Real Estate News

Home Resale Values Jump by Double Digits in 43 Major Markets

by Kenneth R. Harney

With all the talk of economic recession and housing “bubbles,” you’d think appreciation rates on home values would be slowing down sharply. But that is not the case--at least not so far. The latest appreciation data from the federal agency that tracks home values shows double-digit rates of gain for the 12 months of 2002 in 43 metropolitan markets. True, the national average gain last year fell slightly to just under 7 pecent. But that rate is still more than twice the rate of inflation for all goods and services in the national economy overall. Housing remains hot, thanks in large part to 40-year lows in mortgage interest rates and continuing high demand from consumers. Top gainers among the most populous metropolitan markets for 2002, according to the Office of Federal Housing Enterprise Oversight (OFHEO): San Diego, where the average home rose in value by 15.2 percent; Long Island’s Nassau-Suffolk counties (up 14.6 percent), Miami, West Palm Beach and Boca Raton, FL (13.2), Los Angeles (13.1) and Ft. Lauderdale, FL (12.6). Boston, once the hottest high-cost market in the U.S., cooled a little in 2002 to “just” a 10 percent average gain. Nonetheless, the typical home in metropolitan Boston has gained 74 percent in value over the last 60 months alone. Homes in Washington D.C. were even hotter than that--up 12.4 percent on average last year, and up by a stunning 79 percent in the last five years.

At the other end of the spectrum, 22 major real estate markets experienced net depreciation in home values during the final quarter of 2002--though no U.S. market experienced a decline for the full year. Among the slowest-growing major markets on the appreciation list for 2002: Provo, UT (up 0.9 percent), Austin, Texas (1.4 percent), Salt Lake City (1.8 percent), Memphis and Tulsa (2.2 percent), and Raleigh-Durham NC (2.4 percent). All the national and metropolitan data is available at www.ofheo.gov/house. OFHEO tracks repeat-sale and refinancing valuations on a massive database of nearly 20 million individual home transactions, spread among 180-plus markets. A few formerly high-flying metropolitan markets hit by the high-tech and Internet employment busts of 2001-2002 turned in better than anticipated annual performances last year. For example, San Jose, the epicenter of the dot-com meltdown, saw home values grow by 4.5 percent during 2002, despite continuing softness in its high-tech employment sector. Ultra-high cost San Francisco--where “starter” homes can carry price tags of $700,000 or more--registered a surprising 5.7 percent increase last year, and Santa Rosa just to the north, came in with a 7.1 percent average appreciation rate, higher than the national average.

Though the final quarter of 2002 saw average appreciation sink to its lowest rate since mid-1998, economists cautioned that quarterly data released by OFHEO often gets revised the following quarter. So the final quarter’s average national rate of 0.83---less than a 4 percent annualized rate--should not be an alarm bell for 2003. In fact, said one federal economist, just three states--Vermont, Wyoming and Alaska--experienced declines in values during the final quarter versus seven states during the third quarter. The outlook? As long as the cost of money allows trade-up and first-time buyers to afford higher and higher home prices, the current record appreciation boom should continue. Though it’s likely that 2003 will bring more moderate price increases than those of 2002, those gains are likely to remain well above the overall national rate of inflation, and preserve housing’s current role as the financial dynamo of the American economy.