Is It Possible To Pinpoint Your Home's Peak Value? Predicting Real Estate Prices Is it possible to pinpoint your home's peak value? By June Fletcher From RealEstateJournal.com Question: What adds value to a neighborhood and how do you determine if the current value of your home is at its peak? I live one mile from the largest shopping mall in the Memphis area, which has not affected our secluded subdivision. Recently, the city announced the construction of a new mall within one mile of the existing mall, opening in fall 2008. Is it wise to be the first to sell and move? How do you explain your actions to your neighbors? -- Carol, Memphis, Tenn. Carol: Ah, Carol, if I could determine precisely whether a home's value had reached its peak, do you think I would spend my life staring at a dim computer screen? I'd be running Fletcher's Fast-Flip, buying and selling homes like a day trader. The fact is, even the country's leading housing economists can't decide whether home prices are ready to soften or about to hit new highs. What we do know is that they haven't gone into decline, nationwide, since records started being kept. In most places, home prices do keep a steady march upwards, albeit at slower or quickening paces depending on local economic conditions -- so it is quite likely that prices in any given neighborhood will never actually peak, but simply fall into a funk from time to time. The biggest factor controlling this is job growth, where drastic changes can hurt home prices, as when Enron Corp. went bust in Houston. But who can predict these nasty surprises? Should You Be the First to Move? Which brings us to your second question, whether you should be the "first to move" now that a new shopping mall will be built nearby. You're assuming that the new mall will hurt your home's value, but it's not at all clear that it will. Sarah West, an assistant professor of economics at Macalester College in St. Paul, Minn., and her student, Soren Anderson, studied the effects of several factors on home prices, including the presence of nearby retail properties. They found that homes within a quarter-mile of a major shopping mall sold for 12% more on average than homes more than two miles away, controlling for such home and neighborhood characteristics as square footage and public-school quality. Homes located between a quarter-mile and two miles of a mall sold for approximately 5% more than the more distant homes. Malls pull up home values, Prof. West says, because they add jobs. But it does matter what kind of mall is being built. Paris Rutherford, vice president and director of urban design for RTKL Associates, a Baltimore architectural, engineering and planning firm, says that malls send a "brand message," so upscale malls are far more likely to pull up home prices than discount or outlet malls, which can convey the message that the surrounding neighborhood is cheap (though some newer outlet malls, such as the Miromar Outlets in Naples, Fla., have counteracted this difficulty by using fancy architecture and fountains, and bringing in hip stores). Malls Boost Home Values According to Mr. Rutherford, traditional regional malls that look like "big boxes dropped from space," surrounded by a parking-lot moat, are less of an asset to a neighborhood than newer types, which are really an update of the old town centers of the 1950s, with gridded streets, sidewalks, open-air gathering spots, and a smaller scale that makes shoppers "feel like it's yours." A good example is the retail center of downtown Reston, Va., which has an outdoor skating rink that turns into a venue for concerts and art shows in the summer, and which has been expanding, block by block, into the surrounding neighborhood for several years, pulling up home prices as it goes. What happens to the existing mall also matters. Jay Lucas, president of Harry B. Lucas Company, a Dallas commercial real-estate brokerage firm, says the arrival of a new mall often leads to a makeover of the older one as its management strives to compete -- and that, of course, is good for surrounding home values. He estimates a new mall, especially of the trendy open-air variety, could boost home values as much as 10%. So perhaps it's not a good idea to leave the area until you've at least had a chance to sample the new mall's food court. Otherwise, you may not be explaining why you left to the neighbors, but why you left too soon. June Fletcher is a staff reporter for The Wall Street Journal. Her "House Talk" column appears most Fridays on RealEstateJournal.com.