The Bubble Picture
Data from the Desert Area MLS
The graph above represents the price per square foot of sold homes in south La Quinta, California from 1998 through April, 2010.
The straight blue line represents an annual 4.5% appreciation rate, which, according to the National Association of Realtors (NAR), has historically been very close to the actual sales data and when graphed, mirrors actual sales from as long ago as the 1960’s.
The red line is the actual price per square foot of those homes that sold from 1998 through April 2010.
The “Bubble” started in 2002, peaked in 2006 ($343.66) and started to really crash in 2007. At the peak in 2006, the homes were selling 186% of what is considered normal. In August of 2009, the “actual” line first fell below the “normal” line and stayed below until December when it crossed back above the “normal” line as inventories began to shrink. During the one month of October 2009, the average price per square foot was down to $173.66 – 17% below the “normal” line or a 49% decrease from the high – but that was just one month. The 2009 average finished the year only 3.99% above the “normal” line.
Data from the Desert Area MLS
The 2009 average price per square foot ($219.56) is below the half way point between the average price for the years of 2003 ($205.48) and 2004 ($239.72).
While the 2009 average finished the year slightly above the “normal” appreciation line, looking at the 2009 sales by month shows that the price dipped below the “normal” appreciation line in August for the first time since August 2000 and only came back up above the line with a strong rebound in December.
According to the NAR, we should not expect the price to go much below the “Normal” line and with today’s record low mortgage rates, bolsters the feeling that values have returned to where they should be and that this is a great time to buy!
Also, NAR reported that nationally, “Pending” home sales decreased 7.6% in January from December, 2009 but have had a 8.2% surge in February. The decline was the first in 10 months and is blamed on the severe weather all across the country and likewise the strong rebound can be attributed to the arrival of Spring. Before January’s numbers, the previous 9 months were the longest string of increases in the index since it began in 2001. “Pending” sales are those that are under contract but have not yet closed. Since the average escrow is between 45 and 60 days, the decision to buy a home that appears as “sold” (closed escrow) today was likely made 1.5 to 3 months ago. “Pending” homes is a much more current number.
Another bonus is that mortgage rates are at record lows and mortgages are becoming easier to get as lenders are getting more comfortable with the latest regulations.