Housing, is this a good price, will it fall further, how do I know?
Florida was hit hard during the housing bubble. Prices escalated like crazy. Now they are falling like a rock. I have been researching some potential rental purchases for a client and the asking price for the houses are currently $200,000 less than they sold for in 2005/2006. That may seem like a lot, it may not, however, you don’t have all the stats yet. In 2005, one house was purchased for $360,000, today it is selling for $159,000! That is a huge difference. So what went wrong and how do I know that $159,000 is a good price or will it continue to drop even further?
There is no absolute way to know whether you are getting a great price on real estate or if the value will fall further, however, by looking at certain factors about the area, you can determine whether the price asked is realistic for the area. Sound confusing, let me explain.
During the housing bubble, many times the housing values were much higher than the average incomes in the area (City, County, etc.) could support. In Jacksonville, FL during that time, the average salary was around $30,000 per person but the average house was over $200,000. How can a person making $30,000 afford a $200,000 house? They can’t, that ’s why we are in the mess we are in. So when purchasing a house, you want to look at the average salary/income for people in that area. Not only is this important to determine whether the house is overvalued but also when considering your ability to resell the property later. If most people in the area don’t make enough to afford the house it could take a long time to sell.
Another factor that you should look at when determining whether the house is overpriced is to look at how many homes are for sale in the area. More houses available for sale drives down the price. It is the basic economic concept of supply and demand. If there is more supply than demand, the price goes down.
When looking for how many homes are for sale, you will also want to know how long the homes have been on the market. If 5 houses in the neighborhood just went on the market last month, the price of the house has likely not been adjusted yet to reflect the excess houses on the market. If the house has been on the market for a year, it is likely that the house has been adjusted down from the original listing price, but it may still be a bit high since it is still on the market after such a long time.
The bottom line is there is no absolute way to know what the best price is, you need to go with what you think the house is worth and if the seller accepts it, yeah you got it, if not move on there are plenty of other properties available.
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