These days, the price of Seattle housing is making headlines several times per week. Home prices continue to rise at a pace that appears to be higher than everything else — or so it seems. But exactly how much have home prices increased in the last 30 years?
The Big Mac index was invented by The Economist in 1986 as a tool to compare purchasing power. Since then, the Big Mac index has become a global standard, included in textbooks and the subject of dozens of academic studies.
Burgernomics
In 2014, the median sale price of an existing single-family home nationwide was $207,000, according to the National Association of Realtors — that’s almost 2.6 times as much as 30 years ago.
Compared to housing, the “two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun” has increased even more. Due to the climbing prices of beef and cheese, the Big Mac experienced a drastic price surge, from $1.60 to $4.62 over 30 years, according to The Economist’s Big Mac index — that’s 2.9 times as much as 30 years ago.
When I say that housing prices have gone up less, percentage-wise, than a Big Mac, that’s pretty much due to the 2008-09 housing crash. The real estate market recovered slightly, then faltered again in 2011, as prices stagnated.
Now, eight years after the crash, the housing market across America is approaching full recovery, with some markets like Seattle appreciating faster than they were before the crash.
Let’s look a little closer to home, at the Seattle real estate market. How do Seattle housing prices stack-up to the Big Mac? Zillow.com ranks the Seattle housing market as “very hot.” According to Zillow, Seattle home prices have gone up 11.6 percent over the last year. The median home value in Seattle is $513,200 in 2015 and forecast to rise another 6.4 percent in 2016.
Since 1986, Seattle home values have appreciated 7.78 percent per year on average. (This doesn’t include 2008-2011, when prices declined 27.97 percent). Over the same 30 years, the Big Mac increased about 4 percent per year. Indeed, Seattle real estate has been appreciating almost 4 percent faster per year than the Big Mac.
According to website Littlebighomes.com, over the last 30 years, the Seattle real estate market has improved by 372 percent. Local real estate appreciation over the last 10 years gives Seattle a ranking of 43rd out of 381 metropolitan areas, the 88th percentile. In other words, the Seattle real estate market performed better than 88 percent of the metropolitan areas analyzed. (I expect Seattle real estate will jump in the rankings when all of the data for 2015 is collected.)
“The highest annual change in the value of houses in the Seattle real estate market was 33 percent in the 12 months ended with the second quarter of 1978,” according to the website. “The worst annual change in home values in the Seattle market was -11 percent in the 12 months ended with the first quarter of 2010. The highest growth in home values in the Seattle real estate market over a three-year period was 96 percent in the three years ended with the fourth quarter of 1978. The worst performance over a three-year period in the Seattle market was -24 percent in the three years ended with the second quarter of 2011.”
In its 12-month Housing Market Forecast, Littlebighomes.com predicts whether home prices in metropolitan housing markets will be up or down. The forecast trend for Seattle is up, with a forecast accuracy of 89 percent. The three-year forecast is also up, with a forecast accuracy of 87 percent.
With history as my guide, I suggest we should discontinue the price appreciation comparison between Seattle housing and the Big Mac. Instead, we might use the Beef Burger at Thierry Rautureau’s Loulay restaurant downtown. The basic burger is $16 — dressed up with foie gras and fried duck egg makes it a $40 burger — allowing for a variable rate of appreciation for neighborhoods ranging from Columbia City to Broadmoor.
What do you think?
RAY AKERS is a licensed Realtor for Lake & Co. Real Estate in Seattle. Send your questions to ray@akerscargill.com or call (206) 722-4444.