How will your Berkshire property value fare in 2015 and beyond?

Berkshire property valuation is a daily task of Berkshire real estate agents.  The Berkshire home seller first wants to know "how much is my property worth"?  And that brings me to one of the most common laws of physics.

Newton's law of motion states that a body in motion tends to remain in motion unless acted upon by another force e.g. gravity, friction, etc.

This same rule applies to the value of Berkshire real estate. Rising values, a state most sellers had come to more or less "accept" as a given in real estate through 2007, sometimes rising faster and sometimes slower, gave way suddenly to massive systemic reversal.

My own real estate career began in 1975 and from that time until the early 2000s we could pretty much count on an average rate of appreciation here in the Berkshires over the years of around 5 percent.  What accounted for this reliable pace?  Inflation, the general rise in prices of goods and services in the nation's economy.

Following the horrific events of 9/11 the economy took a nosedive and the FED stepped in with historically low interest rates which naturally are favorable to borrowing money which is what feeds in large measure the real estate markets as the vast majority of buyers take out mortgages.  The very low rates as well as very low down payment loans and lenient lending standards helped build momentum for a recovering economy and the dramatic rise in real estate prices that peaked in '07 in what was a classic bubble.

This happy scenario was inevitably followed by the downside of foreclosures and tumbling prices to where we are today, at roughly 35 percent off the peak in this region.

We read in the media of the real estate recovery and to be sure, parts of the country have definitely experienced some notable reversals of fortune such as San Francisco, Seattle, Portland, Manhattan, Miami, and even Boston in the Northeast.

In the Berkshires we have some forces at play that act as headwinds to a stronger recovery and which have been slowing the momentum of prices.  Not only has inflation been muted as in energy for example but we still face the headwinds of falling population and declining employment, more acute in central and northern Berkshire County but the southern sector has by no means been immune.

Besides the economic and demographic headwinds which have added inventory (supply) and reduced demand there is one other really crucial element to value that is often overlooked by many sellers namely depreciation.

When demand was high, anything could and did sell simply because there were more buyers than homes.  Today the opposite is true; inventory far exceeds the demand for housing so unless a property stands above the competition its chances of selling are far less favorable.

How does a property excel?  Obviously location is vital however even that can be hindered if the seller has lived in the home any length of time without maintaining and updating the property. Dated properties are much less attractive to young buyers. 

Buyers today have so many choices and will naturally choose an updated home when all else is equal.  Updates desired include kitchens, baths, updated heating systems, energy saving appliances and construction, homes in "move in now" condition. 

Tired, outdated, and out of style homes have significantly lower market appeal and as such will inevitably remain longer on the market without some counterbalancing steps being taken.  These would include either correcting the defects or lowering the price to be more competitive.

Unlike antique cars for example which derive their increasing value with time and scarcity, the older a home becomes the more it depreciates in value.  With renovations and updating some of the impact of natural depreciation can be offset but of course that also involves an investment of more time and expense to the seller.

Sellers of anything but new homes need to heed the advice of their real estate agents who are qualified to price a "used home". These sellers may have loved and enjoyed the home for years and have difficulty separating themselves emotionally when it comes to pricing.  Buyers don't have the emotional attachment.  Just like pricing cars on a used car lot, it is essential that the home be priced relative to other homes that have recently sold and which offered similar age, qualities and features.

For 2015 and the foreseeable future it does not appear likely that inflation will return, that demand will outpace supply or that employment will return to the area in significant numbers.  As such any home that is 4,7,15, 30+  years old cannot by the law of economics increase in value without offsetting repairs and substantial updating.

If you want to fly, there is no sense in ignoring the law of gravity and if you want to buy or sell real estate, best to keep the law of real estate market value equally in mind.