Patterns of price appreciation in American residential real estate are beginning to shift in important ways, and buyers and sellers in the 1980s would be wise to stay in touch with the new trends.
Discussions with top appraisers in every region of the United States reveal strikingly similar patterns emerging in resales. Smaller, more modestly priced units in cities or close-in suburbs are rising in resale value faster on an average percentage basis than larger, more expensive units in the same communities.
Town houses and condominiums, which tended to lag in appreciation rates behind detached, conventional dwellings during most of the 1970s, are now often doing better -- provided they're in the middle price ranges or below. n
Energy-conserving houses, either newly constructed or rehabiliated, are growing faster in resale value than oil or electricity guzzlers that require large monthly outlays.
"What we're seeing everywhere," said John M. Travis, vice-president of Midland Appraisal Associates of Rochester, N.Y., "is the emergence of a new set of winners in real estate. The name of the game in an economy where money is tight, interest rates high, and people have to strain terribly to own a house, is affordability."
If you've got a decently located house, with a moderate energy cost per month and a price tag not much beyond the median for the area, Travis said, you'll be in relatively good shape for the first several years of the 1980s.
These units may produce smaller dollar profits in resale than more expensive, larger properties. But on a percentage basis, they'll be gaining in value more quickly. A $50,000 new, energy-conserving town house in a well-located cluster development, for example, may gain $10,500 in value between 1980 and late 1981. A $10,000 detached house across town may go up in resale value during the same period by $12,000 -- but the town house will have jumped by 10 percent per year, while the larger house rose by just 6 percent per year.
Travis and other members of the American Institute of Real Estate Appraisers believe that appreciation rates for U.S. housing in general will decline in the 1980s. Rather than the 14 and 15 percent annual gains in resale value common in the late 1970s, houses in the 1980s probably will rise in value more slowly -- perhaps in the 7 to 10 percent range on average.
The mathematics of the housing market alone tell you that the percentage increases of the last four years can't be sustained, the appraisers point out. Incomes of Americans have lagged several points behind inflation for the past three years, but have been "absolutely left in the dust by housing price rises," in the words of a Denver property appraiser.
As a result, residential real estate valuations will tend to be more heavily influenced by the month-to-month, bottom-line costs of owning and operating a house than was the case in the 1970s.
Higher-priced units that come with 12 percent or greater mortgage rates, large annual property tax bills, heavy commute-to-work expenses and other recurring costs, will tend to be more vulnerable to price cuts in the 1980s than the same houses were in the 1970s.
That doesn't mean they'll be poor investments or trail behind inflation. It does mean, though, that on a dollar-for-dollar basis, houses in the upper segments of the market won't gain as strongly in the next several years as their more modestly priced, energy-efficient competition.
One exception to this general rule, appraisers note, is in the super-luxury category of the market -- the top 1 to 2 percent of the price spectrum. Values of older, architecturally significant homes in prime urban locations have been rising rapidly in markets such as Washington, Baltimore, Seattle, various California cities and elsewhere.
Houses like these "are in an economic world unto themselves," said a Los Angeles appraiser, and are sought by well-off buyers almost as if they were "collectables" -- nonreproducible works of art that grow in value over the years.
Some other winners emerging in real estate price trends:
Houses in small-city, "secondary growth areas" -- the fast-developing communities located on the fringes or outside of metropolitan areas. Industries are looking for the lower-cost land and labor such cities and towns offer, and their arrival inevitably enhances real estate values.
Houses or condominiums located in downtown areas that are about to receive large, multiyear federal development funding infusions. People who find out in advance where the federal dollars are headed can reap huge gains on resale of properties in the "new" downtowns.
Houses with long-term, modest-rate mortgages -- and sellers willing to assist buyers with secondary financing. One of the sure ways to get full price in the 1980s, when short-term, renegotiable-rate mortgages are likely to become the only financing available from banks and S&Ls, will be to own a house with an especially attractive mortgage.