The Market May Not Be All That Bad

(Most people involved in the real estate industry are just waiting for the year to end.) That is not to say that once January 1, 2007 rolls around everything will return to normal but it offers hope and a break from the dismal results of 2006.

But the actual statistics of the 2006 real estate market may provide an early Christmas present for sellers and investors alike as things are not nearly as bad as they may seem.

The article, “A Time For Yellow Flags,” published in Realty Times and written November 28, 2006 and by Peter G. Miller, provides the 2006 statistics that may suggest now is a time to be thankful rather than to panic.

The most recent figures released from the National Association of Realtors shows that the 2006 United State real estate market has done fairly well, with 102 out of the 148 metropolitan areas reporting year-over-year price increases.

“Twenty-one metro markets actually showed doubled digit price increases. Overall, prices nationwide dipped 1.2 percent to $224,900 from $227,600 a year earlier. As to sales, they're down 12.7 percent when compared to the third quarter of 2005, but 2005 was an amazing year. As things now stand, the country will sell better than 6.25 million homes this year, one of the best years on record.”

Now, although the quarter figures look good and the year looks great on paper, there should be warning signs to look out for that will provide a more accurate depiction of the market forecast.

“While unit sales are easy to track, data regarding recorded prices is less certain. If you have a strong sellers market you can bet that sale prices are indeed what people paid because sellers have no need to offer discounts and buyers will not pay any more than required. But if you have a market that's losing steam, the same assurance is not plausible.”

Since we have been in a slowing market, at least comparatively speaking from last year and inflation, the majority of sales have included some kind of price discount or incentive that may not have been accurately noted in all legal documents.

“For instance, let's say that in a given local market the common practice today is to offer closing credits to buyers that equal 3 percent of sale prices. That means on the sale of a $500,000 home a purchaser would receive $15,000 in settlement credits -- enough in most cases to buy a property with no closing costs. The discount also means something else: A published price does not reflect the real sale price in terms of the owner's net benefit: $500,000 less $15,000 is $485,000.”

Now calculating inflation alone results in a 6 percent price decrease from what homes should be selling for this year. When adding the reported 1.2 percent price decrease from 2005 to 2006, the average home has sold for 7.2 percent less in 2006. According to the Bureau of Labor Statistics, the median selling price for a home this year has been $485,000 compared to its average inflated rate of $522,841; that’s a $37,841 decrease in year-over-year median price declines.

So, you have to weigh certain number when determining the market’s current and future strength. The actual statistics on paper read to be not alarming but are drastically down from last year. While the market does not appear to be crashing, you should not expect it to create any major increases anytime soon. Is the market bad or not depends on how you look at it.

“In looking at today's metro figures there's simply no evidence of a bust, a tragic and upsetting price decline. But while red flags in most areas may not be appropriate, yellow ones for ‘caution’ are surely in order.”

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