When you set up your housing entry, pay close attention to the "Real Appreciation Rate." For most users, the default 0% real appreciation rate is appropriate. The key word here is "real" which refers to the amount of growth of the home's market value relative to inflation. So a 0% real appreciation rate means that the market value (along with the property tax and insurance) grows at the same rate as inflation. So if your model is using 3% inflation, the market value of the home is going to grow at 3% per year nominal and 0% real. Every city and neighborhood is different, but the national average is around 1% real appreciation.
The growth on Maintenance, Utilities, and Fees is always 0% real regardless of of the real appreciation rate setting.
The second image below shows what the housing report looks like if you choose the default 0% real appreciation rate setting. Notice how the property tax, maintenance, and insurance all are the same amount all the way down the column. The reports are in today's dollars meaning that they reflect the purchasing power of the amounts shown relative to the current year. In other words, we see that the amounts are not losing purchasing power year over year. In other words, they are cola adjusted or inflation adjusted.
If we had set the real appreciation rate in the housing set up to something higher than 0%, say 1% or 2%, those three columns would show numbers growing larger each year reflecting the fact that the cost of property tax, maintenance, and insurance were outpacing inflation year over year.
Why is the mortgage payment declining each year? The reason for this is that the mortgage payment is not getting cola adjusted each year. Unlike the other three categories, your mortgage payment does not go up with inflation each year like your property tax or insurance. Thus, we sometimes say that we pay off the mortgage with cheaper dollars each year. Loans of any type typically do not have their repayment amounts adjusted for inflation each year.
Mortgage payments are nominal (dollar) amounts. So as prices rise with inflation, the real amount of the payment (the payment measured in today's dollars) declines. For example, if your mortgage payment is $20,000 this year and inflation doubles between this year and next, your mortgage payment next year will be just $10,000 measured in today's dollars.
Unlike your mortgage payment, homeowners insurance, property taxes, maintenance costs and condo fees typically keep pace with inflation. That's why, unlike mortgage payments, they remain constant through time in our reports. Moreover, if you specify that your house will appreciate in real terms (i.e., relative to inflation), we have your homeowners insurance and property taxes rise accordingly at the same rate through time.