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Home Prices Surged In Second Quarter

August 15, 2005
For homeowners, it was a windfall gain in equity; for those hoping to buy, the dream moved further out of reach. The majority of metropolitan areas experienced historically strong annual increases in median existing-home prices in the second quarter, according to the latest survey by National Association of Realtors.

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The association's second-quarter metro area home price report, covering changes in 149 metropolitan statistical areas, shows 67 areas with double-digit annual increases in median existing single-family home prices and seven areas posting generally modest price declines; none of the areas seeing declines had previously recorded rapid gains.

NAR has expanded the number of metros covered in the report, and revised the definitions of metros due to changes in those areas over time.

The national median existing single-family home price was $208,500 in the second quarter, up 13.6 percent from the second quarter of 2004 when the median price was $183,500. The median is a typical market price where half of the homes sold for more and half sold for less.

In all, 94 metro areas saw increases above the U.S. historic average of 6.4 percent. Since 1968, prices generally have risen 1-to-2 percentage points faster than the overall rate of inflation; the historic average price increase appears high because there was a period of high inflation in the U.S. during the 1970s and early 1980s.

David Lereah, NAR's chief economist, said the price gains are unprecedented. "When you look at appreciation of home prices relative to the overall rate of inflation, these are the strongest increases on record," he said. "The continuing shortages of housing inventory are driving the price gains."

NAR President Al Mansell of Salt Lake City said housing remains a good investment. "Given the fact that the second quarter was a record for home sales, it's clear that many people find it is an excellent time to buy a home, even with stiff
competition from other buyers," he said.

"Americans view housing as a solid long-term investment, and they're taking advantage of favorable conditions to improve their current lifestyle as well as their long term financial interests."

The strongest price increase in the nation was in the Phoenix-Mesa-Scottsdale area of Arizona, where the first quarter price of $243,400 rose 47.0 percent from a year earlier. Next was Cape Coral-Fort Meyers, Fla., at $266,800, up 45.2 percent from the second quarter of 2004. Third was the Palm Bay-Melbourne-Titusville area of Florida, with a second quarter median price of $204,000, up 40.0 percent in the last year.

The areas experiencing price declines were lower-priced markets, with one or both of the conditions necessary for price softness – local economic weakness, primarily in jobs, or a large supply of homes for sale in the local area. Typically, these are temporary conditions. "Once again, since these areas had not seen rapid gains in the past, there is no evidence of bubbles popping," Lereah said.

Median second-quarter metro area resale prices ranged from $73,400 in Danville, Ill., to nearly 10 times that amount in the San Francisco-Oakland-Fremont area of California where the median price was $726,900. The second most expensive area in the United States was Anaheim-Santa Ana (Orange Co., Calif.) at $696,100, followed by San Diego-Carlsbad-San Marcos, Calif., at $605,600.

Other low-cost markets include the Youngstown-Warren-Boardman area of Ohio and Pennsylvania, the second least-costly metro, at $82,900, and Decatur, Ill., with a second-quarter typical resale home price of $86,800.

Regionally, the strongest increase was in the West where the median existing single-family home price rose 19.5 percent over the last year to $312,600 during the second quarter. After Phoenix-Mesa-Scottsdale, the strongest increase in the West was in Reno-Sparks, Nev., where the median price of $357,400 rose 32.1 percent from a year earlier, followed by the Tucson area, at $228,500, up 30.0 percent, and Honolulu, at $577,800, up 28.1 percent from the second quarter of 2004.

In the Northeast, the median resale price during the second quarter was $243,100, up 13.1 percent from a year earlier. The strongest increase in the region was in the Atlantic City, N.J., area, at $244,900, up 25.7 percent from the second quarter of 2004, followed by the Allentown-Bethlehem-Easton area of Pennsylvania and New Jersey, with a median price of $358,500, up 23.9 percent, and Edison, N.J., at $394,100, up 22.8 percent.

In the Midwest, the second-quarter median existing-home price of $167,800 rose 12.1 percent from the same period in 2004. The strongest increase in the Midwest was in the Davenport-Moline-Rock Island area of Iowa and Illinois, where the median price of $133,900 was 24.0 percent higher than the second quarter of 2004. Next came Rockford, Ill., at $122,700 in the second quarter, up 18.6 percent, and Danville, Ill., up 16.9 percent in the last year.

In the South, the typical existing home price was $179,400 in the second quarter, up 5.7 percent in contrast a year earlier. After the Cape Coral-Fort Meyers and Palm Bay-Melbourne-Titusville areas of Florida, the strongest increase in the South was in the Orlando area, at $232,200, up 36.5 percent from the second quarter of 2004. Next was the Sarasota-Bradenton-Venice area of Florida, where the second quarter median price of $367,800 was 34.3 percent higher than a year ago, and Miami-Ft. Lauderdale-Miami Beach, at $371,600, up 31.7 percent.

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