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When do homes depreciate if they never go down in value?
2012 Apr 23, 12:10am 27,931 views 38 comments
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As orbitron says, this is very simple. The home is inexpensive, it's the land that cost so much, as least here in coastal California. Just look at your homeowners insurance policy and they are only insuring the dwelling, not the land. Only the building burns down or blows away in most instances. Homeowners insurance is very cheap in my opinion and that's why, the are not insuring the ground underneath your house. You might have a million dollar property, but the replacement cost for the insurance company is a fraction of that.
The house cannot be worth $23,000 in bay area because a luxury apartment nowadays (2 bedroom) can easily cost more than that to rent in 1 year. The pricing of the landlords as well as the purchase/paying power of the local population determines buy/rent ratios with regional variations of course.
As orbitron says, this is very simple. The home is inexpensive, it's the land that cost so much, as least here in coastal California. Just look at your homeowners insurance policy and they are only insuring the dwelling, not the land. Only the building burns down or blows away in most instances. Homeowners insurance is very cheap in my opinion and that's why, the are not insuring the ground underneath your house. You might have a million dollar property, but the replacement cost for the insurance company is a fraction of that.
What you didn't say is that you never even "Own" the property/land that the house sits on. Try not paying property tax for a year or so. See who actually owns the land. You are renting that spot of land from the government, even after you think you have "paid" for it through the mortgage or cash that has exchanged hands from one "owner" to the next.
Who is the nitwit? ForcedTQ doesn't "own" mulitiple highly taxed, devaluing assets.
Who is the nitwit? ForcedTQ doesn't "own" mulitiple highly taxed, devaluing assets.
I don't feel that my properties are "highly taxed" by the CA counties, they are not devaluing, and they are paid for cash cows so I don't buy your silly argument. Hint: I may write the checks, but the tenants are paying by virutue of pass through.....you probably couldn't have figured that out on your own.
hanera
@
2012 Apr 23, 3:14am
Price of house = Price of land + Cost of building & structure less depreciation + cost of home improvements made from time to time less depreciation
Is the land price that is appreciating. In fact, land is more than 80% of the house in SV. You can acquire an old badly maintained house for nearly the price of the land.
Quote from lurking
"I don't feel that my properties are "highly taxed" by the CA counties, they are not devaluing"
Let me guess, all your homes are in Mono County which is the only county that didn't depreciate in value Y-o-Y. ha-ha
Sure looks like a lot of red to me buddy!
Gold, bonds, and stocks all have a zero annual tax rate, other than inflation which is a moot point because real estate is also subject to this tax. Real estate unfortunately is a taxed asset. Therefore relative to other actual investments your assets are taxed heavily.
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Homes are always deteriorating, due to the 2nd law of thermodynamics, and thus should always be devaluing. It would be irrational to assume otherwise. Nothing on this earth is resistant to entropy. Home buyers can try to fight depreciation with renovations, but the inevitable is going to happen.
This view that homes always maintain their value is irrational. If it were true all homes built in 1890 would still be around today. In fact a very small percentage of these homes are still standing. The few that are left are in very poor shape and are in very poor neighborhoods. Yes their may be a few exceptions, but the outlier never resembles the trend line. It would be safe to assume that a home fully depreciates its value, in the average U.S. housing market, after 120 years.
A vehicle can serve as an analogy to the housing market. A vehicle fully depreciates, under most circumstances, after about 20 years. Yes some people may try to maintain the value of their car by doing upgrades, but nobody would pay the same inflation adjusted purchase price after the vehicle is 10 years old with 85,000 miles. That would just not be rational. Most people would pay around 1/3 the inflation adjusted purchase price for the vehicle.
So, when the average home in 1950 was $7,354 and inflation adjusted is $70,000, why are people paying between $60,000 - 180,000 for these homes? The 1st and 2nd owners of the home built in 1950 didn't absorb any of the depreciation! Maybe homes are not subject to the laws of thermo dynamics (ha-ha). More probably, the 3rd and 4th owners will be the lucky ones to assume the full depreciation of the home.
From the vehicle analogy one would estimate that the home should be worth 1/3 of $70,000 about $23,300. Obviously other variables are acting to influence the values of homes. Increased government intervention would be one major example. One might predict that if the influences from special interest groups (banking, realtors, insurance, home builders, politicians) that benefit from an expensive, highly leveraged housing market were eliminated, the housing market may restore to normal.
It is safe to say that the housing market is fairly socialized. If capitalism were in effect the U.S. government would not be colluding with special interest groups to keep the massive shadow inventory of homes off the market to protect the current highly unsustainable prices of homes. Welcome to “The Road to Serfdom”.
#housing