Killearn Lakes (Unit 2) home values have dropped roughly 20% since the top of the market three years ago. We keep a close eye on this popular Tallahassee subdivision, as it is representative of what the median home buyer has been seeking in Tallahassee since I got in the business in 1991.
Recently, long-time reader “Steven R.” answered my request for “math advice” in the analysis of home price forecasting, as he left the following advice in the comments of a recent blog post:
Joe,I don’t think prices will drop 10%, but I can’t tell you exactly what it will do because you have the data.
Rather than using regression toward the mean, you should plot the price of homes vs. moving averages. Select a moving average such that when the price crosses the moving average to the downside price moves down, and when price crosses the moving average line to the upside, price moves up.
You may see that price has moved above a “well fitted” moving average line, indicating that prices should continue to rise. Google “moving average crossovers” as it relates to stock picking for some real insight.
I don’t think the regression line applies because your y-axis is linear. In effect, because the value of the dollar shrinks geometrically, a trend line should be curved for the way you’ve got it set up. Plot it again using a logarithmic y-axis for best results.
Steven R.
Home Appreciation Report For Killearn Lakes Unit 2
So I figured this would make a perfect Friday post, so we can ponder it through the weekend. Here is what I did. I plotted home values (price per square foot) in Killearn Lakes Unit 2 from January 1991 through March 2010 as individual points (yellow dots on real estate graph below). Then I created a short-term trend (12 month moving average), a medium-term trend (60 month moving average), and a long-term trend (120 month moving average).
When we study the home appreciation trends in Killearn Lakes Unit 2, I believe we are seeing solid proof that home values will continue to depreciate for some time. The short term trend crossed-over the long-term trend at the beginning of 2008, while the medium-term trend crossed over the long-term trend in the middle of 2008. What does this mean?
Everything is selling below the long-term trend, indicating more pressure to drop. Until we see the short-term trend make a move to the north, there should be no surprises as home values continue to slide in Killearn Lakes Unit 2.
Of course, we will also keep a close eye on the supply and demand relationships, as they will give us a good clue as to when we should see the turn in this very popular northeast Tallahassee neighborhood.
