One thing about the Credit Union coffee shop, you usually know when something is on the minds of NSFCU members. I had a really interesting conversation yesterday with a member who was very interested in local property values. Like many members, he has a considerable amount of his net worth tied up in the value of his home, and is naturally hopeful that the decline in property values is over and that the value of his home is rebounding.
Sometimes it’s hard to be friendly and honest at the same time.
Because mortgage lending is a big part of what we do, we’ve done considerable research on sale prices of properties sold in the last year or so. The results are kind of surprising: sale prices are lower than most people think and there aren’t that many sales. The result is kind of a back log of available properties for sale.
Time to use our econ 1001 again: the laws of supply and demand. If supply and demand is in balance, the result is stable prices, no increases or decreases. If supply exceeds demand, prices fall until that balance is achieved. Likewise, if demand exceeds supply, prices rise until the balance is achieved. Obviously other factors influence this equation and it takes time to work itself out but the basic premise is true.
By applying this principle we see that, generally speaking, sale prices (property values) will not increase again until the excess supply is absorbed and the demand for homes exceeds supply. In our area, my guess is that is going to take a while - as in years not months.
What will cause this to happen? I have already offered up my thoughts on that in this blog post from a while back. Reminds me how long this has been going on.
The good news is that there is activity in the local real estate market and it is generally better than last year. The economy is slowly getting better which gives me hope that by next spring / summer / fall the real estate activity will really pick up. It’s important to a lot of people.
All of this is sure to happen…….eventually.
Mark
