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The Basics

What makes a house recession-proof

Good homes sell even in a bad market -- and here are a dozen principles the experts watch for when evaluating a potential sale.

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By Marilyn Lewis

The real-estate bust has stripped all the smoke and mirrors from the housing market. In the starkest way possible, it is revealing which homes hold value in a recession, and why.

"Even in this market, there are certain things that will sell," says real-estate agent Michelle Sandoval in Port Townsend, Wash., where it's difficult to sell homes, although prices haven't dropped.

"Even in this market, I've had things sell for over full price. There are always bulletproof properties" that hold value better, Sandoval adds.

Certain upgrades can help recession-proof your house, but your home's price resilience mostly depends on choices you made when you purchased. Since most homeowners buy and sell several times in their lives, you're likely to have a chance to use these bulletproof principles the next time you buy.

Location, location, location

You've heard it before because it's true: Location matters. It matters most, in fact, when it comes to holding value under pressure. Why? Because houses are replaceable, but land is not. If you've got a spot everyone wants, your place will sell faster and for a better price than a similar house elsewhere.

Take Punta Gorda, Fla., where, at this very moment, house prices are sliding so fast you can almost hear them sink.

"Everything is depreciating," says Cady Rowe, an agent with Coldwell Banker Morris Realty in Punta Gorda. However, Rowe adds, how deeply your price depreciates depends on where "your dirt" is.

"If your dirt is sitting in Punta Gorda Isles on the waterfront, it's going to be worth a lot more than dirt somewhere else with a thousand lots just like it," Rowe points out.

A December study by Moody's Economy.com predicted price declines in Punta Gorda will be the worst in the nation -- down 35.3% by the second quarter of 2009. And that's not accounting for inflation.

That makes Punta Gorda a laboratory for testing the effect of location on the durability of prices. Appraiser Charles M. Polk III agreed to do some informal research for MSN Money. Polk, an appraiser with 20 years' experience and advanced credentials in valuing residential and commercial property, is also an attorney, a real-estate agent and a magistrate who adjudicates county tax appeals.

In December, Polk compared the sales of 59 homes of equal size and quality in Punta Gorda Isles and the nearby inland development of Deep Creek. Location makes all the difference, he found. Although all Punta Gorda real estate lost value, Punta Gorda Isles homes didn't lose as much. Based on square-foot prices, Punta Gorda Isles homes had seen a 22% drop in sales prices since the last half of 2006, compared with a 32% drop in Deep Creek prices.

More than a view

Location means more than just views and water frontage. Other elements include:

Neighborhood. In some cities -- San Francisco is one -- the durability of home values varies from block to block, says San Franciscan Dick Lepre, whose blog, The Economy, covers real estate.

Lepre, a broker with Residential Pacific Mortgage, says of his town: "It's very much neighborhood-dependent. If you take my house and move it a few blocks up the hill, it's worth another $300,000. And, if you move it down the hill three blocks, it could be worth $300,000 less. In that sense, (affluent) Pacific Heights or my neighborhood, called Market Duboce, tend to be recession-proof because people always want to live there."

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Schools and safety. These make or break values. In some Bay Area communities, overseas investors buy homes sight unseen based on the value of the city's public-school rankings. Questions about schools and safety are the first out of buyers' mouths, says Furhad Waquad, an agent in suburban Detroit. He refers them to local police departments for neighborhood information and to the free Standard & Poor's school evaluation service, SchoolMatters.

Culture and public services. Buyers favor homes near libraries, parks, playgrounds and revitalized or charming commercial areas with shopping and coffee shops and theaters. An easy walk to light-rail terminals and bus lines is a plus. In communities full of retirees, proximity to hospitals and doctors' offices is valued.

One caution: Watch out for noise. It's good to be close to an elementary school but not next door, and it's good to be near a main street with bus service but not directly on it.

Infrastructure. Although the fringes of hot cities are popular locations when prices are rising, interest falls off quickly in a downturn. City sewer and water service help hold up prices compared with an identical home on a septic system and well water. Cities with fatter tax bases may boast quicker fire department response times, better-maintained streets and stronger schools, all of which sustain demand.

Take the simple matter of sidewalks: Waquad points to the wealthy communities of Bloomfield Township and Bloomfield Hills, originally built without sidewalks. He credits their recent decisions to install sidewalks for helping hold up sale prices in the Detroit area's severe down market. "Now, you see mothers and nannies with prams and strollers, people exercising, running. It has made a world of difference," Waquad says.

Continued: Principles of durability

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