Study Forecasts Regional Parity in Housing Prices

The large regional price disparities that developed in housing over the past two decades will disappear as companies migrate out of high-cost areas on the East and West coasts and relocate operations in less-expensive cities in the South and Midwest, according to a new report.

But the prediction of more uniform housing prices by Northwestern University’s Center for Real Estate Research drew skepticism from several analysts who question whether a three-bedroom home in Des Moines will ever cost the same as similar-sized houses in Malibu or Manhattan.

The 60-page Kellogg Biskind Report--published April 10 and written by Edwin S. Mills, a professor of real estate at Northwestern, and Ronald Simenauer, a doctoral candidate at the university--focused on how homeownership has fared as an investment during the past 30 years. It forecast that the housing market will revive by mid-1991 but that regional price disparities will end this decade.

The authors found that until the 1970s, housing prices had varied little by region within the United States. But starting about 1975, housing prices began increasing more rapidly in the Northeast as well as the Western and Rocky Mountain states as baby boomers began buying homes to start families.

Housing prices in the Western region rose at a rate nearly 50% higher than the national average between 1974 and 1989. During the period of greatest appreciation in the Northeast, between 1982 and 1988, the average real house price rose 10.8% annually, about four times the national average.

The critics say, however, that although price differences may narrow somewhat as big corporations take higher-paying jobs to lower-cost cities, significant regional disparities in housing prices will continue to persist because departing companies are replaced by other firms that often offer salaries high enough to support current housing prices. They also say people are willing to pay a premium to live in certain cities because of such factors as weather and cultural activities.

“I agree that home appreciation in general is going to be slower than it has been over the past few years,” said David Traversi, a vice president of Montgomery Securities’ real estate division in San Francisco. “But I don’t think price differences will narrow that much.”

“The bottom line is still location, location, location,” said Jim Ribick, executive director of corporate real estate services for Century 21, which assists companies in relocating and finding housing for employees. “People are always going to pay more for a property in Malibu than they will for a home that overlooks cornfields.”

But the report concluded that more recently “powerful forces” have been “reducing regional disparities.” The result, the report said, is that the tables are turning, and housing prices in the Midwest and South are now outperforming the West and the Northeast in terms of annual appreciation.

Author Mills explained that as a result of the run-up in housing prices, some companies are moving out of high-cost cities such as Boston and New York and taking jobs to lower-cost areas. J. C. Penny and GTE Corp. are just a few of the big corporations that have moved from the New York area to Texas in recent years, and Mills said that without the jobs and economic support created by such big companies, housing appreciation will slow in cities deserted by big companies and accelerate in areas that attract major employers.