Home values rising faster than inflation

WASHINGTON The value of Americans' homes is increasingconsiderably faster than inflation in most of the nation'smetropolitan areas.

In the Chicago area, the median home price - meaning half soldfor more and half for less - increased during the April-June quarterto $169,100, up 5.1 percent from a year earlier, the NationalAssociation of Realtors said Wednesday.

Nationally, the median home price for the period was $131,100,up 6 percent from a year earlier.

That compares with an inflation rate in consumer prices of 1.7percent during the same period.

The markets with the highest median prices in the nation wereSan Francisco, $329,400; Honolulu, $305,000, and Orange County,Calif., $261,500.

The lowest prices were in Ocala, Fla., $69,100; Waterloo, Iowa,$71,500, and El Paso, Texas, $75,200.

Economists said the healthy gains in home values could helpoffset the threat to consumer confidence from the stock market'sAsia-inspired turmoil, though by itself home value appreciationwouldn't be enough to offset a true stock crash.

The Dow Jones industrial average is down 8.4 percent from itsJuly 17 record of 9,337.97 but still 8.1 percent higher than at thestart of the year.

In a sense, the stock market's turmoil and the housing market'svigor have the same cause: Asia.

Stocks are rocky because traders fear that loss of business withAsia will cut deeply into corporate profits. At the same time,Asia's problems have motivated international investors to pour theirmoney into U.S. bonds, and that has lowered interest rates,including mortgage rates. Owning a home, in turn, has become moreaffordable.

"Appreciation in home prices . . . is the flip side of Asia,"said economist Everett Ehrlich of ESC Co. in Washington. "There'sroom for upper movement (in home prices) yet."

In fact, despite the stock market's strong gains in recent yearsand the proliferation of 401(k) and IRA accounts, Americans havealmost as much of their wealth tied up in their homes as in stocks.In 1997, real estate represented about 27 percent and stocksrepresented about 28 percent, the Federal Reserve says.

Economist Sung Won Sohn of Norwest Corp. in Minneapolis said achange in stock prices has a more direct impact on consumer spendingthan a change in home prices. Stocks can be more easily sold andconverted to cash when prices rise. Conversely, a price drop canscare consumers into saving more and spending less.

But rising home equity influences consumers too, over time, byincreasing their optimism and giving them added cash if they borrowthrough a home equity loan or refinance their mortgage and take moneyout.

Sohn said home price gains recently have been extraordinary buthe doubted price drops would become common, as they did after thereal estate bust of the late 1980s. "Home prices have gone up sorapidly that we are certainly nearing a plateau, but that doesn'tmean we'll fall back - unless we have a stock market crash and arecession," he said.