The real estate market: What's hot and what's not

It seems everywhere in the media there are references to the fact that property values across the country have dropped. But has the real estate bubble really burst? Or are many of these reports overblown?

According to the February 2007 National Association of REALTORSâ home sales report, the metro areas that experienced the most dramatic change in the median sales price of existing single-family homes, between the fourth quarter of 2005 and the fourth quarter of 2006, were the following:

Metro areas that increased in value the most in 2006
1. Atlantic City, New Jersey +25.9%
2. Salt Lake City, Utah +22.7%
3. Trenton-Ewing, New Jersey +18.9%
4. Beaumont-Port Arthur, Texas +15.1%
5. Salem, Oregon +14.9%

Metro areas that dropped in value the most in 2006
1. Sarasota-Bradenton-Venice, Florida –18%
2. Palm Bay-Melbourne-Titusville, Florida –17%
3. Cape Coral-Fort Myers, Florida –11.7%
4. Springfield, Illinois –10.4%
5. New Orleans-Metairie-Kenner, Louisiana –9.3%

At first glance, these numbers would seem to indicate that some regions have been hit hard while others are still booming. And, to some extent, this may be true. However, it’s important to understand that the stats reported are based on median home prices. That’s the middle value point where an equal number of houses have sold for more and less. While those numbers can be useful in tracking general real estate trends, they can be misleading when used to pinpoint specific peaks and valleys.

Take the two hot New Jersey areas, for example. Jeffrey Otteau, president of the Otteau Valuation Group, a real estate consulting firm in the region, points out that in both Atlantic City and Trenton, a significant number of new upscale townhouses were completed and sold last year. Assuming these units sold for considerably more than the more modest housing they replaced, they would have pushed up the overall median price of homes in the region, even if the price of many homes remained relatively flat.

It’s also fair to assume the sharp drop reported in certain regions of Florida may have been due to the reverse effect. If, during 2006, enough high-end properties with over-inflated values adjusted to more realistic levels, it would have caused the median price of homes in those areas to drop significantly even if, once again, the price of more modest homes remained far more stable.

You get a better picture of the overall real estate market if you examine the nation as a whole. The National Association of REALTORSâ reports that the percentage change in the national median sales price of existing single-family homes between the fourth quarter of 2005 and the fourth quarter of 2006 was down 2.7 percent: from $225,300 to $219,300. That’s a definite drop in value, but not necessarily the kind of crash implied by a burst real estate bubble.

The big question now is what lies ahead. And while no one can predict for certain what the numbers are going to be for 2007, most real estate professionals are guardedly optimistic. David Lereah, chief economist for The National Association of REALTORSâ, says, “It appears the fourth quarter [of 2006] was the bottom for the current housing cycle.” And while he isn’t predicting a big change in the immediate future, he does expect this spring to bring “a discernable improvement in both sales and prices.”

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