Can There Be Such a Thing As a Spring Effect?

• Tweet

• Tweet

A Family Moves Up

I was recently contemplating a situation where a family who had outgrown their home, sold this charming little house and subsequently purchased in a neighborhood of much larger homes. They were trading up from a small three bedroom with a single bath to a gracious four bedroom with one and one half baths. The property size of the new home was ample and level; more than enough space for a pool if they wished to put one in (an impossiblity in their old yard). In terms of total square footage and surrounding neighborhood, there really was no comparison.

Bigger House And Greater Value

What piqued my interest was price. To reserve their privacy, I will withhold what they sold for and what the purchase price was. Sufficed to say, the spread between the little house they moved from and the large home they bought was surprising to me. It seems that for the value, they could not  have done better and this got me thinking.

Price As A Coiled Spring

As prices have been drifting downward almost unabated for more than five years, it seems that that the spread between price ranges must also constrict as a function of percentage. At some point, the buying public will have to take notice of this as well. Why would they buy a cute little three bedroom one bath home when they can get a much bigger home that could easily accomodate the growing family for (relatively speaking) not much more? In other words, as prices decline this spread begins to resemble the space between closing coils of a spring. And at some point, perceived value will drive up demand for the “better” home.  So, like a spring, perhaps price will rebound with it.

Of course other factors in our local economy will be necessary before we begin a more robust recovery, but in the meantime, I will keep watching and waiting to see if the market catches up and agrees with this observation.  One thing is certain, when prices eventually do turn around, the home they moved up to will appreciate at a far greater pace than the home they just left behind.