Thursday, October 05, 2006
Are home prices really falling?
The media is fond of reporting how the real estate market is falling in 2006 in comparison to 2005 and how reduction in sales volume is the end of real estate as we have known it for the last several years.
The article that I hope people got a chance to read is on MSNBC at the following link: Existing home sales fall for fifth straight month.
The chief economist for Naroff Economic Advisors states that the housing bubble has now popped as a result of several months of home sale volume being in decline compared to last year. Let’s get this straight; the last several years have been absolute records in real estate. Prior to 2004 & 2005, the pace of real estate had never been sold at a sales volume of over 6 million homes and now they are stating that the housing market is doomed because we cannot continue at that phenomenal pace. 2004 was also a record year, so even if we have fallen to 2004 levels (the article makes no mention of this) we are still on pace for an excellent year.
The article mentions that we have a 7.5 month backlog of unsold homes. Let’s define inventory in real estate terms.
- Existing Home Inventory of 6 months or under à Sellers’ market
- Existing Home Inventory of 6-12 months à Equal market
- Existing Home Inventory of over 12 months à Buyers’ market
Therefore, 7.5 months backlog of unsold homes is a market where both buyers and sellers have equal footing against each other. Real estate is like any other market. Properties are only worth what a buyer is willing to pay for it at that moment in time. What the neighbor sold for last month, last week, yesterday is irrelevant. Sellers may want more for their homes, but they can only get what someone is willing to pay for it.
If you read to the end of the article you will notice that condo sales were down to 793,000 units. This would lead one to believe that this is not a great number. In fact, in 2004 condo sales were over 940,000 and in 2005 they were over 972,000. These numbers are courtesy of the National Association of Realtors. These numbers were absolute records and slowing sales from these are not, in this author’s opinion, a voice of concern. Many of the purchases in 2004 & 2005 – were from investors and individuals seeking vacation properties. While vacation property purchases may slow down, people who are looking for an affordable place to live can choose condos as a more affordable housing option in areas such as Southern California & the Northeast where homes are only affordable to less than 25% of the population.
In conclusion, the prices for real estate are not falling and in fact the article mentions that on the west coast the median price actually rose .3 percent from a year ago. While some areas may see sellers not getting what they thought they are in effect getting fair market value for their properties.
You be the judge of the real estate market!
Labels: home prices, Real Estate Fall, real estate market
