Where do you get the most bang for your real estate dollar? The official results of the American property sweepstakes are now in: Home buyers and owners in four states and the District of Columbia racked up average property value gains in excess of 60 percent between 1998 and 2003.

Houses in the District of Columbia -- treated as a state for statistical purposes by the Office of Federal Housing Enterprise Oversight (OFHEO) -- gained an average 78 percent during that five-year period. Homes in Massachusetts gained on average 73 percent, New Hampshire 69 percent, California 68 percent and Rhode Island 61 percent.

The national average appreciation gain from 1998-2003 was 38 percent, according to the agency.

Put into return-on-investment terms, the gains in the top five states were stunning. For example, a $10,000 downpayment on a $150,000 condo in the District of Columbia in 1998 would have yielded $117,000 in equity gains ($150,000 x 0.78= $117,000) during the following 60 months -- well over 10 times the original investment. Compare that with stock market returns during the same period and you begin to see why so many Americans have moved their focus to real estate.

But not all houses have been golden, according to the appreciation survey. What was the lowest-yielding state from 1998-2003? It was Utah, where the average house appreciated just 12.2 percent, roughly what the top five states were piling up every 12 months. Next lowest was New Mexico (15.6 percent), Idaho (17.8 percent), North Dakota (18.6 percent) and Arkansas and Indiana (tied for fifth with 19.9 percent aggregate gains over the last five years.)

The same federal survey data reveal the multi-decade “best and worst” places to make money on residential real estate. At the top of the list of gainers between 1980 and 2003 is Massachusetts, where the average house appreciated an astounding 463.1 percent over the last 23 years. Eight of the other top ten-gaining sates are in the Northeast: New York (up 353 percent), Rhode Island (303.5 percent), New Jersey (275 percent), New Hampshire (271 percent), Maine (260 percent), D.C. (256 percent), Connecticut (245 percent) and Delaware (233 percent.) California was the only state outside of the Northeast to crack the top ten, coming in at number six with a 23-year average gain per house of 263 percent.

The lowest-yielding home realty markets during the same years? Oklahoma ranked last among the 51 jurisdictions, with an average gain of 67.5 percent. Alaska was second lowest at 77.8 percent, followed by Wyoming (80 percent), Louisiana (85 percent), Texas (85.4 percent), North Dakota (86.3 percent), West Virginia (92.1 percent), Mississippi (105.7 percent), Kansas (108.2 percent), and Arkansas (108.3 percent).

How can it be that a house in the Northeast could gain more -- far more -- in just five years than a house in Oklahoma gains over the course of 23 years? Federal researchers say the answers are grounded in basic economics: Effective demand for residential real estate has been higher in the Northeast relative to supply for decades compared with demand in Oklahoma. Buyers in the Northeast have tended to have higher incomes, and higher net household wealth, than buyers in the Southwest and Midwest. And they have been spending that money lavishly on real estate -- bidding up prices to produce the high rates of appreciation documented by the study.

Of course, there is a flip side. You generally get a lot more house and land for your dollar in the lower-appreciating markets. A $300,000 house in the Boston suburbs might sell for $75,000-$100,000 in many other parts of the U.S. A $600,000 new home in the Washington D.C. suburbs might well cost half that in less superheated markets, where land and labor costs are lower.

Published: September 1, 2003

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.