When it comes to two of the biggest assets people tend to own - a car and a house - their value trajectories over time can differ quite dramatically. Both represent major investments and there are several factors influencing whether they appreciate or depreciate in value. Let’s take a look at the key differences:

The Depreciating Car Asset

As soon as you drive a brand new car out of the dealership, it begins losing value at a fairly rapid pace. This is depreciation at work. The main factors are mileage accumulation and the general wearing down of components through regular use. Estimates can vary, but experts at The AA suggest a new car can lose nearly 20% of its value within the first year of ownership alone.[1]
The rate of depreciation tends to level off after the first year, but the value of the car will continue to steadily decrease for the life of the vehicle. At around 5 years old, a car may be worth only 40% of its original purchase price or less when factoring in make, model, mileage, condition, and other variables according to analysis by AAA.[2]
Vehicles are not made to last indefinitely. They are a depreciating asset and will decline in value over time due to age, wear and tear, and technological updates that make older models obsolete. Proper maintenance may slow depreciation; however, it is an inevitability with cars.
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The (Potentially) Appreciating House Asset

While cars deplete with use, the value of houses over time can be quite different. A house can gain value through appreciation if the housing market rises over an extended period. Although this is not guaranteed, the appreciation potential is a major incentive for home ownership from an investment perspective.
Several key factors that cause homes to appreciate:
  • Land Scarcity – There is only a finite supply of land available for new home construction in desirable areas. Research by The Lincoln Institute of Land Policy suggests this will increase demand and drive-up home values over time [3].
  • Longevity – Unlike a car which has many wearing parts, the structure of a home is designed for decades of use so long as it is properly maintained and upgraded.
  • Inflation Hedge - As a hard asset, home values tend to rise alongside inflationary pressures over long periods, preserving value as noted by the Federal Reserve.[4]
  • Improvements Add Value - Renovations and upgrades let homeowners build equity by tangibly enhancing the condition and desirability of the home.
Of course, home appreciation is not guaranteed, values can also stagnate or decline in weak markets. However, the home's very durability and scarcity factors mean its value erosion resembles more of a cycle versus a car's predictable depreciation curve ending at a small remaining salvage value.
While both represent major investments, the differences are clear - a car progressively bleeds value through use, while a home possesses the potential to steadily rise in value through appreciation and improvements over long ownership periods. These divergent value trajectories are important to weigh for any consumer looking to make wise choices around such major life purchases.
Sources:
[1] https://www.theaa.com/car-buying/depreciation
[2] https://www.aaa.com/autorepair/articles/what-determines-a-cars-value
[3] ‘Land Scarcity’, The Lincoln Institiute of Land Policy, 2024
[4] ‘Housing and the Inflation Hedge’, The Federal Reserve, 2021