About Home Value Trends
Sometimes we learn a lot from history. Perhaps a look at historical home value trends will explain why the housing market behaves in the way it does. According to the Census Bureau, median price for new homes are at the lowest level since 2003 and the housing market is going through a period of negative growth.
A study of the home market trends from the beginning of the century shows an interesting pattern. The housing market doesn't always go through a boom followed by a bust pattern as is widely believed. In most cases, a stagnant period in which the prices remain stable or increase by a marginal amount follows most of the boom years. Often however, prices show a sharp downward trend or a bust. Boom or bust, the market price of homes always stabilize. The House Price Index, which is a measure of average price changes in repeat sales of single family homes, grew at an average of only 5% between the years 1978 and 2003. Thus a historical perspective of home value trends is useful in understanding how the housing market will perform in the future.
Robert J Shiller, a Yale economist, created an index of American housing prices from the 1890s forward . Although it is only based on the sale prices of existing homes (new construction was not considered), it gives an idea of historical home market trends over the years. According to the graph, a house which sold for $100,000 in 1890, would have sold for $66,000 in 1920 and $199,000 in 2006.