October 14, 2012 “More Signs of Sale Price Increases” — Harold Bubil’s October 14th Herald Tribune story zoomed in on a projection by Dennis Capozza, a University of Michigan professor of finance and real estate and founder of University Financial Associates, that under current economic conditions, prices will cumulatively increase between 8.5% and 22% over the next 5 years. That represents a 13.5% spread — that is a very wide swath — a safe prediction. In my opinion, a more realistic expectation, as it relates to Sarasota County, and Venice in particular, is a 15% increase in home prices over the next 5 years.
It is important to recognize that with the exception of the past decade’s boom and bust, housing prices historically run in close proximity to the Consumer Price Index (“CPI”). The average annual home price increase for the US during the past 100 years was 3.3%, just a shade better than the inflation rate of 3.1% per year. Over 5 years a 3.3% annual rise in prices would represent an aggregate increase of 15%. It is no coincidence that a 15% increase is smack dab in the middle of Professor Capozza’s 8.5% to 22% projected spread. There is no basis to believe that the next 5 years will fly against the median for the past 100 years, particularly considering the depths of our recent fall, and current local, regional, national and international economic conditions. This indicates a likely 5 year price increase of no more than 15%, not the high end of 22% or the low end of 8.5%.
Two months ago I called Venice as having bottomed out at the end of January 2012. Last month I reported that housing is on the mend, although a full blown recovery is years off. I hold to that projection. When prices have fallen as hard as they did, as we recover there will be months and quarters when prices will surge and then cool off in fits and starts. Case in point:
- In Sarasota County the median price for the current quarter ending in September was $150,000, 2% less than the previous quarter, but 8.7% more than the same quarter 1 year ago.
Median Price of Sold – Last 10 Years
- In Venice the median price for the current quarter ending in September was $158,000 — 3.7% less than the previous quarter, but 13.7% more than the same quarter 1 year ago.
Median Price of Sold – Last 10 Years
A surge, following a period of flat-line pricing is necessary in order to establish a bottom and create upward home price mobility. That’s what has happened over the last 2 years. It created a baseline wherein Sarasota County is now at 2002/2003 pricing. However, if it were to continue to appreciate at its most recent rapidly escalating rate, it would mimic the boom of 2003-2007. Should we believe that is about to happen? I believe the answer is “No”. Instead, a bottom established, we are more likely to see, over the course of the next 5 years, increases in accordance with historical indices of approximately 3% per year. That puts Sarasota County with a projected 5 year sold price appreciation rate of 15%.
Similar to buying or selling securities, it is not possible to time the precise top or bottom of the housing market. But, what we do know is that all indicators point to prices appreciating in line with inflation, 3% a year. That being said, waiting on the sidelines for major price appreciation is not realistic. Today is likely to be as good a time to buy or sell as tomorrow, or the next year or the year after that. After-all, how many booms is one likely to see in their lifetime? Looking at the past 100 years, it has at most been generational.
By: Robert S. Goldman, PA, JD
Michael Saunders & Company