GASP! Median Values are Down!

It never fails. The Arizona Real Estate Center at ASU just released median home value data. The values are down, so of course the Chicken Little media is crying “the sky is falling!” (again…) 

Here’s the deal folks. Yes, median home prices have declined. And the media has latched on to the fact that this is the first time that in ”more than 10 years!!” that the year-to-year median home value has declined.

That shouldn’t be a surprise to anyone.  Home values sky-rocketed last year. The average home value increase was 45 – 55% (depending on whose numbers you chose to use). Some homes/areas had price increases on the order of 70 – 75%. So yes, the year-to-year median value is down, because last year’s appreciation rates COULD NOT, EVER be sustained. If anyone out there thought that homes would continue to increase in value by 50% annually, then you were nuts. It doesn’t take a Nobel Proze in economics to know that kind of appreciation rate simply is not sustainable in ANY kind of market for any length of time. (as I blogged here in November of 2005)

So why then are we so shocked that the values have dropped compared to last year? This “trend” will continue for several more months. Anytime you compare prices against a historical record (and perhaps an anomaly) then of course prices will be lower. Human nature and the Law of Supply and Demand dictated that a price adjustment happen.

At risk of putting myself under attack from the bubble babies, I still don’t believe the housing market is imploding, or that the bubble has burst. A price adjustment? Sure. It had to happen. Are prices going to plunge 50% and wipe out all of last years gains? I don’t believe so. Could I be wrong? Sure, that happened once…  

Let’s say just for the sake of argument that home values decline 10% over the next year (a reasonable number in my opinion). Here’s the math for your average little piece of suburbia in Gilbert:

Value in Sept 2004: $210,000
Value in Sept 2005: $325,000
Value in Sept 2006: $318,500
Value in Sept 2007: $286,650

So did your home lose $38,500 in value from the peak, or did it gain $76,650 from 2004? I guess it depends on if you are a pessimist or an optimist. The optimist in me looks at an increase from 2004 – 2007 of 37% as not too shabby. Show me an investor, be it in stocks, real estate or pork bellies, that wouldn’t be loving a 37% gain. The pessimists/bubble babies out there will whine about “all the lost value” while ignoring the gained value.

And if you bought at the top? Sure, you are in a different position. If you bought on speculation that prices would continue to skyrocket hoping for a quick flip, then you weren’t a very shrewd investor. If you bought your home to live in, and to enjoy, then live in it and enjoy it. For decades, home values have historically outpaced inflation. There have always been peaks and valleys. Unfortunately, someone always buys at the peak. But those peak values have consistently been surpassed over time, and short of a catastrophic collapse of the world economy, housing values will continue to oscillate while steadily increasing.

Here’s the summary of median home value changes.

Gilbert:
September 2006: $318,500
September 2005: $325,000

Tempe:
September 2006: $283,950
September 2005: $275,120 (yes, it has INCREASED since 2005. That little tidbit seems to get buried in today’s news…)

Chandler:
September 2006: $292,500
September 2005: $295,000

Mesa:
September 2006: $240,000
September 2005: $243,500

Valley Wide Average:
September 2006: $256,900
September 2005: $263,000

And here some links to the Chicken Little articles:

http://www.eastvalleytribune.com/index.php?sty=76295
http://www.azcentral.com/community/ahwatukee/articles/1011ar-housing1011Z14.html
http://www.azcentral.com/community/gilbert/articles/1011gr-evhousing1011Z12.html
http://www.azcentral.com/community/chandler/articles/1011cr-evhousing1011Z6.html
 

[tags]Phoenix real estate market, median home value, media, real estate bubble[/tags]

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