Home Appreciation

Home Price Appreciation: Still Strong But Beginning to Cool

by NAR Staff

In many metropolitan areas, home price appreciation continued to post double-digit annual gains in the first quarter of 2006. The latest quarterly Metropolitan Area Home Price report from the National Association of REALTORS® shows 60 metro areas with double-digit annual increases in prices of existing single-family homes. Twenty-seven areas posted double-digit increases in the median price of condominiums/co-ops. But the growth in single-family and condominium home prices is cooling. The national median existing single-family home price was $217,900 in the first quarter, up 10.3 percent from a year earlier when the median price was $197,600. In the fourth quarter of 2005, the annual rate of home-price appreciation was 13.6 percent. Metro area condominium and cooperative prices, covering changes in 56 markets rose 5.2 percent from the first quarter of 2005 to $224,100. The national condo price is higher than the median single-family home price because there is a high concentration of condos in the most expensive metropolitan areas. Within a given area, the typical single-family home costs more than the median condo price.Median first-quarter metro area single-family prices ranged from $52,500 in Danville IL to 14 times that amount in the San Jose-Sunnyvale-Santa Clara area of California, where the median price was $746,800. The largest single-family home price increase was in the Phoenix- Mesa-Scottsdale area of Arizona, where the first quarter price of $268,300 rose 38.4 percent from a year ago. Next was Orlando FL at $260,500, up 34.0 percent from the first quarter of 2005. Metro area median existing condo prices ranged from $97,400 in Bismarck ND to $615,300 in San Francisco-Oakland-Fremont. The strongest gains were again in the Phoenix-Mesa-Scottsdale area, where the first quarter condo price of $179,600 rose 38.0 percent from a year ago. In the Honolulu area, the median condo price of $309,000 rose 34.9 percent from the first quarter of 2005. The condo price series will be expanded in the future as more data becomes available.

Behind the Numbers

The slowing growth in appreciation is due primarily to improvements in housing inventory. The supply of homes has been picking up in many areas of the country. Consequently, that decreases pressure on home prices. A rise in inventory was strong especially in the condo sector. While some areas continue to post impressive price growth, there are more broadly balanced conditions across the country for condominiums. But condos still have good fundamentals given the demographics of buyers, with baby boomers focused on the high end and their kids on more affordable units. However, in a handful of areas where there may be an oversupply, prices may level-out.

Regional Differences

Regionally, the strongest increase in the median existing single-family home price was in the West, where the price rose 12.0 percent to $344,000 during the first quarter. After Phoenix-Mesa-Scottsdale, the strongest increase in the West was in Spokane WA where the median price was $172,100, up 26.3 percent from the first quarter 2005. Other double-digit markets in the West included Eugene-Springfield OR at $223,600, up 25.3 percent, and the Tucson area, at $248,600, up 24.9 percent.In the Midwest, the first-quarter median existing single-family home price of $158,800 rose 6.7 percent from a year earlier. The strongest metro increase in the region was in Waterloo-Cedar Falls IA, where the median price of $109,700 was 26.8 percent higher than the first quarter of 2005. Next was Decatur IL up 14.3 percent, and Cedar Rapids IA at $134,600, up 13.4 percent in the last year. In the Northeast, the median resale single-family home price during the first quarter was $285,200, up 6.6 percent from a year ago. The strongest increase in the region was in Elmira NY at $88,500, up 18.8 percent from the first quarter of 2005.Trenton-Ewing NJ reported a median price of $264,900, up 17.5 percent, and Atlantic City NJ at $251,700, up 15.8 percent. In the South, the median existing single-family home price was $179,700 in the first quarter, up 6.6 percent from a year earlier. After Orlando two other Florida areas posted the next strongest increases in the region: Gainesville median single-family home prices were up 31.9 percent to $210,100, and the median price in Ocala FL was $159,800, up 30.8 percent from the first quarter of 2005. Next was the Virginia Beach-Norfolk-Newport News area of Virginia and North Carolina, where the first quarter median price of $221,100 was 27.1 percent higher than a year ago.

Looking Ahead

The second quarter 2006 metropolitan median home price report will be released in August. NAR analysts expect that report to show most areas returning to normal rates of price growth in the single-digit range. Consumers generally can expect normal price appreciation for the foreseeable future, providing solid returns over time.Please note: National and regional quarterly prices have been revised back through 1989; the only revision to the metro price series is the normal annual revision for 2005 with revised fourth quarter data. The fixed reporting sample of representative multiple listing services for national and regional data has been updated to reflect geographic changes over time. In addition, regional weights have been updated and aligned to the 2000 Census, but changes in price patterns are consistent with previously reported data.