While the latest S&P/Case-Shiller home price statistics for 20 of the United States largest metro markets showed a 4.4% year-over-year decline, a closer examination of the data reveals that on average, the same markets appreciated in value by more than 50% over the past five years, says the National Association of Home Builders (NAHB).
“It’s important to keep things in perspective,” said Brian Catalde, president of the National Association of Home Builders (NAHB) and a home builder from El Segundo, CA, U.S. “The current housing price correction is most pronounced in the once super-heated markets in California, Nevada, Florida, and Arizona. In most other markets, price declines have been pretty modest.”
For example, in Chicago, home prices declined 1.3% between August 2006 and August 2007, while posting a 34.2% gain for the five-year period between August 2002 and August 2007.
Among the 20 markets surveyed by S&P/Case-Shiller, which represent more than 40% of the U.S. population, four posted home price appreciation rates of more than 80% over the past five years while 11 registered gains of more than 45%.
While housing is a cyclical business, experience shows that over time, home values will stabilize and then move upward with the next recovery, said Catalde. “To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today--and that’s just not going to happen,” said Catalde. “Despite today’s housing slowdown, the cost of land, labor, and materials required to build new homes continues to go up.” Furthermore, Catalde noted that the rapid appreciation rates in 2003-2005 were clearly unsustainable over the long-term, and that housing typically increases in value slightly above the overall inflation rate.