Remembering the Equity

Looking back can leave you blinded to the future, but sometimes it can help you make decisions for the future too. There’s no way to predict what will happen in the market, but there are ways estimate the continuation of a pattern that hasn’t wavered in quite a while.

There was a time when my little condo would have fetched nearly $320,000.00.  I purchased it for $120,000.00 in 2002.  My neighbor purchased the same unit, which is perpendicular to mine, for $319,000 in September of 2005.  Needless to say, I’m thankful that I’m not in that position as my home is not yet upside down.

Can I count on that long term?  Well, last year I continually heard real estate agents talking about how they believed that we had just about hit the bottom of the market.  What most of them (I think I may have been one too) did not take into account were the number of short sales and foreclosures that had not, and still have not yet touched the market.

As a result, the prices valley wide have continued to plummet.  An interesting fact, as pointed out by Russell Shaw of John Hall & Associates at a recent Paradise Valley Realtor Marketing Session is that even though prices are falling, the number of sales have increased.

In a typical supply and demand model, when supply decreases, price increases.  When prices fall, it’s because either demand is low or supply is high, or combination of the two.  In the case of home sales in Scottsdale, the supply is abundant, the sales numbers are up, and the prices continue to fall.

REO properties (Real Estate Owned, or Bank Owned) are responsible for the most part.  The supply of bank owned foreclosure properties continues to climb and the number of these that sell also continues to climb, but the prices of REO homes are typically slashed to liquidate quickly.

Statistics for 2008 (Scottsdale Single Family Detached)

In January of 2008, the average list price for properties that actually sold was $352,000.  The average sale price of those homes (actual closing sale price) was $330,000 or an average of 93.8% of the asking price at the time of sale.  (The ratio of 93.8% represents only the percentage of sold price to asking price at the time the home sold, not the original asking price, which would be a more realistic representation to present to the unrealistic seller.)

By December of 2008, the average sale price had fallen by 40.9% to $195,000.  That’s a 3.4% per month average.  History has shown over time a rough average of 4% year over year gains, which means we’ve lost a little more than 13 years of traditional gains in 12 short months.  That puts things into perspective.  Here’s the problem.  We have no idea if the traditional market we have known will return…at all.  The financial sector has changed so much in the past 6 months, it’s hard to say if any familiar patterns are going to continue.  Logic should dictate that there is only so much space, and everyone needs a place to live, so prices will eventually head upwards again.  We just don’t know when.  Anyone who tells you they know simply does not know.

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