How many times have you read or heard the same or similar media headlines in newspapers, magazines, TV… over and over and over:
“Real Estate market in Orlando is DOWN”
“Orlando’s Real Estate is in turmoil”
“Orlando Real Estate prices collapse”
Interestingly enough, the appropriate question should be “Is the Real Estate Market in Orlando REALLY down?”
Let’s analyze this phenomenon, but in order to do this we must go back to 2003 … oh yes, “those were the days my friends we thought would never end” … everything was going so well. No change, the same number of available units, the same number of sales; no problems.
Then, change began to creep in. A massive impact evolved from developers, builders, and investors taking money out of the stock market and instead investing in Real Estate for speculation. Adding to the frenzy were home owners, most who originally purchased their property years ago for a fraction of the current market prices, decided to cash in the bonanza by selling their properties and making massive profits. We became accustomed to hearing of owners who profited anywhere from $100,000 up to $500,000 by selling.
In order to look at the big picture we should look at a typical homeowner. Let’s say that homeowner “Jones” purchased his property before 2003, for say $250,000. All of a sudden Jones’ property value, due to the market conditions, increased to $400,000 for the same home… an increase $150,000 of equity value. Eventually, prices started to come down to current levels and homeowner Jones found himself with a house that is worth “only” $325,000! OMG! (Oh my God) what a tragedy, what a collapse of the Real Estate market in the Orlando area! Jones’ home suffered a 75 thousand dollar plunge! But wait, did the value really go down? By looking at the simple math, the news media is indeed correct, the inflated, unrealistic high price of 400 thousand went down to 325, so market is obviously down.
We need to look at the big picture. If homeowner Jones forgets about the 400 thousand figure and realizes that 325 thousand is in fact higher than the original 250 thousand he paid in 2003… and increase of $75,000. Taking that amount and dividing it by 4 (2003 to 2007) he comes up with a yearly increase of $18,750.00… OR a whopping 7 1/2 % increase per year (rounded)! Folks, this is no magical math, this is REALITY! Even if the price went down to 300 thousand, his property market value increased 5 % PER YEAR! So I still present the same terrifying question: Is Orlando’s Real Estate market really down?
Draw your own conclusion …
Of course the individuals who purchased Jones’ property at 350, 360, 375 or 400 thousand, for speculation, are indeed claiming that Orlando’s Real Estate market collapsed. They are correct but saying it collapsed, but for whom?
The National Association of Realtors Chief Economist, Lawrence Yun said it loud and clear:
REAL ESTATE INVESTMENT IS FOR THE LONG RUN ………. flippers and speculators, with few exceptions, are loosing big, but those who bought houses a few years back are still getting the benefit of regular price appreciation.
In my opinion, 2008 brings some additional price correction. Look towards the third quarter or the beginning of the fourth quarter of 2008, as the time when we will get some interesting surprises when some local areas will start showing modest price increases.
UP TO DATE NEWS: Be on the lookout for my next comments: Sub-prime Mortgages, Hispanic Market, and International Market.
In the meantime, keep a positive outlook and check back for updates!
Carlos ThurdeKoos
