Saturday, January 5, 2008

Executive Forecast Economic Outlook 2008

Over the last few years we’ve seen dramatic changes in the residential real estate market. Looking back at the history of sales prices, we had consistent growth in property values for decades and found a tremendous increase over the last few years. Please review the following chart which summarizes data recorded by the Volusia County Property Appraiser’s office.


Between 1980 and 2000 the market, on the whole, showed consistent price appreciation of about 8.5%. That represents a very good return on an investment, especially when you consider the stability of the market over the long haul. Between 2000 and 2005 something incredible happened in our local real estate market. The 8.5% annual return increased to an amazing 24.5% annual return over that five year period. If you look at that same chart over the last few years it is even more dramatic.

Year

Average Price

Percent Change (Annualized)

Percent Change from 2000 (Annualized)

2000

96,060



2001

103,324

7.6%

7.6%

2002

118,593

14.8%

11.7%

2003

135,169

14.0%

13.6%

2004

163,690

21.1%

17.6%

2005

213,619

30.5%

24.5%

2006

249,601

16.8%

26.6%

2007

235,330

-5.7%

20.7%

Since 2000, the average sale price of a home has increased dramatically each year. There has been plenty of conversation with regards to the change in the market and the data does reflect a decline in 2007. The current price correction is almost certainly the result of market speculation as home builders, real estate investors, and average people attempted to cash in on the incredible market increases. For several years we hear the stories of fantastic profits and windfalls as the market was rising meteorically. Now, unfortunately, we hear the downside as the market corrects for the over speculation.

Further, a family who purchased a home for the long term should be thrilled with the current market position. The value of their home has likely increased beyond anyone’s expectations and outpaced any other investments. There are also people who, for one reason or another, need to sell now. The key is that they need to price their property right.

Looking forward, expect price declines to continue until spring due to our regular seasonality. Beyond that, expect the market to stabilize as our buyer’s market is joined by several other positive indicators:

  1. New home inventory peaked in 2006 and is declining.
  2. The Federal Reserve continues reductions in the Fed Funds Rate.
  3. Prime mortgage interest rates continue at historic lows.
  4. International investment is at an all time high and 26% of them are headed for Florida.

While we won’t likely see price growth at previous levels, the lower prices should increase the number of properties being sold.

The data in this article was based on the information available from the Volusia County Property Appraiser’s database. The data takes into consideration only properties recorded as “Qualified Sales” and tagged as “Residential Single Family” by the Property Appraiser. The data was obtained from the property appraiser’s internet site on December 27th of 2007 and does not contain a complete year’s data. According to County staff, the information should be current through November. The Flagler County Property Appraiser does not make the data available for general download and is not included.

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