Measuring market change
Most of the measurements we see reported in the MLS relate to median price change over time, not price per square foot. As house sizes rise, the price per square foot falls and does so because price per square foot includes not only the gross living area, as well as the garage, basement, improvements to the house, decks, patios, and other site improvements, and even more importantly, the site itself.
Since there is a diminishing return as house sizes increase, it is easy to see how a shift upward in house size could make the market look like it is improving at a higher rate than it actually is. Conversely, if house sizes are shifting downward, then the market may look like prices are going down when they are not.
In this first graph, it looks like the market dropped in early 2012 to late 2012 and then had a meteoric rise in mid to late 2013:
In the second graph, the market shows only a slight leveling of price increases in 2012 and then another slight leveling in early 2013 followed by a much steadier price increase towards the end of 2013.
Which of these graphs better represent the market? How about a blending of the data? If houses decrease in size in general, the price per square foot rises at a greater rate, and by looking at both measures, I feel the read of the market is more realistic and I have accounted for the change of buyer preferences. Sometimes one indicator is more reliable than another, and in those cases market change is best measured by the one that makes most sense.
The next chart is what I used for my graphs. Statistics are run on a yearly basis but one month at a time. The data presents one year of data for each segment and is a nuanced way to measure market change. As an appraiser I am tracking the number of sales, the list-price-to sales-price ratio, and the median sales price, the median sales price per square foot and days on market cumulatively.
The data below comes from information culled from the Ann Arbor Area Board of Realtors MLS and excludes distress sales and duplicate listings.
The presentation above is just one way to look at changing market perceptions over time. I will continue to present data about my local market as I see it. Check back often, as markets are fluid and are subject to change rapidly. Forces that cause market change include, but are not limited to, change in interest rates, change in inventory levels, introduction or withholding of distress inventory, tightening of the money market, catastrophic events, local employment, etc.
As always, if you are in need of a local expert in the Washtenaw County market, go straight to the local residential appraiser expert, Rachel Massey, SRA.