Understanding the Market Correction

The chart below shows what has happened to the value of The Median Home in America over the last 20 years. (This means if you lined up all the homes available in America from the lowest to highest priced, this median home was the one in the midpoint or middle of that group.) 

Understanding this national macro-trend is important to interpreting what is happening in our current, local market and what buyers are thinking right now.

·       This sample median home appreciated at a rate of about 4% per year from 1989 to 2002.  (This is shown by the red line on the graph.)

·        Starting in 2002 this home’s appreciation increased following the growing national housing bubble.  It appreciated more than 4% per year.

·        Then starting in 2006-2007, the housing bubble burst because this rapid level of apprecaition was not sustainable.  Buyers no longer wanted to pay inflated prices for homes, so the value of the median house started to drop dramatically.

·        As lenders and buyers lost confidence in the housing market, home prices plummeted even further because no one wanted to overpay for homes.

·       This period after a housing bubble bursts is known as the Market Correction: it is the time when buyers and sellers re-adjust their prices and expectations to trend back to more consistent and stable appreciation rates.

·        The data is still coming in for 2011, but in 1st Quarter 2012, we are still in the market correction. 

·        Many buyers continue to be worried they will overpay for a home and have left the housing market, wanting to wait to purchase until prices and values are more consistent. 

·        Some sellers may be unable to sell their home without losing money.  They have to either choose to stay in their homes or accept a loss when selling.

·        It is unclear how soon the market will correct back to a more stable value and appreciation rate.

While this chart shows what happened to the median home in America, all real estate markets have had different local housing bubble trends – some better, some worse than what this chart shows.

It is essential that you collaborate with a local real estate expert who can explain what has occurred in your particular market to know what the Market Correction means for you as you consider selling.