In Some Markets, Depreciation Becomes Long-Term

“Sit back and wait” has been the mantra for homeowners who don’t need to sell throughout the past two years. But in some markets, holding on to a home for five years or more hasn’t necessarily meant home value appreciation.

According to the Zillow third quarter Real Estate Market Reports, about a quarter of the 163 markets we cover had either flat or negative five-year annualized change in home values (the average of the change recorded in each of the five years). In many markets, this downturn has lasted long enough that it’s affecting even long-term appreciation.

Some of these markets that showed negative change over five years weren’t much of a surprise; they’re markets like Stockton and Merced in the Central Valley of California that have seen the biggest year-over-year declines in value, and are markets with the most foreclosures and highest percentage of homes with negative equity. In Stockton, the five-year annualized change is -3.8%, and in Merced, it’s -3.6%.

Detroit is also top of the list, with a five-year annualized change of -3.1% and, in yet another hit to this already-stricken market, 10-year annualized appreciation was the smallest in the country, at 0.9%.

But some of the other markets that saw five-year annualized depreciation were more surprising: The Boston area had -1% annualized change, Denver had -0.3% change and Providence had -0.2% change. In Boston and Providence, it’s easy to surmise why this is the case. Both peaked in 2005, a full year before the national market peak in the second quarter of 2006. So they’ve been falling longer than most other markets. But, on a bright note, these markets may reach a bottom sooner.

Denver is a different story. Unlike Boston or Providence, there was no bubble to speak of in Denver. You can see the market differences in these graphs showing the Boston and Denver Zillow Home Value Indexes since 2000.

That said, this trend of longer-term depreciation is in the minority of markets.  125 markets experienced 5-year annualized appreciation of 1% or more — with the top three performers on a five-year annualized basis being: Glenn Falls, NY (10.7% ); Panama City, FL (10.6%), and Virginia Beach, Virginia (10.5%).