The market may be down, but it’s not out. There are still opportunities for growth. We all know housing sales have slowed in the past year. Are we surprised? Real estate is coming out of an historic period that saw a meteoric rise in home values from 2000 to 2006. Many of us had become accustomed to the massive growth we saw, especially in the last three years: an 8.22 percent increase in house price appreciation in 2004, 12.84 percent in 2005 and 12.61 percent in 2006. But, we all understood that couldn’t continue forever, didn’t we? In looking back at the nineties, we’re reminded of what is typical in this industry:
Year-to-Year Housing Price Appreciation in the US: 1990 to 1999
Taken from OFHE House Price Index for USA
(Includes Valuation Data from Purchase and Refinance Mortgages: 1990Q1-1999Q1)
- 1990: 5.07
What’s happening in 2007? The most recent OFHEO House Price Index, shows that in the last year (from Q12006 to Q12007), housing prices have increased 4.3 percent nationally. This means that we may be currently seeing a year-to-year drop in price appreciation (2006-2007 vs 2005-2006), but we’re still above the average of 3 percent for the whole of nineties, the period before the boom that started in 2000. The latest forecast by the National Association of Realtors (NAR) says that home sales are expected to see a gradual upturn through 2008, but with little price fluctuation.
Existing-home sales are projected to total 6.18 million in 2007 and 6.41 million next year, in contrast with 6.48 million in 2006. New-home sales are forecast at 860,000 this year and 901,000 in 2008, down from 1.05 million last year. Housing starts are likely to total 1.43 million units in 2007 and 1.49 million next year, below the 1.80 million recorded in 2006.The national median existing-home price should ease by 1.3 percent to $219,100 in 2007 before rising 1.7 percent next year. The median new-home price will probably fall 2.3 percent to $240,800 this year, and then grow by 2.6 percent in 2008.
So, let’s put this all in perspective: real estate has slowed, but it’s far from dead.
Housing prices are still appreciating in many parts of the country, though the total number home sales are down according to NAR: -14.6 for single-family units from 2006 to 2007. (This number reflects a downturn in new construction—new single family sales are down -18.2 percent whereas existing homes sales are hovering around -4.6 percent.) When it comes right down to it, remember that all real estate is local, and there are still pockets in ever corner of the country where sales are strong.
Take the Pacific Northwest for example, which is seeing an increase in homes values two times the national average. Washington, Oregon and Idaho have shown more than 10 percent appreciation over the last year. The same can be said for Montana, Wyoming and New Mexico—all above 11 percent. Utah has seen an incredible 17 percent increase. On the East Coast, North Carolina is showing 8 percent growth and Tennessee and South Carolina more than 7 percent. The states affected by Hurricane Katrina are also showing appreciation between 6.9 to 9.5 percent.
*OFHEO House Price Index, May 31, 2007.
Even within states that are slowing more than the national average, such as California and Nevada, there are areas that are still going strong. The nine counties that make up the San Francisco Bay Area are a great example of this. Statewide, California’s median house price appreciation has slowed to 1.2 percent (OFHEO House Price Index, May 31, 2007), but the median price for a single family home in the Bay Area hit a record high of 660K in May, up 3.4 percent from the previous year, according to DataQuick Information Services.
In looking at the micro-regions of the Bay Area, you see just how dynamic and varied the housing market can be. This graphic is pulled from the San Jose Mercury News (April 2007). It shows difference in what is happening in the various counties: San Francisco +4.9%, Contra Costa +6.1%, Alameda +1.9%, Santa Cruz -0.1%, Sonoma -4.4%, and Santa Clara +10.8%, for example.
Drilling down even further, Santa Clara County prices overall increased by 7.8 percent from May 2006 to May 2007 according to RE Infolink . Within individual cities, however, the picture was once again very different. Take a look at the most recent stats for home price appreciation and home sales provided by RE Infolink for Santa Clara County.
Individual cities in Santa Clara County by increase in the median single-family home price from May 2006 to May 2007.
- County: $862,500, +7.80%
- Los Altos Hills: $3,575,000, +45.90%
- Mountain View: $1,161,000, +33.40%
- Los Altos: $1,864,000, +19.90%
- Saratoga: $1,807,500, +17.00%
- Palo Alto: $1,517,500, +16.70%
- Santa Clara: $759,000, +5.40%
- Sunnyvale: $920,000, +5.10%
- Los Gatos: $1,412,500, +4.60%
- San Jose: $760,000, +4.10%
- Campbell: $795,000, -0.60%
- Milpitas: $715,000, -4.00%
- Gilroy: $710,000, -5.30%
- Morgan Hill: $877,499, -5.60%
- Cupertino: $1,171,900, -6.20%
- Monte Sereno: $2,012,500, data not available
Now, if we look at actual home sales compared to last year, the numbers look slightly different:
- County: -9.50%
- Los Altos: 100.00%
- Los Altos Hills: 57.10%
- Cupertino: 42.90%
- Morgan Hill: 37.90%
- Sunnyvale: 13.60%
- Saratoga: 11.10%
- Mountain View: 0.00%
- Campbell: -3.40%
- Santa Clara: -9.80%
- Palo Alto: -10.80%
- Los Gatos: -17.60%
- San Jose: -21.10%
- Gilroy: -22.70%
- Milpitas: -48.60%
- Monte Sereno: data not available
As you can see, though most cities are continuing to see appreciation in home values, the actual number of housing units sold is down. Much of this has to do with the dynamics of what is selling in the Bay Area right now. Higher priced neighborhoods are doing well, while most lower priced neighborhoods are having trouble. (More on that in another blog).
The point I’m making here is this. Yes the market has pulled back, but historically, we’re still in good shape in terms of home values. Which means that even though housing sales have stalled, this won’t last forever. And second, even in a slowing market, there are still opportunities for sales and growth.
To this point, Intero is continuing to open offices new markets across the US and beyond in 2007. We recently opened our first international office in Mexico, added our most innovative office to-date in the heart of Silicon Valley at Santana Row and recently launched into LA.
At Intero, we look for opportunity in people as much as in market statistics. If we can find an individual in a new market who is aligned with our values, believes in the Intero culture and has the dedication and drive to become a leader in their region, we are willing partners in helping them to succeed because we know that it’s our people, more than anything, who make the difference.
If you’re interested in learning more about Intero Real Estate Services franchise opportunities, contact us at:
firstname.lastname@example.org or 1-877-4-INTERO.