Wednesday, April 4, 2012
For a long time now all you hear about is the doom and gloom in the real estate market. Conversations about foreclosures and high employment fill the headlines. You hear stories of 20 % – 50% drops in home values. What is often glossed over however is that those are generalizations over large areas. But real estate can’t be generalized. What is common in one area may not be common in another. In some parts of the country it is the norm to have slab foundations. No basements. In the Midwest that is not the case. Often you will have full or walk-out basements to provide extra usable space in your home and well as providing a safe shelter during a storm. The point is just because some cities in California, Florida and Nevada have cities where there are house that have lost 50% of their value, that doesn’t mean that is the norm everywhere. All real estate is local but what does that mean? When a realtor does a market analysis of a home in Iowa City, they don’t compare the price to house in Riverside. That seems obvious. What is a little less obvious is if you have a home on the West side of town you don’t often use sales comparables on the East side or vice versa. You want to look at individual subdivisions or smaller subsections of a given area. Your best comparables or “comps” are those that are closest. Often the same builder will buy multiple lots in a given subdivision and build a similar or identical floorplan over and over with some variations. If one house is the same floorplan, same square footage and same level of quality finish then it would be hard to justify one to sell for $250,000 and the other to sell for $300,000 in the same neighborhood. But two of the same houses with the same floorplan with similar finish located across town from one another might be an entirely different story. One area might have higher land costs because it is considered more desierable or because of it’s close location to rivers, lake or ponds. So the point is if real estate does have the ability to vary in pricing just across town than it stands to reason that it would differ across the county. Just because California and Florida have lots of areas that have homes that are losing value doesn’t mean that Iowa does. In fact the Iowa City market in particular has been extremely resilient. While we never saw the huge gains in appreciation that other areas have in the past we have also never seen the steep losses. Our market has chugged along at a steady pace and not appears to be on the verge of a very solid (but steady) climb.