That is the question. Is a 4.8%
decrease in the median home price indicative of declining property values? Or does it mean people are just buying less expensive
houses? As well as a decrease in the median home price, there has been a decrease of 2.94% in the median size of homes
being purchased over the past year. That to me says people are downsizing, buying less expensive homes.
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So what will it take for me to
consider us in a declining market? Proof. I need proof to make adjustments on a comparable sales grid whether it’s
for an extra garage stall, a finished basement, or yes, the time of sale. It is through a process called paired sales analysis
that I’m not going to spend a lot of time explaining. Look at it this way though for simplicity sake; if a property
sells March 1, 2008 for $200,000 and that same property sells again March 1, 2009 for $190,000 it has sold for 5% less, indicating
a 5% decline in value. HOWEVER, it has to be a sale reflective of market value. Market value is defined as:
“The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely
revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under
all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest,
and assuming that neither is under undue duress.”
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Notice the part in there that
says “assuming that neither (the buyer nor seller) is under undue duress.” A short sale does not fall under the
description of market value. Often times neither do sales procured by a divorce, medical issues or an employee relocation.
The sellers are under duress, they have to sell their home.
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I researched every sale from April
1, 2007 to April 1, 2009 in the Helena MLS, area’s 1-17, single family residential only and I came up with 13 sale/re-sales
during that period. 7 of these sales are short sales, employee relocations or divorces. 4 of the remaining sales indicate
between a 2.97% and 11.17% increase in value. Read that again, between a 2.97% and 11.17% INCREASE IN VALUE! One of the remaining
sales indicates a 38.18% increase in value but this property was extensively remodeled since the first purchase. And the final
remaining sale sold for 1.46% less from June of 2007 to March of 2008.
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So to recap that for you, of the
sales that reflect market value, 4 have increased in value since 2007 and 1 has decreased. This is why I do not consider property
values in the Helena market to be declining.
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That said, with short sales in
the market people are looking for deals. People are not going to pay full price for a property if there is a similar house
sitting next door that they can get a screaming deal on because the sellers have to sell. That I think goes without
saying. So what affect that is going to have on the market in the coming months is unknown. My opinion is that it will be
a lot of the same for a little while, but as long as the local economy stays strong, short sales won’t become a decisive
factor. I could go on about market perception and list prices but I’m going to save that for later.