Central Ohio Housing Market Bubble?

The media in today's world seems to take things and not only dwell on them, but take them out of proportion, create "talking points", and will use nearly anything to create drama and viewers. Without question 2007 has not been as successful nationwide as the preceding years of this century. However, the media goes overboard by painting the real estate market as "doomed" and in the middle of the bubble bursting. This may be the case in certain geographical areas, such as Las Vegas, Florida, California, and along much of the coast, however it is difficult to determine if there ever was a bubble in the first place in Central Ohio.

I have taken statistics from our local Columbus Board of Realtors home sales from the years 1995 to 2007 and conducted a study to determine if there actually was a "bubble" in home prices in Central Ohio. There has certainly been a good deal of appreciation, but has that "appreciation" been greater in the years from 2001 to 2006 (widely recognized as the housing boom) compared to 1995-2000? The statistics say without a doubt no.



My study involves two different levels - the first being some of the more prominent school districts in the Central Ohio area and the other was the entire Columbus Board Of Realtors MLS system. Please take into consideration the study and statistics do not take into consideration homes sold by their owner and some new construction homes (as many new builds are built specifically for a particular client and are not placed in the Columbus MLS System). Regardless, the statistics have a significant number of homes to determine accurate statistics as the entire MLS system had 26,377 home sales in 2006!

At the school district level it was apparent the greater amount of growth and appreciation was realized in the 1995-2000 time frame. While the 2001-2006 numbers did show appreciation, it was recognizably less.

The average appreciation for the 16 school districts analyzed during the period of 1995 to 2000 was 27.20% over the six year period, or 4.53% per year. The time frame of 2001 to 2006, argued by many as the bubble growing and getting ready to burst saw an appreciation of 19.99% or an average of 3.33% over the 6 years.

I decided to take another approach and analyze the entire Columbus MLS system for the same time period. The Columbus MLS covers 14 different counties (Franklin, Delaware, Union, Licking, Madison, Hocking, Ross, Logan, Morrow, Marion, Fayette, Pickaway, Clark, Knox Counties) and offers a wider approach to determining if there was a "housing bubble" in the Central Ohio Real Estate market. In 2006 there were 26,377 homes that sold in the MLS!

Click Above to View Details or Click To View PDF Here

The figures closed any idea in my mind there was a "housing bubble" in the Central Ohio area from 2001-2006. The numbers verified the previous study of individual school districts. For the time period of 1995 to 2000 the average Central Ohio home increased 25.61%, or an average of 4.27% each year over the six years. Meanwhile, the 2001-2006 time frame produced significantly less appreciation - 13.99% over the 6 years or an average of 2.33% per year.

For those of you interested in the individual school district sales data, I have created a graph depicting the school district, average selling price, and year for the time period of 2000 to 2007 (as of September 15th).

Please Click the Graph Above To View Original Size or Click Here to View PDF File

In my mind, there are two ways to look at this data. Central Ohio home owners have not realized the wide unsubstantiated "getting rich" growth as have many people in real estate markets across the United States this century. The Central Ohio area, on the other hand, realized a greater growth prior to the turn of the century and is a much more stable market than those of Las Vegas, Florida, California, and many others across the nation. There is an ease of mind knowing your are not going to see a drastic fluctuation in values. The typical Central Ohio home owner can sit back and for the most part expect an appreciation of 3-5% per year. Not much more and not much less. This is to the advantage of area sellers now, as they haven't seen the huge losses seen by many across the nation. Without a doubt, the Central Ohio market is down, but this area is not faced with the "doom" the national media projects across the television screens and newspapers across the United States on a regular basis.

Personally, I do not blame artificial prices and too high appreciation in values one bit for the area real estate slump. The prices are not necessarily out of line in Central Ohio, in fact, they are still quite affordable. The reason for the slight decrease in property value is two-fold.

First, I believe the media has created a nationwide fear among many home sellers and unsettled home buyers, wondering if now is the time to buy. The primary problem, however, is tied to the local builders and lenders. The builders could not build enough homes during the new construction boom this century. Builders were developing communities wherever they could obtain land, almost without regard of any other details. A few builders were building over a couple thousand homes a year. While the Central Ohio area offers many job opportunities and a lot of new buyers in the market, the new home market was bound to be saturated. People who bought new homes during this "housing boom" often were encouraged to use the builders "questionable" financing. The methods allowed nearly anyone to obtain a loan, regardless of credit history or income. The buy-down rates, adjustable mortgage rates, and property taxes increasing once the home was appraised at its full value are the primary reason for the housing slump.

For the most part, the builders did disclose what they were doing. Unfortunately, many people across the nation and Central Ohio either did not understand the terms and circumstances or wanted to live "high on the hog" for a few years. People now, realizing they are no longer able to afford their home with the increased property taxes or new mortgage rate are faced to either attempt to sell their home or allow it to go into foreclosure - the reason for the slight drop in property values, especially in certain areas. The foreclosures and trying to sell in desperation has caused the values to drop as well as make it more difficult for people who can afford their homes who have to sell to relocate or other circumstances.