7.16.2009

Long term home value apppreciation

Home Ownership Was Never a Road to Riches

Excerpt:

Home appreciation nationally has run about 1% above inflation over time.

The big price run-ups from the late 1990s through 2006 or 2007 were an aberration. The biggest value you derive from home ownership isn’t appreciation. “It’s being able to live in it,” Prof. Mayer says, and avoiding the rent you would otherwise have to pay.

Once you add in imputed rent and subtract property taxes, Prof. Mayer estimates, my 2% annual home-ownership return looks more like 6%.

That’s why you should buy as much home as you need—but no more. A bigger home than you need isn’t an investment—it’s an extravagance, the equivalent of renting a bigger apartment than you need. You may choose to do so, but that doesn’t make it a smart move financially.

Another reason home ownership isn’t the road to riches: Most houses—especially the old ones my wife and I favor—are money pits.


Comment: My economic sense tells me that homes should appreciate at approximately the inflation rate.

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