{"id":8893,"date":"2023-08-24T06:32:12","date_gmt":"2023-08-24T06:32:12","guid":{"rendered":"https:\/\/imsfund.com\/?p=8893"},"modified":"2023-08-24T06:32:12","modified_gmt":"2023-08-24T06:32:12","slug":"the-real-story-of-home-prices-why-growth-doesnt-matter-as-much-as-you-think","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2023\/08\/24\/the-real-story-of-home-prices-why-growth-doesnt-matter-as-much-as-you-think\/","title":{"rendered":"The &#8220;Real&#8221; Story of Home Prices\u2014Why Growth Doesn&#8217;t Matter as Much as You Think"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button x-on:click=\"open = !open\" class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<h2 class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/h2>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">We all know that one person who bought a property for a price that seems unfathomably cheap by today\u2019s standards, such as $50,000, and it\u2019s now worth $350,000. It\u2019s crazy to think that just 50 years ago, median home prices were right around $24,000.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Today, the median home price is\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/MSPNHSUS\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">over $456,000<\/span><\/a><span data-preserver-spaces=\"true\">, according to the Department of Housing and Urban Development. In 50 years, property prices have increased by nearly 14x.\u00a0<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" loading=\"lazy\" width=\"850\" height=\"524\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image3-2.jpg?twic=v1\/cover=850:524\/max=1000\" alt=\"Nominal Home Prices (1964-2021)\" class=\"wp-image-157202\" srcset=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image3-2.jpg?twic=v1\/cover=850:524\/resize=850\/max=1000 850w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image3-2.jpg?twic=v1\/cover=850:524\/resize=300\/max=1000 300w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image3-2.jpg?twic=v1\/cover=850:524\/resize=768\/max=1000 768w, \" sizes=\"auto, (max-width: 850px) 100vw, 850px\" title=\"The &quot;Real&quot; Story of Home Prices\u2014Why Growth Doesn't Matter as Much as You Think 2\"\/><figcaption class=\"wp-element-caption\"><em>Nominal Home Prices (1964-2021)<\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">This is enough to get anyone to buy real estate and to become wealthy, right? Well, not exactly. The numbers I\u2019ve shown you so far are\u00a0<\/span><em><span data-preserver-spaces=\"true\">nominal<\/span><\/em><span data-preserver-spaces=\"true\">\u00a0home prices, meaning they have not been adjusted for inflation. But as investors, we want to understand how our money is growing relative to our spending power, and for that, we need to use\u00a0<\/span><em><span data-preserver-spaces=\"true\">real<\/span><\/em><span data-preserver-spaces=\"true\">\u00a0housing prices. <\/span><\/p>\n<h2 class=\"wp-block-heading\">Adjusting Home Prices for Inflation<\/h2>\n<p><span data-preserver-spaces=\"true\">In this context, \u201creal\u201d just means \u201cinflation-adjusted.\u201d<\/span> <span data-preserver-spaces=\"true\">When you adjust real estate prices for inflation, the growth looks much less impressive. Property values are still going up but in a much less dramatic way.\u00a0<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" loading=\"lazy\" width=\"826\" height=\"724\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image4-1.jpg?twic=v1\/cover=826:724\/max=1000\" alt=\"Nominal vs. Real Existing Home Price (1964-2021)\" class=\"wp-image-157203\" srcset=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image4-1.jpg?twic=v1\/cover=826:724\/resize=826\/max=1000 826w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image4-1.jpg?twic=v1\/cover=826:724\/resize=300\/max=1000 300w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image4-1.jpg?twic=v1\/cover=826:724\/resize=768\/max=1000 768w, \" sizes=\"auto, (max-width: 826px) 100vw, 826px\" title=\"The &quot;Real&quot; Story of Home Prices\u2014Why Growth Doesn't Matter as Much as You Think 3\"\/><figcaption class=\"wp-element-caption\"><em>Nominal vs. Real Existing Home Price (1964-2021)<\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">Despite the impressive-looking run-up in housing prices over the last 50 years, the average real growth rate of property values is just 1.8%. Getting 1.8% on your money above inflation is not bad, but it\u2019s not great either. Consider the fact that Over the last 20 years, the real yield on 10-year U.S. Treasuries is 0.86%. This means you could do pretty much nothing with your money and get relatively close to the real growth rate of property values.\u00a0<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" loading=\"lazy\" width=\"2000\" height=\"1253\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image1-2.jpg?twic=v1\/cover=2000:1253\/max=1000\" alt=\"10-Year Real Treasury Rate (2003-2023) - YCharts\" class=\"wp-image-157200\" srcset=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image1-2.jpg?twic=v1\/cover=2000:1253\/resize=2000\/max=1000 2000w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image1-2.jpg?twic=v1\/cover=2000:1253\/resize=300\/max=1000 300w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image1-2.jpg?twic=v1\/cover=2000:1253\/resize=1024\/max=1000 1024w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image1-2.jpg?twic=v1\/cover=2000:1253\/resize=768\/max=1000 768w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image1-2.jpg?twic=v1\/cover=2000:1253\/resize=1536\/max=1000 1536w, \" sizes=\"auto, (max-width: 2000px) 100vw, 2000px\" title=\"The &quot;Real&quot; Story of Home Prices\u2014Why Growth Doesn't Matter as Much as You Think 4\"\/><figcaption class=\"wp-element-caption\"><em>10-Year Real Treasury Rate (2003-2023) \u2013 <a href=\"https:\/\/ycharts.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">YCharts<\/a><\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">Of course, this simple analysis of home prices doesn\u2019t paint the full picture of returns that you get from investing in real estate. It doesn\u2019t factor in leverage, amortization, <a href=\"https:\/\/www.biggerpockets.com\/blog\/best-real-estate-markets-for-cash-flow\" target=\"_blank\" rel=\"noreferrer noopener\">cash flow<\/a>, <a href=\"https:\/\/www.biggerpockets.com\/blog\/increase-home-value\" target=\"_blank\" rel=\"noreferrer noopener\">value-add<\/a>, or many of the tax benefits that come from real estate investing.\u00a0<\/span><\/p>\n<h2 class=\"wp-block-heading\">Price Growth is Not as Important as We\u2019re Led to Believe<\/h2>\n<p><span data-preserver-spaces=\"true\">To me, all of this data shows that property prices are not what drive real returns for real estate investors. This data underscores the importance of not counting on appreciation to make your deals work. This is particularly true in today\u2019s uncertain economic climate. If you look at this graph of real property value growth rates over time, you can see that there are many periods of negative growth.\u00a0<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" loading=\"lazy\" width=\"832\" height=\"692\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image2-2.jpg?twic=v1\/cover=832:692\/max=1000\" alt=\"Real Growth, Inflation-Adjusted (1964-2021)\" class=\"wp-image-157201\" srcset=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image2-2.jpg?twic=v1\/cover=832:692\/resize=832\/max=1000 832w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image2-2.jpg?twic=v1\/cover=832:692\/resize=300\/max=1000 300w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/image2-2.jpg?twic=v1\/cover=832:692\/resize=768\/max=1000 768w, \" sizes=\"auto, (max-width: 832px) 100vw, 832px\" title=\"The &quot;Real&quot; Story of Home Prices\u2014Why Growth Doesn't Matter as Much as You Think 5\"\/><figcaption class=\"wp-element-caption\"><em>Real Growth, Inflation-Adjusted (1964-2021)<\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">Real property growth is far from certain! Over the last several years, in an ultra-low interest rate environment, it was reasonable to assume price appreciation above and beyond inflation, at least for a few years. Personally, I think those days are behind us. Given high rates and high levels of economic uncertainty, appreciation is falling back to what it was historically: an excellent inflation hedge, a floor for your returns, and a potential bonus if you invest in the right areas.\u00a0<\/span><\/p>\n<h2 class=\"wp-block-heading\">Final Thoughts<\/h2>\n<p><span data-preserver-spaces=\"true\">Don\u2019t get me wrong, I look for deals that have strong appreciation potential, but it\u2019s not wise to count on appreciation to drive your returns. You need cash flow, value-add, and amortization to serve as your fundamentals, and if you experience some real appreciation on your property, that\u2019s just gravy. As this data shows, appreciation is not always as powerful as it appears.\u00a0<\/span><\/p>\n<div id=\"visibility-group-block_64dd561cede13\" class=\"visibility-group  hidden\">\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n<div class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 lg:w-1\/2 \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find an Agent in Minutes<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Match with an investor-friendly agent who can help you find, analyze, and close your next deal.<\/p>\n<p><\/main>\n<\/div>\n<div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n<img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Agent-Finder-Block-2.png\" alt=\"find an investment-friendly real estate agent\" title=\"The &quot;Real&quot; Story of Home Prices\u2014Why Growth Doesn't Matter as Much as You Think 6\"\/>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"wp-block-group is-layout-constrained\">\n<div class=\"wp-block-group__inner-container\">\n<div class=\"wp-block-group__inner-container\">\n<div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n<div class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 w-full \">\n<main class=\"py-4\"><\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n<p><\/main>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/the-real-story-of-housing-prices-why-growth-is-not-as-important-as-you-think\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article We all know that one person who bought a property for a price that seems unfathomably cheap by today\u2019s standards, such as $50,000, and it\u2019s now worth $350,000. It\u2019s crazy to think that just 50 years ago, median home prices were right around $24,000.\u00a0 Today, the median home price is\u00a0over $456,000, according [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":8894,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/08\/for-sale-1024x517.jpg","fifu_image_alt":"","footnotes":""},"categories":[9],"tags":[],"class_list":["post-8893","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/8893","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/comments?post=8893"}],"version-history":[{"count":1,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/8893\/revisions"}],"predecessor-version":[{"id":8895,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/8893\/revisions\/8895"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media\/8894"}],"wp:attachment":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media?parent=8893"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/categories?post=8893"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/tags?post=8893"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}