Home Values in the New Millenium: The Rich Get Richer

House prices in the most expensive large markets increased four times faster than homes in the least expensive markets

A few weeks ago I linked to an interesting article by Matt Yglesias where he made the smart point that while some may benefit from increased home prices, they don't do much good for society as a whole. If your home increases in value faster than the national average, you're better off, sure, but by definition this only applies to half of homeowners. For the other half, their homes increase in value at a rate slower than the national average. Some win and some lose, but on average higher prices just mean we're spending more money on housing and less on the other things we might want to buy or invest in.

And as it turns out, the lucky half—those whose homes appreciate faster than average—aren't exactly representative of the entire population of homeowners. Like so many other aspects of the modern economy, the greatest benefits of homeownership appear to be accruing to our most affluent citizens while the rest of us fight over the scraps.

In the below graph, I've averaged the home price indices over the past 13 years for the six most-expensive housing markets* in the Case-Shiller Composite 20 index, as well as for the six least-expensive markets** (excluding Detroit and Las Vegas, because that just wouldn't be fair). The year 2000 is the index point, so the graphs represent the percentage increase in value from that year—a y-axis value of 160 would represent a 60 percent increase in value since the year 2000:

Since 2000, homes in the most expensive markets increased in value by about 80 percent on average, while home prices in the cheapest markets went up by only 20 percent. And no, the increase over the last thirteen years isn't responsible for the difference in current home values: the average value of homes in the expensive markets was $363,902 in 2000, while the average home in the more affordable markets was just $171,612.† If you could afford to buy a $360,000 home in 2000 you've probably done quite well; if you were only able to afford a down-market home, not so much. It takes money to make money, I guess.

We're spending hundreds of billions of dollars a year promoting homeownership, and just as with the mortgage interest tax deduction, the vast majority of the benefit is going to the upper and upper-middle class—those that can afford a home worth $500,000 or more. People in the working- and middle-class are being incentivized to buy (and even penalized for renting), but the homes they can actually afford to purchase aren't the ones that are creating significant wealth. If our primary goal in federal housing policy is really to create "Security for the Middle Class," we've still got a long way to go.


  1. *San Francisco, Los Angeles, San Diego, New York, Washington, D.C., and Boston. 
  2. **Chicago, Charlotte, Dallas, Atlanta, Tampa, and Cleveland. 
  3. †Data from the Lincoln Institute of Land Policy