You have probably heard someone say that “real estate values only go up” or that “home prices always rise.” Variations of these are common refrains, and they make it sound like real estate is a sure thing. But how accurate are they, exactly?
The idea that real estate only goes up comes from looking at the historical values. Traditionally, these values will always rise. In a big picture sense, the value of land that you own should increase.
Why is this? There are numerous reasons, but the clearest is simply the law of supply and demand. The population is growing exponentially. The amount of land is fixed. With every person that is born, there is a greater demand for this finite resource. If you can hold onto it long enough, the value is going to go up.
That said, it’s important to remember that this only really works from a long-term perspective. In a hundred years or so, the values will rise. They will. But what does that mean for next year or ten years from now? That’s harder to say. As recently as 2008/2009, we saw home prices plummet drastically as the market crashed. They have since rebounded, which is very clear to anyone who bought a home in the wake of that decline and who is now watching that house double in value. But that doesn’t mean that there won’t be any more short-term declines on that path to overall growth.
If you’re involved in real estate investing, it’s crucial to understand all of your legal options. Working with an experienced attorney can help you mitigate your risks.