Yes, California’s housing market is crazy, as only two states have experienced more volatility during the past half-century.
My trusty spreadsheet eyeballed price indexes from the Federal Housing Finance Agency dating to 1975 to get a long-running look at real estate swings for the 50 states and the District of Columbia.
Look, watching home prices is not for the faint of heart. That’s true whether you’re an owner or house hunter. By averaging state-by-state rankings for a half-dozen measures of annual price change over 49 years, you see where stability was most common – and where it was rare.
The final grades showed Hawaii and Vermont had zanier price variability than California. Nevada was fourth in price gyrations, followed by Arizona.
Now, if you prefer calm pricing, these calculations say Kansas is your spot. Ohio, Kentucky, Alabama, and Indiana are next for limited price movements.
And how about California’s big economic rivals? Texas ranked No. 26 for price spins, while Florida was No. 6.
Let’s examine the six pricing yardsticks that created this scorecard to view housing’s mercurial ride.
Big gains
When did prices make their most significant one-year surge since 1975?
For California, it was a 27% gain in 1977 – the 12th-highest “best year” among the states and topping the 21% national median.
The largest one-year gains occurred in the early 1980s when mortgage rates swayed as the Federal Reserve battled ugly inflation. Hawaii home prices jumped 74% in 1982, Vermont soared 65% in 1982, and Alaska jumped 36% in 1981.
The three smallest “biggest” gains came in 2021 when the Fed’s cheap money policies juiced normally calm markets during the pandemic era. Kansas had the smallest best-year gain at 14%, followed by Ohio at 15% and Nebraska at 16%.
Texas’s most significant gain was 20% in 2021, which ranked it 29th among the states. Florida’s was 27% in 2005, the 11th largest increase.
Big losses
Conversely, when were the ugliest declines?
In California, it was the 23% drop in 2008 amid the Great Recession, the fifth-largest “worst year” among the states. Nationally, the median drop was 8%.
The 1981 mortgage madness caused gigantic losses. Hawaii’s prices tumbled 54% that year, while Vermont lost 38%. Nevada’s 26% dip, the third-largest, occurred in bubble-busted 2008.
The most minor losses as a state’s “worst year” were 1% slips in Kansas (2011) and Kentucky (2009).
The largest Texas drop was a 9% decline in 1987, No. 22 among the states. And Florida’s worst was the 22% fall in 2008, ranking No. 6.
Extreme swings
Another volatility yardstick is the gap between a state’s best and worst years.
California’s fattest gain (27%) and largest loss (23%) are 50 percentage points apart, the seventh-biggest gap and nearly double the nation’s 29-point median.
The widest gap was Hawaii’s 128-percentage-point chasm, followed by Vermont at 103 and Nevada at 60.
The skinniest gaps were in Kansas at 16 percentage points, Kentucky at 18, and Ohio at 19. And Texas’ 29-point gap ranked No. 25, while Florida’s 50 was No. 8.
Geeky math
Now, contemplate a more formal volatility measurement – what statisticians call “standard deviation.” Basically, it’s the typical swing in a collection of numbers.
This geeky math says California’s home prices deviated at a 9.6% annual pace since 1975, the fourth-sharpest gyration and significantly wilder than the 6.1% national median.
The wildest deviations were in Hawaii at 16.6%, Vermont at 12.2%, and Nevada at 10.5%. The smallest were less than 4% in Kansas, Kentucky, and Nebraska.
The 5% deviation in Texas was No. 32. Florida’s 8.4% was No. 7.
Losing years
Yes, home prices do occasionally fall.
Since 1975, California suffered 10 years of losses, the seventh-highest count. The national median was eight years of price drops in the last 49.
Losing years were most common in Connecticut, 14 times, Rhode Island (13) and Hawaii (12). One-year drops were rarest in South Dakota, occurring just four times in 49 years.
Seven states had five declines. Texas had six losers, and Florida had seven.
Appreciating appreciation
Where was the big money made?
Ah, you guessed it: California! Prices grew at a 6.43% annual pace over 49 years, well above the 4.7% national median.
No. 2 was Washington state at 6.41%. No. 3 was the District of Columbia at 6.2%.
The most negligible appreciation was West Virginia’s 3.4%. Next was Mississippi at 3.6% and Louisiana at 3.9%.
Texas’ 4.6% gains ranked 32nd, while Florida’s 5.2% was No. 17.
Bottom line
Economic rankings are primarily fun exercises with small business lessons hidden within.
Does a homeowner get anything for living in “crazy” housing markets – other than frequent indigestion from tracking all the numerous ups and downs?
The 10 most volatile states averaged 5.4% annual gains over the past half-century. Meanwhile, the 10 least volatile states averaged only 4.3% a year.
The profitability gap is vast over 49 years when those appreciation rates are applied to the U.S. median home price of $31,000 in 1975.
When 2024 ended, that house would be worth $412,000 at the high-volatility rate of yearly gains. Yet only $240,000 at the low-volatility appreciation pace.
That’s a 70% difference. Crazy was rewarded, another example of “no pain, no gain.”
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com