With all the reporting of falling home prices, there is one fact I have yet to see reported (a fact we have been discussing all year): these large drops in prices do not mean that everyone in those markets is losing money.
You will recall that in the hardest hit markets, prices were escalating at twice the national and historic averages. From 2001-2006, prices around the rest of the nation increased 47 percent. In many parts of California, Nevada, Arizona and Florida, price gains ranged from 89-109 percent. So even with 30-40 percent drops in prices over the past 18 months, the long term trend is still up.
Recall our example in last quarter's Quarterly Report:
Over the hot seller's market from 2001-2006, prices escalated nearly 89 percent in Las Vegas. That is nearly double the national average of 47 percent. That means a $300,000 home purchased in 2001 would have sold for $567,000 in 2006. Even with the 15 percent drop in prices in Las Vegas, that home is now selling for almost $482,000, a 61 percent gain since 2001. So even with large downturns, the longer trend is still positive.
With all the price corrections that have occurred in Las Vegas, the net result is that average annual gains are about 4 percent since 2001. That number is much closer to a 5-6 percent norm than the 15+ percent annual growth they were experiencing from 2002-2006.
Despite the price drops here, we are seeing the vast majority of home owners still achieve returns. Even if we drop another 5-8 percent over the next five months, which is the road map California, Arizona, and Nevada have shown us, most sellers will still be seeing positive results -which includes buying a more affordable next home.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
Thursday, November 20, 2008
Prices dictate the Pace of Sales
An article in yesterday's Seattle P-I points out that the State's number of home sales dropped 36 percent from a year ago. It also correctly points out that this year over year comparison could be somewhat misleading because our state's housing market continued its upward climb through much of 2007. As a result, our state's drop looks much more severe than the rest of the nation, which has been correcting since 2006.
The drop in home sales in Washington State is simply an indication that some home prices are too high. So as sales have dropped so now too is pricing. King County's median prices have declined 10 percent from a year ago to $427,000. Thurston County's decline has been only 3.7 percent (from $265,950 to $256,000). Even with these price adjustments, the number of sales is still down. This is simply more evidence some homes are still priced too high.
Because California, Nevada, and Florida started correcting a full year before our market, we can look to those areas for clues on our market's future. Before we do that, however, keep in mind that their highs were much higher than ours, which means their drops will look more severe as well. Despite these differences, the overall concept is the same. When demand falls well below supply, prices will adjust down to restore balance.
The price corrections in those other markets are now paying dividends by (1) returning price appreciation to more sustainable levels, (2) bringing home buyers back to the market, and (3) offering affordability in homes. Consider the following from yesterday's Seattle P-I article:
"Metropolitan-area price changes ranged from a 13 percent annual increase in Elmira, N.Y., to a 39 percent drop in Riverside, Calif. Two other California metro areas, Sacramento and San Diego, posted the second- and third-largest drops, down 37 percent and 36 percent, respectively.
"Such declines helped give California the second-largest quarterly sales increase, 28 percent, among states. A similar pattern occurred in No. 1 Arizona, where sales were up 28 percent, and No. 3 Nevada, up 26 percent. Nevada had the biggest annual increase, 76 percent, followed by California, up 58 percent, and Arizona, up 49 percent.
"'A pattern of sharply higher sales in areas with large price declines is well-established,' said Lawrence Yun, the association's chief economist. 'Affordability conditions have consistently been a major factor in driving sales'."
These numbers reflect the power of supply and demand to set prices.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
The drop in home sales in Washington State is simply an indication that some home prices are too high. So as sales have dropped so now too is pricing. King County's median prices have declined 10 percent from a year ago to $427,000. Thurston County's decline has been only 3.7 percent (from $265,950 to $256,000). Even with these price adjustments, the number of sales is still down. This is simply more evidence some homes are still priced too high.
Because California, Nevada, and Florida started correcting a full year before our market, we can look to those areas for clues on our market's future. Before we do that, however, keep in mind that their highs were much higher than ours, which means their drops will look more severe as well. Despite these differences, the overall concept is the same. When demand falls well below supply, prices will adjust down to restore balance.
The price corrections in those other markets are now paying dividends by (1) returning price appreciation to more sustainable levels, (2) bringing home buyers back to the market, and (3) offering affordability in homes. Consider the following from yesterday's Seattle P-I article:
"Metropolitan-area price changes ranged from a 13 percent annual increase in Elmira, N.Y., to a 39 percent drop in Riverside, Calif. Two other California metro areas, Sacramento and San Diego, posted the second- and third-largest drops, down 37 percent and 36 percent, respectively.
"Such declines helped give California the second-largest quarterly sales increase, 28 percent, among states. A similar pattern occurred in No. 1 Arizona, where sales were up 28 percent, and No. 3 Nevada, up 26 percent. Nevada had the biggest annual increase, 76 percent, followed by California, up 58 percent, and Arizona, up 49 percent.
"'A pattern of sharply higher sales in areas with large price declines is well-established,' said Lawrence Yun, the association's chief economist. 'Affordability conditions have consistently been a major factor in driving sales'."
These numbers reflect the power of supply and demand to set prices.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
Tuesday, November 4, 2008
Seller's are still realizing nice gains when selling
With all the reports of declining home prices, it would seem that every seller is under water. To be sure, there are a number of sellers who are selling for less than they paid. However, in our market the vast majority of sellers are achieving very healthy returns.
In our recently updated report of repeat home sales, where we track the gains or losses of the home's value from the time purchased to the recent sale, we found that people in their homes less than three years were selling on average 4 percent less than purchased. This group represented just 23 percent of all sales, and half of these sales were bank-owned properties.
That means the remaining 77 percent of all sellers were making money on their sales. In fact, they were making returns right in line with our market's historical average annual gains of 5.9 percent. Below is a chart of the average appreciation for each class based on length of homeownership*:
· 3 Years 14 percent· 4 Years 31 percent· 5 Years 54 percent· 6 Years 56 percent· 7 Years 71 percent· 8 Years 78 percent· 9 Years 74 percent· 10+ Years 87 percent
One of the more interesting facts of this study is that it confirms an old adage of real estate that suggests one must be in a home for 3 threes before the investment starts to pay dividends. That experience sort of went out the window during the hot seller's market of from 2003 through 2006. In most cases it is now back in force.
So while prices have undergone, and in some segments will continue to undergo some needed adjustments, the good news for sellers is that the investment is still paying off nicely.
* Repeat Home Sales Report, Homes Sold in Thurston County during August and September of 2008. NWMLS Sales only, analysis by Coldwell Banker Evergreen Olympic Realty. Statistics not compiled by NWMLS. For more details, contact one of our sales professionals.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
In our recently updated report of repeat home sales, where we track the gains or losses of the home's value from the time purchased to the recent sale, we found that people in their homes less than three years were selling on average 4 percent less than purchased. This group represented just 23 percent of all sales, and half of these sales were bank-owned properties.
That means the remaining 77 percent of all sellers were making money on their sales. In fact, they were making returns right in line with our market's historical average annual gains of 5.9 percent. Below is a chart of the average appreciation for each class based on length of homeownership*:
· 3 Years 14 percent· 4 Years 31 percent· 5 Years 54 percent· 6 Years 56 percent· 7 Years 71 percent· 8 Years 78 percent· 9 Years 74 percent· 10+ Years 87 percent
One of the more interesting facts of this study is that it confirms an old adage of real estate that suggests one must be in a home for 3 threes before the investment starts to pay dividends. That experience sort of went out the window during the hot seller's market of from 2003 through 2006. In most cases it is now back in force.
So while prices have undergone, and in some segments will continue to undergo some needed adjustments, the good news for sellers is that the investment is still paying off nicely.
* Repeat Home Sales Report, Homes Sold in Thurston County during August and September of 2008. NWMLS Sales only, analysis by Coldwell Banker Evergreen Olympic Realty. Statistics not compiled by NWMLS. For more details, contact one of our sales professionals.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
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