Slight softening detected in growth of your best asset

Nation's Housing

September 09, 2001|By KENNETH HARNEY

WHATEVER the doomsayers may tell you about the weakening economy and the inevitable dire effects on the value of your home, you should know this: The only federal agency that tracks the market values of homes nationwide has just documented a slight - very slight - softening in the rate of appreciation of American housing values.

But the annualized rate of appreciation for the average home during the first half of 2001 was still a hefty 7.8 percent. While that's down from the torrid annual rate of 9.5 percent in 2000 - the highest recorded in the past two decades - it's still more than twice the rate of inflation.

With prices rising in the economy by about 3.7 percent, excluding shelter-related costs, housing value growth at 7.8 percent in 2001 shows that American consumers "choose to [invest in] housing over and above many other goods and investment vehicles," according to the Office of Federal Housing Enterprise Oversight. That agency monitors the value changes in a vast database of more than 14 million home-sale and refinancing transactions.

Its latest study, covering value changes through June of this year, found that:

Home-price appreciation is still at 10 percent or above on an annualized basis in 49 of the 180 largest metropolitan markets. In many of the fastest-appreciating markets, average gains are well over 1 percent per month.

The average house nationwide has gained 34.8 percent in resale value since 1996. That means that the condo you bought five years ago for $150,000 would sell for about $202,500 today. A house you bought for $250,000 in 1996 is probably worth about $337,500.

Five-year gains in dozens of markets are far beyond the national average of 34.8 percent. For instance, the value of the average home in San Jose, Calif., has more than doubled (up a stunning 109.4 percent) in the last 60 months alone. In Washington, the average house's value jumped 14.4 percent last year, 16.4 percent on an annualized basis between March and June of this year, and by 49.9 percent in the last 60 months. In the Baltimore metropolitan area, the one-year gain was 7.8 percent, and since 1996, values have risen 24.1 percent.

Long-term gains from buying a house continue to be impressive. In Massachusetts, the average house has more than quadrupled in resale value since 1980, tops in the country. During the same period, homes jumped in value by 283 percent in the state of New York and by 200 percent or more in California, Connecticut, Colorado, Minnesota, Rhode Island and New Jersey, among others.

Smaller real estate markets are racking up gains that are just as impressive as those of some large, metropolitan markets. For instance, Naples, Fla., already a high-cost resort and retirement area, saw an average 12.2 percent gain in resale values during the past year. New London, Conn., where local government and industry leaders are pushing hard to reinvigorate a long-stagnant economy, produced an average 10.1 percent gain in home values.

Despite signs of a cooling trend in high-appreciation markets where local economic conditions have changed for the worse - such as San Francisco, Silicon Valley and Austin, Texas - the declines in home market values there have been modest. All of those markets are still seeing gains in double digits.

Even at the low end of the housing appreciation scale, where federal researchers typically find hard-hit economic pockets with net declines in home values, the latest study found no market in negative territory. During the early 1990s, by contrast, numerous markets were deflating in value, including entire swaths of Southern California.

What's keeping the value of homes so high, particularly at a time when every day's news seems to mention another big corporate layoff, more trouble in the stock market, and other portents of recession?

Two factors are particularly important: Low mortgage rates and continued healthy income gains for households. By now, every homeowner in the country has heard that "it's time to refinance - again." And with rates in the 6.5 percent to 7.0 percent range last week, it just may be.

But those same low rates are also enticing hundreds of thousands of people either to buy their first home - pushing up demand and prices at the low end of the homeownership food chain - or to sell the house they have and buy a new, costlier one.

Household income continues to grow nationwide at a rate faster than inflation. Unemployment is steady at 4.5 percent - a rate that for much of the last two decades would have made the most dour economists perk up and smile.

So take from the latest federal housing appreciation numbers the positive message they truly convey: Your biggest asset continues to outperform the stock market, inflation, money market funds and bonds. And that should be very good for your personal bottom line, indeed.(To see the latest housing price study online, go to www.ofheo.gov)

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington D.C., 20071. Or e-mail him at kenharney@aol.com.

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