Newsflash: Recently researched the effect of busy streets on home prices. Denver, CO

Here is the link to this on my blog.You’re sitting on the back patio of your suburban home. It’s Saturday. The lawn is mowed. The beer is cold. Your oldest daughter just took her younger sister down to the Pinkberry for froyo. In other words, it’s quiet. The wind blows through the trees and you look out over the quarter acre of freshly trimmed grass.The peace is broken by a souped-up Honda Civic that sounds like it went through a messy divorce with its muffler. BFFFFFFFFFFFFFFFFFFFFFT!Beyond your quarter acre of freshly mowed Kentucky bluegrass is an eight-foot wooden privacy fence and beyond that fence is 120th Avenue. That loud Honda Civic is one of 47,542 cars that zooms past your backyard every day.You bought your house ten years ago. It was on the market for three months and you paid well under list for it because cars like that Honda Civic blast their mufflers by it regularly. Even now you can hear the whiz and swoosh of regular traffic.You’ve heard the Denver real estate market is hot right now. Houses are selling fast! Over list! Bidding wars! It brings you to the question:*How much is this busy street going to affect my property value? *Ask a typical real estate agent this question and you’ll get an answer out of a grab bag. I once saw an appraiser knock $10,000 of value off of a house because of a busy street. Other agents say backing up to a busy street takes 10% off your value. Another might say a double-yellow lined street knocks off 15% of value. The most common answer you’ll get is… “It really depends.” Those answers aren’t necessarily wrong but they aren’t the full story.So if the answer to the question is “it depends” then what does the effect of a busy street on house price depend on? Economists and urban planners are interested in this sort of thing so a number of studies exist examining the impact of traffic on home prices. I went to the Auraria Library and found them so you wouldn’t have to.The first study I read is from Baton Rouge, LA. It looked at the market in the years between 1985 and 1989. During this time home prices in the area declined every single year until finally picking up in 1989. It was a strong buyer’s market. The exact opposite of what we currently have in Denver.This study examined two distinct areas of the region. In the city each additional 1,000 cars of traffic count discounted 1.054% off the house’s sold price. In the suburbs this was cut in half at .54% discount for every 1,000 additional cars.Looking at the traffic counts on 120th Avenue and doing a little math this study suggests our theoretical house should be worth a jaw-dropping 24.54% less than a house on a quiet street.Another study examined a suburb of Dayton, OH between 1998 and 2011. It produced somewhat similar results. These scholars found that each time you doubled the traffic count you should expect a 2.1% discount in price. Our theoretical grass cutter and home owner should then expect his or her house to sell at a 10.1% discount to a house further in the subdivision. That’s a lot less than 24.54%. So what’s different?The location is the most obvious one. In the suburbs of Baton Rouge the discount was less than the city. In Dayton, OH the discount was less than the one in Baton Rouge. A third study I found examined the effect of traffic noise on home prices in the St. Paul and Minnaepolis area. These economists did some very complicated modeling to determine how much traffic noise each parcel in Twin Cities experiences, then they overlaid 40,000 transactions in the local MLS from 2005 to 2010. It was an incredibly complicated and complete analysis.They found that houses on busy and noisy streets sold for 30% less than houses on quiet streets. They also just happened to be looking at this issue when the United States housing market crashed due to the mortgage crisis. Here is where it gets very interesting for our home owner on 120th Avenue. In mid-2006 you could expect each additional decibel of noise to produce a .25% discount in price by 2010 that discount rose to .50% As the market declined the willingness of home buyers to live on busy streets declined, a lot.The second factor that all this depends on is when you sell your house. In the declining market of Baton Rogue, LA of the late 80s the discount was 24.54%. But the decade of mostly seller’s markets in Dayton, OH shows a 10.1% discount. Before the housing crash buyers were willing to pay closer to the normal market price for a house on a busy street. After the crash sellers had to double that busy-house discount to get buyers interested.The problem with these studies is that the location is so drastically different from Denver that it’s difficult to draw conclusions. Maybe houses in Baton Rouge typically face busy highways and streets. Maybe there’s more or less median and other sound barriers in Dayton, OH. This is why I decided to conduct my own study.*North Denver Metro Traffic Study * I examined an area in the North Metro area that encompasses parts of Northglenn and Thornton. The area was bounded on the east by Holly Dr., on the west by Washington St., on the north by 136th Ave. and on the south by 104th Ave. I labeled houses that backed up to these main streets as being on busy streets. Those in the interior of these suburban neighborhoods were labeled as being non-busy. I downloaded all transactions in two time periods. The first covered the years 2007 to 2009 when Denver’s average home price fell 25%. The second period examined the years 2013 until present day when Denver’s average home price has skyrocketed.A respected and published data scientist, Fuhad Ahmed, analyzed the results. During the depreciating market, right after the mortgage crisis, homes that backed up to these major streets saw a 6% discount compared to the average home price of the area. Right in line with the Minneapolis study these same homes have only suffered a 3% discount in our current booming market. The penalty for being on a busy street is halved in an appreciating market compared to a declining market.*Why is this? *Buyers are desperate and affordability is their primary motivator. They’re already paying more than they want and the tradeoff of a little traffic noise in their back or front yard for a smaller mortgage payment sounds pretty appealing. There are more buyers than houses available so buyers will overlook flaws.At the time of this writing there are 75 active listings in the area I analyzed. In the past month the median days on market for this area was 5 days. According to First Alliance Title each home in the Denver area will average 15.9 showings. This figure will be higher for houses the more reasonably priced northern suburbs. All of this is a long way of saying that there are more buyers than houses out there right now. A house that backs up to a busy street will still have multiple buyers interested.Buyers are looking for affordability in climates like the current Denver real estate market. The average price in the last year for this area is $329,629. A 3% discount on that average price means it would be $9,889 cheaper than a house on a quiet cul-de-sac.*Putting It All Together *Let’s examine our grass cutter again and assume they bought their house in 2008 and assume that it is a perfectly average house for that area. Average square footage, bedrooms, etc. except it backs up to 120th Avenue. The average price in 2008 was $181,207. Due to the traffic issue they would have paid $173,959 for it, or a 6% discount of $7,248. If they sold the house in the current market they could expect to get $319,740 for it.Their house would have appreciated more than their quieter housed neighbors. They enjoyed 184% appreciation from 2008 until the present day. Their neighbor on the cul-de-sac only enjoyed 182% appreciation.The reverse of this is that the houses on a busy street should depreciate more if the market turns. Assume that home prices in Denver finally plateau. Buyers are now prioritize having a quiet backyard over affordability. The average price for the area does not change but the discount goes from 3% to 6%. The house on 120th Avenue now sells for $309,851. The grass cutter lost $10,000 in equity. The cul-de-sac neighbor lost no equity.If you’re selling a house on a busy street you want to sell it during a seller’s market. It’s a real estate hot potato and you don’t shouldn’t want to be stuck holding it when the music stops.*Should Home Owners on Busy Streets Sell? *Whether to buy or sell your home is a very personal decision. This analysis is just one factor you should take into account when making that decision. Does your house still meet your family’s needs or not? Are you tired of only being able to park one car in your garage? Did your mother-in-law recently move in? Did the kids recently move out? There is a transaction cost to selling your house so it’s not a decision to be taken lightly. This article shows how you might be able to save $10,000 by selling a house on a busy street. However, you’ll also pay for title insurance, agent commissions, and moving costs.All of this might seem like very narrow analysis but the broader point is that buyers are more willing to overlook undesirable features on a house in a booming market. It should hold true for home owners that have undersized yards, no garages, or any other major flaw that would scare away buyers in a more balanced market.Ultimately if you do decide to sell hire a real estate agent that understands the economics of the market and can give you detailed and evidence-backed advice.

Read more at https://www.reddit.com/r/RealEstate/comments/6gczpt/recently_researched_the_effect_of_busy_streets_on/?utm_source=ifttt

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s