NAR's Ad Campaign

The National Association of Realtors has a current ad campaign promoting two topics, the value of real estate in building wealth and the long term value of housing as an investment. The campaign is a well intended reminder that purchasing a home is, over the long run, a good investment. Historically homes have appreciated in value at an annual rate of about 6%, a little more than than the rate of inflation. Recently, however, many buyers purchased with the expectation of automatic and never ending appreciation, which, when fortune changed, has led to foreclosures and economic loss on a large scale. The ads do not so well represent the notion that home ownership brings a sense of pride and responsibility, which results in better communities and schools and more desirable places to live, qualities which are probably the sources of the political perks and tax benefits associated with owning a home. Although homes build value they are not easily converted to fund a retirement, since you still have to live somewhere. Also the NAR’s example comparing $10,000 invested in real estate vs the stock market ignores the differences in the costs of owning vs renting and also the not negligible costs of sale. While some savvy real estate investors earn extraordinary profit from periods of rapid appreciation that are part of the business cycle (and some currently suffer from the increased risk during periods of high appreciation), for most of us, real estate serves as a safe and dependable investment that accompanies its primary function of improving the quality of our lives.

We might ask ourselves just why home prices should go up at all. Our cars don’t appreciate. The home does not produce a product of value. Its material condition degrades - investors get to depreciate this from the home’s value. Given an ever increasing population and a fixed amount of earth, the value of the land should increase.  The government increases the money supply so we have inflation that drives up the price, but this appreciation should then not outstrip the rate of inflation.  Location of the home, proper upkeep, quality of the neighborhood, quality of local government and schools, employment opportunities, economic conditions - all of these play a role in creating the buyer’s expectations of value in the home and contribute to differences in value and appreciation in different locales. The empty neighborhoods of foreclosed homes are certainly not appreciating as the NAR has implied. While new construction and residential resale make an important contribution to our economy, it would be putting the cart before the horse to say that the home appreciates so you should buy it rather than acknowledging that the home appeciates because you take responsibility and make the commitment to the home, neighborhood, and community, which in turn generally repays owners with appreciation.

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