Things always become obvious after the fact. – Nassim Nicholas Taleb
What’s the true value of your home? Property valuation is a moving target. How can you be certain to sell for the highest possible price within your time frame? Making the wrong decision, or no decision, could cost you tens of thousands of dollars. We will examine the data and your options at the initial interview. Instead of hope and theories, we rely on market data and experience to assess the variables that influence the price of a home.
Real Estate Cycles
The cumulative value of residential real estate increased by 92% from 1996 to 2006, more than three times the 27% cumulative increase from 1890 to 1996 according to economist Carmen Reinhart. In “This Time is Different: Eight Centuries of Financial Folly”, Ms. Reinhart shows that real estate cycles are protracted affairs. After boom periods, declines average 35% stretch out over six years. U.S. home prices are already down third below their 2006 peak and 2012 is fast approaching, but recoveries in real estate prices are seldom V-shaped. Home prices will eventually recover for those who are prepared to wait.
Overshoot On The Downside
One of the best-known graphics real state market cycles is the Professor Shiller’s chart of Real Home Prices which adjusts the S&P Case-Schiller House Price Index for inflation (using CPI).
The chart shows the Adjusted-Real-Index is still well above the long-term average, and hence home prices may drop further. If prices only drop to the long-term average, then the long-term-average will not be the long-term average anymore. We may over-shoot and plunge below historical prices.
One difference with real estate, however, is the fundamental utility of a house: we all need a place to live. The current economic climate allows buyers to: purchase below replacement costs, use leverage to finance up to 96.5%, enjoy tax breaks, and experience long-term appreciation that exceeds that of other asset classes.
While the shadow inventory must still clear, the excess supply of homes in the Tampa Bay area will be absorbed by investors, international buyers, new housing formations and people moving into the Tampa Bay area.
Tampa Bay Values
The latest S&P Case-Shiller report shows Tampa home prices are still 32% higher than a decade ago, though nowhere near the peak values of 2006. The Bohannons use charts from four data services to illustrate key trends impacting Tampa Bay home buyers and sellers such as: inventory levels, home prices, absorption rates, shadow inventory, foreclosure rates, migration rates, unemployment and interest rates.
Your Neighborhood
To make an informed decision, you need zip code and neighborhood analysis. You need someone who knows your builder, your floor-plan and your block. You need to understand the difference in sales prices for traditional sales versus short sales and bank owned foreclosures in your neighborhood. You should learn why homes fail to sell. You should consider the condition of competing homes and alternative neighborhoods in the same price range. Understanding the dynamics of the local market helps avoid mistakes, preserve capital and build wealth.
Your Challenge
Today’s buyer has a proliferation of choice. Many choose to wait, while others consider distress properties, new construction or similar homes. The majority of homes on the market do not sell. What will make your home stand out?
Your Home is Not a Commodity
Contrary to what many Tampa Realtors believe, your home is not a commodity. While subject to the laws of supply and demand, the value of your home does not behave like a share of stock. A home is an experience and a place to make memories that also happens to be a historically decent long-term investment. Raw numbers such as price per square foot do not tell the entire story. Your upgrades matter. The condition of your home matters. Your lot and view count. The marketing and negotiating make a difference. The value of your home depends upon a number of variables, many of which are in your control. Each element contributes to the “whole product” and the unique selling proposition.
Contact Annette, Doug or Dale Bohannon of Coldwell Banker Residential Real Estate in Tampa, Florida to formulate a plan today.
