Conventional wisdom says that houses increase in value over time, but this is an oversimplification. Houses last for a long time, but at best they should hold their value. New technologies are periodically invented that become standard on new houses but are difficult to retrofit into old houses. Over long periods of time, even solidly built houses wear out.
Land increases and decreases in value according to supply, demand and external factors. Someone builds a park nearby, it goes up. Someone builds a pig farm nearby, it goes down. Jobs are created nearby, it goes up. Jobs leave, it goes down.
Inflation increases the apparent value of houses, but not enough to explain what we observe, unless official inflation rates are understated (not an implausible assertion).
A housing bubble (like the recent one) can be considered a kind of inflation. Low interest rates and increased mortgage availability allowed people to afford to spend more on houses, and they competed with each other, driving prices up. Now that we have too many houses, lots of foreclosures and a recession (which occurred in that order) prices are dropping.
Manufactured housing depreciates. It is often cheaper and less sturdy, but it doesn't have to be. A "Katrina House" can be just as strong as a conventional house. What's the difference?
These explanations are unsatisfying. Something's missing. Is it psychology--we think housing appreciates, so our expectation creates the reality? Are people richer than they were 30 years ago?
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