January 17, 2017
Last week we focused upon the employment situation in the long-term — looking back at 2016 and for the past eight to ten years. If there is one economic indicator which rivals the importance of the employment situation, it is real estate. Looking back, the real estate boom contributed to the great economic times we enjoyed just over a decade ago. And it was the collapse of that boom that sparked the financial crisis and the great recession we faced. Though the full year numbers have not come in for 2016, there has been plenty of news regarding the recapture of the real estate equity America lost during the great recession.
The numbers are not even across the country, but in general, real estate has finished the year at an all-time high in many areas. According to Zillow, the total value of U.S. housing stock grew to a total of $29.6 trillion in 2016, reaching this all-time high. Zillow also reports that the housing stock showed an increase of $1.6 trillion from 2016, a 5.7% increase in value. These are pretty impressive numbers, but when you factor in that these numbers represent a “break even” since 2016, the data takes on a different meaning.
Fortunately, we don’t want to stop there when looking at the performance of real estate. For example, in 1986, the average existing home price in the United States was $98,500. In November of 2016, the average was $276,800. This means that the total appreciation rate has been close to 300% over 30 years, or about 6.0% per year compounded annually. Of course, the rate of return is much higher when we figure that the purchaser of a home did not typically pay cash for their home in 1986, and nor would they today. The bottom line? If someone bought a home 30 years ago, and paid their regular 30-year loan payment over 30 years, they would now have an asset of approximately $300,000 free and clear — even if they only invested $10,000 to purchase that home. Thus, a short-term view of real estate is not necessarily the best view, as real estate is a long-term investment for the average homeowner.
Source: Origination Pro