Why is it that cars and most other vehicles only ever depreciate in value, whereas homes generally appreciate continuously?
In: Economics
Home values go up with inflation, land values go up slightly beyond inflation, and usually the cheaper but most obvious things add the most value. Things that add value or at least replace lost value fresh paint in neutral colors, keeping a house clutter free when selling retail with an agent, painting cabinets, putting in nicer looking but still low cost countertops if the old ones are dated, replacing outdated fixtures, fixing/replacing things that are worn out. These spendy wall teardowns, kitchen reorganizations, full bathroom redos, stone countertops are spendy and usually don’t return what you put into them.
Not all cars necessarily depreciate in value so your question is inherently phrased incorrectly.
The spot of land you’re living in right now, that’s the only one of those in the entire world.
No more land can be produced, and only one person can own land in the exact position you’re in right now.
That Honda Civic outside, they can be mass produced, and more than one person can own their own Civic.
Difference between liability and asset. A car will rarely gets better as it ages even if well maintained. Whereas the location of a house, given little crime or other depreciating factor, will likely only get better.
True ELI5: Cars wear out where as neighborhoods and towns tend to build up.
It is the land value that appreciates, the value of anything built on the land goes down as it wears out / becomes obsolete.
Homes can appreciate In value through renovations, to themselves or their surroundings(think of a neighborhood that gets a nearby park, or a shopping complex). Outside of modding, cars can only ever really decrease in value
The world keeps growing in terms of population, but the amount of places we can build a house keeps dwindling. People who realize that can raise the prices on their house and sell them for more pretty easily; since this is the general trend, houses constantly rise in value.
When you buy a new car, generally, it’s the latest, hottest thing in the market; however, in one year, there’s hotter, newer cars out for sale, and interest in your car dwindles; your forced to lower the selling price on your car so that someone may consider buying it instead of a shiny brand new model, so your car’s value constantly depreciates as time passes.
Because 99% of cars are mass produced and generic (meaning in 5 years you’ll still be able to see thousands of the same car driving around even though we’ve maybe gone through one or two model revisions since then), and cars have a limited service life based on age and how much you use and maintain them. Even if you don’t use them that much they still have parts in them that wear down with time and need to be replaced. And new cars always have new features that older cars don’t have.
Houses, on the other hand, don’t necessarily go up in value. It’s the *property* that goes up in value, because property, unlike cars, cannot be built in a factory, there’s a limited amount of it. And because there’s a limited amount of it, demand for it can go up pretty high, depending on where you live. Houses *can* go up in value, too, if you’re investing in the right projects. But most projects aren’t a $1 for $1 return – a $10,000 bathroom renovation might help boost your property by $5,000, for instance.
land appreciates because there’s a pretty limited supply of it; there’s more people every year, but not more space for them to live.
on the other hand, there are new vehicles every year. This means that to get somebody interested in buying an old/used one, you gotta drop the price.
The value of any good or service is determined by one thing: supply and demand.
Cars have a relatively short useful life (i.e., the period of time during which the car can be used without undue cost to maintain). When you buy a new car, it will only last about 10-15 years or so and then it will either conk out or cost so much to maintain that it’s not worth it. Also, newer, better cars are constantly being produced, making an older car generally less desirable to potential buyers. These factors make the demand for older cars significantly less than when the car was new.
Homes, on the other hand, have very long useful lives. My house is about 100 years old, and with proper maintenance will last for hundreds of years still. So, to any potential buyer, the useful life of the home almost certainly would exceed the period which the buyer would intend to use it. Additionally, as others have pointed out, the land parcel you purchase with the home also has value, and has an unlimited useful life. As the population of an area expands this increases demand, and so the land and home tends to appreciate in value. Finally, for many people, older homes are considered “quaint” and thus desirable over newer homes that have less “character.” These factors make the demand for older homes still robust and in many instances equal to or greater than that when it was first purchased/built.
Note that homes don’t always appreciate in value, take a look at some of the real estate prices in downtown Detroit.
Latest Answers