The REAL Real Estate Appreciation Rate

[honobob]

There have been so many discussions on the value of real estate as a home and an investment. Generally people that argue against real estate try to say that it only appreciates at the same rate of inflation and that it is tied to some fundamentals. I know the long term and short term compounded rate of appreciation in the areas I invest. 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.

My appreciation rates have been:

1978 condo purchase in Diamond Head Hawaii 9%
1986 SFH purchase in SFBay area 10%
1994 SFH purchase in Vegas, baby, 8%
2003 condo purchase in Diamond Head Hawaii 20%
2004 condo purchase in Waikiki Hawaii 15%

I think those rates will remain if not increase over the near future because of increased demand.

I also looked at my mothers old house in Cincinnati Ohio that was purchased in 1967 and it has appreciated 5.1% over 40 years.

What's your appreciation rate? City, Suburb, or rural? Single family, condo or other? What city or region.

 

[W2R]

Zero, for me, because my life expectancy is 27 years as I recall. Who cares how much it is worth after I'm dead?

 

[retire@40]

This is interesting to know since most people buying real estate as an investment today are depending on appreciation to help overtake the negative cash flow their properties are generating.

 

[honobob]

Zero, for me, because my life expectancy is 27 years as I recall. Who cares how much it is worth after I'm dead?

Well if you purchased in an 11% area you would have your remaining 7 years to spend 20 years appreciation of $806,321!! or only $219,112 in a 4% area. Your choice. If you didn't buy long term care the extra $600,000 could be the difference of living in the nursing home of your choice vs. the states choice.

 

[twaddle]

This is interesting to know since most people buying real estate as an investment today are depending on appreciation to help overtake the negative cash flow their properties are generating.

Yeah, and they are extrapolating based on past rates!

I think I'll "invest" in a huge tank of gas. Based on the last few years "appreciation," it should be worth a million dollars in no time.

Oh, and if my kid keeps growing at the same rate, she'll be over 10 feet tall when she's my age.

 

[FUEGO]

The problem is determining, ex ante, the locations that will experience 11% per annum appreciation for 30 years.

I would suggest that the locations that have seen historical appreciation for the last 30 years of 4% are more likely to see high appreciation in the future versus those that just experienced 11% appreciation for the last 30 years. Reversion to the mean and all that rot.

Maybe we should all be buying in Charlotte, Puerto Rico, and Alabama. I'd put money there instead of the [-]$1 million[/-] [-]$800,000[/-] [-]$600,000[/-] $500,000 houses available in the 11% appreciation markets. Plus properties in areas of lower historical appreciation might actually cash flow today. Fancy that.

 

[honobob]

I would suggest that the locations that have seen historical appreciation for the last 30 years of 4% are more likely to see high appreciation in the future versus those that just experienced 11% appreciation for the last 30 years. Reversion to the mean and all that rot.

That's the point! How can you determine the mean without knowing the annual rates? In Honolulu I have short term rates of 15%, 20% and long term (30years) of 9%. Pretty much any property on Oahu has a rate of 9% over 20 years. Is 9% the mean?

What factors in 4% areas will change that will cause them to appreciate higher? If you can't identify them then they'll probably not happen.

 

[FUEGO]

What factors in 4% areas will change that will cause them to appreciate higher? If you can't identify them then they'll probably not happen.

30 years is a long time. I dunno - greenbelts around cities. Growth/construction moratoriums. Water runs out - no new construction. Gas hitting $10 or $20 a gallon, making city center housing go up. Etc etc

 

[FUEGO]

Honobob,

Please list the areas of the country you view as 11% appreciation areas over the next 30 years.

 

[honobob]

30 years is a long time. I dunno - greenbelts around cities. Growth/construction moratoriums. Water runs out - no new construction. Gas hitting $10 or $20 a gallon, making city center housing go up. Etc etc

Those are good reasons and people should be aware of them but those events are most likely slow in coming. And won't the increase cause more people to go to already high appreciation areas when the price difference is not as great thereby causing those areas to appreciate even higher?

 

[honobob]

Honobob,

Please list the areas of the country you view as 11% appreciation areas over the next 30 years.

My experience is geographically limited hence the poll. I believe all the Hawaiian Islands will see an increase in appreciation rates. Silicon Valley, SF, Oakland and Sacramento are already being looked at a one large metropolitan area. I think this whole area has the potential to average double digit appreciation. Vegas is already backed up to the mountains but I think it is the water connection that will eventually limit supply and I believe the demand will fluctuate back and forth depending on the marketing of gambling.

What is the rate in your area and why do you think it will increase or decrease?

 

[free4now]

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

But the cash flow in these areas is usually the worst, so investors will see all their additional appreciation going towards the money they are losing in rents.

So I vote 4%- Inflation. Just like has happened throughout all of recorded history except the last decade:

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

 

[Marquette]

Upper midwest... lots of buildable land, urban sprawl, metro area.

I predict a rate of inflation increase after a correction in the market. ie, more like the 50 years before the recent run-up for our market. I would suspect the best areas for future growth (near term at least) would be areas with net population growth and / or scarcity of resources (land or labor).

Current townhouse was purchased in 2002. Comp sales for other townhouses show a high water mark of 7% straight appreciation (not CAGR). If we sell it at our current price it will be 3% straight appreciation. (and it's uglier once we subtract broker fees).

 

[FUEGO]

I don't really know the rate for my area. Over 30 years, my house appreciated between 4 and 5% per annum depending on whether you look at the sales price in 1975 or in 1984.

Since I bought in 2003, I'm sitting on 12% per year appreciation. Obviously not sustainable long term.

What will change appreciation rates here? Those things I mentioned already. No idea which of those if any will happen. 30 years is a long time. Who knows, where I live might be a slum in 30 years (appreciation will be less than inflation) or it might be the next up and coming hot place to live (appreciation 2-5% greater than inflation). I'd put even odds on either outcome happening within 30 years.

 

[twaddle]

My experience is geographically limited hence the poll. I believe all the Hawaiian Islands will see an increase in appreciation rates. Silicon Valley, SF, Oakland and Sacramento are already being looked at a one large metropolitan area. I think this whole area has the potential to average double digit appreciation. Vegas is already backed up to the mountains but I think it is the water connection that will eventually limit supply and I believe the demand will fluctuate back and forth depending on the marketing of gambling.

It's fun to speculate about this stuff, but it's pure speculation. Not investing.

Hawaii should be interesting to watch. Will increasing fuel costs impact tourism? What if the dollar becomes strong again?

And I've heard that the islands are protected from storms by a "cold wall" of water that has been heating up. Storms reaching HI have doubled with a 0.3C increase in water temperature, and scientists predict a 1.5C increase in the future.

If I had to bet, I'd bet on increasing density in urban areas as we experience peak oil....

 

[honobob]

It's fun to speculate about this stuff, but it's pure speculation. Not investing.

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

 

[twaddle]

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

Yeah, but I foolishly invested in stuff that went up even more. Based on crazy stuff like fundamentals. You know, cash flow, earnings, that sort of thing.

 

[honobob]

So I vote 4%- Inflation. Just like has happened throughout all of recorded history except the last decade:

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!

 

[honobob]

Yeah, but I foolishly invested in stuff that went up even more. Based on crazy stuff like fundamentals. You know, cash flow, earnings, that sort of thing.

Would you start your own thread explaining exactly what you invested in and what your rate of returns were and on what cash flow, earnings, etc. you based your decisions. Your posts here are not adding anything. It's a poll based on actual property appreciation. Please state yours! Thanking you in advance for your cooperation.

P.S. Please pm me so I will not miss your factual accounts of your successful accomplishments.

 

[eridanus]

No one could have looked at Houston home prices in the late 80s and predicted a negative rate of return over the next 20 years. It happened though.

Hawaii - With the increasing cost of fuel and the supply of cheap oil about to peak (see Shell email), I predict the ROR will be at inflation.

Vegas - Like Houston, it has a lot of open land. It also has water issues. It's toast - stick a fork in it. Negative ROR.

 

[honobob]

No one could have looked at Houston home prices in the late 80s and predicted a negative rate of return over the next 20 years. It happened though.

Hawaii - With the increasing cost of fuel and the supply of cheap oil about to peak (see Shell email), I predict the ROR will be at inflation.

Vegas - Like Houston, it has a lot of open land. It also has water issues. It's toast - stick a fork in it. Negative ROR.

Doesn't anybody read the poll question? Appreciation RATE!! Not ROR, Not cash flow, etc.!!

Eridanus, when's the last time you were in Vegas? They are building up against the mountains.

Hawaii? Where will the locals live? How will oil prices affect their shelter decisions? Didn't we live out this whole oil shortage in the 70"s?

 

[twaddle]

Honobob, your poll says "... home will be worth...."

You only want to poll fortune tellers who can tell you forward appreciation rates, right?

Peak oil + global warming means that Alaska should have the highest appreciation going foward. The weather will be nicer. There's oil under all that snow. And they'll have an increasing supply of waterfront property too.

You can change your username to YukonBob.

 

[honobob]

Honobob, your poll says "... home will be worth...."

You only want to poll fortune tellers who can tell you forward appreciation rates, right?

Hello!! Asking for historical appreciation rates. Oh wait, you knew that based on your first post. So Twaddle, share some numbers on your real estate investments. What has been the appreciation rate on the house you're in over the last 30 years?

 

[Meadbh]

Sold family home after 43 years of continuous occupation: annualized IRR 12.8%. Not in the US.

 

[twaddle]

The house I live in didn't exist 30 years ago. In the 4 years I've owned it, it has doubled according to comps, so I guess that means 20%/year. Does that mean you want to buy it? I hope so, because nobody else is buying in my market right now.

Waterfront. 30 minutes from a major urban center. Am I a genius or what?

Remind me how smart I am next time I have to pay my property taxes.