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How Fast Can a Real Estate Market Change?

by Administrator on Nov 30, 2016 Market Conditions Articles 1019 Views

If you have seen market cycle graphs with big swings in market values over time you have some idea of just how much change can happen in a real property market over time.  Most graphs on market cycles display a sine wave that make it look like the up and down cycles are evenly spaced, so there is some uniformity to prices.  The fact is that things like recession of 2008 has, in many areas and in many sub markets, kept prices down for an extended time.

The residential real estate market in Las Vegas for example, saw prices for a 2,500 SF home increase from about $ 215,000 to about $ 515,000 between 1998 and 2007.  That was a upward spike that was felt by everyone in the residential real estate market, multiple offers were received on almost every property listed and of course the upward movement was not sustainable. 

The recession of 2008 brought with it a real estate crash that resounded through much of the country and brought residential real estate in Las Vegas down in price in many areas by 60% or more.  So that $ 515,000 price tag on a single family home was reduced in many cases to nearly $ 206,000.  The sales price drop was steep and the drop continued beyond the previously established sales price "floor," it was not what anyone would have predicted, and it definitely was not the movement of a typical market cycle.

The reality of the real estate market, in Las Vegas and other places, is that it's often erratic.  It's generally moves nothing like a sine wave, it goes up and down but the market can hang in one place or at one level due to a number of external factors.  Mortgage rates have a enormous impact on real property prices, and they can often change the direction of a market if they move more than a few points. 

Supply and demand are of course the most important driving factors behind the movement of any market.  When the balance in the office market is disrupted for example and many thousands of square feet of office space become a glut, volume and prices fall and the market moves down.  If you watch a stocks index or the price of metals you know that those markets are in a constant state of change. 

If a force is working on a real estate market, like lower interest rates, a market can change quickly.  While markets can remain relatively flat with no influence, they can also spike upward or downward quickly when important factors are affected.  In Las Vegas our land market dramatically improved when development plans for an "outer loop" were announced.  Land went up several dollars per square foot in months any many new millionaires were minted. 

While there are factors that can reign in the expansion of a real property market, like government restrictions or limitations on the available water supply, increased market demand absent new supply (for whatever reason) can be the cause for dramatically increased market prices / values.  

Appraisers follow real estate markets and try to understand what factors are driving prices up or down.   Some appraisers are even now trying to determine if the legalization of marijuana in Nevada will, like was reported for the State of Colorado, move home prices up.  It's hard to imagine that factor (legalized pot) will have a positive influence on real property prices here in Las Vegas but anything is possible. 

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/Market-Conditions-Articles/4637-How-Fast-Can-a-Real-Estate-Market-Change.html

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