Home Prices Rise in 1999
Home values are up in 1999, and so are the fortunes of home sellers and the
housing industry, as demand for homes continues to keep prices high. The
spike in prices means a drop in purchasing power for the average homebuyer,
when combined with this year's interest rate hikes. The Wall Street Journal
says that affluent homebuyers are feeling the squeeze, too. Right now, even
a half-million dollars doesn't buy as much luxury as in years past.
Home values rose at the annualized rate of about 5% in the first half of
1999, according to Freddie Mac, and show no clear signs of decreasing in the
third quarter. Prices have been climbing most rapidly this year in the
Midwestern states of Illinois, Indiana, Michigan, Ohio and Wisconsin, at a
7.2% pace in 1999, and a whopping 30.7% over the last five years. Other
Midwestern states are keeping pace, posting a 28.4% increase over the same
five-year period. The Mountain states grew the fastest at 32.4%. Slower
growing are the Mid-Atlantic States of New York, New Jersey and Pennsylvania,
at only 12.8% for the five years, the Conventional Mortgage Home-Price Index
What's in the cards for later this year? A robust housing market should
continue, says Freddie. "This is consistent with the strong performance of
the housing market and the continued good health of the economy overall,"
said Amy Crews Cutts, senior economist at Freddie Mac. "The recent rise in
interest rates is expected to dampen some of the enthusiasm that housing has
enjoyed over the past year, but 1999 could well be the second consecutive
year of record performance."
The Wall Street Journal recently found that high-end homes in some markets
have inflated so much that the $500,000 benchmark is starting to lose its
meaning. Half-million dollar homes no longer feature the luxury amenities
that high-end buyers used to take for granted at that price. The Journal's
house hunt covered nine cities where average housing prices have jumped as
much as 40% during the past five years.
A sampling of the luxury market yielded the following examples, among others.
In Duluth, Minnesota, an "executive-type house" fetches $250,000. The
Journal found a $525,000 home listed at 4,700 square feet with five bedrooms
and ten acres with a view. But that was one of the larger homes. In
Greenwich, Connecticut, a $514,000 listing featured a house in a state of
disrepair with only 2,166 square feet, four bedrooms and one-fifth of an
acre. In Palo Alto, California, where real estate is out-of-sight, $469,000
was the listed price for a tiny 2-bedroom with only 925 square feet.
There's a bright side to the tale of woe, however, according to some housing
experts. Even though mortgage interest rates have gone up this year, they
still are low by historical standards, and higher prices are balanced by
lower mortgage rates.