When Will Home Prices Get Back To the "Normal" High?? Depends on what the meaning of "normal" is.

Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372

                                                   "HARD CORE REAL ESTATE TALK"

JUST WHAT IS THE "NORMAL HIGH" FOR RESIDENTIAL HOME VALUES??  What does it mean to real estate agents who depend on home sales for their income??

Many see the extreme highs of home prices in 2007 as "normal high".  The question is, was that "normal".  Or, is it simply wishful thinking??? 

THE BENEFIT OF HAVING AN INSTITUTIONAL MEMORY.  Over the many years I've tracked market values for residential real estate, the yard-stick for projected appreciation was always annual inflation rates, which, in my area, on average were about 3%.  You could actually project that as a likely value metric for cities and counties in Virginia, somewhat less in Maryland. 

I recall the last "bubble" in our area of Maryland and Northern Virginia, the mid to late 1980s when the real "normal" price appreciation was about 3% but then fell through the floor in 1989-1992-3. 

Montgomery County MD lost about 15% of market value.
Prince George's County MD gained about 7.5% of market value.
Northern Virginia lost about 20% of market value.Upside down home

The above are ALL FROM MEMORY. 

In the early 1990s, home owner/sellers wanted to price their homes for
sale based on what homes in their neighborhood had sold for.  "But, there is a house in the next block that sold for $300,000".  You're saying my home is worth only $250,000 today???"  Of course, the house in the next block sold before the real estate crash of 1998-2002, led by the Savings & Loan scandals.  Even when, in those days, a CMA could consider properties sold in the previous year, home owners were quite disappointed (and often angry) when they were shown the facts of homes previously sold in their community.  I was a heavy listing agent in those days and many homes I sold were owned by banks (sound familiar?) that had foreclosed on new home builders who went under.


The glut of bank owned homes and short sales is just the tip of the ice burg.  The real "SHADOW INVENTORY" is, IMO, the tremendous number of homes owned by folks who would like to sell but are so upside down with negative equity that they cannot sell unless they have the resources to bring many $Thousands of Dollars to the settlement table.

One of my referral partners recently sold a modest town home, $230,000, in Howard County, MD where the seller brought $35,000 to the settlement table.  Sad indeed.  The seller had a choice.  Sell with a significant loss or forgo a wonderful job opportunity in another state with a huge increase in income.  Further, he was smart enough to know that he would get a great price opportunity to buy in his new location in Utah.  I referred him to a wonderful buyer's agent there and he did buy about twice the home he had in MD for about the same price. 

WHO WANTS TO PREDICT THE FUTURE???  CNN Money suggests that “Home prices may not return to peak until 2023,”  CNN Money seeks to define "normal" for the housing market.  They reference a "normal" metric of 2007.  While I can't predict the future, I can examine the history.  2007 was, IMO, not normal in any way. 

SO WHAT'S NORMAL, LENN?   I believe that the "normal high" was about 2003-2004.  I don't believe the highs of 2007 were normal at all.  2007 was a pure bubble, not in any way normal and totally interest rate driven, "Thank you Mr. Greenspan".  I've been suggesting, when asked, that IMO, and I make it clear that it's just my opinion, that it will be about 10 years for the real estate market to recover.  In that 10 years, I don't expect home values to get back to the 2007 highs, but only to what would have been the value today going back to 2003 with normal appreciation, about 3% per year. 

WHAT HAPPENED TO OUR "MOVE UP" BUYERS??  Before we recover sufficient equity for our MOVE-UP HOME SELLER/BUYER market to return, their present homes will need to have sufficient equity to permit them to at least break even when they sell.  Folks can't buy if they can't sell first.  THAT is an economic fact that experienced agents know.  NO!  SHORT SALES ARE NOT THE SOLUTION FOR THE MOVE-UP HOME SELLER/BUYER.

Who are these "move-up buyers"?

Home owners who have outgrown the condo or town home or small single.
Home owners who have children and want to buy into a different school district.
Home owners who have changed jobs and need to relocate closer to the employment location.
Home owners who have retired and wish to move into a smaller home.
Home owners who need a larger home to accommodate children.
Home owners whose children have grown and moved on.
Home owners whose children are older and need a room of their own.
Home owners who need a larger home to accommodate extended family members.
Home owners who wish to sell the existing property and build a new home.


SIMPLE ARITHMETIC.   With a normal appreciation of 3% on an annual basis, a home that was purchased in 2003 for $350,000 would have a market value of $470,370 in 2013.  That's about $120,000 of home equity.  Enough to sell the home, pay off the mortgage, pay the real estate commission and buy their dream home.  Those were the good old days. 

FACE THE FACTS!  That same home, purchased in 2006 might have cost an inflated $500,000.  Yet, in 2012, it may hae a depressed loss in market value and negative equity of $150,000.  THAT home owner cannot sell and can't become a MOVE-UP HOME BUYER.

REAL ESTATE AGENTS' INCOME IS DOWN, DOWN, DOWN.  Of the many causes for loss of income for real estate practitioners, I believe the loss of the MOVE-UP market is the most severe.  That market once counted for about 25% of our income, either through local move up buyers or relocating buyers.  Sure, we have relocating buyers now, but if they can't sell their existing home, they are often forced to rent when they relocate here.  That's one reason the rental market is to hot, hot, hot.  YES, the income for real estate agents in, IMO, in direct proportion to the loss of market value . . . . and the loss of . . .


Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, serving home buyers in Maryland and Northern VA.



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  1. Esko Kiuru 09/28/2012 11:09 AM
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Ed & Tracy Oliva
West USA Realty - Arizona - Fountain Hills, AZ
The Oliva Team Arizona Agents

Lenn: How true this is what is Normal, keep up the good work and good luck with your business,  E

Sep 27, 2012 09:05 PM #1
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Ed.  Thanks.  Same to you in Arizona.


Sep 27, 2012 09:17 PM #2
Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

Excellent post, Lenn, for many reasons, all of them spelled out in the post.  I am tired of hearing that the latest "bad news" thing is the "new normal."  You are right, 2007 wasn't normal, so why are we waiting to get back to it?  What's that prediction about?  It's baseless at best.

Sep 27, 2012 09:29 PM #3
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

I sooooo agree.  The pool of first time buyers is limited.  The key is the trade up...and the trade up is often 2 transactios and generally, the trade up one will have a higher absolute commission as well.  (Oh and for my market, it's often the trade up buyer that is more valuable, too).

Also, the loss in equity has inhibited HELO's over the last several years.  Besides the obvious impact of this for builders/contractors (so fewer additions),many of  those additions/renovations never took place, so the houses did not improve in value (aside from appreciative value increases).  This is a longer term factor which may not be very obvious.

Sep 27, 2012 09:34 PM #4
Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

Lenn, this is a great post, you are so right. There was no basis in the prices of the bubble. And now, as we begin to begin to stabilize, it is still excluding a large group of people from being able to sell.

Sep 27, 2012 09:36 PM #5
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Jay.  I agree completely.  It may seem to be to agents with no history in real estate, but for us old timers, WE REMEMBER.

Debbie.  Indeed.  We do have to "get into the weeds" to understand this phenomenon to understand the market and low home sales. 

Andrea.  Indeed it is.  Those move-up buyers were about 25% of our market.  Can you imagine what the market would be like today if those folks could sell????

Sep 27, 2012 09:57 PM #6
Jeff Pearl
RE/MAX Distinctive / LIC in VA - Lovettsville, VA
Full Service Full Time Realtor

Good memory. I never like the r term " normal " to describe the real estate market, or the term " affordable housing". Affordable to who? People and agents that see a little increased activity in their area now are being too quick to raise their list prices. Thye seem to forget that ther are still thousands of people waiting to put their house on the market, thousands of foreclosed homes in inventory, thousands of under contract short sales that will never go to settlemement, thousands of homes sitting empty where people have just abandoned, and thousands of people living in their house but haven't made a mortgage payment in 3-6 months ot longer, amd many builders are still sitting on the sidelines. Also, people immigrating to this country from some countries has dropped over 50% +-, and many people are leaving to go back to their home countries like Iran, Guatemala, etc. It seems to me that everything points to slow recovery even if rates do stay below 4%. Hard to predict anything, and who knows if the election will change anything?

Sep 27, 2012 10:57 PM #7
Esko Kiuru
Bethesda, MD


The lack of move-up buyers in the Washington metro area is slowing things down, I'm sure, but can you imagine how bad it is in places like Las Vegas and many cities in California and Florida, the really hard-hit regions.


Sep 28, 2012 11:05 AM #8
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Lenn, since the topic is about 'normal high', it is natural to focus on price - and true, 2006-7 period was not normal at all!

I'd also want to add one more factor in the equation - if we talk about 'normal' market.

The number of homes sold every year can be that factor. To best of my knowledge, the first time we hit more than 5 Million sales was 2004. Perhaps that was 'high' number - based on past history.

It did touch 7.2M/year (was it 2006 or  2007?).

This year, we are on a track for about 4.3M homes - which would be normal, had the graph of home sold in last 50 years of so showed a linear growth of about 3%.

Still, there are doubts about the market being normal today. 

And when it comes to price, I think we are just getting back to normal.

Sep 28, 2012 11:31 AM #9
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Jeff.  Oh my goodness.  So many clear and accurate statements in your comment.  Then, you had to ruin my day by mentioning the coming elections which have me quaking in my boots.

Praful.  BINGO!!  Our market prices are back to the 2003-2004 level.  However, when an agent publishes a post about the rise in market prices today, as I often ask, "on what volume?????

Sep 28, 2012 07:24 PM #10
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Esko.  There are millions, about 13 million if I recall, of home owners who are prisoners of their mortgage.  I've been trying for a year to get a modification from a major lender.  They won't even entertain a reduction in principle.


Sep 28, 2012 07:31 PM #11
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