I was reading about some interesting research recently conducted by a professor at the University of Central Florida. Seems his analysis shows that current home values are just about where they would have been had the real estate bubble of 2005-7 not occurred. According to Professor Stan Smith, “most homeowners are within 6% of where they would have been had there not been a housing bubble. The people who have been here since prior to 2005 should not have been hurt,” though he also added: “… a lot of people who did buy in 2005 and 2006 obviously were hurt significantly.” However, a long-term view of the Florida real estate market reveals that even though prices rose and fell dramatically in recent years, they appear to have settled back into more normal historic patterns.
It seems that Professor Smith’s analysis of data from a federal housing-price index shows that for the last quarter-century or so, starting in the late 1970s, home prices in the metropolitan Orlando area increased 4.7% a year on average. Then the bubble emerged, with prices rising 20% in 2005 and 32% the following year. Homeowners were elated about their fast-growing equity – at least until the bubble burst in mid-2007. The sharp drop in prices since then – 22% from the 2007 high – may have left the impression that the bursting bubble set back even long-term homeowners for many years to come. Yet prices now are about where you would have expected them to be had the dramatic rise and fall never occurred.
And, Professor Smith is not the only one to see such a pattern. Volusia County Property Appraiser Morgan Gilreath has obtained results similar to Smith’s in his county. Gilreath recently plotted home prices from 1996 to the present and concluded they are not far below where they would have been without the housing bubble. The mid-point, or median, for home prices in Volusia in May, 2009 was $124,900 – down about $20,000 from where it would have been if the price had continued on its long-range trajectory rather than inflating and deflating in 2005-7. A year ago, the median in Volusia was about $50,000 above the historic trend line; two years ago, it was about $100,000 above that line. Gilreath said “his analysis was not as thorough as Smith’s research at UCF, but both indicate the residential market is not likely to decline much further.”
According to both gentlemen, the numbers are telling them that “we’re close to where we think the bottom is going to be” and “prices in the region may continue to fall but are less likely to do so now that they are so near the long-term trend line – a positive indicator for coming months.” After looking at their reports, I decided to do a quick review of my own community – Pelican Landing in Bonita Springs.
My review shows a similar result. My wife and I purchased our home in 1998 for $238,000. Our neighborhood’s most recent sales for the exact same house was $385,000 in March and $400,000 in April of this year. During 2006-7 at the height of the housing bubble, the same property sold for $555,000. If you use the normal historic yearly appreciation rates for real estate throughout the country – a range of 3% to 5% a year on average – the price comes to $407,060 at 5% and $366,390 at 4%. Both sales were easily in line with the + or – 6% results found by Professor Smith and Property Appraiser Gilbreath.
I guess this shows it’s about time for the pity party over falling house prices to come to an end. Now, if we could just convince some of the last stubborn sellers who still seem to think they should make double what the historical norm shows their properties are worth, we’d get back to a more normal real estate market that much sooner.
Gulf Coast Associates, Realtors
Bonita Springs, Florida