Over the 12-month period that ended in November, home values increased 6.5%, marking the fastest annual growth rate since August 2006. The median U.S. home is currently valued at $192,500, which is only 2% below the high point of 2007.
Zillow cites consumer demand and a short supply of homes as the cause of this trend, particularly in areas like Seattle, Denver, and Dallas, where the job market continues to grow and stabilize.
“Home value growth continues to be strong, supported by solid buyer demand and still limited for-sale inventory in many markets across the country,” said Zillow chief economist Svenja Gudell.
Seattle, for instance, has 6.5% fewer homes on the market than it did just last year. San Jose, California has a year-over-year inventory change of -14.4%. In fact, the current median sales price for homes in California is $470,000, whereas it was $393,000 in January 2015. In just the past year, California home values have increased 6.9%.
Homes are also increasing in value due to upgrades in technology. For instance, eco-friendly and green buildings currently account for somewhere between 26% and 33% of the total residential market. This move towards green living actually helped contribute to the housing industry’s recovery after the Great Recession of 2007-2009.
Add-ons like sunrooms also add resale value with an average return on investment between 89% and 115%.
Experts predict that this rapid growth rate in home value will actually slow down in 2017, perhaps by even more than 50%. They estimate that the average home price will be around $198,000 by the end of next year.
However, prices are unlikely to drop anytime soon as supply will continue to outweigh demand. According to the National Association of Realtors Chief Economist Lawrence Yun, the responsibility of boosting supply will fall on the shoulders of construction companies. He explained that since so many rental properties are bringing in a huge income for landlords, they are unlikely to sell their existing properties.
“The only way to bring additional supply, therefore, is for homebuilders to get really busy,” said Yun.