The average price for a new home in the United States now stands at $206,400, according to”Housing Facts, Figures & Trends,” a publication of the National Association of Homebuilders Public Affairs Office. The average price for an existing home is $176,200. Also, the home ownership rate is now at a record level.
Because these factors can be used to identify the stages in the residential neighborhood life cycle, I was curious as to which stage the United States as a whole would be in using only home ownership rates and average property values. But first, some comments on neighborhood life cycles.
Residential neighborhoods have a life cycle consisting of four basic stages — growth, stability, decline and renewal. The two factors most commonly used to determine which stage a neighborhood might be in are average sales price and home ownership rate.
First, let’s further define the stages.
In the growth stage:
• property values are rising;
• home ownership is at or near 100%;
• pride of ownership is high;
• properties are extremely well-maintained; and
• residents are involved in neighborhood affairs.
In the stability stage:
• property values have leveled off or slowed in rise;
• home owners are comprised of original and subsequent buyers;
• yards, common areas and other physical facilities are well-established;
• properties need, but receive, regular maintenance; and
• involvement in neighborhood affairs is good, but less than 100%.
In the decline stage:
• property values are falling;
• the home ownership rate is falling as sellers move and rent their houses;
• evidence of lack of maintenance is obvious; and
• residents are not involved in neighborhood affairs.
In the renewal stage:
• property values are again rising;
• the home ownership rate is increasing;
• maintenance is improving; and
• a core group of residents is promoting the neighborhood.
These are general characteristics of course, but they describe the cycle. Each neighborhood should be viewed on a case-by-case basis. For example, it could very well be that property values are going up and home ownership rates are going down.
So what stage would the U.S. be in if it were viewed as a neighborhood? The above-mentioned report gave me the answers.
Take a look at the home ownership rates for the past decade:
Year Home Ownership Rate
1997 65.7 %
Now consider the property values:
Year New Existing
1982 $83,900 $80,500
1987 $127,200 $106,300
1992 $144,100 $130,900
1997 $176,200 $150,500
2000 $206,400 $176,200
Depending on how far one goes back, the U.S. is clearly in the growth or renewal stage. These numbers are influenced by the baby boom generation, but they do tell the story. Indeed, home ownership now is at a record level.
Mortgage rates obviously have a great influence on home ownership. In 1982, the average fixed rate was 16.09%. In the fourth quarter of 2000, it was 8.06%.
Would you like to determine the stage of your neighborhood? Your local real estate professional is a good source for most of the above information. You can determine the rest by taking stock of your neighborhood and its residents. Is your neighborhood well-maintained?
Take a look at the roofs of the houses in your neighborhood. They provide a good clue. Roofs are a relatively expensive replacement item. Homeowners who live in their homes usually spend the money when a new roof is needed. Absentee owners often defer replacing the roof until absolutely necessary. Another thing to look for is litter in the neighborhood. When the ownership rate is high, the litter is low because it is removed by homeowners.
Finally, just for fun and out of curiosity I searched for the community with the highest average home price increase. The average price of a home in Aspen, Colorado is more than $3.55 million, up from $2.7 million in 1999, according to a local report in the Aspen Times.
Phil Hardwick’s column on Mississippi Business appears regularly in the Mississippi Business Journal. His e-mail address is email@example.com.