Real Estate is a Commodity - Let's Not Forget That

I love my home and I love helping others get their own home. For most of us, it is not only the place we live and raise our families, it is our largest asset. So before we get too far removed from the nightmare that took place with the drop in real estate values starting in 2006, let’s remember what real estate is and treat it accordingly – at least from a valuation standpoint. Over time, home values have consistently risen – a quick look at the numbers below (taken from the National Census Bureau) shows that the beginning of every decade going back to 1940 reflects values have risen to a figure higher than the decade before. Sometimes the increase in value from a percentage basis is impressive and sometimes not so impressive.

Something I found interesting, particular from the information below, is how drops tend to follow spikes or vice versa – even when viewed decade over decade.   Today, we are still sitting well above the average trend line of appreciation going back to 1970. Click the link and you will see what I’m talking about: http://www.jparsons.net/housingbubble

In other words, there is room for values to drop from current levels and still maintain a consistent increase going back over the last 4 decades. I’m not saying they will, but I would also argue that it isn’t catastrophic if they do. Following the huge run-up in prices from 2000 to 2010 (and that even includes the significant drop from 2006-2010), it would make sense that the decade of 2010-2020, would see much more moderate appreciation numbers.

The point is this: Real Estate is a commodity - tread cautiously, remembering that values have always risen over the long term, but that doesn’t mean they always rise. There are spikes (an update I did not too long ago trumpeted the gains we’ve seen here in Nashville since the beginning of 2012), and there are drops (2006 – 2011). Right now we are on a run and values have been rising at a good clip. But the world is not coming to an end if that slows down. Honestly, it might be a good thing.

Average Home Values in the U.S.:

1940 - $30,600
1950 - $44,600
1960 - $58,600
1970 - $65,300
1980 - $93,400
1990 - $101,100
2000 - $119,600
2010 - $180,000
Today - $213,000

Percent increase decade over decade:

1940 to 1950:  4.6% annualized
1950 to 1960:  3.1% annualized
1960 to 1970:  1.1% annualized
1970 to 1980:  4.3% annualized
1980 to 1990:   .8% annualized
1990 to 2000:  1.8% annualized
2000 to 2010:  5.0% annualized
2010 to 2014:  4.5% annualized