Perhaps this Seattle Times headline caught your eye yesterday. It was the hot topic everywhere I went. Sorry, but no, your house did not appreciate 18% in twelve months. 95% of the housing stock did not appreciate 10%. Only select pockets experienced appreciation in excess of 4%. Allow me to explain:
As is often the case, a lot of folks do not read past the headline. In this instance it would not have provided a clear understanding if they had. The Seattle Times does not clarify what “up 18%” means. It is a “median price increase”, meaning that as of March, 2015 half of all homes sold were below $535,000 and half were above that price. Twelve months ago that number was $450,000. So what we’re talking about is price points, not appreciation or increased values. There is a big difference.
The market has moved, but not the way this article might indicate to you, the homeowner. Here is what occurred:
1. As the market recovered, and mortgages became obtainable, the least expensive properties were the first to sell in 2013. Why? (1) Investors sensed the bottom of the market was passing, it was time to make their move; (2) first time buyers do not need to sell in order to buy, so they also were the among the first to become active in the market. This is how recoveries work: they start at the bottom price tiers and work up.
2. Confidence in the housing market as a result of the observed activity in 2013, coupled with 5 years of pent up demand, infused the 2014 market with enough energy to generate activity in the next level of price tiers. Sellers in the lower tiers start moving up as they buy. Note that by 2014 the low-hanging fruit of the down market had been consumed. Those affordable properties are no longer factored into “median price” calculations. They didn’t go up, they just don’t exist by 2014.
3. Rolling into 2015 the trend continues. Except now the activity has moved up another set of price tiers. Roughly stated, the sellers from 2014 are buyers in 2015, and folks ALWAYS buy up. In coarse terms: the $200,000 bargains disappeared in 2013, the $300,000 deals were all sucked up in early 2014. By the end of this year it will be tough to find anything under $400,000. Those properties are simply gone and will not recycle back into the market for another 4 to 5 years.
Conclusion: It is not appreciation that moves the median price, it is the sales prices of the inventory that is available at any given point in time. If there are no low priced properties for sale, the median price of all sales is going to be higher.
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