Why isn’t it treated similarly to a house?
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I think that’s a misconception. They don’t all do this. In fact many higher end cars actually appreciate in value once you buy them.
And even for more normal cars they don’t “lose 25% on the first day” as many people seem to believe.
It really depends on the situation. It’s a market so demand creates the price.
The main reason why this can happen is when a customer looking for a new car will ask “why would I pay the same amount of money for a car someone has owned when I can go and get a brand new one with 0 owners?” This means sellers have to give somewhat of a discount to sell their car. But let’s say you’re in a market where cars are in deficit (like post covid). This logic wouldn’t work.
I guess your real question is why do cars depreciate at all when a house doesn’t.
And well that’s again a misconception. A house won’t stand for 500 years so it still has some depreciation. The reason why we don’t notice is because of the way our economy works and of the fact that demand for houses keeps growing over time.
But your house will still be cheaper than a brand new one that’s exactly the same in 2 years. That’s depreciation.
Also a lot of cars don’t lose value at all like many Toyotas etc.
The original owner is the manufacturer. The second owner is the dealership.
All cars are bought previously owned and nearly all of them have someone else miles on them.
Funny thing, there’s no depreciation.
Because yes, the whole thing is stupid.
Different assets have different properties that give them value, and lots of things go into determining the value of an asset.
Cars are one of those things that suffer from a few problems when it comes to retaining their value.
1. They require maintenance. Lots of it. When they are on the lot, they are in theory 100% maintained. Once it leaves, it is somewhere below that. Could be 99.99…%, but it could also be 0%. Value drops because risk is now involved.
2. Also, there is supply issues, namely there *are* no supply issues. There will always be more of your car, and if there isn’t chances are your car is now so old that it isn’t worth all that much money anyway, and car companies aren’t interested in recycling their cars on the second hand market which is why they constantly come out with new models almost annually. In fact, in some of the rare cases that cars actually *appreciate* in value, it’s usually because it’s a rare car, and not many were made. A company like Bugatti producing 100 cars is probably an intentional tactic to inflate up the value, which increases the value of their brand.
3. You also have the lot guarantees. When you drive it off the lot, you have things like warranties, guarantees of quality, some services they offer etc. Once it’s off the lot these guarantees are less effective, or straight up disappear. As I sort of alluded to in my last point, car companies don’t want to recycle their cars, so they aren’t in the business of putting incentives on second hand car sales, they only do so begrudgingly. They want *new* car sales.
4. Often underappreciated but the “market will charge what the market can bare.” People will ultimately pay more for the idea that their car is brand new. Even if the car was off the lot for say, a day… People are willing to pay that extra to ensure no compromise with an emotional purchase like a car.
When you look at a house however, the maths changes.
1. Houses do require maintenance. And quite often the state of the “structure” (note, not the state of the decoration) is usually a very big factor in the cost of a house.
2. There *is* a supply issue for houses. There are not enough houses in general, there are a limited amount of houses in a given area, and land in your country, and on Earth is finite. These factors all work together to give the house more value. Land is always a good investment, and unless it’s literally poisoned or radioactive, will more or less always appreciate. Many people want to live in good areas, so if you have land that happens to be in that good area, that land will fluctuate in cost with how good that area becomes. And lastly housing markets are always changing, and always big economic news… Which means people use them as assets, homes, second homes, etc. Which means lots of money gets thrown at them, which means that the chance of the price of houses going up is pretty high.
Well, cars are overly expensive but since all the manufactures can agree, they can set their own price for the cars.
That’s the price you pay for a new car, but even a new car isn’t worth that, so the second you drive off it’s not a question about what it’s worth for the dealership, but what it’s worth for a random buyer.
Cars are scams just like everything else, but we have no choice but to get one anyway
Two things. Uncertainty and Accountability. Uncertain if you can trust an individual and if there is a problem how do you hold that person accountable. A business is semi-permanent and runs off reputation.
It’s a market mechanism based on supply and demand.
If there’s a big supply of cars, then the price drops regardless of its state. A used car will in most cases be worth less than a new car, based on what people are willing to pay for it. Most people will pay more for an unused brand new car.
With housing you’re really paying for the land relative to its geographic location. There’s a finite amount of land, and as more and more land becomes unavailable because of population increase or investments, the prices will increase as long there’s a demand.
People will always need a place to sleep and eat, but they don’t necessarily need a car to live.
Limited availability cars are exactly the opposite. If you were to order a GR corrolla today, when you receive it, you will most likely be able to sell it at a 20% markup.
Would you buy a car that someone bought a week ago, compared to buying a brand new car at the same price? I’d buy a new car.
The person selling that car would need to reduce in price quite a lot for me to buy their car, over buying the brand new car. Plus, I’d want guarantees and tests done to make sure there’s nothing wrong with the car. That costs money.
That’s the shortest way to explain it. People don’t want something used if they can get it brand new instead.
Because people don’t want to pay full price for second hand stuff with limited lifetime.
Why would someone buy something second hand if he can buy it new for pretty much the same cost?
On top of everything that’s already mentioned one thing to keep in mind is that when you buy a new car you can pick between a bunch of options and customise it to your liking. Being able to customise these things is part of the reason someone would buy a new car over a used car and it’s unlikely you’ll find someone who agrees 100% with the choices you’ve made.
Say for instance you’ve bought a blue car with grey interior and the top of the line stereo and you try to sell it to someone who don’t car about the stereo – they’ll probably not want to pay extra for the stereo just because you paid so you get more depreciation there.
You have the same issue with house modifications where it can be hard to recover the cost of upgrading the kitchen or the bathroom in a sale because the buyers might prefer something else.
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