John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... At first blush, it looks as if you could have bought a home in the Denver area 35 years ago for the price of a car today.
That’s because in 1975, the average price of a single-family home and condo in the metro area was $34,722, shows research by Tom Cryer of the Kentwood Co. Cryer and independent broker Gary Bauer provided me with historical information on home prices in the Denver area, based on Metrolist data.
But when I adjusted the home prices for inflation, the average price of a home in 1974 in 2009 dollars equates to $152,361. By comparison, the average price of a blend of all homes sold by Realtors in the Denver area last year was $242,413.
If you look at home prices at the end of last year, the last time they were lower was in 2001, the average price of all homes stood at $257,394. But if you look at the average price adjusted into 2009 dollars, the last time prices were lower was in 1998, when the average inflation-adjusted price was $246,570.
It’s the mix
Yet, it is not as simple as that.
The homes reflect all of the homes sold; Metrolist does not “pair” like homes as the much-watched S&P/Case-Shiller report does, which tracks the same house over time.
In most years, because of size and price drift from new homes entering the resale market, one would expect that that Metrolist data would show higher prices than Case-Shiller. Case-Shiller’s latest data shows home prices in Denver have slightly out-performed inflation since 2000.
But as has been widely reported, during the past couple of years, most of the sales action in Denver and elsewhere has been in lower-priced homes – typically distressed properties.
Bauer’s research found that 34.25 percent of the median-priced homes sold last year were priced below $101,000, compared with 25.24 percent in 2007. That almost a 36 percent increase in sales of the lowest-price homes.
The flip-side is that only 1.92 percent of the homes sold last year in the Denver area had a median price of $500,000 or more, about a 37 percent drop from 3.02 percent in 2007. The trend in 2008 was very similar to 2009.
I asked Byron Koste, director of the CU Real Estate Center in Boulder, if he thought buying a house was a good investment.
Homes, not just an investment
He pointed out that while over time a house may not be the greatest investment vehicle, it has a utility that other investments, such as stocks, lack.
“The nice thing about a house, is you can enjoy it,” Koste said. “We can’t enjoy a stock that way. If we each took $250,000 and one of us bought a stock and one of us bought a house, the person owning a stock, on a good day, can call you up and say: “You dummy, look what my stock did.” Of course, after 2001 and 2008 (bad years for stocks), the homeowner can call up the stock investor and call him a dummy.”
Koste said if you want to improve the odds of making money on your house, buy a ‘well-located, unique property. If you are buying one of hundreds or thousands of the same kind, you are rolling the dice that it is not going to go down anymore. You can call it an investment if you are smart about it.”
Or as one very wealthy Denver investor I know says: “I make my money when I buy buildings, not when I sell them.”
While buying a house with the idea of making a mint is not a great idea, there are some other advantages such as Uncle Sam’s tax write-offs, it’s a forced savings for Americans who are notorious about putting money away, and they tend to be highly leveraged. For example, in 1984 my wife and I bought a Denver home for $84,000. We sold it in 2007. When I adjusted our purchase price for inflation and home improvements (which I also adjusted for inflation), I estimate we made about an 84 percent profit. (I also bought the home for about 12 percent less than the average price of a home sold and closed in 1984.)
I looked at instead of buying my house, I had bought GE stock. The inflation-adjusted price of a GE stock in 1984 (accounting for splits and dividends) would have been $3.07, while it would have been $35.13 in 2007.
On the other hand, I didn’t have $84,000 to spend on GE stock or anything else. I didn’t even have the $3,000 or so for the down payment. I borrowed that from my parents and paid them back.
Still, I have no regrets about investing in the house instead of putting GE.
As Byron said, you can enjoy a house, and we did.
For related blog, please go to these links:
Denver: At least it’s not Vegas
Denver home prices drop by $1.75 billion
| Year | Average Price of Combined Homes and Condos | Inflation-Adjusted Price |
|---|---|---|
| 1974 | $34,722 | $152,361 |
| 1975 | $35,921 | $144,438 |
| 1976 | $39,740 | $151,089 |
| 1977 | $44,876 | $160,198 |
| 1978 | $55,610 | $160,198 |
| 1979 | $66,051 | $196,816 |
| 1980 | $78,594 | $206,338 |
| 1981 | $83,893 | $199,654 |
| 1982 | $87,816 | $196,863 |
| 1983 | $90,346 | $196,230 |
| 1984 | $95,137 | $198,085 |
| 1985 | $95,447 | $191,896 |
| 1986 | $97,049 | $191,557 |
| 1987 | $102,773 | $195,712 |
| 1988 | $98,937 | $180,922 |
| 1989 | $103,868 | $181,208 |
| 1990 | $102,848 | $170,230 |
| 1991 | $109,071 | $173,240 |
| 1992 | $115,154 | $177,557 |
| 1993 | $126,168 | $188,885 |
| 1994 | $138,301 | $201,879 |
| 1995 | $150,736 | $213,968 |
| 1996 | $159,328 | $219,678 |
| 1997 | $169,587 | $228,578 |
| 1998 | $185,785 | $246,570 |
| 1999 | $208,274 | $270,444 |
| 2000 | $239,779 | $301,228 |
| 2001 | $257,394 | $314,410 |
| 2002 | $268,926 | $323,381 |
| 2003 | $277,856 | $326,677 |
| 2004 | $289,971 | $332,077 |
| 2005 | $307,529 | $340,655 |
| 2006 | $317,112 | $340,282 |
| 2007 | $310,418 | $323,874 |
| 2008 | $270,261 | $271,550 |
| 2009 | $264,803 |
Sources: Gary Bauer, Tom Cryer
Very good article. We need more articles similar to this that talk about the real market and ignore the "investment" hype. I had no idea that prices fell for 14 years starting in 1980.
Every "realwhore" should be required to hand this out to prospective buyers.
[...] Historic look at home prices [...]