I have a conversation frequently with my clients regarding the projected appreciation of their home value. I always say that I help people to purchase homes and shelter, not investments. Many have friends and person experiences where house values have increased 10%, 15% and even 20% in one year. I have observed those years. Funny thing is that owners are much less likely to mention the last three years when much of those gains disappeared.
What is the reality of home appreciation?
I have tracked several representative homes in a number of markets over 20-year periods. That is longer than many people own homes but is representative of a longer term look at the market. Looking at an example of a home in a south suburban Denver area neighborhood, I find a purchase at just under $200,000 in 1990 and a value today, in 2010 of just under $400,000. At first glance, that looks pretty good. Value up by 100%. However, what it really represents is appreciation of about 4.0% per year. And that is without considering the repairs, replacements and updates that would be typical over a 20-year hold. There are many other factors to consider but those are outside the purpose of this discussion. What I am trying to establish here is a realistic look at changes in house values. There are some neighborhoods that have done a little better over a similar period and some that have done worse.
How should this affect my decision about purchasing?
Well, you can probably see that over an extended period that you will have enjoyed shelter and had the enjoyment of being a home owner. The value of that shelter has kept up with inflation. Certainly better than a car that immediately begins to depreciate and has little value after being used for 20 years. You may get lucky and turn over your home during one of those 3 to 5 year periods of major appreciation. You must also be prepared for the flat and depreciation times as well. With a realistic look to the future you can make an informed decision. Contact me if you have questions regarding your home purchase.