That crazy appreciation we saw from 2003 – 2007, was it normal??
“The numbers don’t lie”
No, it was not normal and now we are seeing the correction. Let’s take a look back at some data and see what actually took place and it might make a little sense to you once you see the numbers. First of all, it is very important that you realize that, historically, homes have appreciated at about 5% per year nationally. This information comes from the Brookings Institution, which “is proud to be consistently ranked as the most influential, most quoted and most trusted think tank.” See their graph depicting this information below.
Notice from 1980 to 1995 the appreciation remained pretty much true to 5% per year. But from 2000-2006, the appreciation started an abnormal upwards climb. So let’s look at the years 2000 to the present and break it down to see what actually took place during those “crazy” years in Wilmington. Let’s examine the actual sales that took place during that time period and compare it to the sales that should have taken place using the 5% appreciation per year as a guide.
The actual average sales price for the year 2000 was $173,589. We added 5% appreciation each year thereafter until the present and listed them in the following table. We graphed this information on a line graph and labeled it “Average Expected Growth”. Next the actual average sales price for the same time period was graphed and labeled “Average Actual Growth”. Both of these lines are represented on the following table and graph, “Comparative Sales Growth Chart”, for comparison.
|Year||Average Actual Growth||Average Expected Growth (Based on historical 5% per year)|
** All data is taken from the Wilmington MLS.
As you see from the Chart, somewhere around the later part of 2003 and early part of 2004, the “abnormal” rapid growth started. In mid 2005, it continued the upward trend until the later part of 2007 when the growth hits it peak and finally started its decline to the present. According to the data, the first quarter of 2009 is when we saw the average actual growth come back in line with the average expected growth using 5% appreciation as our guide.
This chart raises several questions. As a buyer you might ask “Have we hit bottom yet? Is now the time to buy?” No one really knows with certainty if we have hit bottom or not until we have had the opportunity to look back and see the numbers. But one thing we do know for sure is that, historically since 1980 the average appreciation has been 5% per year so one could conclude that based on the historical data, we are moving back to stability and yes, now is a good time to buy.
As a seller, you may be asking “How do I price my home correctly to sell in today’s market?” It is interesting and potentially a good tool to add this chart to your evaluation in coming up with a realistic value. One thing that is true in today’s market is if you truly want to sell, you are going to have to price your home in linewith today’s pricing. The numbers just don’t lie. One of our greatest challenges today as a real estate agent is when we are listing a home trying to convince the seller that those inflated prices of of 2004-2008 are gone– they just do not exist any more. Pricing a home with the expectation of obtaining those past inflated sales prices is unrealistic in today’s market. Sellers must price their homes for “today’s market”, not the past market. It is true that selling in today’s market you probably will not make as much profit as you would have, let’s say in year 2006, but that is just the way it is right now. It is our present market—markets change—they go up and they go down……. It’s simply the laws of supply and demand– the exact same laws of supply and demand that were with us during the rapid appreciation years. It works both ways.
Some final thoughts to keep in mind…
Even with the economy in the state that it’s in, the average sales price in our area is still only $4614 below average expected growth. Actually the fact that our prices are back in line (even a little below) with what is expected suggests that our market is moving toward stabilization.
There are buyers here and the spring market is proving to be quite productive with an increase in market activity definitely evident. We are lucky… Wilmington is and always will be a beautiful and attractive place to live!