The REAL Real Estate Appreciation Rate

[toofrugalformycat]

I didn't vote because there's nowhere for 2.6%. I guess Anchorage is kinda like Texas.
I was just counting price paid when we bought in 1982 vs estimated value now, not taking into account maintenance costs (didn't keep track of them) and value of rent payments avoided.
I guess you'd better hope I don't move to Hawaii, Honobob, I might bring my lousy real estate luck with me!

 

[Spanky]

I'm basically looking at all things being the same "then" as "now". In my specific examples I've spent minimal, mostly paint and carpets and new appliances.

Yup! landlords tend not to spend a lots of money on upkeeps in highly demanded areas. My sister-in-law has been living in the same apartment in Monterey Park, CA for over 10 years. The building has never been painted, the roof has never been replaced, the electrical wires have never been tugged away from the eves of the building, and the carpets have never been replaced. In short, improvements or repairs are virtually nonexistent. Rents, however, go up every year by more than 6%. Her landlord says repeatedly, "If you do not like the increase in rent, you are free to leave since there are many people on the waiting list."

 

[honobob]

I didn't vote because there's nowhere for 2.6%. I guess Anchorage is kinda like Texas.
I was just counting price paid when we bought in 1982 vs estimated value now, not taking into account maintenance costs (didn't keep track of them) and value of rent payments avoided.
I guess you'd better hope I don't move to Hawaii, Honobob, I might bring my lousy real estate luck with me!

Nah! Come on down. My next door owner of my first place in Diamond Head was from Alaska. She spent the winters in Honolulu. She would share the best smoked Salmon. She was from a very weathy family that I thought were big in Anchorage in the lumber (home building) business. Her name was Schuman. Owned a few nice condo's in Honolulu and even after she sold in Diamond Head the management kept track of her until she died at her daughters in Missouri.

I always thought that Alaska real estate was on par with Hawaii. Are you sure your math is correct? At 2.6% appreciation a property in 1982 worth $40,000 would be worth $78,000 today.

Aloha
Honobob

 

[lazygood4nothinbum]

here's the annual appreciation history on my house from 1965 to date based on purchase prices:

1965-1968 36%
1968-1972 18.5%
1972-1977 8.5%
1977-1994 5%
1994-2008 12%

how does this tell me what might happen into the future?

 

[toofrugalformycat]

Nah! Come on down. My next door owner of my first place in Diamond Head was from Alaska. She spent the winters in Honolulu. She would share the best smoked Salmon. She was from a very weathy family that I thought were big in Anchorage in the lumber (home building) business. Her name was Schuman. Owned a few nice condo's in Honolulu and even after she sold in Diamond Head the management kept track of her until she died at her daughters in Missouri.

I always thought that Alaska real estate was on par with Hawaii. Are you sure your math is correct? At 2.6% appreciation a property in 1982 worth $40,000 would be worth $78,000 today.

Aloha
Honobob

Thanks for the invite. Too bad I'm not from a wealthy family, it would be easier I think.
Yep, my math is correct, I checked with your example.
There was a pipeline building boom, then a bust. Pretty much anyone who bought in Anchorage from about 1980 to 1985 timed it very badly. The closer to 1985, the worse. We bought in 1982. If only we'd happened to move to town four years later! Things were so cheap in 1986 and 1987, DH talked about buying a nicer house. But we were underwater on our mortgage, it was early in our careers, and I was too chicken. Maybe I should try listening to him once in awhile, eh?

 

[rocketdog]

I'm not sure I understand the original question, but I went ahead and answered the poll: 10%. We bought our house in 1991 for $67,900, and now in 2008 it is worth $340,000 (according to the houses I see selling around here, and according to zillow.com). I think that works out to an average increase of 10.5% per year. But I'm not too sure of my math.
We live in a pretty "hot" real estate area--the Pacific Northwest--but I doubt the prices will continue to rise at this rate over the next 17 years.

 

[al_bundy]

NYC has been around 10% over the last 25-30 years

what this means is that RE will double or triple in a 5-7 year period and then drop by 30% to 50% and then remain flat for a few more years. repeat.

i've talked to people that bought in the late 1980's or 1990 and were upside down for a long time. and i've seen people that bought at the bottom of the cycle and paid off their home in a few years.

 

[myself]

Well, it's only investing if you have money in the market. Didn't you cash out when property was 30% cheaper?

Only 30% cheaper?

We just bought a house (OK 4 months ago,) that we're rehabbing. We got it for 50% below market value (death in the family and it was absolutely hideous).

 

[myself]

I'm not sure I understand the original question, but I went ahead and answered the poll: 10%. We bought our house in 1991 for $67,900, and now in 2008 it is worth $340,000 (according to the houses I see selling around here, and according to zillow.com). I think that works out to an average increase of 10.5% per year. But I'm not too sure of my math.
We live in a pretty "hot" real estate area--the Pacific Northwest--but I doubt the prices will continue to rise at this rate over the next 17 years.

Actually, that's a CAGR (compounded annual growth rate) of 9.94%.

Ours is at 8.26% CAGR ($200k in mid-2000, and $370k early 2008).

 

[free4now]

Also don't forget that some appreciation, especially recently, is hedonic improvements paid for HELOC loans. When I moved into my condo complex 10 years ago, nearly everyone had the original super-tacky faux-antique chandelier hanging in their dining room and tile countertops.

When I sold a decade later, everyone almost without exception had replaced the chandeliers, and most had granite countertops. I would estimate that the average owner had spent 10% of the condo's value on improvements and repairs over the last few years.

I especially notice this effect when I tour high end luxury open homes. Almost every one has trendy kitchens that were redone in the last 5 years and which will surely look dated in another 5 years. We all know that luxury homes appreciate more than lower end homes, but I wonder if that isn't balanced by the huge sums that owners spend constantly redecorating.

 

[W2R]

We all know that luxury homes appreciate more than lower end homes, but I wonder if that isn't balanced by the huge sums that owners spend constantly redecorating.

I guess we all don't know that, because I didn't! Interesting! Here in New Orleans, luxury homes are feeling the housing slump a lot more than middle class homes. There is a longer backlog of luxury homes for sale, than there is for homes in general.

That could just be a local phenomenon due to wealthy people being able to get out (leaving their homes behind them, for sale), whereas often we middle class really can't.

 

[free4now]

W2R what you describe is normal... luxury home owners tend to be the first to get in to "hot" areas leading to rapid appreciation in up markets, and they also tend to be the first out when things get really bad, leading to stagnation in severe downmarkets.

However in less dramatic downturns where the middle class is squeezed by wages or inflation or adjusting mortgages, the higher end homes that are paid for by cash may continue to appreciate while the lower end homes decline.

 

[ladelfina]

honobob why are you so huffy? I can read and the answers you wrote all say "will be worth".. that's unknowable. I could pick any number and be right, or wrong, looking forward.

Prognostications here:
Home Value Calculator, Future Projected House Value - Move.com

 

[skyline]

Actually if you took the $1,000,000 Hawaii property at 9%(my initial figure) back to 1958 it would sell for about $13,500. That figure seems reasonable. Now if you had a $200,000 property in KC at 4% then the sales price in 1958 would be about $3,000. That figure seems reasonable when you look at the 1950's prices below.

So yeah it looks like one area can appreciate at 9% a year at the same time another will only appreciate 4%. At least over 50 years!...

One of us is using funny math...$13,500 at 9% for 50 years is about $1,000,000. But $3,000 at 4% for 50 years is only about $21,000.

Look at it this way: $1,000,000/$200,000 = 5, and $13,500/$3000 = 4.5. So based on the example numbers your are using, both markets appreciated at almost the exact same rate over 50 years.

In fact, based on the starting numbers in 2008 ($1M home in 9% market and $200K home in 4% market), back in 1958, the home in Hawaii would be about $13,500, but the home in KC would have to have been around $30,000.

 

[mexmeme]

We are in W Indiana, and the house we bought in 1997 is now worth what we bought it for. We live in a town of 80,000 for reference. There are pockets of areas in this country where investments in real estate did not appreciate 4%, in fact hardly at all. Small towns were left out in the housing bubble, and now with the "RECESSION" we are losing jobs from all sectors. The small towns are always the first to feel the sting of the hint of recession. We have been retired for 3 years, and now that we want to "get out of Dodge" we are stuck for a who knows how long. My husband was transferred nearly every 3 years, with his lifelong employer and this is the only time we are stuck except for the years in Houston, and then the company took most of the brunt of the move. Hey, why don't you all move up here and then my problems will be over and you should hit a good appreciating area (in your dreams).

 

[honobob]

One of us is using funny math..


In fact, based on the starting numbers in 2008 ($1M home in 9% market and $200K home in 4% market), back in 1958, the home in Hawaii would be about $13,500, but the home in KC would have to have been around $30,000.

Oops.. that'd be me. I thought the decimal was a comma. But either way, If long term appreciation is 4% then yes that $200,000 home would have to be worth $30,000 in 1958 and I don't think that was the case so then the long term appreciation rate in Kansas City would have to be about 7.5% if it's worth $200,000 now and about $6,000 50 years ago.

My point is that long term appreciation rates vary by area and to automatically assume 4% is not correct.

 

[honobob]

honobob why are you so huffy? I can read and the answers you wrote all say "will be worth".. that's unknowable. I could pick any number and be right, or wrong, looking forward.

Prognostications here:
Home Value Calculator, Future Projected House Value - Move.com

Sorry you want to read anything into my posts as "huffy" , maybe a little bit of frustration
But I do stand by my statement that my question was "What is your appreciation rate?" My specific examples were dated in the PAST. I talked about their movement in the FUTURE. AND if you bought a house in 1977 or 1987 at a certain appreciation rate it WILL be worth a certain amount in 2008!!

So as long as you assume you'll need 80% of your preretirement income and your house will only appreciate 4% and 4% is the only safe withdrawal rate and paying off the mortgage is the only way to go then "no worries" and no math.

so, what's your long term historical appreciation rate?

Your calculator shows SF rate over 5 years to be between 7.9% and 11.8%. It also shows my mothers old home in Greater Cincinnati as between 3.8% and 5.8%. I had hers over 40 years at 5.1%. Seems the more things change the more they stay the same.

4% my *ss

 

[free4now]

This thread is interesting... I must admit I am surprised at how many examples have turned up of long term significantly greater than inflation appreciation rates.

Over say 100 years you can't have certain areas continue to grow at much greater rates than other areas. Just to run some numbers, lets start with some average home values from

CNN/Money: The hottest zip codes

For the purposes of this example I'll assume 3.5% inflation for the next 100 years.

A San Francisco, CA home now costs $1,300,000. At 11% compounded it will be worth 1.8 billion in today's dollars in 100 years.

A Huntsville, AL home now costs $194k. At 4% compounded it will be worth $319k in today's dollars in 100 years.

Basically any home that grows at 10% or more for 100 years will only be affordable to billionaires (today's dollars). When you start thinking about 200 years then you have to be at least a trillionaire (today's dollars) to afford any home that grows that much. Yes, the upper class is growing, and that is driving some home appreciation, but I personally can't imagine very many trillionaires living in 200 year old unremarkable 2,200 square foot homes.

Perhaps though we don't need to worry about such a long term since none of us is going to live that long. The home market is indeed very slow to react. And most importantly the average person only lives in a home for 7 or so years. So maybe over 7 or even 40 years those kind of appreciation rates can and will be sustained. I wouldn't bet on it, but this thread has helped me to see it's possible.

 

[honobob]

This thread is interesting... I must admit I am surprised at how many examples have turned up of long term significantly greater than inflation appreciation rates.

I wouldn't bet on it, but this thread has helped me to see it's possible.

My work here is done. "Up! Up and away!"

 

[tryan]

i've talked to people that bought in the late 1980's or 1990 and were upside down for a long time.

12 years for me (north of Boston)

 

[Spanky]

California is hurting:
Lansner on Real Estate » Blog Archive » Calif. home price off 18.7%, nation’s worst - OCRegister.com

 

[lazygood4nothinbum]

California is hurting:
Lansner on Real Estate » Blog Archive » Calif. home price off 18.7%, nation’s worst - OCRegister.com

Riverside-San Bernardino, -18.24%
LA/OC, -15.43%
San Diego, -14.05%
Cape Coral-Fort Myers, Fla. -13.26%
Oakland, -13.07%
Phoenix, -12.97%
Las Vegas, -12.95%
Miami, -12.34%
Orlando, -12.16%
Tampa-St. Pete, -12.13%

hey, fort lauderdale finally didn't make it into the top ten worst. how cool is that! does that mean we've bottomed. they don't call this fort bottomdale for nothin' ya know.

 

[Notmuchlonger]

Or maybe California will bottom first with everyone else to follow

 

[Spanky]

Or maybe California will bottom first with everyone else to follow

It's quite plausible, but the impact will be significantly less. For example, a 30% decline of a $800K CA house is $240K. A similar house in Midwest is about $300K. A 30% drop is $90K. It's doubtful that the decline would be in the same magnitude as that of CA.

 

[honobob]

It's STILL all good!

S.F. immune so far from struggling economy