The American home-value appreciation machine keeps pumping out near-record inflation-adjusted gains. The latest data from the government agency that tracks the appreciation rates of millions of individual homes reveal that the average gain nationwide during the past year has been close to 5 percent--or about four times the underlying rate of inflation in the economy overall.
Houses in a handful of states have done even better. The typical California home jumped by 8.3 percent in value from the first quarter of 1998 through the first quarter of 1999. Massachusetts homes were up 7.9 percent in the same period; Michigan homes were up by 6.1 percent, Georgia by 6 percent and Colorado by 5.8 percent.
What does a 5 percent appreciation rate mean to you as a homeowner or prospective buyer? Faster and more substantial tax-free equity growth than you might imagine, thanks to the magic of compound interest: A house you buy for $200,000 in a 5 percent appreciation market this weekend turns into a $231,000-plus house in 36 months, and a $255,000 house in just 60 months. Of course, that's assuming a continuation of today's economic conditions, which no one can forecast.
But forecasts aside, the statistical evidence is strong that, even with relatively short periods of softness in regional markets, homes nationwide have produced impressive capital gains for owners over the past 20 years. Consider these findings extracted from data compiled by the Office of Federal Housing Enterprise Oversight, an agency that conducts quarterly market-value research on a national sample of 11.5 million houses it tracks through repeat sales and refinancings:
* A typical house bought in New England in 1980, before the super-inflationary run-up of the late 1980s, and held through the retrenchment of the 1990-92 recession, now is worth more than three times what it cost 19 years ago. You do the math: what was a $150,000 house now costs more than $450,000; what was a $250,000 house now sells for more than $750,000, and so on.
* The average house bought in the United States in 1985 has more than doubled in resale value. Homes in a handful of states have produced astounding returns for their owners--almost on the scale of stock market yields--in just the past 60 months. The typical house in Utah is worth nearly 50 percent more than it sold for five years ago. Michigan, the turnaround-phenomenon state of the decade, has seen the value of its average home grow by almost 41 percent since 1994. Oregon homes have gained about the same--41.3 percent. Colorado has also sizzled, with average gains in resale values of 39.1 percent during the last five years.
These are big numbers, especially in markets where houses started in the range of $175,000 to $225,000 five years back, and have increased the personal wealth of their owners by $90,000 to $125,000.
* Not every housing market has been hot, of course. For the last five years, for example, houses in one state have actually lost market resale value consistently. Can you guess where? Would you believe paradise? The typical home in Hawaii is worth almost 12 percent less today than it was in 1994, a victim of the state's current lagging tourism and the wild inflation of the 1980s.
* Some markets you assume have been flat--along with their underlying economies--have been chugging along nicely. South Dakota homes have appreciated by nearly 25 percent since 1994. North Dakota, Oklahoma and West Virginia homes are all up by an average of 22 percent during the same period.
On the other hand, markets you assume are hot because of strong population growth and new home building, turn out to be cooler than you would have guessed. Nevada homes, for instance, are up just 15 percent since 1994, 1.8 percent during the past year, and up a below-average 87 percent since 1980. Vermont, though stunningly beautiful and tucked away in booming New England, hasn't produced big value returns for its homeowners: up just 2.5 percent for the year, and an anemic 8.3 percent over the past five years. New Hampshire next door, by contrast, has seen its average home gain 6.9 percent in the last year alone, the third-highest annual rate of appreciation in the country.
What's the bottom line on all these statistics? Two thoughts jump out:
First, an overall national rate of 5 percent appreciation in a low-inflation economy is great financial news for existing owners--and for new buyers, if it can be sustained.
Second, if your market isn't on fire at the moment, don't give up. Real estate markets tend to be self-correcting. They bounce back by becoming relatively more affordable--unless your underlying local economy is stagnating and no one wants to move in. If that's the case, you don't have a home real estate problem. You have a bigger problem.