Reaping the Rewards

Kiplinger's Personal Finance Magazine, Jan, 1999 by Elizabeth Razzi

Last year, home prices jumped and mortgage rates fell. This year won't be too shabby, either.

We're coming off what may have been the strongest all-around housing market in history. Prices went up; interest rates went down. Houses were sold with ease. For 1999, homeowners and aspiring owners can look forward to an encore. Almost.

Markets have to slow down in '99. Simply put, a whole lot of people have made their move already. The good news is that last year's numbers were so strong that even a runner-up performance in 1999 will look awfully pretty.

Homeowners trading up in 1998 made the leap with ease, selling at prices that had risen nearly 5%, on average, over 1997--more than triple the inflation rate. Standard & Poor's DRI, an economic-forecasting company, predicts that home prices nationwide should increase by about 4%, on average, in 1999--still well ahead of the expected rate of inflation. (See the table on page 101 for current home prices and forecasts for 100 metropolitan areas.) Meanwhile, sellers are enjoying new tax breaks, ensuring that the IRS shares little, if any, of their profits.

Home-price prospects for 100 cities: Up, up up

BELOW ARE 1998 and 1999 projections for the median price of existing single-family homes in 100 of the largest metropolitan areas in the U.S. The numbers were supplied by Standard & Poor's DRI. The median price of existing homes nationwide at the end of 1998 was expected to be $129,757, also according to Standard & Poor's DRI. That's 4.9% higher than in 1997; nationwide, home prices are projected to increase 3.8% in 1999.

Also shown below is the annualized change in the median home price for each metropolitan area, projected over the five years to the end of 1999.