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This graph illustrates the appreciation for homes which sold in the second quarter of 2008 and had previously sold within the last ten years.
Clearly the best way of determining what appreciation is for a particular home is to watch the home trade hands in an armâ€™s length transaction several times over many years without any major improvements (other than maintenance).
The Case-Shiller Home Price Indices Methodology comes closest to achieving this on a macro level. However there are inherent limitations in the methodology they employ. Weâ€™re not here to find fault with their method of data collection and interpretationâ€”clearly it is as good as it gets on a macro-levelâ€”but for interpreting micro or niche markets it uses too broad a brush to paint an accurate picture of a particular area’s housing landscape. Hereâ€™s why:
Â· It lumps many micro and niche markets into one large metropolitan area and cannot effectively differentiate smaller market areas since it relies on huge volumes of data in order to arrive at meaningful results.
Â· It uses an algorithm to exclude all old sale pairs to support their assumption that older home sale pairs must have been remodeled. This has the unwanted effect of throwing the baby out with the bathwater, and discards very valuable information on repeat sales pairs which have not been updated over long periods of time.
We have overcome these limitations by being able to use the "sales pair" methodology and exclude homes that have been remodeled based on our personal experience in seeing virtually every home that has sold. In fact some of the home sales used are homes weâ€™ve personally sold in the course of our 17 years in business.
However, due to the relatively small market sample our data will be more vulnerable to isolated sale anomalies but to a certain degree that is mitigated in that 100% of our data is usableâ€”and local.
We can also go back to homes that sold recently which have not traded hands in the last 30 years and still included them in our study so long as we can verify they have not been remodeled.
We can also distill this information down by neighborhood.
Essentially we have watched the same sales pairs sell and can analyze the empirical and statistical data to offer a sound assessment of a particular areas value trends.
Here are some interesting facts–for 2nd quarter 2008 sales:
Â· 58 homes sold during this period
Â· 22 had not sold within past nine years and were excluded
Â· 11 were remodeled and excluded
Â· 25 were not remodeled and were used for our study
Â· Only homes sold that were purchased after 2005 have sold for less than what they were purchased for.
Of those seven sales after 2005:
1 was a foreclosure
1 was a short sale
1 was an REO (bank owned sale)
2 non distressed properties showed an average of 11% appreciation
1 non distressed property lost 15%
1 non distressed property lost 20%
The homes that were selected had sold in prior years and had no extensive remodeling performed. Each sale pair represents the best analysis presently available for tracking the same home exchanging hands over time. Several recent distressed sales have perhaps skewed the numbers in that they were foreclosures selling at what was owed, not what it might have been worth. Nevertheless the data is for the most part reliable and illustrates that only people who overpaid for homes from 2005-2007 may now own a home worth less than what they paid for it as a result of the downturn.