Why Home Values Will Continue Higher (For Most)

This article is from my fellow Realtor in Tallahassee, FL, +Joe Manausa, even though it is from Tallahassee, it is still good content as Tally is still located in Florida, last time I checked.


As more areas and price ranges reach market equilibrium, we are seeing home values move higher. If you are wondering if this trend will start to cool for homes for sale in Tallahassee, I would tell you that it is highly unlikely when we consider two key points. Latest Trends Support Continued Growth!

Average home values for all but one month this year have been above the one-year trend line. This suggests that we are in a very strong trend that should continue moving in the same direction. But there is another reason why we suspect average home values in the Tallahassee real estate market will continue to rise.

Home Values Are Still Below Replacement Cost (We see the same thing here in Jacksonville)

The market is always seeking cost … but what does this mean? When the supply of homes greatly exceeds the number of buyers, we say that we are in a buyers market and homes will often sell below what it would cost to replace them. When the supply of homes does not keep pace with demand, then buyers will pay a premium to get a home, often at prices well above what it would cost to replace them. Regardless of the market, home values typically fluctuate at or near the cost of replacement. When values get too far away from replacement cost, the market shifts to move values back in line. Why? Because builders will stop building if they cannot get their cost and profit back on sale. But as soon as they can build a home for profit, they do so.

I hope the trend explaining real estate market cycles helps you understand the overall market. But you need to know that supply and demand are in balance for only certain price points, while some are still dealing with an imbalance between the number of homes for sale versus the number of qualified buyers in the market. Specifically, high end homes are going to continue to fight this imbalance, with the likely result being continued declining values.

It will be interesting to see how higher priced homes and lower priced homes move in the next few months. There will always be fewer buyers for million dollar properties. However, it will be more interesting to see how much higher the lower priced properties will rise, probably to somewhere around the cost to build new.

#LizBobeck