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The Recent Market in Context

Posted December 12, 2012 in Advice Column, Clive

The real estate market has suffered through a rather tumultuous period these last few years, and yet it’s important to put our recent doldrums — along with this past year’s “gains” — into some level of historical context.

The early to mid-2000s were an unprecedented time of growth in the Des Moines real estate market. A typical growth rate for the metro is probably between 1 to 3 percent annually. Thus, during a period of a decade, a steady pace of growth will afford a typical seller with somewhere between 10 and 15 percent total appreciation (dependent upon numerous other factors as well, of course). But during the early to mid 2000s the metro experienced about a 4 – 5 percent annual sales growth and price appreciation rate — both unsustainable over the long term.

This pace of growth can be attributed to an unlikely confluence of events: a strong economy, numerous growing suburbs with plenty of acres to build upon, an oversupply of opportunistic builders, and lax lending standards leading to mortgages for virtually anyone who applied. Times have obviously changed.

While most observers correctly identify 2008 as the year “the bottom fell out,” a closer analysis can actually find the initial vestiges of a slow-down in 2007 when new construction home sales declined 37 percent. And while this had yet to fully reverberate throughout the market, it was a clear harbinger of events to follow. By 2008 overall sales dropped 26 percent in one year — less than many markets around the country but nonetheless the largest single year drop for Des Moines in recent memory.

Prices, however, continued to hover at or around previous levels as sellers were holding out for their desired sales price. The fact that prices remained stable had many industry observers believing the market would bounce back. This hope was fleeting, though, as prices dropped 7 percent in 2009 — a decline we’ve still not fully recovered from. The year 2009 saw a variety of market forces contribute to the downward pressure on prices: a continued sluggish economy; substantial increases in foreclosures and short sales that mostly sold below market value; a first time homebuyer credit that helped individual buyers but artificially supported a down market thereby further extending it; and increasingly desperate sellers willing to sell below market value just to get out of their current situation.

This past year, however, we have seen a bounce back. Sales are up more than 20 percent from 2011 to their highest levels in four years, and pricing is likewise up to levels not seen since 2008 — not yet above the 7 percent lost but at least about two-thirds of the way back. So the news is virtually all positive as we slowly claw our way out of the hole created during some difficult times. The challenge will be for 2013 to build upon the promising momentum created in 2012.

Information provided by Ted Weaver, ReMax Real Estate Group, 271-8281, tweaver@dsmhomes.com.





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