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| Updated August 12, 2006 |
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Ogden Valley Real Estate Trends Shift in Favor of Buyers |
| Here are answers to some of the most commonly asked questions about real estate in the Ogden Valley. |
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Q: Are home prices in Ogden Valley continuing to climb? |
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A: Yes. However the rate of increase has slowed considerably in 2006. The average price of homes sold in the six months ending in July was $393,068 compared with $369,798 for the six months ending in December 2005. This is an increase of 6.3%. At this pace, appreciation for the year would be 9.4 percent. (Chart 1 shows average prices for 6 and 12 month periods. Because our market is so small, monthly data can vary widely due to one unusual sale.) The 12 month average has actually increased by 16 percent in 2006 (for an annualized pace of 24%). The reason for the difference is that the 6 month average shows changes more quickly than the 12 month average. During the rapid price increases in 2005, the 6 month appreciation rate was consistently higher than the 12 month pace. |
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Q: Does this mean that the real estate bubble has burst? |
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A: No. A better explanation is that the mix of home sales is shifting. An important measure of home value is price per square foot. Chart 2 shows that the price per square foot continues its strong climb to $173 for the six months ending in July, an increse of 28.8 percent since the beginning of the year. The combination of modest increases in sales prices and strong increases in price per square foot suggests a shift to condos and smaller homes.
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| Another indication that smaller properties currently make up the "sweet spot" in the market is a comparison of the mix of homes that have sold in the past six months with the mix of properties currently listed. In the past 6 months, 76 percent of homes sold for less than $500,000. In contrast, only 47 percent of the homes currently listed fall in that price range. Condos accounted for 36 percent of sales, but only 24 percent of current listings. |
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Q: Is it still a "seller's market?" |
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A: Probably not. The past few months have seen the momentum shift in favor of buyers. The most important indicator is the dramatic increase in inventory. Thoughout almost all of 2005, there were fewer than 100 residential properties for sale in the Valley. As of this writing, there are 167 active properties. Many locals speculate that inventory is likely to rise ever further due to increases -- in some cases dramatic -- in property taxes resulting from the revaluation of property in the Valley. However, compared with the 2002 to 2004 slump resulting from the premature build-up prior to the Olympics, this market is still relatively balanced. |
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Q: Will demand keep up with supply? |
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A: The crystal ball is a little cloudy at present. However, there are a number of uncertainties on the horizon. Because much of our real estate boom is driven by investors and second and retirement home buyers, the general health of the economy will play an important role in purchase decisions. Unrest in the Middle East, and the prospects for continuing increases in interest rates may cause prospective buyers to be more cautious, while investors may be discouraged by fears that high gas prices and terrorism fears may dampen tourism.
However, real estate often outperforms other investments in times of uncertainty. While stock prices may decline precipitously (and in cases such as WorldCom or Enron, become valueless), real estate values are unlikely to depreciate significantly. |
| Q: So what should sellers do? |
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| A: The most important step is to price your property fairly. Last year, when prices were increasing rapidly, it made sense to set a price a little ahead of the market. This year, a more "normal" market, requires a different strategy. A home that is significantly overpriced can help sell other properties by making them seem like better values -- especially when inventory is strong.
Preparing your home for sale is also important -- especially when competition is strong. Make sure the home is clean and in good repair. Paint is cheap and is one of the best tools available to make a home inviting. |
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Q: What about buyers? Are there any good values left? |
| A: The most important tip for buyers is to define your needs. If you are looking for a home to live in for many years, make sure that the home fits your personal preferences and lifestyle. If you are an investor or plan to move in a shorter period of time, it is important to choose a home that would appeal to a variety of prospective buyers. In either case, make sure you have a good sense of what the home is worth, and do a thorough inspection and evaluation before you commit. |
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Do you have other real estate questions? Email me at layne@laynesheridan.com or call 801-388-2196.
Layne Sheridan, Ph.D., ABR is an Ogden Valley Native and agent with Prudential Utah Real Estate's Huntsville branch. |
First 5 Months of 2006 -- Local Market Takes a Breather
by Layne Sheridan, PhD, ABR
Updated June 9, 2006
Here are some answers to commonly asked questions about real estate in the Ogden Valley.
Q: Are prices increasing as fast in 2006 as they did in 2005?
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A: No. Last year, the rate of home price appreciation rate was nothing less than torrid -- the average price of Ogden Valley homes sold in the six months ending at the beginning of 2006 was 62 percent higher than the price for the same period a year earlier. (By grouping sales results over several months, it is possible to avoid some of the random variation that would result from looking at monthly data. This technique is known as a "rolling average.")
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| As of May 2006, the average home price was 5.2 percent higher than the end of 2005. If appreciation were to continue at this rate, it would equate to an annual increase of 12.4 percent. Although double digit appreciation is healthy in any real estate market, the difference is pretty dramatic. |
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Why the large difference between red-hot 2005 and the beginning of 2006? Part of the difference is random variation in the mix of homes sold. Chart 1 shows a significant drop in February. For one thing, several condos closed in February, reducing the average sale price for that month. Coincidentally, August ? an unusually high month ? dropped out of the six month rolling average in February. So, although the 6 month average started a dip in February, it has increased steadily since then. The 12 month rolling average, because it is based on more data, shows a much more consistent trend than the 6 month average.
The average price for the six months ending in May 2006 was $115,000 higher than that for May of the prior year. So although appreciation has slowed, it is still growing at a healthy rate. |
What is a Rolling Average?
For each month, the number is simply the average of all sales prices over the previous 6 or 12 months. For example, December´s 6 month average covers July through December while January´s 6 month average covers August through January. Rolling averages give a better estimate of price trends than monthly figures which can fluctuate wildly as a result of one large sale.
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Q: Does the sudden slowing indicate that the boom is over? the sudden slowing?
A: As mentioned above, the slowing is partly due to the mix of properties being sold. One way to control for this mix is to look at the sales price per square foot. Chart 2 shows that average prices per square foot are continuing to climb. From the end of 2005 through May 2006, the average price per square foot increased 20 percent ? from $135 to $161.
Another indicator that the market remains strong is the fact that for the past six months, sales prices have consistently averaged about 96 percent of the listed price.
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| Q: There seem to be a lot of "For Sale" signs in the valley. Does this mean that there are more homes for sale? |
A: Actually, inventory is up substantially. Throughout most of 2005, there were between 50 and 60 homes and condos for sale. That number doubled by mid-May 2006.
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Q: I have read that increased inventory means that it takes longer for homes to sell and that this is an indication of a slowing market.
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A: Increasing inventory is clearly an important leading indicator. Chart 3 shows a general decline in the number of days required for homes to sell. April showed a slight increase, but in May, the 6 month average days on the market dropped to 77, compared with 109 days a year earlier.
The concept of increasing inventory is somewhat relative. An increase of 50 listings, which would double Ogden Valley inventory, would hardly be noticeable in Odgen. |
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Our current inventory level is actually pretty healthy. It makes pricing more rational because there is a greater likelihood of finding appropriate comparison properties. And buyers typically can find more than one or two homes in their price range. Increased competition decreases the frenzy that was sometimes evident in 2005.
However, inventory drives the market, so it will be a very important variable to watch.
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| Q: So what are the prospects for property values in the future? |
A: Clearly the torrid pace of 2005 is unsustainable over the long term ? the days of doubling your money in less than a year are most likely behind us. However, there are strong indications that the Valley has not yet peaked and that home prices should continue to appreciate at healthy rates for the foreseeable future. The many attractions of the Valley continue to be "discovered" by the outside world. While prices seem high to us, to other parts of the country, most notably the east and west coasts, prices here seem low in comparison to their own areas. At the same time, inventory of property is inherently limited by the size of the valley as well as zoning ordinances that limit development density. And it is these inherent limitations that give the Ogden Valley the atmosphere that drove most of us to move here in the first place.
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Reprinted from the February 1, 2006 Ogden Valley News:
2005 -- A Banner Year for Ogden Valley Real Estate
by Layne Sheridan, PhD, ABR
2005 has been a banner year for real estate in the Ogden Valley. Here are answers to some of the most commonly asked questions from real estate clients.
Q: What was the appreciation rate for homes in Ogden Valley during 2005?
A: According to data from the Wasatch Front Regional Multiple Listing Service, the 2005 average price home sale in Ogden Valley was $332,000 - 42% higher than the 2004 average. This is more than seven times the appreciation rate of 6.8 percent in 2004! But the real story is even more dramatic. Because prices have been increasing steadily throughout the year, annual statistics tend to understate trends. Chart 1 shows the 6 and 12 month rolling average sales price each month in 2005. (See the box for an explanation of rolling averages.) On a rolling 6 month basis, prices increased 62% from January 2005 to January 2006.
What is a Rolling Average?
For each month, the number is simply the average of all sales prices over the previous 6 or 12 months. For example, December´s 6 month average covers July through December, in January, it covers August through January. Rolling averages give a better estimate of price trends than monthly figures when there is a small number of transactions because they minimize fluctuations from one large sale.
Q: Is the appreciation rate real, or is it just because houses are getting larger?
A: As you look around the Valley, you can see many huge homes under construction. But the price appreciation is not a result of increased size. One way of controlling for size in analyzing sales prices is to look at the price per square foot. From 2004 to 2005, the average price per square foot increased 24 percent, from $97 in 2004 to $121 in 2005. This shows that prices are increasing regardless of home size.
Q: But what about home size? Are homes really getting larger?
A: No. Over the past 7 years, fluctuations in home size appear random. The largest average was just over 3,000 square feet in 2000, and the lowest was 2,426 in 2004. 2005 was an average year in terms of home size.
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Average Size of Sold Homes -- 2005 |
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Year |
Average Square Feet |
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1999 |
2,657 |
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2000 |
3,008 |
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2001 |
2,614 |
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2002 |
2,746 |
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2003 |
2,764 |
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2004 |
2,426 |
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2004 |
2,742 |
(Based on information from the Wasatch Front Regional Multiple Listing Service, Inc. for the period 2001 through 2004.)
Q: Have we hit the top? Can prices continue to increase?
A: Two key indicators are the time it takes for homes to sell (measured as the average number of days on the market) and amount of inventory, or the number of homes available for sale. The 2004 average of 100 days on market dropped 9.5 percent to 91 days in 2005. However, as with sales prices, annual statistics understate the real story. The decline in marketing time has become more dramatic recently ? over the past six months, the average time that homes have been on the market was just 86 days.
Inventory tells the same story ? during the past year, inventory has consistently averaged fewer than 60 homes (single family and condo). As little as two years ago, the average inventory was more than twice that.
Q: Why are home prices increasing so much here, when they seem to be slowing down in other parts of the country?
A: The most obvious answer is that other markets started their real estate boom long before we did. From 2001 through 2004, Ogden Valley real estate prices increased a total of 10 percent ? about 2.5 percent per year ? while many parts of the US were basking in strong double-digit appreciation. In 2000 analysts were already discussing prospects of a real estate bust in markets (particularly ones on the east and west coasts) that had experienced a decade or more of double digit increases in home prices. The resulting disparities in home prices in different areas of the country make Ogden Valley real estate very competitive, especially to people from more expensive areas who are looking for second homes.
Two other factors indicate that housing prices in Ogden Valley are likely to remain strong.
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We have finally been "discovered" by the rest of the world. The post-Olympics boom seems to have finally occurred. Prior to last year, it seemed that people sharing the gondolas at Snowbasin were far more likely to come from "someplace else" than in prior winters. Formerly, fellow passengers came from Ogden, Layton, Roy, etc. Last year, locals seemed to be more the exception than the rule. Compared with other major ski resort areas such as Jackson Hole, Vail and Park City ? Ogden Valley prices seem very reasonable.
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Limited supply of housing. The current 3 acre zoning rules place inherent limits on the number of homes that can be built in the valley. Although many local residents feel that the limits are inadequate, it is clear that it will prevent the kind of congestion prevalent in other major ski areas such as Park City or Vail.
Q: Are we in danger of a real estate bubble?
A: Despite the hoopla from the general press warning that the real estate "bubble" is about to burst, the reality is actually quite different. The concept of "bursting bubbles" conjures images of stock market crashes such as October 1987´s "Black Friday" when the stock market lost 22 percent of its value. However, unlike equities, real estate prices do not crash because of the inherent value of the underlying investment. When real estate markets decline, the process is very gradual. Long before prices depreciate, the rate of increase begins to slow.
So what is really going on? Nationally, many forecasters suggest that the days of double-digit appreciation are behind us. This is particularly true in markets that have experienced dramatic increases for several years. But the question remains, how high is too high? An important factor is the affordability of housing relative to income in the local area. Because local areas vary widely in incomes, real estate markets are extremely localized.
According to David Wyss, economist for Standard and Poor´s, national housing costs over the past 30 years averaged 2.6 time disposable income. Currently, the average is 3.2 times disposable income. Potential "bubble" housing markets are those where the ratio is extreme, such as San Diego and Miami where the ratios are 9.68 and 6.84 respectively. Factors such as local dependency on one employer or industry also increase the riskiness of a real estate market. Our market is unique in that we do not depend exclusively on the local area for prospective buyers. Because this is a resort area, buyers come from across the country.
Do you have other questions about the real estate market in the Ogden Valley? Contact me and I will try to answer them.
Layne Sheridan, Ph.D., ABR is an agent with Prudential Utah Real Estate. She is also a contributor to the Market Conditions page on Realtor.com. |
