Abstract: The median price per square foot in the purchase or sale of a home is the weather vane of the real estate market, foreclosures are affecting this powerful indicator, but overall the news is not as bad as it appears.

The median price per square foot is a vital barometer of the overall state of health of the real estate market. Here’s why: First builders and developers use it in order to estimate their costs and return on investment in new properties they build and older properties they acquire, re-model and sell on.

Second, home buyers use it to determine their budgets and buying power.

Third, it is used by Realtors as a barometer if the way the market is heading so that they can calculate what is happening and what the overall trend is.

Fourth, it is used by appraisers and lenders as a means of calculating the value of a home against a loan or early sale.

Fifth, it is used by foreclosure experts who use it to calculate the bargaining power they have.

For all of these reasons the moment the median price goes up or down the market as a whole shifts accordingly to compensate. At the moment in Seattle, for example, the news is that the median price per square foot fell by a whole $3.00 from $240 (which, incidentally was a record high) to $237.00.

It is tempting to read too much in this shift and argue that the market is in decline, values are dropping and the real estate market is shrinking, but then when we actually remember that it is still above last year’s levels we realise that the perceived shrink is against current price performance level expectations which may be unrealistic, rather than a decline as such.

In addition to this the fact that the foreclosures hitting the market are releasing house stock which is selling well below its market value and therefore well below the per square foot price it would get if it was sold through normal channels, must indicate that the value of homes is still rising otherwise the per square foot drop would have been a lot steeper.

All this becomes relevant only if you are thinking of selling your house or buying a home. Unless there is an urgent need to sell a house waiting for foreclosures to settle and the market to find an even keel again will only benefit you. If you are buying perhaps now is the time to find a real bargain in either a brand new home or one of many bargains hitting the market as part of the property foreclosure sales.

Foreclosures are a hot item at the moment with a lot of attention being given to the fact that they appear to be on the increase. Foreclosures also play a vital part in stimulating the housing market by allowing new home owners to come in at a level which perhaps they would not otherwise afford. As long as they do not get out of hand and start having a negative impact on the market then they are nothing to worry about.

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