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November 21st, 2008 9:06 AM by David W. Welch
It's June 2004. That was the last time prices were this low in Orlando. The median price back then was $175,000, and it looks like we are going to see a median price in November 2008 pretty close to that, maybe a little lower. Just to remind everyone, June of 2004 was really before we started our big boom here in Orlando. Most of our price appreciation happened over about a six month period early in 2005. From February to July of 2005 our median price went up 25% from $196,000 to $245,000. For the next two years the median bumped along between $240,000 and $254,900. It did jump up once to $264,436 in July of 2007, but for the most part for two years we saw monthly ups and downs in the $240's. August of 2007 was the last time we saw the $240's. Since then, prices slowly until June of this year. In June the median price was $216,000 dropping nearly 18% to $178,000 in October.
I have been saying that we are at the bottom for three reasons: first, investors are starting to pick up bargains; second, rents and prices are in parity (properties can cash flow with 20% down); third, the affordability index is over 120. Of course not all properties are price appropriately, so you still have to do your research. It is also my expectation that prices will fall a bit more as these cycles tend to over correct. I am looking forward to Mr. Obama selecting a treasury secretary, so that will be one more uncertainty taken out of scheme of things. I am sure that he is waiting on that until the last minute so that the fourth quarter numbers cannot be attributed to his administration in any way. That is a smart political move, but it delays recovery by a month while the markets wait for stability. Secretay Paulson in the mean time could help quiet things by not continuing to change policy on a weekly basis.
Some of these pearls I got from Kevin Hassett at a luncheon yesterday sponsored by SunTrust. He is Director of Economic Policy Studies at the American Enterprise Institute. He also served as economic advisor to John McCain's campaign. According to his analyses the markets have priced in a 50% default rate for corporate blue chips. The highest default rate in the history of the market is 3%, so he believes that there is some over reaction going on right now. One reason for it is the questions still unanswered about the "bailouts". The bigger reason has to do with a couple of policies that Obama supported in the past that could replicate some of the conditions of the Great Depression. Mr. Hassett does not believe that Mr. Obama will look to modify his position on those issues in light of the current economic situation. Specifically, they deal with unionization and restraint of trade in the form of tariffs. Just google Kevin Hassett for more on his views. I found them very insightful.
I would like to thank SunTrust and my host Marcus Hopkins with Endowments & Foundations Services for giving me the opportunity to attend Mr. Hassett's presentation.
David Welch, Orlando Real Estate Blog