Author Topic: long term appreciation rate for US real estate  (Read 1259 times)

Frugalman19

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long term appreciation rate for US real estate
« on: November 20, 2017, 05:11:05 PM »
I have been searching for reliable long term appreciation rates on residential real estate for the US and cant find them. Some are saying that the long term return is 9% and others say its 3.1% before inflation and basically only keeps up with inflation on an adjusted rate.

Does anyone have some reliable rates of return I can access, it would be really awesome if it were per major city, but by state or even the whole us will do.


robartsd

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Re: long term appreciation rate for US real estate
« Reply #1 on: November 20, 2017, 05:16:34 PM »
Most assume long term appreciation matches long term inflation.

waltworks

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Re: long term appreciation rate for US real estate
« Reply #2 on: November 20, 2017, 07:29:24 PM »
This has been studied by Robert Shiller, who came to the conclusion (there are a lot of ways to quibble with the end result, as the data used for the early part of the 20th century is *really* spotty) that residential real estate basically tracks inflation:
http://www.econ.yale.edu/~shiller/data.htm

You can of course earn huge returns in real estate, since the market is nowhere near as efficient as the stock/bond markets, and there's a bunch of free gov't cheese (artificially low interest rates/cheap leverage) available. But you can't just buy 1000 random houses and expect to do awesome 20 years later, like you can by buying index funds.

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clarkfan1979

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Re: long term appreciation rate for US real estate
« Reply #3 on: November 25, 2017, 08:31:20 AM »
Real estate returns are going to very different based on leverage. Someone who puts 5% down is going to have much larger returns than someone who puts down 20%.

Average real estate appreciation keeps pace with inflation. However, you can do much better than inflation with leverage.

afox

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Re: long term appreciation rate for US real estate
« Reply #4 on: November 26, 2017, 09:50:04 PM »
Sounds like the OP might be confused between the difference between rate of return and appreciation.  Rate of return is the return on your investment (down payment or cash if buying RE with no mortgage).  Appreciation is the increase in value of the property.  Appreciation averages out to about inflation in the long term.  Also, I dont believe appreciation rates include maintenance and necessary remodeling/upgrade costs.  As others have noted, rate of return can be be much higher than appreciation due to leverage.  Of course leverage can result in a negative rate of return as well.  A 9% rate of return on a downpayment could be conceivable given usual mortgage down payment (20% with no PMI) and average appreciation. 

Prairie Stash

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Re: long term appreciation rate for US real estate
« Reply #5 on: February 26, 2018, 03:32:30 PM »
OP - anyone who is claiming it tracks inflation is paraphrasing poorly. What Robert Schiller said was house prices track wage growth (published in "Irrational Exuberance"). Look at all the regional market crashes, those areas can have positive inflation and negative house appreciation, simultaneously. T

To find high regional and per city appreciation you need to identify areas with significant wage growth. Seattle is a good example (Amazon), that's a tough house market and they have excellent wage growth among the programmers. When Amazon 2 gets built most people expect the nearby house market to go higher (terrible if you are a moderate wage earner who doesn't own a house already). How does inflation predict what we all suspect will happen, that Amazon 2 will generate house price increases? The opposite is also true, in any small town that has a single large employer, if they go belly up the housing market crashes.

Please note, in the CPI calculations 25% of inflation is based on house price, which is why a lot of people make the mistake; it appears linked because of the correlation. But I suspect you've wondered why house prices drop in some areas and rise faster in others, but the inflation proponents say it should be uniform.

SeattleCPA

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Re: long term appreciation rate for US real estate
« Reply #6 on: February 26, 2018, 06:18:59 PM »
I've pointed to this before, but the Rate of Return on Everything working paper is a really good discussion of this.

The thread is here: https://forum.mrmoneymustache.com/real-estate-and-landlording/rate-of-return-on-everything-a-150-year-history/

Also, coincidentally, I finally wrote up a longer discussion of what I think the above paper means for individual investors and it appears here:

https://forum.mrmoneymustache.com/real-estate-and-landlording/rate-of-return-on-everything-a-150-year-history/

P.S. the Rate of Return of Everything paper gives 150 years of financial history for 16 different countries. It reports that housing produces a better return than equities (on a national basis) and that housing shows low correlation with equities.