Lesson #5: Appreciating Real Estate

Lesson #5 in this blog series:  Appreciating Real Estate.  Read the entire series from the start by clicking HERE.

Nearly a grown up (by my standards today, anyway…. I was almost 20), I still had one more important lesson to learn about real estate.  I had taken a job at Shannon and Luchs (who was then a major regional real estate brokerage) in the training department and they made me take a real estate licensing course.  In that course they said that the national average of appreciation for real estate was 3% over any 10 year period.  The teacher went on to say that for the Washington DC Metro area it is more like 5% typically.   (By the way, they no longer teach this in today’s real estate courses.)

Hmm… That made me wonder.  So I went back and looked at some specific properties to test this theory.  Here are just a couple, but I have done them for every house I or my parents have owned at different intervals.

Case Study #1:  Vale Road, Oakton (Fairfax County)

Remember this house?  In 1975 it’s appraised value was $106,000.  It last sold in 2011 for $560,000.  That’s approximately a 4.8% average annual rate of return.

Case Study #2:  Charter Oak Drive, Ashburn (Loudoun County)

 

The first home I owned was a townhouse with a 2 car detached garage in what is now Belmont Greene (Ashburn, VA).

In 1995 we purchased it for $150,000 new.  It hasn’t sold for a while, so I used the home next door – in the picture- for this study (which originally sold for approximately the same thing).  In 2013 it sold for $358,000…. That’s about $1831 shy of hitting a 5% average annual rate of return.

 

 

I have done this case study for multiple homes over multiple periods of time (always making sure I had at least 10 years between the selling points), and it has held true.  These homes are all in Fairfax, Prince William or Loudoun Counties, so it’s reasonably representative of the Northern Virginia market.

BUT, WHAT ABOUT “THE BUBBLE”:  In 2005 and 2006 we hit “peak” prices and the rates of appreciation were incredible – 10% OR MORE in a year, for several years in a row.  They were too rapid.  The market correction sent home prices plummeting.  But they have been on the rise for several years now…. And the rate of appreciation is picking up again.  I am curious to see what 2015 and 2016 will show us about that time frame.  We’ll know then if it was really an anomaly or just part of a “normal” cycle that is painful to experience.  Life always looks a little different in the rearview mirror.