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Neal Templin: Check your math — what's your house's value today?

Neal Templin, Rate.com on

Published in Home and Consumer News

Many homeowners look at rising house prices in their neighborhood and think they're getting rich quick.

They should take a second look.

After adjusting for inflation, many housing markets still are below the peaks seen in 2005 or 2006 -- just before the housing bubble burst. Just as with other investments, it's wise to think of home prices in inflation-adjusted numbers, not merely nominal figures, since the gain you realize on property produces dollars that have shrunk due to years of inflation.

Even in pricey markets such as San Francisco and Boston, home prices remain below former highs, according to an analysis by Real Estate Decoded. The analysis took the Case Shiller Home Price Indices, which are based on repeat sales of single-family homes in various markets, and adjusted them for inflation since 2000.

Notably, Midwest markets' real (inflation-adjusted) housing prices are still below 2000 levels, according to Real Estate Decoded. In December 2019, Detroit and Cleveland home prices were at 84% and 83%, respectively, of their 2000 prices on a real basis. And Chicago home prices were only at 94%.

Depending on whether you're a buyer or a seller, that makes the Midwest a bargain or a tough place to unload a house profitably. Of course, hot neighborhoods in any city tend to rise swiftly and show significant gains. But overall, these markets remain depressed. Population loss is part of it. A shrinking city has less overall demand for housing units.

 

"These towns didn't have a bubble," said John Wake, the founder of Real Estate Decoded. "But they still had a bust."

It matters because homes are the biggest investment for a majority of Americans. Neighborhood differences aside, those who owned a home in those three Midwest cities, on average, have seen their investment lose value on a real basis over the past two decades.

That means many will walk away with less money when they decide to sell that home. They'll be able to borrow less if they take out a home equity loan or reverse mortgage. And they will leave less money to their children than people in more robust markets.

To be sure, some markets have climbed above their pre-housing bust levels, in part because their prior peaks were restrained. Dallas has a rapidly growing economy but -- unlike California or the Northeast -- few constraints on housing supply. The result is that plenty of new housing is being built, which avoids price bubbles.

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