One site http://(www.realestateabc.com) cites a 6.34% annual appreciate rate since 1968. But, that does account for: state, city, county, or neighborhood variations. It doesn’t account for type of house (single family, townhouse, or condo/apartment). It doesn’t account for urban, suburban, or rural. It doesn’t account for style of home (rambler, colonial, Cape Cod, etc.). It doesn’t account for boom areas or declining areas. It doesn’t account for periods of recession.
Get the idea?
There’s an old story about someone standing with one foot in boiling water and the other foot in a bucket of ice. Why? Because, on average, the water was just right for a bath.
Yes, it’s true, over the long term, on average, real estate will appreciate in the range you suggest. Even better, of course, is the leverage you have with real estate. If you buy a property with 10% down and it appreciates 5% in a year, then you have a 50% return on investment. Put 5% down and it appreciates 10% a year, then you have a 200% return on investment.
But be careful. Lots of people were caught a year or two ago, at the top of the market, with those 100% financing programs. What’s the return if you put 0% down and the property appreciates 20% a year? (Or even 2% a year?) Infinite! It sounded good until the market turned, the speculators realized they had horrible loans, and they couldn’t refinance.
Buy smart: Don’t overpay. Know the comps. Choose something you’re comfortable with. Look at the local and regional demographics–is industry moving in or out? Jobs coming in or out? (Interesting difference in perspective, for those who follow politics, during the Michigan Republican primaries. McCain said that some jobs in Michigan had been lost forever. Romney said that wasn’t correct, just negative. People liked Romney’s message, but take a look at Michigan real estate prices.)