The price of houses will change through the years. While the overall trend is upwards, the cost of an individual home can go down, and, under the right circumstances such as economic decline, the overall average prices of homes in the U.S. can go down as well.
But in the long run, the general trend is upward.
So what are the current trends across the country, and why do homes change in value?
Understanding this topic is essential to understanding the real estate industry.
Current Trends in Home Prices: San Diego and Beyond
Home Prices in the United States
While every area will have its own tendencies, and cities just a few miles apart can have drastically different home-pricing trends, there are some common themes being seen around the country. Zillow, one of the largest real-estate information websites, says that home prices in the United States have gone up 7.7% in the past year. The median home price is now $221,000, according to their numbers, while the median price per square foot is $151.
This increase in home prices is expected to continue. Zillow claims that the expected growth in prices over the next year will be 6.4%.
This is a strong rise since prices bottomed out roughly six years ago. A graph from Zillow shows that in April of 2012, the median home price was down to $149,000. Since that time, we have seen the median home price rise over $70,000! This is a significant rise in the overall price of home, and while it’s great for property owners, it can be troubling for people who are looking to enter the home-ownership arena.
Home Prices in California
It may not surprise you to learn that home prices in California tend to be higher than those across the county. Once again, we’ll turn to Zillow to provide reliable and consistent information on pricing. Their numbers state that the median home price in California is $546,100, and that prices have risen overall 6.0% over the past year. The median cost per square foot is $320 in California.
Like the national market, prices bottomed out in 2012. In the spring of that year, the median home price in California was $300,000. By January of 2014, however, prices had rebounded to $393,000, and two years later were up to $452,000.
Zillow forecasts that by October of 2019, median home prices in California will be $616,000.
Home Prices in San Diego
Anyone who lives in the area knows that San Diego is one of the hottest markets in the country, and it is certainly at the top of the list when looking at home values and selling price. It also has rapid sales times, meaning San Diego buyers have to move quickly to get the homes they want.
According to Zillow, median home prices in San Diego are currently $629,000, which their numbers demonstrate is up 5.5% over a single year. Their data also shows that the price per square foot is $464, which is actually higher than the average for the San Diego-Carlsbad metro area, which has a median price per square foot of $373.
This data is essentially supported by data from Trulia, another popular real-estate site. Their information says that San Diego has increased 8% over the past year, for a total rise in home prices of $45,000 in only 12 months. According to their numbers, the average price of a San Diego home is $600,000, up from $555,000 just a year before. Their site also says that the average cost per square foot for a San Diego home is $444, which is only $20 less than the info provided by Zillow.
Why Do Home Prices Change?
So far, we’ve talked a lot about the numbers. And the trends are very clear: over the long run, home prices go up. If the economy is growing, or at least staying steady, you can reasonable expect the price of homes to rise.
But why? Why is it that home prices go up?
First of all, there is inflation. Over time, the value of a dollar declines, so you simply can’t purchase as much as you could have with the same dollar a year ago, for example. This inflation means goods, services, and properties, including real estate, cost more dollars. But inflation only tells part of the story, and home prices, in general, tend to rise faster than the rate of inflation.
Clearly there’re more to the story…
Another cause for the increase in home prices is the basic principle of supply and demand. As the population increases, the demand for homes will steadily increase, and while new-home construction can ease some of the market burden, it’s impossible to create new land. Therefore, a single acre will steadily grow in value, as competition to purchase that land is increased.
A strong economy and local economic boosts can also help raise the value of home prices. If the economy is strong, more people will have gainful employment. This means there will be more people in the market looking for homes (increased demand) as well as more people with incomes that can support larger purchases. If there are multiple buyers who can afford a higher price, then sellers will ask for more money for their homes. This will once again increase home prices across the board. We’ve seen this in action just in the past decade. During the economic meltdown, home prices declined and bottomed out around 2012. Now that the economy is trending upward again, home prices are increasing.
Political influences, both at the national and local level can impact home prices. For example, tariffs on building materials, such as steel or lumber, can cause the cost of raw materials to rise, which raises the price of homes themselves. Tax laws can also impact home prices by influencing demand. Tax benefits for homeowners are often seen as a benefit to the housing market, making homeownership more attractive. This increases demand, once again driving up the value of a home.
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