There’s an interesting article by Harvard professor Edward Glaeser in the New York Times Economix blog that says your home’s value probably won’t rise. Despite the downturn in the housing market, nearly everyone who buys a home does so on the assumption that the value will go up if you wait long enough. Glaeser argues that’s not generally the case.

One of the pillars underlying the belief that housing will appreciate in value over the long term is that the ratio between housing prices and income will remain stable. So as incomes rises over time, so too will home prices. Poppycock, says Glaeser. The prices of other products like computers or cars don’t go up with people’s incomes so why should housing?

In fact, there seems to be almost no link between housing prices and incomes in most cases. In cities like Houston and Phoenix the ratio of housing value to income actually dropped by at least 40 percent between 1980 and 2000.

The two instances where you can reasonably predict increasing prices are “when rising demand collides with restricted supply of land and housing permits,” Glaeser argues. Hence, areas like New York and San Francisco – where nearly every square foot of buildable land has already been used – experienced booming housing prices from 1980 through 2000, and have even weathered the downturn better than other areas.

Unfortunately for most home buyers, those two factors are not at play in other areas of the country. America still has lots of empty land and a robust construction industry capable of cranking out huge numbers of new, affordable houses. That’s not a recipe for long term housing price increases.

The Bottom Line: think twice before assuming your home will increase in value over the long term. Housing may be an asset that doesn’t appreciate over time.

photo credit: Mr. T in DC