(Image Source: Matt Donders / Unsplash)
August 2024
Spend time at any backyard cook out this summer and the conversation will eventually turn to the high cost of housing. Indeed, according to the Zillow Home Value Index, the median value for homes in Wisconsin increased by 85% over the past eight years, or 8.0% annually, moving from $167,693 in 2016 to $311,591 in June of this year. Zillow estimated home values in Dane County increased by 77% overall, or 7.4% annually, over the same period, increasing to $438,450 from $247,251.
While there have been time periods in which home prices spiked, data from the Housing Price Project (HHP), which catalogs prices for 2.7 million homes advertised in U.S. newspapers in 30 cities between 1890 and 2006, indicates that the trajectory of home prices is neither consistently upward nor consistently smooth.
Using the HHP, researchers at the National Bureau of Economic Research found that real home prices experienced an annualized increase of 47% overall (4.9% annualized) between 1920 and 1928, and then fell by 27% overall (-2.0% annualized) between 1929 and 1935. Prices increased by about 27% (1.3% annualized) between 1935 and 1953, 21% (1.3% annualized) between 1953 and 1975, and 117% (3.6% annualized) between 1975 and 2006.
That brings us to today’s question. From 1890 to 2006 inflation averaged about 2.8% annually. After taking inflation into consideration, what was the average annual capital gain for a house from 1890 to 2006?
A. -1.2%
B. 0.9%
C. 2.8%
D. 4.7%
E. 6.1%
