In search of the bottom…
Most seasoned Realtors would agree that we won’t really be sure that real estate prices have bottomed out until about 3 months after the much anticipated event actually occurs – when prices stop declining and, in fact, may even appreciate slightly.
Having said that, there are two forward looking indicators that suggest that we are getting very close and that we will reach the lowest plateau this summer.
First, according to the National Association of Realtors (NAR), historically, real estate has appreciated at a rate of about 4.5% annually and if you go back into the 1980’s and plot a straight line indicating that 4.5% increase and then plot the actual sales figures it is quite apparent that that figure is credible. Of course there are a few peaks and dips but overall the actual sales seem to cover that 4.5% line – until 2002.
Below is a graph using numbers from south La Quinta, California, one of the areas where Gallaudet Properties does business but the graph mirrors the national average.
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 May 2009.
The straight blue line represents the annual 4.5% appreciation factor and the red line is the actual average price per square foot of those homes that sold from 1998 through May 2009.
You will notice that 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 (the 4.5% line) according to the Southwest Florida realtor data. During the month of May 2009 ($235.43), the difference is down to 112% or a 31% decrease from the high. Keep in mind that while the actual sales line may continue downward below the “normal” line, it also may not actually get there but we are statistically very close.
The May 2009 price per square foot ($235.43) is slightly below the average price for the year of 2004 ($239.72).
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, the feeling that this is a great time to buy is getting stronger!
Secondly, the NAR reported yesterday that “Pending” home sales are up for the third month in a row. “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. Read the article
One last ingredient, mortgage rates are at record lows and mortgages are becoming easier to get as lenders are getting more comfortable with the latest regulations.