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All of the above can be wasteful. However cars, unless exceedingly rare and collectible, always depreciate. Housing, outside of a bubble market, appreciates historically at around 1% - 1.5% a year above inflation.
Land appreciates, houses depreciate.
Also, appreciation of 1~1.5% above inflation is not sustainable. After a few decades homes would be out of reach for almost everyone. Anyhow, this has not been the historic trend. From 1890 to 2004 real appreciation has been around 65%, but almost all of this is from two periods (after WW2 and the recent housing bubble)**. If history repeats itself then real estate should slowly decline in real terms over the next couple of decades.
**Based on Robert Shiller's historic real estate index.
Also, appreciation of 1~1.5% above inflation is not sustainable. After a few decades homes would be out of reach for almost everyone. Anyhow, this has not been the historic trend. From 1890 to 2004 real appreciation has been around 65%, but almost all of this is from two periods (after WW2 and the recent housing bubble)**. If history repeats itself then real estate should slowly decline in real terms over the next couple of decades.
That's arguable, and not conclusive.
For the past 50 years (pre-bubble) U.S housing has had a solid 1% - 1.5% appreciation above inflation.
http://www.intracoastalrealty.com/blog/post/2009/04/13/Normal-Appreciation.aspx (broken link)
Sure, in time, that may decline, but the declines and inclines are separated by decades, and the last "real deflation" in the housing industry was a long, long time ago, before many people on this board were born. That conclusively proves that the value of housing is much, much more stable than the values of 99% of "exotic cars".
So it comes down to will you invest money into something that steadily maintains its value (with slow appreciation), or dump money into something that will certainly depreciate rather quickly?
There's an obvious answer here. I'm sure you'll get it, eventually.
Last edited by Mr. Fantastic; 08-25-2010 at 05:30 PM..
For the past 50 years (pre-bubble) U.S housing has had a solid 1% - 1.5% appreciation above inflation
The link you are citing says nothing about the last 50 years, rather the last 30 years. It also says nothing about real appreciation, just nominal appreciation.
As per your link the average nominal appreciation was 5% between 1980-2000, but I guess you didn't think it was important to look up the inflation rates during this period as well. Guess what it was? Just guess...yep right around 5%.
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Originally Posted by Mr. Fantastic
That conclusively proves that the value of housing is much, much more stable than the values of 99% of "exotic cars".
I've already agreed that the value of land--at least typically--appreciates. But the home itself is a depreciating asset just like a car. The only reason people seem to delude themselves otherwise is because they ignore all the money they put into repairs, maintenance, upgrades, etc.
At least recently, most houses in California are built on rather small lots of land. Most of the money is going towards the actual structure, which is a depreciating asset.
Anyhow, its like this is some crazy idea. Our tax system is based on this as well, you can depreciate a building but not land. I'm sure you'll get it one day.
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Originally Posted by Mr. Fantastic
So it comes down to will you invest money ....
I have never suggested that a car is an investment, rather that the only difference between a car and a home (the structure) is that the home depreciates slower.
Like I said, homes did appreciate above inflation, making your statement simply untrue and wrong. It was less than 5% which proves that over a 50 year period, homes did increase in price above inflation.
How many exotic cars did the same?
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I've already agreed that the value of land--at least typically--appreciates. But the home itself is a depreciating asset just like a car.
Not over the past 50 years. So people who bought a home, most likely either retired with something worth a lot more than what they originally paid, or sold it for a profit before then.
I see where you're getting confused. You're trying to separate the "actual home" from the land. The thing is you can't do that. People don't buy McMansions in OC and carry them around in their wallets. Majority of homes people buy are attached to land. People who bought those homes enjoyed appreciation over the past 50 years above actual inflation.
Can you say the same for the majority of people who bought an exotic car?
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Anyhow, its like this is some crazy idea. Our tax system is based on this as well, you can depreciate a building but not land.
Most land that people can afford (get loans approved for) has property on it. You're trying to make them inherently separate, but that's not the time we live in. The days of 40 acres and a donkey are gone. You're simply thinking about it the wrong way.
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I have never suggested that a car is an investment, rather that the only difference between a car and a home (the structure) is that the home depreciates slower.
Except for the fact that the majority of homes are attached to land. People don't buy McMansions in OC, and then carry them around. You do know that, right?
Like I said, homes did appreciate above inflation, making your statement simply untrue and wrong. It was less than 5% which proves that over a 50 year period, homes did increase in price above inflation.
Yes, you said that but you did not demonstrate that. The link you provided looked at housing prices over the last 30 years not the last 50. According to your link house prices in 1980~2000 appreciate at the rate of inflation, approximately 5%.
The link you provided about inflation shows just what I stated, the average rate of inflation between 1980~2000 was approximately 5%.
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Originally Posted by Mr. Fantastic
Not over the past 50 years. So people who bought a home, most likely either retired with something worth a lot more than what they originally paid, or sold it for a profit before then.
Homes depreciated over the last 50 years as well. If you're going to talk about "profit", you also have to include all the costs in terms of repair, maintenance, upgrades, etc. A house from 50 years ago with no repairs, maintenance, upgrades is going to be a tear-down.
Also, since you are selling both land and the structure this masks what is going on with the home. I'm not sure what is so difficult to understand here, a home is a structure that slowly degrades over time. Once built a home requires significant repairs and upgrades to keep it up to date and functional.
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Originally Posted by Mr. Fantastic
You're trying to separate the "actual home" from the land. The thing is you can't do that. People don't buy McMansions in OC and carry them around in their wallets.
This is hogwash, of course you can do this. Insurance companies do it, the IRS does it, the state government does it, etc. When you go get insurance for your home, they are insuring the home not the land.
This distinct is an important one and is relevant here.
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Originally Posted by Mr. Fantastic
Except for the fact that the majority of homes are attached to land. People don't buy McMansions in OC, and then carry them around.
So what? That does not change the fact that the structure depreciates while the land tends to appreciate. Like cars, there are some exceptions with "classic" homes. Buying a big house on a small lot is going to provide significantly less value than buying a smaller home on a large lot of land.
Anyhow, the home itself is just like car. The land is different. When you buy a home you are buying both, hence part (in recent times most) of your purchase is little different than a car. But since the depreciation occurs over a longer period of time and because people often forget all the money they've put into their home, they mistakenly believe that homes appreciate.
Yes, you said that but you did not demonstrate that. The link you provided looked at housing prices over the last 30 years not the last 50. According to your link house prices in 1980~2000 appreciate at the rate of inflation, approximately 5%.
The link you provided about inflation shows just what I stated, the average rate of inflation between 1980~2000 was approximately 5%.
You're simply uneducated about how to read a table properly. For instance if you calculate the years 1965-1995, you will find that actual inflation was not approximately 6%, it was closer to 3.4% (I cut off some decimals). So your assumption is WRONG, for a long period of time. Seriously, do the calculations, my 12 year old niece could do it, why can't you?
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Homes depreciated over the last 50 years as well. If you're going to talk about "profit", you also have to include all the costs in terms of repair, maintenance, upgrades, etc.
No they did not. I just showed you that they appreciated 1.6% above inflation over a 30 year period. You simply have not done the simple calculations to see that your point is wrong.
As for repairs, and maintenance, the general rule of thumb is about 0.5% a year of the total cost of the home. If homes are appreciating at 1.6% a year, you still profit. Upgrades do cost money, but they also add value, so your point again only strengthens the argument that homes are better investments than exotic cars.
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Also, since you are selling both land and the structure this masks what is going on with the home. I'm not sure what is so difficult to understand here, a home is a structure that slowly degrades over time. Once built a home requires significant repairs and upgrades to keep it up to date and functional.
Yes, so? The value of the home of the home IS the land and structure. I don't understand why you're trying to separate them unless this is some sort of semantical escape for you to not look foolish.
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This is hogwash, of course you can do this. Insurance companies do it,
No they don't. Your example fails because insurance companies charge a premium based on the value of the LAND & HOME. They don't make the distinction you're trying to make, so you just sunk your own point with your own example (which people often do when they have no point in the first place). You're simply uneducated about how valuations are done on residential properties. Seriously, the information is out there, go read a book, or read a few websites and learn.
You're simply uneducated about how to read a table properly. For instance if you calculate the years 1965-1995, you will find that actual inflation was not approximately 6%, it was closer to 3.4% (I cut off some decimals).
You seem to have some serious reading comprehension problems, I said nothing about the 1965~1995 date range and neither did the article you posted. I said that the average rate of inflation in 1980~2000 was approximately 5%.
Anyhow, you still aren't showing anything. You are just moving back and forth between date ranges.
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Originally Posted by Mr. Fantastic
As for repairs, and maintenance, the general rule of thumb is about 0.5% a year of the total cost of the home.
This is not a "general rule of thumb", the average cost of repairs totally depends on the age of the home, size, etc. The average annual maintenance costs are usually cited as between 1~3%. Investors certainly don't use your .5% "rule of thumb".
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Originally Posted by Mr. Fantastic
No they don't. Your example fails because insurance companies charge a premium based on the value of the LAND & HOME.
I'm not even going to bother arguing this, anybody that has looked at home insurance knows that it covers the dwelling and not the land. Here read about it:
The distinction I'm making here is in no sense unusual, its done by pretty much everyone that deals with real estate. Regardless, if you want to think otherwise go for it. If you want to think a wooden box does not depreciate go for it. No skin off my bones.
Umm, I just showed you that housing appreciated over inflation for 50 years which you claimed it didn't. I mean, totally and conclusively showed you to be wrong. Seriously, how can you not do the arithmetic yourself and see how wrong you are? I honestly just showed my 8 year old niece this table and she calculated a 1.4% appreciation for housing above inflation for a 50 year period. Why can't you?
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This is not a "general rule of thumb", the average cost of repairs totally depends on the age of the home, size, etc. The average annual maintenance costs are usually cited as between 1~3%. Investors certainly don't use your .5% "rule of thumb".
They do, but to save an argument, let's use 1%. Housing still wins. Point proven even with your numbers.
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I'm not even going to bother arguing this, anybody that has looked at home insurance knows that it covers the dwelling and not the land. Here read about it:
I'm not arguing that either. I'm talking about the premium you actually PAY, not what is covered. The PREMIUM is based on the cost of the structure AND land.
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The distinction I'm making here is in no sense unusual, its done by pretty much everyone that deals with real estate. Regardless, if you want to think otherwise go for it. If you want to think a wooden box does not depreciate go for it. No skin off my bones.
I'm just trying to educate you, because you seem ignorant of how things really are. I'm helping you.
It is kind of illogical to pay a lot of money for a house that you hardly even have time to enjoy because you are spending most of your time working to get a paycheck to pay the mortgage on that home.
Here is a typical person's life:
Monday through Friday (8 hours sleep, 8 hours work, 1 hour driving to and back from work) = (24 hours - 17 hours) = 7 hours per day that you enjoy your home during the week.
It is kind of illogical to pay a lot of money for a house that you hardly even have time to enjoy because you are spending most of your time working to get a paycheck to pay the mortgage on that home.
Here is a typical person's life:
Monday through Friday (8 hours sleep, 8 hours work, 1 hour driving to and back from work) = (24 hours - 17 hours) = 7 hours per day that you enjoy your home during the week.
I guess weekends don't count, huh?
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