Thursday, May 22, 2008

A Dramatic Return to Stable House Prices

OFHEO published its MSA quarterly appreciation numbers today. Here is a snapshot of the Utah Market.


In this chart anything above 0% represents house prices increasing and anything below 0% represents declining house prices overall. The measurement is for appreciation based on house prices a year from when the measurement was taken. For example: Todays OFHEO report for Q1 2008 shows that Ogden appreciated 6.64%. That means that house prices in the Ogden area market (Ogden-Clearfield MSA or better interpreted as Weber/North Davis areas) are 6.64% higher now than they were back in the first Quarter of 2007. That is down from our peak year-over-year reading of above 15% recorded in the beginning of 2007.

The way I read this is that house prices are returning to the regular flat pricing period that traditionally follows our boom cycles. Home prices very rarely decline in our market, they just follow inflation (which has been low for a long time until now) and wait for the next surge in pricing.

So what does this mean for buyers and sellers? Keep in mind that for a homeowner to sell thier home they need about 10% equity in order to pay for marketing and title expenses and any possible seller concessions that normally arise in a buyer's market. Based on this chart, if you bought your home in March 2007 with 0% down you would not have enough money to cover those expenses. That means that unless you put money down on your home you would need to wait for another year or so for your home to appreciate so you didn't come to the table with money out of pocket when you sold the home. Of course, if there is a hardship, short selling the house may be necessary in order to prevent it from being taken back by the bank. We are actually seeing more of these types of transactions in the marketplace right now.

If you have owned your home for more than 18 months (and not refinanced it to the hilt!) then you can still sell your home with ease. In fact, if you are patient, you can find yourself a terrific bargain and actually increase your equity position significantly with the next home. There are great bargains out there for "Scratch-and-Dent" homes.

I have a client who was patient and we were able to him a fantastic bargain on a home. In this particular case, the home is 5 years old in Layton. The list price was at $220K as a short sale. Comparables in the area were $280K. The bank ultimately accepted a price of $230K. That is 50K instant equity for my client! The home needed new carpet and paint. Not a bad deal at all. I will post the information on this deal a little later.

The bottom line is that regardless of what the market is doing, its always a good time to purchase real estate. You just need to know what to look for and have a highly competent agent show you the way.

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