Author Topic: Why do cars depreciate in value and homes appreciate in value?  (Read 8048 times)

Kaplin261

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Why do cars depreciate in value and homes appreciate in value?
« on: October 06, 2015, 05:52:07 AM »
If I buy a new car for $30k in 10 years from now it will probably only be worth $5k however if I buy a home for $200k in 10 years in will probably be worth $220k.

So what is the difference? Why do we not see value in older cars?

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #1 on: October 06, 2015, 06:12:11 AM »
I'm not sure if you are trolling or asking a serious questions.......

......I'm going to assume trolling, for your sake.

nereo

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #2 on: October 06, 2015, 06:22:19 AM »
If I buy a new car for $30k in 10 years from now it will probably only be worth $5k however if I buy a home for $200k in 10 years in will probably be worth $220k.

So what is the difference? Why do we not see value in older cars?
Cars decrease in value because they wear out and because newer technology (and the desire for the masses to have this newer technology) decreases what people will pay for them. 
 In truth, the same thing happens to homes - if a homeowner doesn't keep up with maintenance and the latest trends a home will be rundown and 'dated' which decreases its wealth.  However, (most) people actually do maintain their homes and upgrade the interior periodically. It's one of the 'hidden' costs in home ownership that people ignore/forget about when they say "hey, i bought my house for $75k 30 years ago, and now it's worth more than double!  Best investment of my life!!"  Such statements ignore the tens of thousands$ poured into the home over that time span (not to mention inflation).  Most homeowner's true 'return' is closer to 0% - the only savings they see is having not paid rent and (eventually) having a home they can sell to someone else.

The other very important factor is that a home sits on a piece of land, and developed land is worth a lot of money.  When you buy a car it's just the car...

BTW - home prices historically just beat our inflation, so a home going from $200k - $220k has had a fairly bad decade of appreciation; < 1%.

Kaplin261

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #3 on: October 06, 2015, 06:43:31 AM »
If I buy a new car for $30k in 10 years from now it will probably only be worth $5k however if I buy a home for $200k in 10 years in will probably be worth $220k.

So what is the difference? Why do we not see value in older cars?
BTW - home prices historically just beat our inflation, so a home going from $200k - $220k has had a fairly bad decade of appreciation; < 1%.

Yeah I could have  did a better job with numbers to make them more accurate...


nereo

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #4 on: October 06, 2015, 06:52:30 AM »
If I buy a new car for $30k in 10 years from now it will probably only be worth $5k however if I buy a home for $200k in 10 years in will probably be worth $220k.

So what is the difference? Why do we not see value in older cars?
BTW - home prices historically just beat our inflation, so a home going from $200k - $220k has had a fairly bad decade of appreciation; < 1%.

Yeah I could have  did a better job with numbers to make them more accurate...
your numbers were not inaccurate (especially over the previous decade with many markets only now recovering from the housing crash) - your numbers just showed the lower-end of home appreciation.  It's very useful to realize that after factoring inflation, maintenance and periodic upgrades/renovations many homes don't increase in value at all, even after several decades.

hope the rest of my explanation was at least helpful.

dandarc

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #5 on: October 06, 2015, 06:54:09 AM »
+1 to nereo.  The building generally goes down, the land tends to go up.  Renovations and maintenance slow or even reverse the building going down, but also cost you money.  Really the house you live in is usually a terrible investment, financially speaking.

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #6 on: October 06, 2015, 07:12:19 AM »
If I buy a new car for $30k in 10 years from now it will probably only be worth $5k however if I buy a home for $200k in 10 years in will probably be worth $220k.

So what is the difference? Why do we not see value in older cars?
Cars decrease in value because they wear out and because newer technology (and the desire for the masses to have this newer technology) decreases what people will pay for them. 
 In truth, the same thing happens to homes - if a homeowner doesn't keep up with maintenance and the latest trends a home will be rundown and 'dated' which decreases its wealth.  However, (most) people actually do maintain their homes and upgrade the interior periodically. It's one of the 'hidden' costs in home ownership that people ignore/forget about when they say "hey, i bought my house for $75k 30 years ago, and now it's worth more than double!  Best investment of my life!!"  Such statements ignore the tens of thousands$ poured into the home over that time span (not to mention inflation).  Most homeowner's true 'return' is closer to 0% - the only savings they see is having not paid rent and (eventually) having a home they can sell to someone else.

The other very important factor is that a home sits on a piece of land, and developed land is worth a lot of money.  When you buy a car it's just the car...

BTW - home prices historically just beat our inflation, so a home going from $200k - $220k has had a fairly bad decade of appreciation; < 1%.

+1

Kaplin261

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #7 on: October 06, 2015, 07:24:23 AM »
Quote
Cars decrease in value because they wear out and because newer technology

What is the definition of a wore out car? And if we wear the car completely, couldn't we revive the car with a investment at a fraction of what a new car would be?
Quote
The other very important factor is that a home sits on a piece of land, and developed land is worth a lot of money.  When you buy a car it's just the car...
Land is not infinite, but neither is the materials used to make the car.
« Last Edit: October 06, 2015, 07:27:51 AM by Kaplin261 »

Pooplips

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #8 on: October 06, 2015, 07:33:31 AM »
Quote
Cars decrease in value because they wear out and because newer technology

What is the definition of a wore out car? And if we wear the car completely, couldn't we revive the car with a investment at a fraction of what a new car would be?
Quote

New Cars decrease in valve mainly because of overhead in my opinion. 99% of the time it is always better to fix/maintain your car than it is to buy a brand new one.

nereo

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #9 on: October 06, 2015, 07:43:29 AM »

What is the definition of a wore out car? And if we wear the car completely, couldn't we revive the car with a investment at a fraction of what a new car would be?
we can argue symantics about what constitutes "worn out" but there is a point when the repairs needed to keep a car functional and meet local regulations outstrips the value of the car.  Mostly this is because of the cost of labor with replacing major components.  You can replace trasmissions, engines, etc but ultimately the frame wears out (or rusts through) and with modern cars that's almost impossible to fix. Even replacing the engine on a very old car is often not cost effective because of labor costs.  Up until this point I agree with pooplips (horrible screen name, btw) - generally it's much more cost-effective to repair/maintain an existing car than to purchase a new one.

Quote
Land is not infinite, but neither is the materials used to make the car.

True.  But it's not even the land per se but where that land is.  If you home (and the land it sits on) is near a desirable location then that will valuable.  When cities experience depopulation (see: Detroit) homes suddenly start selling for a fraction of what they were previously worth.  Another reason why home-ownership is not a guaranteed wealth-accumulator.

regarding the materials - a lot of the materials in a car get recycled, including almost all of the metal.  The parts that doesn't get recycled don't because they are not worth salvaging - i.e. there is no shortage of that resource or the recycling method is too inefficient.  Car manufacturers deliberately choose parts that are plentiful (aka "cheap") to keep costs down whenever they possibly can.

Must go to work now and exit this discussion.  Hope it's been useful.

frugaliknowit

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #10 on: October 06, 2015, 09:01:44 AM »
A better comparison to a car is a mobil home (trailer).  They decrease in value.

Homes increase in value (with inflation) because they usually include land (directly or indirectly) which is a limited resource.  Homes have a very long useful life (if maintained) and everyone needs shelter.

Kaplin261

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #11 on: October 06, 2015, 09:07:53 AM »

What is the definition of a wore out car? And if we wear the car completely, couldn't we revive the car with a investment at a fraction of what a new car would be?
we can argue symantics about what constitutes "worn out" but there is a point when the repairs needed to keep a car functional and meet local regulations outstrips the value of the car.  Mostly this is because of the cost of labor with replacing major components.  You can replace trasmissions, engines, etc but ultimately the frame wears out (or rusts through) and with modern cars that's almost impossible to fix. Even replacing the engine on a very old car is often not cost effective because of labor costs.  Up until this point I agree with pooplips (horrible screen name, btw) - generally it's much more cost-effective to repair/maintain an existing car than to purchase a new one.

Quote
Land is not infinite, but neither is the materials used to make the car.

True.  But it's not even the land per se but where that land is.  If you home (and the land it sits on) is near a desirable location then that will valuable.  When cities experience depopulation (see: Detroit) homes suddenly start selling for a fraction of what they were previously worth.  Another reason why home-ownership is not a guaranteed wealth-accumulator.

regarding the materials - a lot of the materials in a car get recycled, including almost all of the metal.  The parts that doesn't get recycled don't because they are not worth salvaging - i.e. there is no shortage of that resource or the recycling method is too inefficient.  Car manufacturers deliberately choose parts that are plentiful (aka "cheap") to keep costs down whenever they possibly can.

Must go to work now and exit this discussion.  Hope it's been useful.

I agree cars have a EOL(End of Life) and homes do not. I can buy a 50 year old home and expect that it will last for another 50 years with just routine maintenance. Homes can also adapt to new technology.

For Cars
1985 honda civic that is 30 years old gets 28 MPG $500+$7,000 for brand new parts/labor
2015 honda civic that is 0 years old gets 31 MPG $18k

For Homes
1985 Colonial that needs remodeling $180,000+$20,000(Same SQFT same area)
2015 Colonial $210K (Same SQFT same area)

The above is accurate to the area I live in.

bacchi

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #12 on: October 06, 2015, 10:06:26 AM »
BTW - home prices historically just beat our inflation, so a home going from $200k - $220k has had a fairly bad decade of appreciation; < 1%.

I think you're right, overall, but generally people don't pay cash. They usually leverage their money through a mortgage, which increases the returns. (And renters usually pay loan interest as well, albeit indirectly.)

I've tracked spending for as long as I've had my house -- about 15 years. It'd be a good exercise to see the return, if any, on my original 2.5% down payment.

nereo

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #13 on: October 06, 2015, 10:09:45 AM »
I agree cars have a EOL(End of Life) and homes do not. I can buy a 50 year old home and expect that it will last for another 50 years with just routine maintenance. Homes can also adapt to new technology.

For Cars
1985 honda civic that is 30 years old gets 28 MPG $500+$7,000 for brand new parts/labor
2015 honda civic that is 0 years old gets 31 MPG $18k

For Homes
1985 Colonial that needs remodeling $180,000+$20,000(Same SQFT same area)
2015 Colonial $210K (Same SQFT same area)

The above is accurate to the area I live in.
ok... but I do not understand what those figures are meant to prove.  No one here is disagreeing with you that cars depreciate in value much faster than homes.  The only thing I'd add is that with your 1985 civic example it is highly unlikely that it will last another 10years and 100k, even with >$7k in new parts/labor - it's value will rapidly go to scrap.

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #14 on: October 06, 2015, 10:13:37 AM »
The building generally goes down, the land tends to go up.  Renovations and maintenance slow or even reverse the building going down, but also cost you money.

This mostly, but long term, house repair costs don't skyrocket like car repair prices do.  Pretty much any house repair of a substantial nature is going to be custom work from day 1.  Cars, when new, parts are readily available so repairs are simple parts swaps.  However, as they age, those repair parts start drying up and you end with more "custom" (expensive) work required to keep the same car on the road.  Rusted out body panel new, $200 a piece.  Rusted out body panel on an old car, if your lucky you can snag one in a junkyard but usually they're rusted in the same spot anyways.  A custom replacement runs into the thousands pretty quick.

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #15 on: October 06, 2015, 10:17:53 AM »
For Cars
1985 honda civic that is 30 years old gets 28 MPG $500+$7,000 for brand new parts/labor
2015 honda civic that is 0 years old gets 31 MPG $18k

For Homes
1985 Colonial that needs remodeling $180,000+$20,000(Same SQFT same area)
2015 Colonial $210K (Same SQFT same area)

The above is accurate to the area I live in.
Your  $7,000 on the car restore it to a working 1985 car, but your upgrades to the house make it current.  Your 1985 car will never have airbags, modern crumple zones, improved gas mileage, higher horsepower, or electronic stability control.  Your renovated house might have new high efficiency HVAC, nicer finishes and new windows.  The older car is never comparable to a new car, but the house becomes comparable.

nereo

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #16 on: October 06, 2015, 10:18:47 AM »
BTW - home prices historically just beat our inflation, so a home going from $200k - $220k has had a fairly bad decade of appreciation; < 1%.

I think you're right, overall, but generally people don't pay cash. They usually leverage their money through a mortgage, which increases the returns. (And renters usually pay loan interest as well, albeit indirectly.)

I've tracked spending for as long as I've had my house -- about 15 years. It'd be a good exercise to see the return, if any, on my original 2.5% down payment.
The bolded part above is true when rates are very low, as they've been for the last decade plus.  A mortgage doesn't increase returns when the rates are >6.5%.  See the period from 1976 - 2001, where median rates averaged between 7 and 16%.

I've been keeping a similar spreadsheet on my current property.  Currently it's bleeding red since we just replaced the roof 2 years after moving in (an expected but costly expense, and one that won't be repeated in my ownership). The major unknowns are what we will sell it for and when.  I'd be curious to hear how your housing expenses have tracked out.
this

kendallf

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #17 on: October 06, 2015, 10:26:10 AM »
The other side of this that nobody's touched on yet is that many cars do in fact appreciate in value as they get older.  Collector cars (whatever that means to you), muscle cars, street rods, etc. often go for much more money than their original sticker price.  Yes, just like the houses, if you factor inflation and maintenance costs, they're probably breaking even at best. 

I would also disagree with those of you who put an "End of Life" date on all cars.  Yes, if it's a utilitarian model that attracts no particular following, it's likely that it will reach a point where it's beyond economical repair.  If you live in a northern state with a rust problem, that's exacerbated. 

Ironically, vehicles that are probably the least "Mustachian" when new are good candidates to retain their value and be worth fixing almost indefinitely-- classic muscle cars, old trucks, and the like.  My daily driver until about two years ago was a 1973 Buick Century that ran like new.  I sold it to a local young guy and I see him driving it around regularly and expect to for years to come.

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #18 on: October 06, 2015, 10:34:18 AM »
The other side of this that nobody's touched on yet is that many cars do in fact appreciate in value as they get older.  Collector cars (whatever that means to you), muscle cars, street rods, etc. often go for much more money than their original sticker price.  Yes, just like the houses, if you factor inflation and maintenance costs, they're probably breaking even at best. 

Yes and no.

I've got a (sort of) collector car.  I believe the sticker price on it new in 1975 was just over $3k.  If I *really* cleaned it up, I *might* be able to get $10k or a little more on it -- which would roughly be the sticker price with inflation.  ($13k would be inflated price.)

BUT... over the years, I've easily put $20k into it.  (Ouch.)  That is money I'd never get back.

The crazy high appreciation cars you see at Barret-Jackson auctions have both:
* insane buyers with more money than sense that are fishing for their childhood dream car
* ridiculous amounts of work in them.  In other words, once you account for $30k of restoration labor, the price doesn't seem so out of line.

nereo

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #19 on: October 06, 2015, 10:41:10 AM »
The other side of this that nobody's touched on yet is that many cars do in fact appreciate in value as they get older.  Collector cars (whatever that means to you), muscle cars, street rods, etc. often go for much more money than their original sticker price.  Yes, just like the houses, if you factor inflation and maintenance costs, they're probably breaking even at best. 

I would also disagree with those of you who put an "End of Life" date on all cars.  Yes, if it's a utilitarian model that attracts no particular following, it's likely that it will reach a point where it's beyond economical repair.  If you live in a northern state with a rust problem, that's exacerbated. 

Ironically, vehicles that are probably the least "Mustachian" when new are good candidates to retain their value and be worth fixing almost indefinitely-- classic muscle cars, old trucks, and the like.  My daily driver until about two years ago was a 1973 Buick Century that ran like new.  I sold it to a local young guy and I see him driving it around regularly and expect to for years to come.

Yeah - I ignored the whole 'collector car' part, mostly because in order to maintain value those cars largely cannot be used like a normal car(driving 12k-15k/year).  Maybe I'm wrong on that part... i certainly am not very knowledgeable about car-collecting, but my impression has been that they need to be kept in 'excellent/mint' condition with low miles for best ROI.

As for the EOL discussion - I've always lived in rust-prone areas.  But even if you don't, can you reasonably expect any car to go 360,000 miles (30 years driving 12k/year) and still be economical to fix?  Sure there are freak exceptions with cars that make it well past the 400k mark, but those seem to me to be like blue lobsters or a mustachian pro-athlete.

kendallf

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #20 on: October 06, 2015, 10:57:12 AM »

Yes and no.
>SNIP
BUT... over the years, I've easily put $20k into it.  (Ouch.)  That is money I'd never get back.

The crazy high appreciation cars you see at Barret-Jackson auctions have both:
* insane buyers with more money than sense that are fishing for their childhood dream car
* ridiculous amounts of work in them.  In other words, once you account for $30k of restoration labor, the price doesn't seem so out of line.

Absolutely true.  It's especially true that if you're paying shops to restore a car for you, it's essentially like paying for a custom new car and the prices reflect it.  Only if you can do most or all of your own work is it at all a break even prospect.

Yeah - I ignored the whole 'collector car' part, mostly because in order to maintain value those cars largely cannot be used like a normal car(driving 12k-15k/year).  Maybe I'm wrong on that part... i certainly am not very knowledgeable about car-collecting, but my impression has been that they need to be kept in 'excellent/mint' condition with low miles for best ROI.

As for the EOL discussion - I've always lived in rust-prone areas.  But even if you don't, can you reasonably expect any car to go 360,000 miles (30 years driving 12k/year) and still be economical to fix? 

Yes.  Minus significant rust damage, most other repair boils down to bolting on new stuff and occasional engine rebuilds.  For middle-value cars, often mileage doesn't matter as much as condition.  I could drive that Century, or my current Grand Nationals, indefinitely once mileage is over, say 100k and their value will be judged almost purely on the engine and body condition.  For those few low mileage examples such as the Barrett Jackson ones mentioned above, absolutely.  Buy a 5k mile car and drive it to 50k, its value just dropped off a cliff.

Kaplin261

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #21 on: October 06, 2015, 11:33:49 AM »
I agree cars have a EOL(End of Life) and homes do not. I can buy a 50 year old home and expect that it will last for another 50 years with just routine maintenance. Homes can also adapt to new technology.

For Cars
1985 honda civic that is 30 years old gets 28 MPG $500+$7,000 for brand new parts/labor
2015 honda civic that is 0 years old gets 31 MPG $18k

For Homes
1985 Colonial that needs remodeling $180,000+$20,000(Same SQFT same area)
2015 Colonial $210K (Same SQFT same area)

The above is accurate to the area I live in.
ok... but I do not understand what those figures are meant to prove.  No one here is disagreeing with you that cars depreciate in value much faster than homes.  The only thing I'd add is that with your 1985 civic example it is highly unlikely that it will last another 10years and 100k, even with >$7k in new parts/labor - it's value will rapidly go to scrap.

I have no data to prove you wrong but if $7k replaced everything that lasted 30 years, why couldn't it last another 30?

But back to the OP. Cars are cheap, some one making minimum wage can buy one brand new. The resources to make them are almost infite because when one dies it gives life to a new one unlike a house where most of its materials go to landfields.

And then there is social influence.

mtn

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #22 on: October 06, 2015, 11:36:08 AM »
I'd actually argue that a house does depreciate, but assets that you can't change don't--school districts, waterfront, size of the lot, proximity to downtown...

Arguing the point that a house doesn't depreciate though: A car wears out, and even if it doesn't, new cars are generally nicer, safer, faster, more comfortable, or cheaper (MPG) or something else. A new car is better than an old car, in general, for most people.

A house is a house. It's main function is much, much simpler than a cars--It keeps me dry and warm. The best house today isn't that much better than the best house 50 years ago. Sure, there have been improvements--but the house itself doesn't wear out. It is also cost effective to IMPROVE the house as time goes on, whereas it is NOT cost effective to make a 1985 car as [safe, comfortable, fast, reliable] as a 2003 car. I could pump $10,000 into a 1992 Honda Civic and make it brand new... Or I could go and by a 2010 Civic for the same price, and it will be better in just about every way (enthusiasts ignore that comment). Taking that to a housing example, if I were to build a house I would still have to put in a new fridge or countertop, so I'm not actually saving any money.

nereo

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #23 on: October 06, 2015, 11:59:26 AM »
But back to the OP. Cars are cheap, some one making minimum wage can buy one brand new. The resources to make them are almost infite because when one dies it gives life to a new one unlike a house where most of its materials go to landfields.

And then there is social influence.

I absolutely cannot follow the logical leap you are making here from your OP. Which was:
Quote
If I buy a new car for $30k in 10 years from now it will probably only be worth $5k however if I buy a home for $200k in 10 years in will probably be worth $220k.
So what is the difference? Why do we not see value in older cars?

are you actually asking why we don't value 30 year old cars like we do 30 year old homes?  Besides the main points brought already brought up (land value, upgradeability and EOL), I'm not sure what more you are looking for.

Quote
I have no data to prove you wrong but if $7k replaced everything that lasted 30 years, why couldn't it last another 30?
Earlier in thread you agreed that there's an end of life for cars that doesnt' really exist (or is seriously reduced) for homes.  If used in a typical manner, a 60 year old car would have 700-900,000 miles on it.  The frame itself simply isn't built to endure for that long, and you will almost certainly need to have replaced several engines, transmissions and other costly (both labor and parts) components. Components become more scarce as models age.  Of course there are models from the 1950s out there, but they are few and far between, and almost always have a combination of low-mileage (for their age) and/or extensive restorations.

In contrast, homes are relatively straightforward to update and repair, and even if it becomes a tear-down the land is still worth something (often quite a lot if the surrounding area has been developed over 30 or 60 years).

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #24 on: October 06, 2015, 12:09:40 PM »
If I buy a new car for $30k in 10 years from now it will probably only be worth $5k however if I buy a home for $200k in 10 years in will probably be worth $220k.
The general assumption is that a home is maintained well, while a car is not.  A home that has not been maintained will not sell for more than what it was bought.  It is not true that a home always appreciates in value.

Quote

So what is the difference? Why do we not see value in older cars?

We do, sometimes.  But only when it's obvious that the machine was well maintained & in perfect working order.  I knew a gearhead in high school that bought a wrecked Dodge Duster '69 from a junk yard at 14, spent then next 4 years completely restoring it for $5K plus labor time, then sold it to a collector for $33K.  He never even drove it himself.

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Re: Why do cars depreciate in value and homes appreciate in value?
« Reply #25 on: October 06, 2015, 01:20:58 PM »

Yes and no.
>SNIP
BUT... over the years, I've easily put $20k into it.  (Ouch.)  That is money I'd never get back.

The crazy high appreciation cars you see at Barret-Jackson auctions have both:
* insane buyers with more money than sense that are fishing for their childhood dream car
* ridiculous amounts of work in them.  In other words, once you account for $30k of restoration labor, the price doesn't seem so out of line.

Absolutely true.  It's especially true that if you're paying shops to restore a car for you, it's essentially like paying for a custom new car and the prices reflect it.  Only if you can do most or all of your own work is it at all a break even prospect.


Sadly, that $20k is mostly me doing the work.  I don't do body work, so... that got farmed out.  When you own a car for more than 30 years and it isn't particularly reliable, you can end up spending a big load of money on it.