Real Estate Roller Coaster

Riding the Ups, Hanging on Through the Dips

Appraisers walk through lots of homes, gaining the experience that allows them to recognize building fashion trends, like the minimalist-design contemporaries of the 50s and 60s, or the colonials with elaborate wood molding finishing touches favored by up-and-coming baby boomers in the 80s and 90s. It's hard to recall nowadays, but the real estate market of the early-to-mid 2000 decade reflected exuberant confidence that values only appreciated - and the hefty gains seen in 2002 to 2006 provided evidence for such bullishness. Homes built in that time show off that confidence - they are bigger and fancier, with elaborate add-ons - which has since been overshadowed by more recent memories of the hard-to-forget value losses after the Great Recession.

The graph below done by PK of DQYDJ.com shows how market volatility has increased. Follow the "Real" (inflation-adjusted) line, smaller peaks in the early 1980s and 1990s were followed by 10%+ adjustments, and a return to a more modest upward trend that took six to eight years to recover the value loss.

Taking the longer view, real estate in the 2000's and 2010's followed a similar pattern to earlier cycles at the end of the 20th century, but with much greater gains and losses. Prices did not return to pre-Recession levels until 2016, grew moderately until 2020, then took off. The CoreLogic Case-Shiller index calculated a 16.8% annual price increase from November 2020 to November 2021; even after reducing this by 6.8% to account for the government's measure of annual inflation from the same time period, that's a 10% value gain. For buyers who closed on a home in November 2020 with a 4% mortgage rate, they experienced 6% after-expense annual appreciation.

Economists attribute some of the "irrational exuberance" of the early 2000's to the abundance of high-risk mortgage money available, expanding the number of buyers in a market and driving up prices. The privately-backed subprime mortgage market crash contributed to the fall of real estate values that followed. Returning to pre-Recession levels took an eight-year period of recovery -- financed primarily through government programs, with mortgage rates substantially lower, thanks to the support of central banks.

Historic trends hint that the future holds some price correction - but mortgages matter. With little indication of a disruption to mortgage funding on the near horizon, there's hope that any downturn is mild. You can keep up with mortgage news on sites like Bankrate, which has general mortgage information as well as advice on avoiding scams.