Home Appreciation

Homes over the last 40 years have appreciated at about 4% a year, or at 0.5% above the inflation rate. As prices fluctuate outside this norm they tend to return to that norm over time. Thus the 14% appreciation we experienced a couple of years ago was almost certainly not sustainable. Consequently the real estate "bubble" burst and prices have dropped by around 10% to their historic average. It also means in the long term house prices will once again start appreciating at roughly 4%. Housing has historically been demand driven, primarily by the growth of the population. The housing boom of the late 1940s was driven by the troops returning from overseas and wanting to to buy homes financed by the GI bill. The increased divorce rate, and lower birth rate have decreased the average person per house, and accordingly increased the house demand. The wealth created in the last ten years created a market for second(and third) homes and in the process increased demand. The recent fall of the dollar in relation to other currencies has made U.S. housing look cheap in relation to overseas housing. This has increased the demand for "vacation" homes, particularly along the coasts, for overseas owners. Because all regions of the country grow, or contract at different rates each may in a different trend. Generally speaking the coasts experience much wilder home value fluctuations than the northeast or midwest. While housing prices have historically been demand driven the recent real estate bubble was in part created by building more housing than demand dictated. This was in part the result of home building becoming increasing a national function replacing in a large part the local home builder. This resulted in many markets, a disconnect between the local demand and supply.