Did You Know: Value of Household Real Estate

By Danielle Hale, Research Economist

About Housing Units and Households

• After nine consecutive quarters of decline, the aggregate value of household real estate has increased for the third quarter in a row, though by a smaller amount than in the previous two quarters. The market value of household real estate as reported in the fourth quarter of 2009 is $16.6 trillion, up $890 billion since the first quarter according to Federal Reserve Flow of Funds data.

• While quarterly improvement is good news, residential real estate has yet to show year-over-year gains. The value of real estate is at a level last seen in 2003, meaning that many households have seen a substantial reduction in wealth from the 2006 peak.

• At its peak, the market value of residential real estate was $22.9 trillion. At that time, the replacement value of household real estate was $14.2 trillion as estimated by the Commerce Department. Current replacement value of household structures is estimated to be $13.3 trillion.

• These numbers are subject to revision. The Federal Reserve uses a weighted repeat-sales index of house prices to assess the market value of household real estate. Weighted repeat-sales price indexes help avoid measurement error found in a pure median price series which captures changes in the value of real estate but also changes in value if the types of properties for sale in one period are different than properties for sale in another period (i.e. larger or smaller; in better or worse locations; older or newer).

• One drawback of a weighted repeat-sales price index is that it can lead to substantial revision and these revisions can stretch back significantly to the past. In data released in December, figures for the aggregate value of household real estate changed, falling by as much as $2 trillion in 2009 and increasing by as much as $300 billion in 2004—nearly 2 percent. These revisions mean that the run-up in values and subsequent decline are even sharper than previously measured—according to this method.