Is the market going to come back anytime soon?
On a daily basis, we are asked when we think the market is going to come back. The short answer is “we don’t know”. The long answer takes a little more looking into the past to try and come up with a prediction of what may happen.
Standard & Poors compiles a fantastic index called the Case-Shiller Index for the majority of the larger metropolitan areas in the US. Below is a chart my dad, Bill Badgley has built using the index numbers. Here in Seattle, the data goes back to 1990. This is an index only, so it takes a bit more work to come up with meaningful numbers. For example, in January of 1990 if you bought a home for $250,000, the index for Seattle at that time was 58.23. If we look at the index today (August 2010- the index is always two months in the past), the index is 145.93. To use the index to determine what today value might be, we multiply the purchase price of $250,000 by today’s index of 145.93 and then divide that number for the index at the time of purchase of 55.23. The results are: $660,555. So, if you bought your home in 1990, using the index numbers of today, your home would have appreciated in value to over $660,000. Now, if you had sold during the height of the market when the index was 192.30, the home would have fetched around $825,000! We often have to remind sellers that this isn’t money lost. They still bought the home for $250,000 and are selling it for $660,000.
What is really interesting is looking at the gradual gains from 1990 all the way till 2005. That’s when the “bubble” started. From 2005 to 2007, there was a huge increase in prices. Then in July of 2007, the switch was turned off and the market plunged back to where we were at in 2005. The really interesting thing is if we look at things long term, we are right at the point we should have been had we not had the “bubble”. We always joke that our crystal ball is broken, and unfortunately, it still is, but our believe today is that it is going to take another four, five or six years until we see prices that resembled what we had back in 2007.
In using this graph, we have been able to visually educate our sellers about what happened. We all want the prices from 2007, but we don’t foresee those numbers happening anytime soon.
Disclaimer: The index is not a silver-bullet for obtaining sales prices. There are tons of other variables that factor in to come up with value. In calculating a listing and sales price for our sellers, we don’t use this, but instead use this as an educational tool. We have found the index numbers to be surprisingly accurate though when we do go back and calculate values.
If you are someone you know is thinking about selling, give us a call or email. We can provide the information to help you make an educated decision.
