Some insight as to how the drop in home values roll out, and why.................

By
Real Estate Agent with John Aaroe Group BRE #01708344

Some insight as to how the drop in home values roll out, and why.................

The more I process short sales for sellers, and also assist buyers with new home purchases, the more data I accumulate.

EVERY DAY I am running comps these days for buyers and also running Comparative Market Analysis (CMA's) for sellers.

What I've discovered is that the gain, and drop, for that matter, in home values is kind of like a "bullseye" when you plot it out.

The center of the bullseye is usually a major metropolitan area.  This is typically where the highest demand for housing is, and thus by the laws of supply and demand, creates the highest value and prices for homes on average.

Well, for those who can afford to buy in the "bullseye", they usually do so.

For those who cannot afford to buy in the "bullseye", they buy as close to it as possible by how much they can afford.  This is somewhere in the pink outercircles if you look at my diagram.

For those who cannot afford to buy in those areas, they typically will look in the outer, white areas.

But it is interesting to see how this affects those areas if there is a decline in the market as we have seen over the past 5 years.

Those outer areas in the white zones get hit hardest because the demand sort of "implodes"

Let's use my area of the San Fernando Valley as an example.

In our area, in addition to Hollywood we have the entertainment industry comprised of television studios, film studios, and radio stations in such cities as Burbank and Studio City and a few others.  And of course we have the downtown Los Angeles area about 20 minutes away.

Well, in 2004/2005, at the peak of the market, $100,000 wouldn't really by you anything in the "bullseye" area.  You never really saw anything at all with a "1" in front of it.  It simply didn't exist.

So in order to purchase a home in that range, you had to go out to the furthest "white" areas.  Areas such as these are about 1 1/2 to 2 hours away from the metropolitan LA and San Fernando Valley areas.

Well, now in 2011, on the average between homes and condominiums, properties with a "1" in front of it you can find in about 15% of the overall market!!  That's a dramatic increase in availability of homes in that price range.

And that follows suit for buyers in other ranges.  Those buyers in all the different ranges can now afford to buy MUCH closer to the bullseye area, and are doing so in droves!!

But what that does to the outer "white" areas is devastating because the availability of homes in lower ranges that are closer to the bullseye creates a reverse affect in those "white" areas.

I'm seeing homes that sold for $350,000-$400,00 in some of those areas now being listed for $95,000!!

Home values will increase.  They always do. 

And people are ALWAYS moving into Southern California every day because of the weather and job market.

I can testify to that first hand!   There is plenty of new construction still going on as I speak!  It's quite amazing.

And I have buyers coming out of the woodwork now who want to take advantage of the current home prices and interest rates.

Can all of us afford to buy at first in the bullseye?  Of course not.

But the important thing to remember is:  Know when to take advantage of the market when it presents a window of opportunity for you to move closer to the target. 

You can go online as much as you want, but there is no replacement for an experienced agent who knows the region and has been around a while to be able to guide you, at your particular stage of aim, towards that bullseye.

First time buyers:  Get in while the gettins' good!

Existing homeowners:  If you're in an equity position to do so, take advantage of your opportunity to upgrade.

So the next time you're deciding about where to purchase, especially from an investment standpoint, you may want to stay on "Target" with an outstanding real estate agent who knows the red and white, so you don't have to be blue........

 

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  1. Cindy Westfall 01/29/2011 11:28 PM
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Comments 7 New Comment

Rainmaker
466,426
Cindy Westfall
ABR,GRI Your Tualatin & Portland Metro Real Estate
Premiere Property Group,LLC Portland Metro & Suburbs Oregon

Hi Ralph, Love this easy explanation that makes perfect sense. Using the bullseye..very smart!

January 29, 2011 12:37 PM
Rainmaker
595,608
Nancy Conner
Olympia/Thurston County WA
Managing Broker - City Realty Inc

Ralph, this is a great analysis & I think it holds pretty true here too as far as the bullseye concept.  It is amazing that it is now possible to find affordable housing in areas where it sure didn't exist 5 years ago...

January 29, 2011 02:01 PM
Rainmaker
251,149
Jack Mossman - The Nines Team in Stockton
The Nines Team at Keller Williams
The Nines Team At Keller Williams

Ralph - great observations and suggestions.  One of the things I mention to equity sellers on the "edge" ... in this area it will take about a dozen years to regain your lost equity (if at all.)  Consider giving up your "lost equity" for "future growth;" buy now and ride the more conservative appreciation train upward!

January 29, 2011 03:07 PM
Rainmaker
168,803
Menlo Park Real Estate and Homes for Sale
WendeByTheBay.com - 650.504.0219 - SF Peninsula
Wende Schoof

Ralph, this is a great analogy and the bullseye provides a good visual.  It really goes back to the old agage Location, Location, Location doesn't it?

January 29, 2011 07:14 PM
Ambassador
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Doug Rogers
Your Pineville Louisiana Agent
Bayou Properties Realty

In my area the bullseye would be outside of downtown. Due to crime, bullseyes tend to make homeowners nervous!

January 29, 2011 08:36 PM
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Ralph Gorgoglione

California Real Estate (800) 591-6121
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