Residential Home Prices, Rents and Inflation

Housing should not be viewed from a short-term perspective given transaction costs. Nor should home values be analyzed in a vacuum since you must live someplace. And since housing is truly a long-term asset, inflation comes into play.

That said, take a look at what average U.S. home prices have done since 1990 (and since I bought my first home in 1989, this is a logical comparison interval).

Since 1990, home prices have increased 72.3 percent—despite an almost 27 percent price decline from 2006 to 2011. In that same period, inflation increased 72.2 percent. Even with the largest price decline since the great depression, housing kept pace with inflation.

 

 

And what have rents done in the same period? The median asking rent, as reported by the U.S. Census Bureau, jumped from $371 in 1990 to $694 in 2011 – a gain on 87.1 percent. And rents are going up even more today (tomorrow’s blog—do not miss it)!

History, however, makes one almost walk backwards just observing it, so here is my forecast. Home values in the next year and the year after will rise, as will rents. With record low interest rates, and assuming you are planning on staying in your home at least three years, this may be the best time in the coming decade to purchase a home.

As a great philosopher once stated, “History may be costing more than it’s worth.” But from a housing perspective, the view of the future is continually improving.

Ted

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