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Home Values Rise Higher Than Stocks in 2000

blurb: Ever thought of your home as a blue chip investment?

A home is a smart place to put your money, even smarter than many stocks if you compare growth in home values to Wall Street's lackluster record in 2000. According to figures released by Freddie Mac and Fannie Mae, the average home appreciated about seven percent nationally since fall of 1999. That's a healthy increase for homeowners, and much better than the dismal Standard & Poor 500 index, for example, which is likely to register negative returns for the year. 

Investing in a home has never looked better than recent years. Housing prices have grown between 5 and 7 percent over the last three years, and by 29 percent total over the last five years. They should continue to rise by about seven percent again in 2001, according to Amy Cutts, Freddie Mac's senior economic prognosticator. Either way, the booming economy and relatively modest interest rates are acting like twin turbochargers on the housing market, fueling growth in home sales and prices. In mid- December, 2000, average interest rates for a 30-year fixed mortgage fell to 7.17 percent, the lowest level since May, 1999. Not only are home values climbing, the number of homes sold climbed by 8.3 percent last year.

The only cloud on the horizon is the economic slowdown forecasted by some economists and reflected in recent drops by the Index of Leading Economic Indicators. A slowdown combined with losses in the stock market might pinch available capital needed for purchasing a home, a big ticket item exceeding $200,000 in many metropolitan areas. Whether the housing market can sustain itself at the 7 percent growth rate is an open question. The hotter the market, the higher the prices, and the less affordable if money gets tight. 

Home values in the New England states continued to lead the country, posting the largest increase at an annualized rate of 13.8 percent. The Middle Atlantic States region housing market also gained in the double digits, registering a 10.9 percent annualized growth rate, followed by the Pacific States, at 10.6 percent growth in value. The other regions posted growth of 6.5 percent or less, with the East South Central states finishing last with an appreciation rate of only 3.4 percent annualized rate of growth in home prices, which is still a positive gain after taking inflation into account.

The National Association of Realtors was more conservative in estimating housing values, putting growth at 4.4 percent for last year. Freddie Mac says its measurement of home values is most accurate, because unlike other indexes, its Conventional Mortgage Home Price Index is based on observations of actual sales prices or appraised values of the same homes over time. Whatever the real number is, owning a home is a major purchase that, for now, is outperforming many stocks in return on investment.

Sources used to create this article include Freddie Mac, Thomas A. Fogarty and USA Today.