Sometimes a picture says a thousand words.
The California Association of Realtors (CAR) put together this graphs showing the 30+ year history of California housing prices relative to the US. I updated the graph to reflect 2007 and 2008 YTD actuals.
Since 1975 the median price of a single family home has been much more expensive in California relative to the nation on average. This seems to makes sense in light of our temperate climate, boundless recreational opportunities, employment opportunities, general mindset about how to live and sheer beauty.
Note the change in the price differences starting in the late 1990s. California's home prices took off exponentially.
Now, back to reality.
Real estate is cyclical. Historically a cycle is about 7 years: 3 to 4 up, then a leveling, followed by 1-2 down. Until now the only exception was in the early 1990s which was a 4 year downturn. At that time we had a national economic malaise and a contraction of defense and aerospace industries in the state.
The run up in housing prices over last 10 years have been truly amazing in this 38 year history. Adjustments have begun.
THE GOOD NEWS
In spite of these fluctuations, since 1968 the average 5-year rate of return on median priced homes in California has been 11.6%*.
I am working on finding a graph to compare this with the average rate of return on the S&P 500 or another financial market. I think California home owners will be pleased.
*assumes home is purchased and sold after 5 years.
