|Price appreciation has been a hot topic for some time, but over the last year, prices have started to balance out and it takes some explaining. As you can see from the map above provided by the National Association of Realtors, price appreciation over the long haul has been robust. The map above points out price appreciation since 2005, which was prior to the economic downturn. This demonstrates that if a homeowner was able to retain their home through the downturn of 2007-2012, that they came out on the other side well-positioned. Real estate is typically a long game, and that is one of the key points we will cover here.
First, let’s review price growth after the down turn. Since 2014, price appreciation has been out of the ordinary! The average (normal) price appreciation is 3-4% year-over-year. For clarity, “year-over-year” is defined by the last 12 months averaged over the previous 12 months. This is a larger data pull and tells a deeper story than just taking one month and comparing it over that same month the year prior like the media typically does.
Over these last five years, we have seen double-digit year-over-year appreciation, specifically from 2015-2018. In fact, 2018 started out with 14% price gains over 2017. This was due to rapid job growth, tight inventory, and low interest rates. It was the perfect storm to rapidly drive up prices. In the second half of 2018, interest rates started to rise, inventory had huge gains, and affordability became an increasing issue. This stalled out demand and prices came off their spring peak. The second half of 2018 brought on a price correction and started to lead a path toward more normal appreciation levels.
In the beginning of 2019, we saw year-over-year price gains average from 8-9%. As we finished out the second quarter of 2019, the year-over-year price growth continued to balance out toward typical, historical levels. We are at a place in the year-over-year data where the crazed price appreciation is no longer within 12 months, and we are tracking from the correction that happened in the second half of 2018, reflective of more normal inventory levels.