Historical Real Estate Market Trends Prior to the real estate “crash” in 2007, it appears that (with minor fluctuations) median real estate prices have increased each year. However, if inflation is factored into the picture, home prices have fallen frequently and significantly (National Association of Realtors). Not factored into real estate prices are the increasing cost of building materials, and home sizes. The National Association of Home Builders reports that the average home size in America was 983 square feet in 1950, 1500 square feet in 1970, and 2349 square feet in 2004.

Housing price trends can vary widely from geographic region to region. Even within the same city, numbers can vary widely. Areas that are experiencing new growth can show significant price appreciation while areas across town can be in decline. Rising or declining prices in national and regional statistics don’t always account for the reality of local markets.

Housing prices peaked in early 2006, started to decline in 2007, and reached new lows in 2012. On December 30, 2008 the Case-Shiller home price index reported its largest price drop in its history. Increased foreclosure rates among US homeowners led to a crisis in August of 2008. Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes and other economic indicators of affordability. This is often followed by decreases in home prices that result in many owners finding themselves in a position of negative equity (mortgage debt higher than the value of the property). A collapse of the housing bubble has a direct impact not only on home valuations, but the nation’s mortgage markets, home builders, surveyors, appraisers, title companies, real estate agents, home supply stores, and even foreign banks.

While bubbles may be (though rarely are) identified in progress, bubbles are usually measured in hindsight, after a market correction. The bubble, combined with the inability of a large number of home owners to pay their mortgages as their low introductory rate mortgages reverted to regular interest rates, lead to large double digit declines in home values.

Real estate trends tend to go in somewhat predictable cycles, though their causes vary from generation to generation. According to economists, the real estate “boom” ended in August of 2005, when mortgage rates rose almost one point, affordability conditions deteriorated, investors pulled out of the market, resort buyers were nervous, first time buyers were priced out of the market, and homebuyer confidence plunged. Unfortunately, the long held theory that real estate values will rise indefinitely is superseded by the theory that economies and real estate markets are subject to cyclical variations.

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