USA Home Prices: West Beats East

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

May 2006

We have recently reviewed some simple data on median home prices in several major metropolitans in the USA and realized that West Coast prices generally beat East Coast prices in recent times, save for except the pricey coops and condos in Manhattan. Here are the basic points: 

A)      Data sources = the ones used here have been mostly abstracted from a real estate report seen in the website of New York Times

 

B)      Period = the data goes way back to the late 1960s / early 1970s and the latest figures are based on 2005 

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C)      Selected metropolitans = they include New York City, Boston, Washington DC, Los Angeles, San Diego, and San Francisco

D)       Median home price figures = are in current US dollars 

And these are the main observations

1)       Prior to the mid 1980s, it was East beat West = or at least on par to the West most of the time with exception like the mid 1970s when the Big Apple (New York City) almost went bankrupt. In any event, the median home price difference between the East and the West (or net surplus of the East over the West) was not overly proclaimed e.g. hovering around 20-30% at best in certain timeframes. In fact, when counterpart / similar scale cities in the East and West were compared to one another, e.g. Boston to San Francisco, New York City to Los Angeles, it was realized that the Big Apple did not even possess any significant lead over Los Angeles during the period as Boston did over San Francisco at one point in time.

 

2)       Starting around the mid 1980s, West began to beat East = and while the Big Apple seems to have held its own against Los Angeles, Boston and Washington DC prices were overtaken by the likes of San Francisco and San Diego. The price differences could also be more significant e.g. in 2005, the West Coast cities appeared to enjoy median home prices which are 50% to 70% more than their East Coast counterparts.

 

3)       Over the period stated, both West and East Coast home prices rose and correlated well with one another = but when the stated period was broken down into roughly 5 year timeframes and their corresponding percentage price appreciation (or depreciation) within the timeframe calculated, it was realized that while there were 5-year periods when both West and East Coast prices seemed to have performed more or less alike, e.g. during mid 1970s and the late 1990s, there were also periods when only one of them seemed to have performed predominantly well e.g. East Coast in the mid 1980s and the West Coast in the late 1980s.

 

4)       Compared to the national median home prices = prior to the mid 1980s, both West and East Coast prices apparently shared similar ranges of ratios, mostly being in the 1.20 to 1.50 bandwidth. After the mid 1980s, these ranges of ratios began to separate and in 2005, while the East Coast prices were a bit more than twice the national figure, the West Coast ones could be 2.50 to 3.50 times.

 

5)       Probable factors or reasons = speculatively, these may include the graying population and the corresponding assumption that elderly people will opt for warmer weather, the economic development and business trade prospects in China / Asia / Pacific which benefit the West Coast more, the IT Silicon Valley effect, and the like. Nonetheless, these are best verified via other detailed researches and are not the main scope of this article.  

Summing up, this simple study demonstrates the importance of market selection (e.g. East Coast performed slightly better overall prior to the mid 1980s and the West Coast did better overall after the mid 1980s) and the timing of investment (e.g. avoiding the late 1980s and entering in the mid 1990s), even for markets which are seemingly correlated (R2 of 0.90 or higher). 

 

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

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