Savannah Ga Real Estate -- Misunderstanding The Slow Down

I’m still encountering a misunderstanding about the market slow down as it relates to the area I work, Savannah, Ga. Many home buyers coming to this area are still under the impression that home prices are dropping below what they were a year or two ago. They are not. What is slowing is the rate of appreciation.

Let’s take a round number like $100,000. If a home sold for $100,000 in 2005 and appreciated 10% the next year, in 2006 the home would be worth $110,000. If the appreciation was cut in half the next year to 5%, that home would sell for $115,500 in 2007.

The slow down is the rate of appreciation, but the home is going up in value. From all the statistics I have looked at, this is what is happening in Savannah. When you think the home values are going down from previous years, you may be under the illusion that a home that sold for $100,000 in 2005 can be bought for $90,000 in 2007, but this is not the case.

This has been difficult to get people to understand. I hear over and over, “But this is a buyer’s market and prices are going down.” They bid 20 to 30% below the asking price, against my advice, and are surprised when the seller says, NO.

Now it is true some sellers are still trying to get that 10% (a made up percentage to make a point) appreciation the market was creating 2 years ago, and their homes might be 5% overpriced, but that is a big difference from 30% and falling values – their homes are going up in value but not at 10% a year, but, rather, 5% a year.

So as you can see, the slow down in appreciation doesn’t mean the price of the home will be less than it was a year ago, it means its value will not increase at the same rate of appreciation. This is important to understand when making an offer. What happens is that you miss out on good deals by bidding too low out of misguided expectations.