How Low Can You Go?

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And for how long?  I’m frequently struck by various industry analysts that don’t expect a real estate market recovery until ‘next year’.  Brokers, builders and many economists, all say that we can’t realistically expect the recovery until then.  OK, but why then?

Let’s take a look at the Los Angeles market.  According to the S&P/Case Shiller index, this market begans its ascent in March 1996 and peaked in September 2006.  That’s an up cycle of more than 10 years.  During that time, the price index increased over 270%.

Prior to that long bull market, Los Angeles had been mired in a downturn which started in June 1990.  That down cycle continued for almost 6 years and prices declined by a cumulative total of 27% during that period.

Since September 2006, prices have declined by just 4.3% (as of the last published index value for June 2007).  So why is the recovery coming next year?  If the past is any guide to the future, the recovery might be several years in the future and prices have a lot further to drop before it arrives.

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One response to “How Low Can You Go?

  1. I am an Exclusive Buyer’s Broker in the Ann Arbor market. That means my company only represents buyers and never sellers in real estate purchases.

    (I am also this years President of our national association http://naeba.org )

    Our market has been trending down here for about 2 years and we are asking the “How Low Can It Go” question here locally as well.

    One tool we use to predict value movement is looking at market inventory and market absorption.

    As an example we are currently working on buying a large parcel where there have been 7 sales in the last 12 months and there are 96 similar properties on the market now. (About 13 years of inventory.)

    We are certainly convinced that values will drop in this area. What we need is an equation to try and predict how much they will drop based on this level of supply and demand.

    Anyone have any suggestions?

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