By: Dennis Norman
In my last post I looked at the purchase of a new home as an investment and how it has fared as an investment over the past few decades. My analysis showed that an investment in a new home has historically (at least during the 38 period I covered) performed close to the Dow Jones Industrial Average, and in the past 8 years out performed it by a significant amount proving that, as an investment, a new home does fine over time.
That post just looked at new homes and I promised I would do the same analysis of an investment in an existing house and here it is. Below is a table showing median prices of Existing homes in 10 year increments starting with 1970, I then added 2005, 2007 and 2008 to bring the data into the current market.
The data for existing home sales looks pretty similar to the new homes sales and tends to follow a similar pattern. One thing that does stand out to me though is change in the difference between median prices of new homes and existing homes over the years. In the 70′s and 80′s the median price for new homes vs existing homes was less than 10% higher. In 1990 new homes were over 25% higher than existing, then this gap dipped to the teens until 2008 when new homes were over 20% higher again. Off the cuff I’m not sure that is siginificant but it’s something I’m going to think about….maybe there will be more on this in future.
As I did with new homes I then did a table to show the rate existing homes were increasing in value over the period.
Comparing the above results to the results of the New home analysis shows that the median prices of existing homes during the past 38 years have not increased as much as the median price for new homes, in fact only 688% compared with 842% for new homes during the same period. The median price of a new home has increased 22% more than that of existing homes since 1970. In looking at the appreciation since 2000 and 2005 for both, once again the median prices for new homes show more appreciation (or in the case of 2008, less depreciation) than existing homes. Since 2005 existing home prices have dropped 17% while new homes are down only 9%.
Now lets look at how many invested in the Dow Jones Industrial Average stocks would have done for the same period:
With a 915% increase in value since 1970 clearly the DJIA has beat the appreciation of existing homes at 688% for the same period. In fact the Dow has done almost 33% better, clearly the better investment if we are only looking at the money (if you need a pick-me up check out my article on the Real Value of a house). There is a silver lining though for homeowners…since 2000 existing homes clobbered the stock market with a 23% gain while the DJIA saw a 21% loss. Since 2005 when again existing homes did better by only losing 17% in value vs 21% loss by the DJIA.
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