If you thought home value appreciation was a thing of the past or simply a myth, then think again!
While property values are not at the level they were in the middle of the last decade, they are making a comeback according to data supplied by the Greater Chattanooga Association of Realtors. GCAR’s statistics indicate that the average sales price of residential properties have risen by 1.8 percent over the past 12 months. From October 2011 through September 2012 the average sales price rose from $158,746 to $161,527.
Real estate sales are cyclical in nature; they are almost always going up or going down. While the recent downturn in the economy and resulting housing slump caused most homes’ values to decline, we are now making up some of that lost ground. These values will not be recaptured overnight; the key to keep in mind is that over a longer period of time, home values have historically gone up.
If your home lost 9-10 percent of its value in 2009-2010, as many in our region did, you may not be comforted by this relatively small increase.
However, if you compare this pace of appreciation to statistics over the last 30 years, you will find this to be close in line to “normal.” The overheated market of 2005-2008 was neither normal nor exhibited healthy growth as is evidenced by the number of foreclosures we have been experiencing in recent years.
You may be wondering what is causing this sustained appreciation of prices in our market. Just like any other commodity, the housing market is a matter of supply and demand. The inventory of homes available for sale has been consistently declining over the 18 months, thus supply is down. At the same time, buyers have become more confident and interest rates have remained at historic lows, therefore the demand has gone up. So, shrinking inventory and increased demand begin to push prices up.
An appreciating asset, such as real estate, is a smart investment when you look at it over a longer period of time. Can you make this same assumption about other major purchases? Take your car, for example. Has its value gone up in the last year like your home value, or has it gone down in value? If you have financed your car, can you deduct the interest charges from your income taxes like you can your home? While these questions may seem rudimentary, they underscore the smart investment that a home is to most Americans.
So if you are trying to decide between buying or renting, consider this:
when you make your mortgage payment each month you are reducing the debt on an appreciating asset. When you pay rent each month, you are reducing the debt for your landlord on an appreciating asset! Home ownership simply makes good sense.