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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: John Vosilla who wrote (34838)	6/27/2005 9:36:40 PM
From: Elroy Jetson	Read Replies (2) of 110194

Two major factors explain most of your observation. I've personally experienced certain properties in my Florida market easily decline 40% (roughly 1986-93) even though year over year we have never actually experienced an overall decline in prices. First, the sale of foreclosed homes are often not included in the average sales price or other valuation index for an area. As surprising as this is, as it amounts to little more than lying, it is frequently the case. The excuse is that these don't constitute "normal" sales. Second, unless a home owner is bankrupt or in foreclosure, there is a great disincentive to sell a home for less than the mortgage amount. Thus homes which have declined greatly in value are not include in most home price indexes as they are not sold. Between these two factors, it is common to see home prices decline by 50% or more during a real estate crash, while a valuation index of the area may indicate only a modest decline of 20% or less. Statistics don't lie, but liars use statistics. .

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