Yes you read that right, homes do not appreciate, in fact they depreciate. Many of you may already be thinking, this guy put whiskey in his coffee this morning ;) No just good ole black coffee today friends. A house is a physical structure and physical structures depreciate for various reasons. Of course the primary source of depreciation is wear and tear. But homes also lose value as they become outdated either in fashion or practical use. This is why a 50 year old house in very good condition but not updated will fetch far less than the exact same house that has had the windows upgraded, the kitchen remodeled, and modernized, etc. This upgraded house did not appreciate it was brought up in value by spending money on it. Appreciation is when the value rises due to external factors mostly involving demand.
Land does not depreciate, it does not "wear out" and in general it never goes out of style. Its value can rise and fall with external factors such as demand or damage such as environmental damage or neighborhood decay. The thing that pushes home values higher is demand for housing but older homes will not appreciate as fast in general as newer homes because the older homes become less desirable as they often have minor to major functionality issues, designs that are no longer popular, and they are more likely to need major repairs than a newer home. This makes them generally less attractive to buyers.
Sometimes a trend happens that makes a certain era of homes desirable again. A few decades ago it was all the rage to take Victorian style homes and fix them up into gorgeous homes. More recently there was a hipster movement to buy up mid-century homes and fix them up. Mid-century homes were among the least "sexy" designs ever, but they were practical and functional.
As an example I will use my own home that I bought 23 years ago. My house was 10 years old at the time and priced about 10% less than a similar brand new home in the area. My house was basically all original when I bought it. Today it is about 25% less than a comparable brand new home. It's now 33 years old. I have spent tens of thousands of dollars modernizing it with sleek wood flooring, fresh paint, new roof, new furnace, updated kitchen, and baths, etc. But all that money hasn't really let me keep up with values of newer homes because the floor plan and layout reek of early 90s. I have 8 foot ceilings and there really isn't a cure for that. Now in all fairness I can sell this house today for more than three times what I paid for it back in 2002. I have no complaints, but I did spend at least $150,000 on keeping it updated over the years. Had I just left it all original but also kept it in good shape, I would be at a 40% disadvantage versus a similar brand new house. If I had let it go and it needed expensive repairs, then I would be at least 50% under the value of a comparable new home.
What does all this mean? Well the land underneath my home has appreciated dramatically but my actual house has depreciated drastically despite my best efforts. The moral of the story here is to keep your home in good shape even if you can't afford to modernize it, take good care of it. When looking to buy, pay attention to the neighborhood, try to buy in the best looking neighborhood you can afford, but go ahead and buy the worst house in the best neighborhood. Neighborhood degradation reduces demand and inhibits overall property appreciation. Neighborhood is way more important than the house itself when it comes to property values and potential appreciation. 23 years ago my wife and I had our eyes on a lovely home in a neighborhood nearby. It was built in 1999 and was at the time very sleek and modern. It was a little better house than the house we have now but the same size and bed bath count. It was just a tad bit more expensive, but was situated on a much smaller lot. We ended up buying our house because I felt the neighborhood would hold up over time better. The neighborhood for the first house was fairly new, but it was cramped with narrow streets and small lots. The house I bought had wide streets and larger lots. Both neighborhoods seemed comparable at the time. As the decades rolled by the my neighborhood remains more or less the same whereas the other neighborhood became filled with rentals, and clutter and basically fell apart. My house would almost certainly sell for more today than that house would, had I chose it. I likely would have moved out of the neighborhood 10-15 years ago.
In general if you want a "deal" on a house you generally want to buy an older home in good shape with outdated decor in a nice neighborhood, as nice as you can. If the neighborhood is older and yet still nice, that is often better than a brand new neighborhood that already feels crowded. The older neighborhood has weathered the storms of turnover and maintained itself, whereas the newer neighborhood can be a gamble unless it is strongly regulated by an HOA or it's a very expensive neighborhood. As a 25+ year veteran agent I have become very good at detecting neighborhoods with a high chance of stability or instability. This is a critical factor for long term success in your chosen home.
Remember as the house ages it loses value, the land is what drives the appreciation and that is mostly driven by local demand. Local demand can be external to the city itself, but also internal as a desirable neighborhood or area of town. Desirable areas can fluctuate over time but some neighborhoods are always popular. These are ideal spots to own for an extended period of time.
