If you are confused about the Princeton area real estate prices, you have lots of company.

I don’t mean clarity about the future of the housing prices – we all understand that it’s very difficult to bring about. I am talking about understanding the home prices in the past, such as - did the prices go up or down in the last month, last quarter, or last year? It should be easy, but it turns out to be almost as confusing as predicting the future. I decided to take on the task of clarifying the picture for the Princeton real estate market.

Lets start by looking at why there is a confusion? It was my January Market Report that made me realize, that without intending to do so, I have been participating in the confusion.  Let me explain. For the month of January 2008, the data in Princeton shows 42% increase in median price, compared to the same period of last year. I explained to my readers that it is not a cause for celebration, but is rather the effect of several large sales that occurred this January and skewed the results.

                                                                                                               Photo by Zeets Jones
The first factor contributing to the confusion, is the large spread in real estate values within a town. For example, in Princeton the range in January for the houses sold was from $425,000 to $4,125,000. Median price of homes sold depends on the mix of the houses sold in a particular period and it rises in the months when a lot of high end homes are sold and falls when a lot of lower end homes are sold.

The second reason for the confusion is the fact the all the sales during a particular period are combined, whether the homes were purchased 30 years ago or 3 months ago. This can create an illusion that prices are rising, when in fact they could be falling.

The way to eliminate these confusions is to look at the repeat sales of the same houses over a period of time. This is what the two most widely indexes  - Office of Federal Housing Enterprise Oversight (OFHEO) and S&P/Case-Shiller Home Price were indented to do. The only problem is that these indexes provide different results. For the 3d quarter of 2007 compared to the same period in 2006, nationally the OFHEO index reports home prices rising 1.8%, while Case/Shiller reports a 4.5 % decline.  Why the discrepancy again? There are several reasons. OFHEO includes only the houses with loans guaranteed by Fannie Mae and Freddie Mac (less the $417,000). Case/ Shiller includes those, but only reports on 20 major markets.  There are other technical differences in treating the data and the differences in results.

The bottom line, is that the “clarity” is still very unclear, especially if you don’t happen to live in one of the 20 major markets or have a conforming mortgage.

To finally bring some clarity to the issue of home prices, I am doing my own study. Because my resources are much more limited then the Federal Government's or S&P's, I am limiting my project to the sales of the same homes in Princeton from 2005 to present.  In my upcoming post I will try to answer,  based on the results of this study, the simple question: are the real estate prices in Princeton up or down?

To learn more about the condition of the local Princeton area and national real estate market, please read:

How is the Princeton Market? - real estate statistics and analysis for January 2008 

Princeton real estate -local or global ? - review of the differences and similarities in the local and national real estate markets

Princeton real estate statistics -2007 summary 

Princeton area real estate housing prices - review of prices for the period of 2004-2007  for Princeton, Hopewell, Pennington, West Windsor, and Montgomery Township.

*This information is based on Trend MLS (2/13/2008) and is not guaranteed. It does not include private sales.

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