Why Home Values Usually Don't Matter

If You're Not Selling, Don't Worry over Home's Worth

Feb 17, 2009

It's a national obsession: Homeowners want to constantly know what their residences are worth. But a home's value means nothing unless it's time to sell.

Today, owners rarely receive good news when they ask about the value of their home. According to the National Association of REALTORS, the median sales price of existing homes stood at $175,400 in December of last year. That may not seem bad, but consider that this figure stood at a far more robust $230,200 in July of 2006.

For a long time, homeowners were in denial about this. Zillow.com reported last year that only 38 percent of homeowners thought their homes were losing value. In reality, 76 percent of homes lost value in 2008. There was a definite disconnect between reality and perception.

There's also the matter of importance: Homeowners often forget that unless it's time to sell, the value of their home means little. In fact, it really means nothing.

Last October, writers James Hagerty and Ruth Simon with the Wall Street Journal wrote that nearly one in six U.S. homeowners owed more on their mortgages than their homes were actually worth. This condition is known as "being underwater."

This condition usually only occurs shortly after owners have purchased their homes, and it happens rarely. When owners live in a house for five, seven, 10 years or more, they've usually paid down enough of their mortgage loans, and, even more importantly, have watched their homes appreciate more than enough to guarantee that their homes are worth more than what they still owe on their mortgage loans.

This is something that everyone should keep in mind as the housing slump continues. Housing is not meant to be a way to make a quick profit. Residential real estate has historically appreciated at a steady but gradual rate over time. At least that's the way it worked before the unprecedented rates of appreciation we saw during the housing boom that ran from 2001 through part of 2006.

Homeowners who own their residences for 10 years or more have tremendous odds of seeing their residences appreciate in value during that time. No one can guarantee it, of course, but historically that's the way it's always worked.

Even factoring in today's housing slump, people who purchased their homes seven years ago are still likely to have seen their residences appreciate in value. According to Bankrate.com, the median sales price of existing homes in the first quarter of 2002 stood at $150,900. That's much lower than the median price of more than $175,000 today.

But what about homeowners who own their residences only one or two years before selling? Their profits, if any, depend on the health of the current economy and housing market. In the early 2000s, it seemed that houses doubled in value every year. That, though, was an unrealistically positive market. When the market is sluggish, as it is now, the odds are higher that homes will take a temporary dip in value.

But homeowners should remember, if they're not selling at that exact moment, that dip in value doesn't really matter.

The copyright of the article Why Home Values Usually Don't Matter in Buying/Selling a Home is owned by Dan Rafter. Permission to republish Why Home Values Usually Don't Matter in print or online must be granted by the author in writing.