THE latest national data on home value appreciation in the 140 largest real estate markets confirm what may be the least-heralded financial story of the decade: For homebuyers and owners, the combination of the national inflation rate, federal tax policy changes, and the growth of home resale values have produced after-tax returns that are unprecedented in the post-World War II era.

From January 1990 through December 1998, average home value gains in 57 of the 140 major markets exceeded 30 percent. In 48 markets, resale appreciation during that period topped 35 percent. In 36 metropolitan areas the gain has been 40 percent or higher. And in a handful -- the dozen hottest real estate markets of the decade -- gains have averaged between 50 percent and 115 percent.

Though impressive on their face, home value appreciation rates like these, unadjusted for inflation or capital gains taxes, aren't extraordinary by recent historical standards. In the 1970s and 1980s, Southern California, Washington, New England and the New York-New Jersey markets all experienced double-digit bursts in resale values, spurred by unusually rapid local economic growth.

In Massachusetts between 1985 and 1987, according to federal tracking data, the typical home jumped in value by more than 50 percent -- 2 percent a month, 25 percent a year. In California, the average house increased in value by more than 50 percent between the summer of 1985 and the fall of 1989. A $400,000 house in San Diego readily turned into a $600,000 house in a few years.

But in all these hot spots during the '70s and '80s, two factors cut homeowners' true financial gains: Inflation eroded the purchasing power of all profits at 5 percent to 9 percent a year or more. In 1980, the inflation rate, measured by the Consumer Price Index, averaged 13.5 percent. And federal tax policies forced most owners to defer their real estate gains by rolling them into larger homes, or risk paying combined federal and state capital gains taxes exceeding 40 percent.

Compare that with the financial environment confronted this decade by homebuyers and owners: An inflation rate which last year barely exceeded 1.5 percent, and which has hovered in the 3 percent range for much of the 1990s. Plus, since 1996, federal tax policies have allowed owners who've experienced big jumps in value to cash in, tax-free. They can sell every two years and keep 100 percent of their profits in most instances.

Factor in the cost of fixed-rate mortgage money -- 7 percent to 8 percent for much of the decade vs. as high as 16 percent during the 1980s -- and the contrast in returns is even more stark.

It is in this inflation-adjusted, after-tax context that you can begin to grasp the significance of the latest home value statistics. Studying price and valuation changes in multiple sales on the 20 million-plus homes it tracks electronically, First American Real Estate Solutions, an Anaheim, Calif., firm, found that among the highest-yielding markets have been:

Portland, Ore. (up 115.2 percent since 1990)

Colorado (Denver, 95.2 percent; Boulder, 82 percent and Colorado Springs, 76.7 percent)

Detroit, the Midwest's remarkable comeback market (68 percent)

Arizona (Flagstaff, 56 percent; Phoenix-Mesa, 43.4 percent)

Ohio (Akron, 51.6 percent; Cleveland, 45 percent; Toledo, 41.2 percent; Cincinnati, 38.2 percent)

Seattle (46.8 percent)

Omaha, Neb. (44.4 percent)

Chicago (41.5 percent)

Minneapolis-St. Paul (39.1 percent)

Charlotte, N.C. (30.4 percent)

Miami (30.3 percent)

Atlanta (30.1 percent)

The new study found that most of the big California markets that were hit -- or grazed -- by the real estate recession of the early 1990s are well into an energetic recovery. Orange County and San Diego home values rose 18.1 percent and 16 percent respectively last year, San Francisco 13.3 percent, Santa Rosa 11 percent, San Jose 13.4 percent, and Los Angeles 8.4 percent.

Similar rebounds are under way along the East Coast and in parts of Florida: New York City properties jumped 17.3 percent last year. On Long Island, Nassau and Suffolk County homes appreciated an average 12.4 percent. Metropolitan Boston was up 11 percent, and Stamford- Norwalk, Conn., 6.5 percent. In Florida, Tampa-St. Petersburg homes gained an average 6 percent in 1998, Orlando, 5.8 percent and West Palm Beach, 5 percent.

A final comment: Five or 6 percent appreciation may not sound like much to some of you who owned houses in the "go-go" 1970s and '80s. But on a net, after-tax, cash-in-pocket basis, it's a lot better than you made from double-digit appreciation when the inflation rate was close to 10 percent, adjustable mortgage rates were in the teens, and the IRS wanted to eat you alive when you sold for a profit.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

Pub Date: 3/14/99