrely enough, I was rear-ended, also at very low speed, in virtually the identical spot on the freeway almost exactly a year ago.
I thought … that is a “bad” piece of real estate in this interchange, which is otherwise probably one of the highest-utility-per-square-foot spots in town. My hypertext mind then clicked to the question of whether what is considered prime vs. “bad” real estate has changed over this past four years of real estate market recession, reset and reformation that we’ve experienced.
In some ways, it most certainly, obviously has. The exclusivity, newness, vast, high-ceiling, remote, “conclave-y” feel of many suburbs folded in on itself when all the subprime adjustable-rate mortgages that financed the original purchase of those homes reset at the same time and foreclosed en masse.
This foreclosure wave, happening at the same time as gas prices skyrocketed and frugality became en vogue, caused a triple-time change in the definition of many newly developed suburban communities, from the prime real estate of the suburbs, to the burdensome-for-commuters exurbs, to the down-and-out “slumburbs.”
Another new set of elements that has been added into the mix of what constitutes prime real estate, post-recession, is how well the area has withstood the recession. Just last week, I read this frightening factoid: 78 percent of today’s foreclosure sales are taking place in 10 states.
Now, as you might suspect from my conception of the supermarket boundaries, nothing in real estate is more hyperlocal, to use an overused phrase, than which areas are “prime” and which are less desirable. So, while some of these states have areas where foreclosure rates are sky-high, home values have been decimated, and the vast majority of the homes are burdened with mortgage balances greater than their market value, most also have “prime” real estate districts.
These prime areas in otherwise subprime states are the counties, cities or even neighborhoods where these conditions do not prevail, often because of a thriving local job market or some unique limitation on supply, like tight building regulations or a simple lack of space for new construction in a coastal area.
Of course, I also recently saw an online news outlet feature a slide show on the healthiest housing markets in America, which featured a number of states where more than 30 percent of the homes are upside-down, meaning that their owners owe more on their mortgages than their homes are currently worth.
The fact that these markets are accurately deemed relatively healthy does show a tide change in what prime real estate is, at least by that definition.
So, with the addition of recession-resistance to the list of qualifying criteria, what is and isn’t prime real estate has changed somewhat over the real estate recession. But I wouldn’t say it has changed much otherwise. The same things that my parents and grandparents thought made a neighborhood desirable for living and homeownership 20, 40 and 60 years ago still make for prime real estate today.
Established neighborhoods, with high rates of homeownership and relatively low turnover (possibly two sides of the same coin), tend to be desirable, as the residents invest more in their homes and the supply of homes for sale is scarce, which positions them to sell at a good value.
Walkability or other convenient access to jobs, shopping, amenities and activities also characterize districts we think of as prime real estate. And let’s not forget plain old aesthetic beauty — whether it’s natural beauty of tree-lined streets, water views, mountains, or the beautiful sleek, modern, artisanal or vintage architecture of the homes.
Beauty is in the eye of the beholder — and the real estate consumer.
Some would automatically throw good schools on the list, but I’d beg to differ, proposing instead that locally valued comforts might be what we’re really referring to. Last year, the National Association of Realtors’ 2010 Profile of Home Buyers and Sellers found that a shockingly low minority of homebuyers actually have children under 18 at home.
Of course, homeowners without children certainly don’t mind living in a good school district. But neither is it necessary to be in one for the real estate to be prime, if most people in an area are childless or, as in my area, send their children to private schools.
But “prime” is a synonym for desirable, which, in real estate, is driven by what buyers want — and that differs in different areas. If you’re in Manhattan, for example, this might be having a Whole Foods or a YMCA on your building’s ground floor. If you’re in an urban area, this might be parking. If you’re on the coast, this could be ocean views. If you’re in the suburbs, this could mean a five-car garage with air conditioning and a pool.
Whatever floats your (and your neighbors’) boats, if possessed by a home, building or community, and renders it prime real estate — like, for example, having a boat lift in Miami, where no boat should have to lift itself, as I always say.
And the opposite is also true: What is considered “bad” is relative to what people in your area value or dislike; train tracks might be seen as a noisy eyesore in some suburbs, while proximity to a subway station is considered a vast benefit in some cities.
Which leads us to the last, most unsung ingredient of prime real estate: the absence of bad stuff. Again, what is “bad” varies by area, but there are some general things buyers want to avoid. Lots of foreclosures, tons of homes for sale, or vacant homes. Graffiti. Train tracks. Crime. Blighted homes or other eyesores.
If the way we talk about real estate reflects the way we think about real estate, then there are certainly degrees of value we place on homes and their locations, with an upper echelon reserved for homes with physical characteristics and surroundings and lifestyle amenities that are desirable to local buyers.
That desirability empowers these homes to sustain their economic value over time; yet another way — in the mold of consumer confidence — what we want and think and believe creates our individual and collective economic real estate realities.
Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.