Residential real estate, like many assist groups is vulnerable to cycles. After years of downward pressure on residential real estate values the pendulum is now swinging the other way. Most home values are rising.
Over time home values have appreciated about 1-1½% per year. If you go back several decades you’ll see big swings but over time it has been in that 1% – 2% range.
We believe the current recovery has plenty of steam left. Here in Minneapolis/ St. Paul we saw values drop roughly 35% from 2006 thru 2011. Then in 2012 prices improved nicely and in 2013 that trend continues with about an 11 1/2 % increase in median home values. However, we still have not recovered all the value lost through 2011.Our best guess is high single digit appreciation for next year. All sorts of factors contribute to these cycles. The last down cycle was remarkable in its length, roughly 6 years. Will the recovery last that long? Who knows? It depends on many factors.
One interesting factor is new construction. It is generally accepted that about 1,500,000 new homes need to be built per year to keep things roughly in balance. During the recent down cycle only about 500,000 homes were being built each year throughout the U.S. That means this recovery needs to see a significant increase in new housing construction to meet demand.
As we move into the New Year we are very thankful to be in full swing on the recovery side of the cycle and look for another positive year in 2014.