So I’m sure at least some of you were reading yesterday’s post about the Denver real estate rebound, and kinda got stuck at the part about the average home price dropping 14.8% in the past year. "Did my house drop 14.8%?"
Don’t panic. It probably didn’t. Heck, it may have even increased in value. It all depends on where you live.
All real estate is local. Not just “local” as in “city.” “Local” as in “neighborhood.” When you average the prices of all of the houses in all of the neighborhoods that sold this September, you get a figure 14.8 lower than the same data for last September.
Values are falling fast in certain neighborhoods. Neighborhoods that have seen a lot of foreclosures, for example. Foreclosures tend to sell for less. The banks want to be rid of them. But when all of those low-priced foreclosures show up in a neighborhood, their non-foreclosure neighbors can’t get as much for their houses any more, and prices drop.
Prices are also falling in the market segments that have seen the greatest decrease in the number of buyers, namely the higher end. The number of homes sold in the 500K to 1M range dropped nearly 22% in the past year. The number of million dollar plus homes sold dropped over 40%.
Of course, that fact in itself contributes to the decline in the average sales price. Sales in the under 200K category are brisk, because demand is high for well-priced, low-end foreclosures. So if a lot of lower priced houses are selling, and very few high-end houses are selling, the average price will be dragged downward.
Some neighborhoods are appreciating. That privilege goes to neighborhoods that in demand for some reason. Areas that are close to the center of town. Areas that have unique architecture. SmartMoney magazine says:
. . . established, close-in neighborhoods are often holding up better than suburbs, because they didn’t endure overbuilding and because higher-income owners were less likely to need subprime or adjustable-rate mortgages.
Of course, another reason many of those neighborhoods are appreciating is because of the “scraping” going on. When you buy a shack for 200K, and then tear it down and build a mansion on the lot that sells for 1.5 million, you’ve upwardly skewed the average sales price for that neighborhood.
There are other reasons. My house has appreciated in the three years since I bought it because it’s fairly close to downtown and it’s a patio home. There’s a higher demand for these types of homes among retiring baby boomers, and very few of them have been built in the close-in suburbs, so the value goes up.
What’s happened to your house’s value? I don’t know. But if you’d like me to find out for you, drop me an email at firstname.lastname@example.org and let me know. I’d be happy to check it out!