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How Much Should You Expect Your House to Appreciate?

  • Housing
  • Charlie Bilello

You just bought a house. If you’re like most Americans, it will soon become the largest component of your net worth, and only increase as a percentage over time. Naturally, you would like to see it go up. But by how much?

Predicting future home prices is a difficult game. It is made complicated by the myriad of factors influencing the housing market, including the supply/demand for housing, affordability, inflation, economic/wage growth, availability of credit, mortgage rates, unemployment, demographics, location, etc., etc.

If a homeowner can’t predict such things, what can they reasonably expect in terms of appreciation over time?

A good starting point is a rate of inflation (CPI), which national home prices have tracked relatively closely over long periods of time.

how much do home values increase each year image1

Data Sources for all charts/tables herein: S&P/Case Shiller, BLS

From 1891 through 1996, national home prices only exceeded inflation by 15% on a cumulative basis. Few considered housing “an investment.”

how much do home values increase each year image2

That thinking changed during the housing bubble when prices would exceed the inflation rate by a wide margin (76% from 1997-2005). Many believed that housing was the new-and-improved stock market, better because it “never went down.”

how much do home values increase each year image3

And then, of course, it went down, falling every year from 2007 through 2011. Since then, home prices have recovered all of their losses on a nominal basis. They remain below their inflation-adjusted peak in 2006.

how much do home values increase each year image4

What does any of this tell us about future home prices?

Not much in the short-run, as the table above clearly indicates. Anything can happen in any given year or any given five-year year period for that matter. But for homeowners who plan to be in their house for 30 years or more, what they’ll most likely find is an appreciation rate that doesn’t deviate that much from the rate of inflation. In the best 30 years for the housing market (1976-2005), real price appreciation averaged 2.2% per year. In the worst 30 years for housing (1895-1924), real price appreciation averaged -2.1% per year.

how much do home values increase each year image5

Over the complete history (1891 – 2017), housing prices have increased by 3.2% per year and 0.7% after inflation.

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So if you just bought a house, how much should you expect it to appreciate? If you plan to stay for a while (30 years), only a little bit more (0.7% historically) than the rate of inflation (currently running around 2.3%), with the understanding that it could very well be less. That’s probably not what you were hoping to hear. When it comes to setting expectations today that you’ll be happy with tomorrow, a small dose of reality can go a long way.

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Related Posts:

Will Higher Mortgage Rates Kill the Housing Market?

CHARLIE BILELLO, CMT

Charlie-Bilello

Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors. He previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University. He has also done a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He is a frequent contributor to Yahoo Finance and has been interviewed on CNBC, Bloomberg, and Fox Business.

You can follow Charlie on twitter here.

Disclosures:

Pension Partners, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information about Pension Partners please visit: https://adviserinfo.sec.gov/ and search for our firm name.

The information herein was obtained from various sources. Pension Partners does not guarantee the accuracy or completeness of such information provided by third parties. The information given is as of the date indicated and believed to be reliable. Pension Partners assumes no obligation to update this information or to advise on further developments relating to it.

Past performance is not indicative nor a guarantee of future results.

This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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