I mean fundamentally, I'd expect houses to follow the paths of other objects and depreciate. My 12 year old car is worth less today than when I bought it 4 years ago. Excluding antiques (which are valuable because of scarcity and sentimental/scientific appeal), objects generally decay and rust with time. And most of us prefer non-decayed non-rusty objects.
Given that houses are objects, and that they decay with time in a myriad of ways, why do we expect houses to appreciate? Here's my list:
- Land & Demand: House prices generally include land, and land is a very fixed quantity. Given that the earth's population is growing, we'd expect land to become more valuable. It's not necessarily guaranteed that the population will grow, but typically, despite our violent nature, human population has grown.
- Society/Location: Locations change in how much they are worth. A bad school system improving to a good school system will improve demand. Businesses providing jobs or services nearby make a location nicer. Likewise, a business going away can drop nearby value.
- Environment/Location: Environmental issues (the discovery of pollution, failed levees, or new fault lines) also shift a location's value.
- Relative Wealth: This idea is similar to the limited supply of land: If more people have more money, they may be willing to pay more for housing, thus driving the price of homes up.
What points would you add?
3 comments:
if you do improvements on them, like adding rooms, decorating, etc, they appreciate. This is even true here in Brasil, where our house has not appreciated hardly at all (except for inflation) because we have done virtually nothing to the inside - we don't even have closets! The value of the house goes up with the improvements you make here, despite the fact that when you move out you take all the light fixtures, appliances, and even the closets with you.
I agree with most all of your assumptions as as causes, but one I would toss in there to consider would be expectations of a home.
When a home is built, it is expected to last a long time. It is hard to judge the quality of a new home, that has yet to settle. Whereas if I walk into an older home you can normally tell the relative quality it was built with (considering adequate upkeep). But truth be be told, scarcity / location are king, in my opinion.
I think perception and floor layouts are going to have a bigger impact on the value of homes once this market correction has passed.
It sounds like a boardgame... I'm having some scary memories of realestate courses I had. The federal secondary realestate market and macroeconomics really sizes a population down to ants. :/
I saw your link on Marie's and reading a few I realized it was you.
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