Before posting my thoughts of the week regarding where home prices are going, I have been doing a lot of thinking about “Rethinking the American Dream”. I found this post that I thought was worth sharing.
Now for proofs that people are buying at 2005 levels, even though sellers are not thinking about selling at those levels, to the same degree.
Let me explain what you are looking at in the graph above. In 2001, 83% of buyers were paying under $500,000. Economic models must hold something at a constant, in order to provide meaningful results. What I have held as a constant are the properties themselves. As we move through the years, only properties (condo and single family) built as of the end of 2001 are included, so we can see what people are paying for those same homes. Also, you have to look at a sample small enough to evaluate, in this case I used Bellevue which I feel is a large enough sample with somewhat cohesive property types in the sampling.
By 2005, only half of buyers could pay under $500,000 to buy those same properties vs 83% in 2001. The most dramatic change YOY was in 2006 vs. 2005 when the % dropped from 68% to 51%. Now look at the last two columns. We’re back to 2005 with 67% of people being willing and able to buy these same homes for $500,000 or less. In fact the % may end up being more than that, given pendings are based on asking prices vs. sold prices.
The last column shows that only 44% of people who have not sold their homes, and are still trying to sell them, are pricing at the levels that people are willing to pay.
It’s quite possible that by year end the statistics will show 2004 levels, but I expect that to correct back to 2005 through the 3rd quarter of 2009. Last quarter of 2009 is anyone’s guess at this point. Not enough data to predict that far out. Many of the current pending sales are bank owned and short sale properties. While some may consider that to be a relevant factor, it is not one I expect to change over the next 12 months. There will be at least as many, if not more, opportunities to buy at the lowest price levels over the next 12 months.