A History Of Average House Prices

As most people in the world are aware, average house prices have taken a severe drop in the United States over the past four years. This dealt a shattering blow to the long-held idea that a home was a failsafe investment that would always appreciate in price and provide a financial nest egg inside of which you lived.

While some prefer to look at how that philosophy held true for many decades prior to the housing bubble crisis and believe that the same will once again be true, others have given up completely on the dream of home ownership. In order to understand these positions, you must look at the way housing prices behaved through the course of the 20th century and compare them to the prices of homes during the last decade.

The 20th Century

While the value of a specific house in general has gone up throughout the recent past, it is not true that average house prices have always risen. The 1920′s saw a great lowering in the prices of homes, though this was not due to the bursting of a bubble. The 1920′s were building their own economic problems at that time and land prices would only play a part in those problems. It is also important to remember inflation when looking at home prices. They are not increasing if they are outpaced by inflation.

After World War II, there was a marked increase in average house prices around the country. This general rise continued in a slower fashion through the remainder of the century. There were some peaks and falls but prices stayed on the rise for the most part.

The 21st Century

A chart displaying the average prices of homes in the US during the 20th century shows a spike at the very end. If you include the first five years of the 21st century, you can how this spike becomes an exaggerated leap. The effect is known in statistics as a hockey stick. The average value of a home on the market gained nearly fifty percent in just five years.

Many people made a considerable profit from this situation. Homeowners used this sudden rise in prices to open equity lines of credit. They began to use their homes as bank accounts, drawing money from their market value by remortgaging homes that were suddenly worth tens or even hundreds of thousands of dollars more than what they had paid.

The Crash

In 2007 the rise in prices began to stall. Some perceived this as just a healthy slow down. Others saw that the price bubble was unsustainable. Many intelligent observers noted that there were now many more houses than were needed and many houses were simply being flipped, that is, bought and sold a few months later for profit without ever having been occupied.

In 2008 prices began to fall. They fell below the values they had at the beginning of the century and many people lost everything. The market still has not seen a rebound in average house prices around the nation.