Black Hills Housing Market is Doing GREAT (Relatively)

First the bad news. Yesterday First American Core Logic released their monthly housing data. It's bleak. They report "Nationwide prices were down 11.1%." But that is not news.

The bad news is that people presume this reflects the Black Hills market as well. It doesn't. Black Hills real estate is, as one of our colleagues visiting from back East told us: "You folks are living in real estate la-la land, compared to almost all of the rest of the U.S.!"

The Housing Price Index (HPI), maintained by a federal agency, is our best indicator of local and national real estate markets. It is maintained by the U.S. Office of Federal Housing Enterprise Oversight (OFHEO). There is no rocket science to comparing our Black Hills market to the nation, either in current terms or over long term trends.

Now the good news.

Sorry to use a technical term here, but based on all available data, Black Hills real estate is, in fact, enjoying life in "la-la land." (Relatively). The nationwide decline in home price index is three times the relatively minor decline for the Black Hills area. In 2008 homes sold locally about as quickly as in 2007.

Sure, we have almost 8% more homes unsold at the end of 2008 compared to 2007. And probably the worst thing we could possibly drudge up about the local market is that roughly 17% fewer single family residences sold in 2008 than 2007. But as I pointed out in an earlier post on this blog, I suspect that much of that decline is attributable to 2008 chaos in the lending industry and not so much as weakness in our housing industry.

I held the best part for last. It's a surprise. Did you know that the average price of homes sold in 2008 is down 4% from 2007? Well, even if it were that simple, I'd still be delighted it is far better here in the Black Hills than nationwide. But here's the rub. The key phrase is "homes sold" being down almost 4%. That does not mean that if a home sold in 2007 then again in 2008 it's price would have gone down 4%. I watch the market turnover within separate price-level bands. And I can tell you that part of this 4% decline is due simply to the fact that we are selling more of the lower priced homes!

Are you ready for this? It is possible for the "average prices of homes" to go up in a year, yet the "average price of homes sold" can go down in the same year. Yes that statement is exactly true. As an engineer I know how easy it is to totally change an interpretation of hard facts, by just the way you word the message.

Think of it this way. Imagine that in a hypothetical small town, 100 homes sold in 2007 and they were all priced around $200,00. The following year, again only 100 different homes sold, and these were all priced around $100,000. No home either year was re-sold. It was different homes. But the statistics we are typically provided is "average price of homes sold." In our hypothetical town, we would be told "the average price was down 50%!" You see this is simply false. It's just that less expensive homes were selling. Which brings us back to this market.

The days when we could just sluff on all these nuances in the market dynamics, and blindly depend on price-escalation in real estate to take care of us...it's over. The rules of the game of real estate have changed. It's a lot more complex and volatile and risky now. Before you commit the act of real estate, study up, dig in, think ahead and don't look back. More than ever before, I high recommend that you find a real estate professional who can help you navigate these new challenging times.

Meanwhile, if you have questions or just want to chat about Black Hills real estate, give me a call! (605) 863-0806