WE ARE EXACTLY WHERE WE SHOULD BE

For today's posting I would like to bring your attention to an article that was actually published one week ago yesterday (August 26) in the Sarasota Herald Tribune. It was entitled "Home prices are still falling," and of course, appeared on the front page. It was more of what we have come to expect from our newspaper, reporting how awful things are and how much they are "down". The unfortunate thing is that statistics are really only as useful as the analysis applied to them, and in this case, they are one dimensional.

For example, when we talk about percentage drops, are we talking about vs. last month, last year, or the last "normal" year in the real estate cycle? If I were to tell you real estate is off thirty percent, what would that mean to you? Without a qualifier, it really is a meaningless statement. In all fairness, the article does make several comparisons, both month vs. month and year over year, but that is where I feel the true problem lies. No one seems to remember that in the years prior to the real estate downturn, the increases were all record numbers that produced record years, in percentage increases, unit sales and dollar volume.

Therefore, is it safe to say that if median prices in real estate went up 100% over three years, and then came down 20 to 30% per year for three years, that the median price has still gone up overall? In fact, this very point is supported in one of the article's own graphs, used to illustrate the decline in home prices. What it fails to mention, however, is that the graph itself proves that the real estate market in this area has adjusted and is now back to exactly where it should be!

(See graph above "Median home prices" reprinted from the Sarasota Herald Tribune, August 26, 2008.)

If you follow the graph, and my logic, you can see that homes in the Sarasota/Bradenton market typically had an average appreciation of median price between 6 and 7%. The chart goes back to 1994 and that growth rate held steady for the actual median price appreciation until 2002, at which time it spiked dramatically. If you then examine where the price is today, versus where it would be at a "normal" appreciation over time, you will find that the median price is now right between 6 and 7%, if that rate had held steady since 1994.

It seems to me that this is further evidence that prices have adjusted to their proper levels and that, in fact, not only is our market not over inflated, but that it is also not "depressed." Much like any ten year period in the stock market, where you can find roughly a 10% return on your investment, including years spanning the big crashes, real estate is, and should continue to be viewed as, a "long term" investment. For anyone owning a home over a seven year period (which used to be the norm), you can be rest assured that you will see a 6 to 7% appreciation in typical markets.

Our problem is that we have bought into the fear and our market has become a "self-fulfilling prophesy." I can't tell you how many prospects, agents, bankers, and builders I talk to who have this "doom and gloom" attitude and keep talking about how things "have further to go." I would beg to differ. Based upon my own experiences, and the aforementioned statistics, I feel the market has in fact, corrected.

The problem is, no one has told the consumer yet. But they are about to find out.