Tuesday, September 25, 2007

Can a home depreciate in value?

Over time, real estate will appreciate in value. We're in a deflationary situation in some parts of the country right now so many properties will lose some value initially but that should not continue for too long -- maybe a year or two at worst before things turn around. Assuming typical 3% - 5% annual growth it would normally take a couple of years to break even due to closing costs but after that you should be in the black again. These are only averages. Your experience may vary significantly depending upon where you buy and how shrewd a negotiator you are. One thing to watch out for, especially when prices are falling, is with new properties being sold in partly completed subdivisions. Builders typically have a significant amount of profit built in to the development and can often afford to slash prices significantly when a market tanks. That can leave early buyers stuck with homes that are now worth substantially less than they originally paid for them since new homes are being sold for significantly less.