General Blog Posts

The Lost Decade – The Continued Decline of U.S. Home Prices

By June 8, 2011 No Comments

Calling the trend in U.S. Home Prices a “Double Dip” implies that there was once a recovery. Although it doesn’t have quite the same ring to it, I think “Continued Decline” may be more appropriate in this circumstance.

According to data compiled by the National Association of Realtors, of the 158 major metropolitan areas evaluated, 148 saw declines averaging approximately 8.2%. The nine metropolitan areas which improved increased approximately 3.2% on average.

Lebron James’ “Decision” to move to Miami and the subsequent playoff run the Miami Heat have posted probably doesn’t play a role in all of this, but the largest decline from Q4 2010 to Q1 2011 was seen in the Akron, Ohio metropolitan area with a 28.9% drop in median home values. The largest increase (6.7%) occurred in the Cape Coral-Fort Myers, Florida area which is a stone’s throw away from the American Airlines Arena in Miami. The above hypothesis holds a little less water when you consider the fact that the Miami area saw an approximately 18.0% drop in median home values during the same period.

There was not much to be happy about if you are lending or living in a major metropolitan area but not all of the data released by the NAR was negative. The NAR also evaluates median home values on a state-by-state basis (and the District of Columbia). The District of Columbia, and 49 of the 50 states improved from Q4 2010 to Q1 2011, at an average rate of 14.6%. The lone declining state was Vermont , with a 7.1% drop in value.

The improvement in home values outside the major metros is caused by two things. During the housing boom, metropolitan areas saw the largest improvement, so they’ve got the farthest to fall. Also, in 2010 the major metropolitan areas saw a stabilization in value. This may be where some people are getting the “Double Dip” moniker from. State averages however, continued to take a hit. My guess is that people who worked, but couldn’t afford to live in major metros saw the decline in metro home values and took the opportunity to move closer to work. This theory, if true, would prove the lag in home value decline. But you saw how quickly the “King James” theory of home price prediction was disproved.

Now, onto the last theory. The one that drove the eye-catching title of this blog post. Were the past ten years a “Lost Decade?”

They weren’t that bad to the major metros. Of the 149 areas classified as “Major Metropolitan Areas” during both Q1 2001 and Q1 2011, only 32 lost value. The average index of all metropolitan areas increased 26.9% over the past ten years. The farthest you can go back and still see a decrease in average metropolitan area price index is the third quarter of 2003.

The state indices, which provide a broader picture of U.S. home prices, tell a different story. Over the past ten years, 35 of the 50 states and the District of Columbia saw declines. The average index of all states fell approximately 8.3% over the past ten years.

In determining “Lost Decade” status, I would side with using the state indices as they represent the entire nation (plus, that is the index that makes my title relevant). Lost Decade or not, looking at these indices proves that home prices are incredibly volatile both over time and across areas of the United States, solidifying the importance of avoiding concentrations in your real estate portfolio.

Dan Price, CPA
Twenty Twenty Blogger

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