The Year in Review

UNDER $250,000: 10% PRICE APPRECIATION

OVER $250,000: 2%–3% APPRECIATION 

We’ve all read the reports:

1. The supply of homes is at its lowest level in years, as the number of new listings cannot keep pace with the number of sales.
2. Prices are rising.

Regarding the supply of homes, it’s true.  The supply of homes is at its lowest levels in years. There were 26.2% less homes for sale in 2012 than in 2011.  On average 6.4% more homes sold in 2012, and on average there were 15.9% more homes under contract/pending.

SOLD HOMES:   LESS THAN $250,000

But, are prices really rising?  Well, it all depends, and if you follow the news reports, it sure seems that way.   A general search of all homes which sold in Venice in 2012 indicates that prices rose 11.4%, from $107 per square foot in 2011 to $119 per square foot in 2012.  But, a careful analysis of 2012 home sales reveals that the rise in prices is almost entirely with homes under $250,000.  Under $250,000 prices rose 10.2%, from $85 per square foot in 2011 to $94 per square foot in 2012.  Considering that 76% of all homes sold in Venice were under $250,000, it is easy to believe that real estate prices are all moving up.  Not true.

Although in Venice, in 2012, prices rose 11.4% over-all, and 10.2% for sales under $250,000, over $250,000 it is an entirely different story.  Over $250,000, prices rose a mere 0.7%. Here is the breakdown of prices over $250,000:

1. $250,000 to $299,999 — there was an imperceptible increase of only 0.3%, at an average price per square foot $142.
2. $300,000 to $399,999— a modest increase of only 1.7%; $156 per square foot in 2012, $154 per square foot in 2011.
3. $400,000 to $499,999 — a 3.9% drop; $177 per square foot in 2012, whereas, in 2011 it was $185 per square foot.
4. $500,000 to $699,999 — a dramatic 10.6% drop; $215 per square foot in 2012, and $240 per square foot in 2011.
5. $700,000 to No Limit — a 2% increase; $341 per square foot in 2012, and $334 per square foot in 2011.

SOLD HOMES:   MORE THAN $250,000

The good news, for the most part — and reflecting upon our recent past it really is good news — although prices may not be moving significantly higher at all price points, particularly over $250,000, we are headed for greener pastures.  But, it’s going to be a small crawl, consistent with the 100 year historical average of 2-3% appreciation.

This past July I called that Venice established a bottom at the end of January 2012.  I have further projected, on my most recent postings, that the most probable scenario for the next decade is 2 – 3% annual price appreciation.  I hold to that forecast, and I believe the evidence supports it.  The fact is international, national, regional and local economies continue to limp along, with no fundamental political and leadership progress in sight to address the deep systemic issues we face.   Further, since World War II the US has undergone a recession every five (5) to ten (10) years.  The last recession ended in 2009, four (4) years ago — do the math.  Under normal circumstances, with inventory as low as it is, the natural laws of supply and demand would dictate material price increases.  But, in a world, and particularly a national political arena void of compromise, I currently see little reason to bank on a real turnaround.  Accordingly, it is only because inventory is as low as it is, coupled with the 100 year historical average, that we will likely experience 2 – 3% annual home price appreciation over the next many years; and, that’s a good thing.

For all of these reasons, whether buying or selling, this is the time.