How High Will U.S. Home Values Go?

How much higher will U.S. home prices go in the new housing boom?

Few have given any weight to the proclamations of a subsequent housing bubble. In addition to the fact that Canada claims to have cracked the secret for preventing future bubbles, savvy real estate experts already know we don’t even have both feet in the recovery at the moment. Analysts familiar with market trends will tell you that the housing sector will continue to recover. So how do current home values really stack up to where they can be in the near future? Where do historical cycles predict they are headed? More importantly, how high can U.S. home prices really go?

The following illustrates a snapshot of home prices:

  • The median home price in San Diego, CA was $476,780 in February 2014
  • The median home price in San Francisco, CA was $964,670 in February 2014
  • The average existing single-family home sold for $404,250 in California, as of February 2014
  • Miami single-family home prices rose to a median $227k in February 2014
  • The national median home price stood at $189,200 in Q1 of 2014

Of course, while some markets have recently experienced double digit home price growth and the numbers appear to be high, the vast majority of U.S. areas are still seeing values significantly below their previous highs. Those that fear fast growth should realize that home prices have only been rising on a national level by a modest 10%. This is nothing compared to the days of the last boom, when homes were being flipped from the MLS for 50% more in a single day. So if we are just on the verge of a new boom era, how high could we expect prices to go?

Based on historical data, real estate cycles have revolved predictably for decades. Booms and ‘corrections’ follow a range of 7 to 15 year upcycles during which home values rebound to new highs. In fact, plotted on a long range graph, property prices have simply risen consistently over time with some ‘minor’ fluctuations. Based on these trends, common sense dictates that U.S. real estate prices still have quite a number of aggressive gains left.

Even though those new to real estate may be confused by media reports on seasonal fluctuations, as foreclosures and short sales fade and become more normalized, expect the pace of appreciation to pick up. Current prices may seem miniscule compared to how high home values could go. Real estate industry experts and builders in London are planning new buildings and projects with prices topping $8,247 per square foot.

Contrast this with what some would consider the height of extravagance in the United States. A current MLS listing in San Diego, CA offers 6 bedrooms on a 1.36 acre estate, a panoramic ocean and golf course view, home theater, wine cellar, guest quarters, and a resort pool in a prestigious gated community for $7.49 million. With 10,725 sq. ft. that’s just a mediocre $698 dollars a square foot.

So what does it mean for home buyers and real estate investors now? Buy now! Buy as much as you can. The buyers will come and values will go up. Before you know it, you will be wishing you got involved earlier. Real estate is expected to experience a resurgence in 2014.