The REAL Real Estate Appreciation Rate

[unclemick]

1977 to 1994, New Orleans East duplex, 6.02%. Then I ER'd and retired from the landlord stuff.

heh heh heh - as to the future north side of Kansas City - ? - not sure I care. Fairly competitive with rent - here two years so maintenance is a guess.

 

[Bikerdude]

Last 30 years = 5%(in my area). So I vote 5% for the next 30.

 

[free4now]

Well it's not a vote of what you wish it would be. I'm looking for actual numbers. Your figure of 4% appreciation in San Francisco would mean those $700,000 1 bedroom condos were selling for $225,000 in 1978!! Don't think so. The state of California did not have a taxpayer revolt in 1978 voting in Prop 13 based on 4% annual appreciation!

The vote is about what it will be, not what it was. Indeed, I experienced about 9-10% compounded growth on my SF bay area condo that I owned for 9 years and recently sold. But if anything that historically rare rise makes me think the future will be worse not better when we revert back towards the mean. My prediction is that prices will move sideways, a little under inflation, for a while as we let out the hot air of the last decade.

 

[honobob]

The vote is about what it will be, not what it was. Indeed, I experienced about 9-10% compounded growth on my SF bay area condo that I owned for 9 years and recently sold. But if anything that historically rare rise makes me think the future will be worse not better when we revert back towards the mean. My prediction is that prices will move sideways, a little under inflation, for a while as we let out the hot air of the last decade.

free4now
The poll question was "What's your appreciation rate?" not your anticipated, wished for, etc. The $100,000 figures were just to show the huge difference in compound rates over time for just an increase of 1 or 2 per cent. Sorry for the confusion. When was the last time you could buy anything for $100,000? So you'd have to agree that SF properties have beat the 4% over the last 30 years? When I moved from the midwest my choices were between SF and Hawaii. If I'd invested the same amount 30 years ago in SF I'd have a property worth $700K + vs. my Hawaii property worth $400K +. One reason I'll probably never sell CA.

 

[Spanky]

In general, appreciation of real-estate keeps pace with inflation except in a few insane areas, such as the SF Bay Area, Hawaii, and New York City because these people are loaded with $$$ or desperate to live these places.

 

[lazygood4nothinbum]

doesn't it all depend on which year you buy and sell even within each market. my inherited house would have gotten 7.5-8% at bubble peak, but now i'll be lucky to get 6 to 6.5% over 28 years. i've checked out about 10 or more similar properties in that area and the appreciate rates ranged anywhere from 3% to 35% in any two to 30 year period.

on my personal house i'm likely at an annual appreciation rate of 12% currently (over 14 years) and probably could have gotten 14-14.5% at bubble peak but this area was revitalized from crack town to gay central over those years and so i certainly would not expect even the lower percentage to continue into the near future. hard to judge though because this house is in central area of a built-out county.

who knows. as potable water becomes more dear, the value of existing houses might as well.

 

[Moemg]

My house waterfront florida has appreciated 11.5 % in the six and a half years I 've owned it . This takes into account the recent drop in real estate .During the good years the appreciation was over 20 % .

 

[eridanus]

nm

 

[Retire Soon]

I find it very exciting to gaze into my crystal ball of future real estate prices. To be sure, one can make a lot of money on buying and selling a house at the right time. Certainly, areas such as San Francisco and Hawaii have a better chance for appreciation. That said, I think we need to remind ourselves that we're now in the midst of the worst credit bubble in world history. I believe that prices will eventually fall in every region of the U.S. Just because they haven't fallen yet in your area is no guarantee that they won't. Many areas will not bottom out for at least two years. When they do, what will interest rates be then? Don't forget that the purchase of a home takes money. Sure, it could be cash coming from wealthy people, but many times it requires financing. With that said, who will be able to qualify for first mortgage when lenders are now tightening credit even for those with good credit. What will interest rates be two years from now? Loans in the five and a half percent range could be history by 2010. Also, we need to consider inflation getting out of control. Rates could increase significantly at that point. Again, sellers of homes need buyers with money or no sale takes place. No matter how great an area someone owns real estate in, if a potential buyer cannot obtain financing, a home will simply not sell. If these conditions should persist for any length of time, prices will become stagnant or go up very little. We've been in a credit/housing bubble for the past five or six years and price increases will eventually revert to the mean of around 4%.

 

[skyline]

...Over thirty years the difference between an appreciation rate of 4% vs. 11% on a $100,000 property is $1,964,890. If you don't live in a higher appreciation area it would seem that purchasing in an area of higher appreciation would pay for alot of management fees and travel to a property in one of those areas....

Listen, I like real estate - I've owned multiple homes over the years and did pretty well (except during the early 90's). But I think it's not realistic to think that there are predictable 'higher appreciation areas'. Consider your 4% vs. 11% example. That's a differential of 7%, which would mean that the same $ investment in the 11% area would roughly double the value of the 4% area investment every 10 years. Over 50 years, that would be roughly a factor of 32!

So think about this - let's say you thought a certain area in Hawaii could predictably run 11% appreciation, and a certain area in Kansas City could predictably run 4% appreciation. Let's say you start with a home in Hawaii at $1,000,000, and a home in KC at $200,000, so the Hawaii home is 5 times the value of the KC home. In 50 years, you're saying the place in Hawaii would be worth 5*32=160 times the place in KC. That's exceeding difficult to believe.

It's even crazier if you work it backwards - the same assumptions would mean that, 50 years ago, the home in Hawaii was worth 5/32=.15 times the place in KC (otherwise it couldn't be worth 5 times the value now).

Of course, the recent run up in the market makes it easy for lots of folks to claim 10+% gains since the mid 90's, but if you think about the math, it's easy to see that you just can't assume that any market can sustain an appreciation significantly above national norms.

 

[al_bundy]

the last 50 years we have had the boomers driving up demand for housing

as the boomers die we will need someone to replace them to keep the demand going at the same rate. does Gen X or Y or Z have enough people to keep demand growing?

 

[rs0460a]

the last 50 years we have had the boomers driving up demand for housing

as the boomers die we will need someone to replace them to keep the demand going at the same rate. does Gen X or Y or Z have enough people to keep demand growing?

Look to immigration to fill the gap. The "boomers" are not the future for this country:

Pew Hispanic Center: Research and Surveys on the U.S. Hispanic Population

- Ron

 

[Independent]

I think that I get the prize for lowest long term historic appreciation.

I've owned this house for 27 years and the market has about doubled - figure 3% compounded.

Small town in upper midwest. Lots of job losses in the first decade after we moved in, not a lot of growth since then.

My folks lived in Detroit from 1941-1973. They did okay over the whole period, but I expect it was prettly flat or even decreasing from 1965-1973. So I don't have the mindset that prices have to go up.

 

[Retire Soon]

I read an interesting statistic in today's San Diego Union. Nearly half of all homes that were sold in the county last month were sold at a loss. The median loss on these homes was 25%. The median home price in the county is now what it was four years ago. Again, I believe that San Diego was one of the first real estate markets experience a bubble and likewise is one of the first markets to go into free fall. Many regional markets if they haven't already, will follow in much the same manner.


SignOnSanDiego.com > News > Metro -- Distressed properties dominate market

 

[tryan]

The Boston area has been appreciating at a 9% click for the last 20 years. BUT that's 0% appreciation from ~ 1985-1995 then 15-20%/year appreciation from 1995-2005. FWIW we've slipped back into negative territory the last 2 years.

Also depends what you bought and HOW you bought it. Did the best (~20%/year) on auction rehabs. If you paid full market price then over improved while carrying a negative cashflow (been there, done that too) you will NOT be happy with your "investment".

 

[honobob]

Listen, I like real estate - I've owned multiple homes over the years and did pretty well (except during the early 90's). But I think it's not realistic to think that there are predictable 'higher appreciation areas'. Consider your 4% vs. 11% example. That's a differential of 7%, which would mean that the same $ investment in the 11% area would roughly double the value of the 4% area investment every 10 years. Over 50 years, that would be roughly a factor of 32!

So think about this - let's say you thought a certain area in Hawaii could predictably run 11% appreciation, and a certain area in Kansas City could predictably run 4% appreciation. Let's say you start with a home in Hawaii at $1,000,000, and a home in KC at $200,000, so the Hawaii home is 5 times the value of the KC home. In 50 years, you're saying the place in Hawaii would be worth 5*32=160 times the place in KC. That's exceeding difficult to believe.

It's even crazier if you work it backwards - the same assumptions would mean that, 50 years ago, the home in Hawaii was worth 5/32=.15 times the place in KC (otherwise it couldn't be worth 5 times the value now).

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!
http://www.thepeoplehistory.com/50s-homes.html


1959 Maine
Brick House good residential area 12 rooms 4 baths 2 acres
$7,000
1955 JoplinMissouri
5 room modern ranch house with 2 bedrooms fully insulated on 3 acres
$6,600
1959 Salisbury Maryland
5 room Bungalow with 2 bedrooms living room dining room modern kitchen full basement with hot air heating
$7,000

 

[FANOFJESUS]

I voted I lived in Texas becasue that we are like them in Missouri. Our home doubled but it took 20 years.

 

[honobob]

It's not that hard to predict that areas with lots of jobs, greenbelt-limited growth, desirable climate, and cultural opportunities will continue to appreciate faster than average.

Zillow maps ups and downs of housing prices

"That's a steeper drop than throughout the nation, where all homes are down 3 percent year-over-year, Zillow said."

Free4 now, when I read the article you referenced yesterday in the Chronicle this statement stuck out!! If ALL homes are down just 3% YOY why are we talking bubble/credit crunch/ bailout/30% drops?

I'm thinking someones gonna make out on this faux crisis.

 

[free4now]

The housing market is very different from the stock market... everyone gets crazy if prices decline over one small area. When prices decline (on average) over an area as big as the USA people are up in arms.

Most people can't even wrap their brains around the possibility that prices could drop as much as they have risen over the last decade.

 

[FIREd]

I hope I won't sound too stupid, but I am not quite sure how to answer the question. You are talking about appreciation without taking into account cash flow right? So you don't count taxes, repairs, improvements, insurance costs in your calculation? What about if you made a lot of improvements to the house over the years (additions, new kitchen, new bathroom...)? Your house could have appreciated a lot because of the improvements and not necessarily because of appreciation in the local RE market. How do you account for that? Thanks. As soon as I understand it better, I will answer the poll.

 

[mathjak107]

what about the fact if you had a 30 year mortgage depending on your rate and down payment you may have paid 2 to 3x the purchase price

 

[honobob]

what about the fact if you had a 30 year mortgage depending on your rate and down payment you may have paid 2 to 3x the purchase price

And those things affect appreciation HOW? That's what makes appreciation so FANTASTIC! It is the same no matter the terms of your financing.

 

[honobob]

I hope I won't sound too stupid, but I am not quite sure how to answer the question. You are talking about appreciation without taking into account cash flow right? So you don't count taxes, repairs, improvements, insurance costs in your calculation? What about if you made a lot of improvements to the house over the years (additions, new kitchen, new bathroom...)? Your house could have appreciated a lot because of the improvements and not necessarily because of appreciation in the local RE market. How do you account for that? Thanks. As soon as I understand it better, I will answer the poll.

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. When you start to compare "additions" you lose the comparability. My architectually designed addition in a NBHD of simillaty improved properties will probably appreciate better than your 500sf addition "stuck" on the back of your 1500sf sized NBHD when now you're the largest home by 25%.

Most kitchen and bath remodels in my experience mainly help homes sell quicker and possibly at a higher value but where you spent $50K on your country french kitchen most buyers will only give you credit for the physical vs the cosmetic upgrades.

 

[FIREd]

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. When you start to compare "additions" you lose the comparability. My architectually designed addition in a NBHD of simillaty improved properties will probably appreciate better than your 500sf addition "stuck" on the back of your 1500sf sized NBHD when now you're the largest home by 25%.

Most kitchen and bath remodels in my experience mainly help homes sell quicker and possibly at a higher value but where you spent $50K on your country french kitchen most buyers will only give you credit for the physical vs the cosmetic upgrades.

So much for "my" fictitious country french kitchen and the eyesore addition to "my" 1500sqft sized Home... You obviously have better taste than me...

I vote for 4% pure appreciation in my area. Medium size city in the south. Generally healthy economy but very dependent on government spending.

After costs (including taxes, repairs. insurance, but not financing costs or voluntary improvements), probably only 1% annual return on investment. With financing costs included, easily negative return on investment. I don't see my home as an investment at all, more as a liability. We bought a fairly cheap house so that we could free more money to invest elsewhere. It doesn't mean that I think all RE investments are bad investments. My parents seem to have done very well with theirs.

 

[Spanky]

I read an interesting statistic in today's San Diego Union. Nearly half of all homes that were sold in the county last month were sold at a loss. The median loss on these homes was 25%. The median home price in the county is now what it was four years ago. Again, I believe that San Diego was one of the first real estate markets experience a bubble and likewise is one of the first markets to go into free fall. Many regional markets if they haven't already, will follow in much the same manner.


SignOnSanDiego.com > News > Metro -- Distressed properties dominate market

Despite the decline, the median price of a house in San Diego county is still not affordable -- $451,500.