New Jersey Real Estate Agent

Why Prices Of Princeton Real Estate Are Confusing

If you want to understand the greater Princeton NJ real estate ( as well as Montgomery Township, Hopewell, Princeton Junction), you would need to understand Princeton home prices and their direction.  If you have difficulty finding this information, or if it seems confusing, you have lots of company.

When I talk about clarity in the real estate prices, I don’t mean the future of the housing prices. Predicting Princeton real estate future is not something that could be done accurately, if at all.

I am talking about confusion and difficulty understanding the historical real estate prices.
For example, being able to answer questions such as – did the prices go up or down in the last month, last quarter, or last year? It seems that it should be easy, but it turns out to be almost as
confusing as predicting the future.

I am working on a project of clarifying the picture for the Princeton real estate market and will publish the results soon.

What makes real estate prices of Princeton real estate unclear?

My January Market Report made me realize, I have been participating in the confusion, without any intention of doing so.  Let me explain. For the month of January 2008, the data in Princeton shows 42% increase in median price, compared to the same period of last year. I explained to my readers that it is not a cause for celebration, but is rather the effect of several large sales that occurred this January which skewed the results.

The first factor contributing to the confusion, is the large spread in real estate values within a town.
For example, in Princeton NJ the range in January 2008 for the houses sold was
from $425,000 to $4,125,000. Median price of homes sold depends on the
mix of the houses sold in a particular period.  rises In the months when a lot of high end homes are sold the median price rises and it  falls when a lot of lower end homes are sold.

For example, Princeton real estate report of median prices in March being higher then in February, does not mean that the prices are rising. It could mean that there were more expansive houses in the mix of homes sold in March then in February.

The second reason for the confusion is the fact the all the Princeton real estate home sales are combined. Princeton real estate homes purchased 30 years ago or 3 months ago are all part of the mix.  This can create an illusion that prices are rising, when in fact they could be falling. The price would most likely be higher then original for the houses purchase over 5 years ago, while for many Princeton homes bought in the last 3 years it could be lower.

Accurate Tracking Of Real Estate Price Trends

The way to eliminate these confusions is to look at the repeat sales of the same houses over a period of time. This is what the two most widely indexes  – Office of Federal Housing Enterprise Oversight (OFHEO)S&P/Case-Shiller Home Price were indented to do. The problem is that these indexes provide different results. For the 3d quarter of 2007 compared to the same period in 2006, nationally the OFHEO index reports home prices rising 1.8%, while Case/Shiller reports a 4.5 % decline.  Why the discrepancy again? There are several reasons. OFHEO includes only the houses with loans guaranteed by Fannie Mae and Freddie Mac (less the $417,000). Case/ Shiller includes those, but only reports on 20 major markets.
There are other technical differences in treating the data and the differences in results.

Conclusion About Price Confusion

The bottom line, is that even with the two above methods the prices of real estate could still be unclear, especially if you don’t live in one of the 20 major markets or have a conforming mortgage.

To finally bring some clarity to the issue of home prices, I plan doing my own study. Because my resources are much more limited then the Federal Governments or S&Ps, I am limiting my project to the sales of the
same homes in Princeton from 2005 to present.  In my upcoming posts I will try to answer,  based on the results of this study, the simple question: are the real estate prices in Princeton up or down?

Read: Princeton Real Estate market Report 2004-2008

Understanding Princeton Real Estate Prices

Need guidance in determining the price for your Princeton NJ home for sale? Not sure what to offer for a home you are considering buying in Princeton area? Give us a call 609-553-4175 or shoot us an e-mail at fsechzer@yahoo.com.

Photo by Zeets Jones

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