David E. Johnson PE: Median and Average Price of Homes

Decade of Housing Prices

Source: www.census.gov

Median Average Appreciation or Depreciation

Median Price of Homes

1970 $23,400 $26,600

Appreciation of $145,600

1980 $169,000 $207,000

Depreciation of $46,100

1990 $122,900 $149,800

Appreciation of $46,100

2000 $169,000 $207,000

2001 $175,200 $213,200

2002 $187,600 $228,700

2003 $195,000 $246,300

2004 $221,000 $274,500

2005 $240,900 $297,000

2006 $246,500 $305,900

2007 $247,900 $313,600

2008 $232,100 $292,600

2009 $216,700 $270,900

Appreciation of $52,800 (2000 – 2010)

2010 $221,800 $272,900

WOW ……….. What happened during the ‘70’s to realize such a large appreciation in the median price of homes?

From 1970 to 2010, the median price of homes in the US has increased $198,400 - an 848% increase.

I am not at suggesting that we need to live in our homes for 40+ years to realize a gain. But we do need to stop looking at buying a home as a pure investment – however it is an investment because:

1. It is a hedge against inflation

2. It is an investment in your community

3. It is the foundation for your family

4. It is like the weather, wait and it will change

5. It teaches us to slow down and mobility is not the answer anymore

The national media continues to discuss the lost equity in our homes and compare the pricing to the height of the bubble. The length of time we have stayed in our homes is getting back to 7-years. This has been the standard for decades – except during the housing bubble when the time was reduced to 4-years.

In 2003 median price = $195,000

In 2010 median price = $221,800 -- a 13.7% gain. So what is the problem?

Let’s compare the price changes for everyday items over the past 4 decades:

1970 2010 2012

Interest Rates 5.03% 4.69% 3.66%

For historical context during previous recessions, the following are annual averages

1974 9.19%

1981 16.63%

1989 10.32%

2000 8.05%

Gallon of Gas $0.36 $2.79 $3.39

Movie Ticket $1.55 $7.50 $8.20

Milk $1.15 $2.79 $3.89

Inflation* 5.9%** 1.10% 2.60%

* government redefined how inflation is calculated. Food & energy was taken out of the equation in 2007

**inflation went to 13.5% in 1980!

Income $7,494 $47,425 $49,000 estimated

Everything we do is all about timing.

However, the appreciation of housing prices over the decades is a good thing! The key is to buy what you can afford and stay for as long it is practical for your family. The longer you stay in your home your equity will increase by paying down the mortgage and by prices will go up --- over time.

Inflation is down considerably………………or is it?

Income is keeping up with inflation ………..how long will that last?

With a median salary of $49,000 per year and an interest rate of 3.66%, what price of home can you afford?

= $170,000

Median Price of a home $221,800

OK……………..after all of the above, what does it mean to you, your family and friends?

If you know of someone that may be in the market to buy a home, NOW is the best time. I am not sure we will ever see this combination opportunity of low interest rates and low but rising home prices.

If you can afford the monthly cost of a mortgage, real estate taxes, home ownership, you should consider buying rather than renting.

The other way to look at the above data is the economic environment in which we are currently working in. Low inflation to low interest rates relationship but the housing market is still upside down. I am not an economist but the economic framework is completely different than any other time over the past 40-years.

By the way, the median price of a home in July 2013 is $257,200. I think the projected rate of appreciation going forward is too low for housing!