Craig Allen: Real Estate Isn’t Cheap…

Most real estate “experts” commenting on where the market is currently will state that, due to the significant declines since the peak in 2007 and a number of other factors, home prices are either bottoming or have already bottomed, depending on which local market they are discussing. Unfortunately for them, and for anyone who owns a home, there are powerful reasons why this is not the case.

Real estate pundits point to the recent price declines, improving unemployment, home price affordability statistics, gross-domestic product, growth, stock market performance, low interest rates, improving bank balance sheets and lending activity, improving foreclosure rates and a host of other data that they claim suggests home prices are in the process of bottoming. I have even seen some reports make the case that some markets have bottomed and are already rebounding. On a month by month basis, we do, in fact, see some markets — even in California, including Santa Barbara — where median home prices have increased.

According to the California Association of Realtors, the median home price for Santa Barbara County increased to $405,000 in April from $345,000 in March. This represents a 17 percent jump and looks really encouraging, especially if one is a homeowner here in Santa Barbara, and even more so to someone looking to sell. The problem with drawing any conclusions from this monthly data is that smaller markets such as ours tend to fluctuate quite wildly due to the sometimes limited number of sales in a given month, and the dispersion of the sales — the wide gaps between the sale prices of the most expensive to least expensive properties that are sold in the period.

In fact, back in October, the median home price fell to $330,000 and then bounced up to $429,410 in December, before falling back down to $345,000 in March. This is very typical, so we do not want to draw any conclusions about the direction of prices by looking simply at month to month changes. Over a longer period of time, we will be able to look back and see a definitive change in market direction, but we will have to make a bottom and then get well into a rebound before it will be possible to identify where exactly the bottom occurred.

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