People love telling stories about how a home purchased years ago for next to nothing is today worth hundreds of thousands of dollars or more. Truth is, those tales might be overestimating real estate as an investment. While a house bought in 1930 for around $6,000 may be worth roughly $195,000 today, when adjusted for inflation, the appreciation is not as impressive as it seems. Since 1930, inflation-adjusted home values have increased by a modest 127%, or less than 1% each year.
24/7 Wall St. reviewed real estate data from the Case-Shiller Home Price Index and the U.S. Census Bureau. According to research conducted by economist Robert Shiller, major increases in real estate values took place over two distinct periods: the post-World War II housing boom, and the subprime housing bubble leading up to the 2007-09 recession. Outside of these spikes, national home prices have remained relatively stable.
Several factors after World War II, during the first major increase in home prices, drove up housing demand. Government rationing during the war had caused a limited supply of homes, and the 1944 G.I Bill, which subsidized home purchases for millions of soldiers, further increased demand. While the construction of new homes increased considerably at this time, it was still outpaced by demand, and home values spiked.
Unlike the housing bubble that occurred 60 years later, the post-war housing boom stabilized. By the late 1940s, the national median home price had plateaued around $130,000, where it would remain roughly unchanged for the rest of the century.
Another housing boom began in the early 2000s. Easy access to credit, favorable tax policy, low mortgage interest rates, and an increased enthusiasm for homeownership drove up demand for housing. The homeownership rate peaked at 69.0% in 2004, up significantly from 47.8% in 1930. When many of these homeowners could not afford to pay their mortgages, foreclosures spiked and home prices plummeted.
Outside of those two periods, housing prices have been fairly stable. Regional markets, however, have been more volatile. A number of major U.S. cities experienced regional booms in the 1970s and 1980s.
Other features of the American housing market have changed over time. The population has become more urban, shifting from 56.1% of Americans living in an urban environment in 1930 to 80.7% in 2010. The size of homes have increased too. Between 1973 and 2014, the size of a typical home increased by 65.3%, from 1,505 square feet to 2,488.
There is little consensus among economists as to what drives home price fluctuations over time. Factors such as construction costs and mortgage interest rates are often considered major drivers. However, the relationship between these factors and home value is far from clear. Home prices may not change primarily on the basis of these forces, according to Shiller.
To identify home values in each year, 24/7 Wall St. reviewed historical housing data published by Robert J. Shiller as an appendix to his book Irrational Exuberance. The home price index was matched with the median home value data from the U.S. Census Bureau’s 2014 American Community Survey (ACS) to determine the median home value for every year since 1930. Homeownership rates, the size of a home measured in square feet, and the percentage of people living in urban or rural areas, also came from the U.S. Census Bureau. Disposable income per capita for each year since 1930 came from the Bureau of Economic Analysis (BEA).
This is what a home cost from 1930 to 2015.