In the wake of the housing bubble, Zillow economists are often asked what “normal” home value appreciation looks like, or how current appreciation compares with past home value appreciation. While there is no true, universal “normal” rate of appreciation for the housing market, we are able to compare home values to historical rates of home price appreciation to see differences in the home value appreciation over time. While home prices have appreciated nationally at an average annual rate between 3 and 5 percent, depending on the index used for the calculation, home value appreciation in different metro areas can appreciate at markedly different rates than the national average.
Using data from the Federal Housing Finance Agency (FHFA) House Price Index, we calculated the average annual appreciation rate in home prices for every quarter from the beginning of 1985 to the end of 1999 for the top 30 U.S. metro areas covered by Zillow and the United States as a whole. Because most housing experts agree that the housing bubble started in the early 2000s, peaked in 2007 and its effects have continued past 2010, we wanted to have a 15-year period of appreciation rates to compare with the past 12½ years of home values.
We then graphed home values from the Zillow Home Value Index and home prices for each metro had they appreciated by that metro’s 1985-1999 home price appreciation rate. While this isn’t to say that the historic appreciation rate is what would have happened to home values sans bubble, it is here to provide a comparison between the two approximately 15-year time periods. Comparing home values to the trend, there are metros where current home values are above the historic trend, while there are some metros where home value appreciation has long been below the historic trend. An example of a metro like this is Detroit. There are many metros where home price appreciation shot up above the historic trend at the height of the bubble, then dropped below the trend and now has risen back to or just above the historic trend. Tampa is an example of a metro that follows this pattern.
It is important to remember that these graphs don’t take into consideration any fundamental economic shifts that might have occurred in a given area. For example, Detroit experienced a historic home value appreciation rate of 6 percent. Going forward this rate seems high, and will likely be lower due to many economic and demographic changes that have occurred in Detroit. Other markets have a fairly high rate of historical appreciation, as we included part of the tech bubble of the late 1990s in our historic time period.
Use the dropdown menu in the interactive visual below to navigate between different metros’ graphs.