Monday, December 03, 2007


God and Nature decided that home prices would go up forever!

Recently I consulted for a "short sale" on a waterfront single-family home in Cape Coral. The lot was purchased in 1987 for $11,000 and sold in 1999 for $26,000. This 7.42 percent compounded annual rate of appreciation was normal.

In 2001 the lot owners built a house, which they sold in November 2005 for $700,000. It then "flipped" in April 2006 for $1.2 million and again in October 2006 for $1.9 million. This was NOT normal.

Today, the fair market value of that property is approximately $500,000. Using the historic annual compound appreciation of 7.42 percent, it will take almost 19 years for this $500,000 property to be worth $1.9 million again. But remember, that $1,900,000 final sales price was artificial, driven by speculation and not genuine demand.