Summary
News headlines about falling real estate values abound. But, they omit the critical question - "compared to what?"
Analysis
When analyzing real estate values today, in 2009, it is critical to select valid comparisons. The inflated prices during the "bubble" may not be valid indicators of "market". Comparisons of market levels before the bubble, say in 2004 or even 2003, and comparisons going back ten years may be more valid indicators.
Or, using more than one set of comparative figures may be even better. Before the bubble, generally, real estate values responded to traditional supply and demand indicators.
Buyers were required to make down payments to satisfy conventional lending requirements. New construction typically was a percentage of total growth levels. And growth levels usually related to the vitality of catalysts of economic development.
Catalysts of economic development typically reflected concentrations of people such as found in activity centers like performing arts centers and regional malls, employment centers such as regional govenrment facilities or substantial educational facilities, enhanced infrastructure such as new transportation related improvements.
During the bubble, lending to unqualified buyers, patterns related to pyramids, and crowd related motivations, rather than actual need, were evident. And comparing declining prices today, compared to bubble levels, may lead to false conclusions. So yes, prices in many sectors and locations may reflect double digit drops.
But ask: how do current prices compare to "real" markets before the bubble? And how much absorption of inventory is there now, compared to before the bubble?
