Do New Houses Depreciate Like New Cars? Analysing Key Differences

The comparison between new houses and new cars in terms of depreciation is often a misunderstood one. While new vehicles typically see a sharp decline in value within their first year, new homes often exhibit a different behavior. This article will explore the key differences between these two types of properties.

Depreciation vs. Appreciation

Cars: New cars generally lose value quickly, often depreciating by 20-30% within the first year of purchase. Factors such as wear and tear, technological obsolescence, and market demand heavily influence their resell price.

Houses: Homes, on the other hand, often appreciate in value over time. Location, market conditions, and improvements to the property contribute to their rising value. A home can indeed lose value in a declining market, but it is more common for real estate to appreciate in the long run.

Market Factors

Cars: The resale value of cars is largely determined by supply and demand, brand reputation, and the condition of the vehicle.

Houses: Real estate values are influenced by a broader range of factors, including local economic conditions, interest rates, and neighborhood development.

Long-Term Investment

Cars: Cars are often considered a depreciating asset and are generally not regarded as a good long-term investment.

Houses: Real estate is often seen as a solid investment opportunity. Besides rental income and capital appreciation, homes can benefit from the appreciation of the land, which is a limited quantity and tends to appreciate over time.

Additional Considerations

Structures do depreciate, but because they are attached to land, the depreciation is rarely realized. Land, being a limited resource, does not depreciate. In fact, it appreciates over time, and this appreciation can often offset the depreciation of the structure.

When purchasing a new home, several expenses come into play. These include the need for landscaping, tending to young shrubs and grass, and installing fences and window coverings. New homes also require finishing amenities and personalization. Time and attention to the shrubs can bring the home up to the standard of a used home.

Once the homebuilder completes the subdivision, the home prices are free to find their own level. In most cases, home prices rise due to the constrained supply. Closing costs for selling and buying a home typically range from 6 to 10% of the sale price. This means that a seller needs to sell their home for approximately 10% more than their purchase price just to break even.

Why Choose a Used House?

There are several reasons why one might prefer a used house over a new one. Used houses offer the convenience of quicker occupancy, as they are ready for immediate move-in. New homes can take anywhere from 3 to 6 months to build, which can be a significant commitment of time and resources.

While both new houses and new cars can depreciate, the mechanisms and expectations surrounding their value changes are quite different. New houses are generally seen as appreciating assets over time, unlike new cars, which are typically considered depreciating assets.

Understanding the nuances between new houses and cars can help potential buyers make more informed decisions when investing in a new home.