Average Home Prices In Tallahassee Reveal Vital Lesson

House prices in Tallahassee are changing, and the image created by tracking average prices over time conveys a vital lesson in home ownership.

Currently, average home prices in Tallahassee (combining single family detached homes, condominiums, and townhouses) have fallen to $157,688. But the average existing home sales price (not new construction) is $146,716, while new construction is nearly double that at $269,453.

So here's why this information is so important if you are on the fence about buying a home in Tallahassee today.

Average Home Prices In Tallahassee

Take a close look at the real estate graph below, as it shows average house prices in Leon County, Florida (the Tallahassee real estate market) from 1991 through March 2014. These are not merely numbers pulled from the Tallahassee MLS, rather these come from ALL homes sold and recorded with the County Property Appraiser.

The blue bars show average new construction prices every year, while the red bars show average resale prices each year. The green bar combines both together and gives the average home price.

The big lesson that I take from this graph comes from those blue lines. It shows that the cost of construction is on the rise (always). The years where the blue bars shrunk were down-years and builders had to cut their profit margins. When there were consecutive years of declines (rare, 2008 to 2010), it was due to a gross miscalculation in demand and new construction homes were being liquidated below cost.

But "cost" is the key here. Builders will not continue to build homes if they cost more than people are willing to pay. This is just simple supply and demand economics. When the market is saturated with too many homes, then prices are going to come down, and eventually prices will fall below cost. When that occurs, construction must yield to resales until the demand returns. It is during this time that buyers get the best deals.

Why Housing Prices Must Go Higher

As Tallahassee grows in population, we will eventually consumer the excess homes that were built during the housing market expansion phase. And when that happens, we will need to build new homes. Due to the rising costs of sticks, bricks, mortar, development, (and of course labor), those future houses will be more expensive (just as we see in the continued growth of the blue bars in our graph).

When demand returns to a level consistent with growth, new construction prices will pull resale prices higher. Our government has all but ensured this will happen. The amount of money required to develop land into build-able lots has soared. Additionally, minimum wage has risen roughly 30% since the beginning of the last housing surge, and minimum wage impacts labor at every point of the real estate development and construction cycle. It is only going to be costlier to build in the future.

A Vital Lesson For Homebuyers

Right now, we are still over-supplied for most homes in Tallahassee, so builders are not building many homes. That means pricing pressure continues to bear down on existing home sales. But this cannot last forever. Why?

Because we are still growing. The relative supply of homes for sale in Tallahassee has been declining for six years, and eventually this buyer's market will have run its course. At that time, "cost" will matter again, and existing home sales prices will surge upwards towards new construction prices.

Best Course Of Action

If you are thinking about buying a home in Tallahassee, you need to do everything in your power to get a great deal on an existing home. They are being sold at prices far lower than what builders can provide, and you can finance them with interest rates that are not going to be available much longer.

Even if you are not completely convinced that now is the best time for you due to other circumstances, I urge you to consider meeting with a home buying specialist to at least review all of your options. Simply drop me a note and I can help you see how to exploit average home prices in Tallahassee for your best long-term advantage.