In case you did not notice, we posted the February Housing Report yesterday on our Market Reports Blog. Every month we perform a tediously detailed analysis of supply and demand, by area and price range, and have created a real estate history that helps us with our projections. The resulting one page summary can be downloaded and is a great portable tool to help both homebuyers and sellers alike.
Today, I want to continue the analysis by contrasting our current trends and recent real estate history in Tallahassee with recent reports of our local housing market strength. Often times, national reports are published and interpreted by reporters who do not understand what they are seeing, so there is nothing like good 'ol "supply and demand" to simplify the current state of the Tallahassee housing market.
Relative Home Supply Way Too High
I saw a report recently that proclaimed Tallahassee is doing better than most other places because our average price has not dropped as much as the rest of the State or the rest of the Country. While the report appeared to be accurate, the conclusion was faulty, at best.
The fall in home values in Tallahassee is roughly 30% since the peak of the market, and this very closely parallels the rest of the United States. There are niche areas of the Country which have done worse, and areas which have performed better, but overall Tallahassee appears to be a good microcosm of the US housing market as a whole. So what is our problem?
The real estate graph above shows that Tallahassee has roughly twice as much inventory as is needed for a balanced market. When supply is high, pricing pressures force devaluation and this dynamic is still in place, in Tallahassee. Our recent real estate history is painful. Values dropped two years ago, values dropped last year, and values will continue to drop this year.
Until we see the number of buyers increase (read that to say money supply loosened), we will limp along at our low present rate of demand, and real estate depreciation will continue to top our reported news. Interest rates are low and "now is the time to buy," but many wanna-be homebuyers cannot get financing.
Real Estate History Lesson
It has been reported that Tallahassee's average price has fallen less than other areas of the State, and thus it was presumed that our depreciation was less than other areas and that our market is stronger than other areas (and many other positive points for Tallahassee). Much as I would love for these to be true, the conclusions are not valid.
It is a mistake to believe that there is an absolute correlation between average home price movement and real estate appreciation. The average price of a home in an area tells us more about what people can afford than what they are buying. If the average price of a home goes up, but the size and features of the average home changes, then value movement cannot be determined as we are no longer comparing "apples to apples."
Real Estate Question
Finally, we need to look at another point being made about Tallahassee ... Our median price point is higher than the State average (which has resulted in proclamations of Tallahassee's housing market strength) by a decent margin. But what happens when we pause to consider some very salient historical facts?
- Home values around the State have fallen more than they have in Tallahassee
- Historically, the Tallahassee housing market lagged behind the rest of the State (meaning it happens "there" first)
- Historically, Tallahassee has a lower median price than the rest of the State (by a small margin)
Based upon these three historic facts, what concerns do you have about future home values in Tallahassee? Will normalcy return to the state and have Tallahassee's median home price lower than the rest of the State? History tells us the answer is "yes," so will the rest of the State rise or will Tallahassee fall? Or will it be combination of the two?
Ultimately, all we really need to do is pay close attention to real estate supply and demand. If we have too many homes for current demand, pricing pressures will most likely continue to create devaluation in the housing market.
If you need to sell a home in Tallahassee, make sure you give yourself optimum conditions with the best marketing plan that exists anywhere. Do not make the mistake of being like everybody else in a market where there is more "everybody else" than there are buyers for those homes!
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.