There was a question yesterday that generally stated cars lose their value so fast because people don’t know what the previous owner did. That’s fair, but why does that not relate to houses?
In: Economics
When you buy a house, you are paying for two things: the building, and the land it’s on. The building itself doesn’t really appreciate, but the land does – there is a limited amount of land around, so it will go up in value as more people want to live in the same area (and you’d have to do some pretty extreme things to actually damage a piece of land, unlike a car).
There is also a housing shortage – basically fewer houses are being built in places where people want to live compared to the rate at which new people want to move to those places. That in turn makes prices go up with time.
An equivalent home that is new construction is likely more expensive than an existing home just as is the case for a car.
Houses appreciating in value is not some iron clad law of economics. Its principally due to a shortage in supply and, in the 2000’s and 2010’s, incredibly cheap/more available financing that made people willing to pay more.
More generally, the time horizon for a house is also much longer than a car. My house was built in the 70’s and, since then, people have increased their earnings and their willingness to pay. Over the ~10 years most cars last this effect is much less pronounced.
Land is a limited resource.
It’s relatively easy for society to produce more cars, and much harder to find new land that’s inhabitable, in desirable locations, and near lots of good jobs
They don’t make new land, so the value of the land underneath can continue to gain value even if the house itself is in disrepair. This drives real estate values in a lot of high-value markets. It’s not the shanty shack in San Francisco that’s worth $700,000, it’s the land beneath it.
We make thousands of new cars every day, and so the old ones devalue quickly as they rust away.
All the answers here are good, so instead of duplicating them I’ll mention the one thing I haven’t seen yet:
Cars are fungible while real estate is not. Every car has thousands of completely identical twins that you could buy. Whereas the combination of a house, and the exact location of that house and the land it’s on, is unique. So a surplus of 0.5 acre parcels in Nowhere, Nebraska cannot create downward price pressure on a 0.5 acre parcel in Charlotte, NC in the same way that identical cars create downward pressure on each other.
> cars lose their value so fast because people don’t know what the previous owner did.
This is also true of houses, and it has very little (close to nothing) to do with why cars depreciate.
It’s party a supply and demand thing, population increasing means more and more people need a place to live, so having a house becomes more and more valuable, especially when the population looking for houses outpaces the rate houses are being built. Cars, however, are built rapidly and constantly and, unlike houses, will be worthless after a certain number of miles/years simply because they won’t work (or because it costs more to keep them working than to just get a new one).
Another thing to consider is the land. Owning a house means you own the plot of earth that it comes with. Land cannot be produced, so land also becomes more and more valuable as the demand for it increases, especially when you cannot increase the supply for it. With a car you don’t actually own the ground underneath the car, so you don’t get to sell that ownership like you do with a house.
Houses barely appreciate beyond inflation, especially once you factor in transaction, carrying, and upkeep costs.
Any appreciation beyond that is simple supply and demand.
A car and a house are both depreciating assets. That means they lose value over time.
Land, on the other hand, is a finite resource and can go up in value over time. It doesn’t break or need maintenance in the same way that a car or house does.
So when you buy land with a house, you’re buying two things: the land (which can go up in value) and the house (which will cost you money every year to maintain and may still go down in value).
Everyone is making the point about the land. Important also to make the point about the car. There is a point in a cars life when it will be worth zero: the cost of reviving an old dead vehicle isn’t worth the cost. Nobody knows exactly when this will be for each car, but people have a general idea in years and in miles traveled when a car will no longer be serviceable or worth it.
Cars usually lose a big chunk of value right away because there is a general preference for new vs. used. There is also an information advantage for the seller where most used buyers need to accept that more lemons are sold used while owners of good cars hang on to them.
Then once they no longer have the luster of being new they typically drift down in value fairly consistently to when they are generally considered end of life. At end of life, working vehicles are worth a couple thousand and non-working vehicles are worthless.
Depends on the country and locale honestly. Some markets (e.g. Japan) tend to tear down and rebuild more regularly than others. What really has value is the land. Even there this isn’t hard and fast rule, just a tendency. Also just because there is a general tendency of appreciation in some places (like the USA) this doesn’t mean that specific areas become less desirable and real estate crashes out (e.g. Detroit, Gary, etc).
Looking at cars, not all of them lose value either. Some are super rare to begin with and continue to go up soon as they sell. Some are normal cars and follow the usual trend of depreciation but after decades they may become desirable to certain buyers and, if taken care of, begin to go back up again (e.g. hot rods).
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