median price inflation theory
There was an aside in a comment on another blog I read that got me thinking about one possible source of median price inflation: when sales slow down, only the "best" houses are selling. Within any home profile (e.g. 3BR/2BA ~1200 sq ft South of 75th) there will be lots of range, based on details of location (corner lot, quiet street), view, condition, upgrades, etc. This is reflected in a significant range of $/sq. ft., say from $250 to $350, even though "on paper" the houses are all quite similar. In a sellers market buyers don't have a lot of choice in a given profile, so they buy all available properties, so the median will be about $300/sq. ft. In a slow market buyers have more to choose from, and may opt for the nicer houses, which are at the higher end of the range, and the median might be, say $325/sq. ft., since the cheaper houses don't sell. This means that even if prices hold steady (or even go slightly down) across all properties, the median house price can still rise.
Any thoughts on if/how we could measure to see if this is actually happening?
Any thoughts on if/how we could measure to see if this is actually happening?
Comments
This happened in San Diego in 2006 when the market slowed down. So on paper the media was still doing the "Median prices have not come down, and we expect a return to a normal market at historic appreciation rates" blah, blah blah, while the bottom was falling out.
I know someone who had to sell and it took 9 months and 3 or 4 price drops. Also, he had to do numerous repairs, replacements of things, even for buyers that ended up falling through because of financing. BTW, this was BEFORE all the recent turmoil in the credit markets. He would not have had to do these things just a year prior and he would have sold in a week or two for his original price.
So, it's very true that for a given price, you can get more in a down market even though the price may not reflect that. Sellers are more likely to through in money for closing, new roofs, rather than "lose" money and lower the actual price.