The smart sets of the New York area, the West Coast and other pockets of 1990s prosperity may be smugly celebrating huge runups in their home prices. But maybe they aren’t so savvy after all: When it comes to investing in a house, neither the high rollers of the East nor the high-tech entrepreneurs of the West have fared as well over the last 10 years as the former Rust Belters of the Midwest.
Ten years of regional home-price data compiled by mortgage buyers Fannie Mae and Freddie Mac show that the industrial Midwest–Illinois, Indiana, Michigan, Ohio and Wisconsin–has seen a startling 77 percent increase in prices over the past decade, far outpacing increases in the rest of the country. Turns out that the far less flashy heartland has been a far better investment than either coast or even the booming Sun Belt.
The statistics confirm that the average 47 percent increase nationally has barely stayed ahead of the Consumer Price Index–up 45 percent in the same time period. Home prices in large portions of the country, especially the Northeast and the Southwest, have inched along way behind inflation.
And home prices everywhere have lagged well behind the stock market over the last 10 years; the Dow Jones Industrial Average went up about 300 percent in the time period. But many owners’ investments in their homes have risen substantially.
Using the nationwide figure, a $150,000 house bought in 1987 has returned 235 percent on a $30,000 down payment. A $150,000 New England house has returned just 50 percent on its down payment, but a Midwestern house has returned a whopping 385 percent.
Stacey Huels, a commercial banker, bought a two-apartment flat in downtown Chicago in 1992 for $210,000. He sold it four years later–and, to his astonishment, got $330,000 for it.
“We seemed to hit the price boom right on the head,” he says.
The survey, based on 7 million repeat home sales and appraisals, covers the period from the first quarter of 1987 through this year’s second quarter.
The firms’ Conventional Mortgage Home-Price Index reflects the changes in actual prices or appraisals of specific houses over the 10-year time period and then averages the percentage changes to chart the trend for a region.
The survey shows that the Midwest came out on top simply by racking up steady price gains over the entire 10-year period. That’s in sharp contrast to the price-appreciation runnerup, the Pacific states, where prices skyrocketed before 1991, but have remained essentially flat since. And most of the growth in the No. 3 region, the Mountain states, has come in just the last five years.
The regions at the bottom of the list–the Middle Atlantic states, the Southwest and New England–all experienced significant up-and-down price cycles through the 10-year period.
The first-place showing of the former Rust Belt is all the more surprising because other regions have been more notable for their job growth and sunny weather. But economists say the troubles of heavy industry in the early 1980s forced the Midwest to retool and become more efficient, preparing it to weather the recession earlier in this decade.
Perhaps more important for Midwestern homeowners, steady growth in prices didn’t attract legions of home builders. With many new homes sprouting in ever-expanding suburbs in the Southeast, existing homes don’t look as attractive as they do in a region where new homes are sparse.
“Often, new construction has held a lid on home prices,” says Karl E. Case, professor of economics at Wellesley College.
Because survey data are based on homes with conventional mortgages–currently $214,600 or less–the results may slightly underestimate price growth for states which have large numbers of very expensive homes.
