As we all have pretty much witnessed, real estate has been on a crazy roller coaster over the past 10 years. Prices spiked up, and now they’re dropping. The county I live in, Fairfax County in Northern VA, has been somewhat “recession-proof”, so we haven’t seen as much of a drop as other parts of the country. There is still a drastic difference in pricing over the past 10 years, and some clues as to what to expect in the next few years. Lets take a look at the raw data:

Now lets take a look at the important charts that we take away from the data:

We can see here that from 1999-2006, the housing market skyrocketed up, going from about $195,000 to about $480,000 for the median selling price. That’s almost a 250% gain in prices in just 8 years! Then over the past 2 years, especially the last one, we see it start to come down from $480,000 to around $400,000…about 17%. The decline is happening pretty rapidly, so it doesn’t look like it would just start to flatten out anytime soon. The interesting thing to note in the first chart is the amount of units actually sold. From 1999-2004 there was a slight rise in the units sold (keep in mind this is just the April of each year), but a large decline after that through today. It took a couple years for the prices to start following the lower demand in units.

The even more interesting thing is in the 2nd chart, where it shows how many houses are actively listed for sale. Look at what happened from the middle of 2005 through today. The amount of active listings on MRIS skyrocketed up from about 2,000 units to over 8,000…over 4 times as many listings. With way more listings on the market, and way less demand, I can only predict that the market will continue to rapidly drive prices down much further. Although prices have come down a bit, I still feel like they are drastically inflated. Let’s take a look at the townhouse I live in now:

Using valuation data from Zillow, we can see that the house was purchased for $314,000 in 2003. The price peaked at $543,000 in just 2 years…a 73% gain! Just 2.5 years later, it has dropped down to about $400,000…still giving it an overall gain of about 27% in 5 years. I think it was already overpriced by 2003, but it was newly built, so I can’t look back any further. I’ll bet if the house was built and sold in 1999 or 2000, it would have been under $200,000.

It’s a crazy crazy market right now. Since I’m not a homeowner (I’m renting the above exemplified house), I hope that the prices continue to get driven down so that they are actually affordable to the majority of people. On a $100,000 salary, you realistically can only afford a mortgage for a $300,000-$350,000 house based on the figures I’ve seen. That means you can’t even buy the basic run of the mill townhouse that I live in. That’s pretty pitiful.

How is your local market?