If history is a guide….there are better prices still coming down the road..
Check out the following chart of historical home prices:
The unavoidable realities is that home prices, after a sharp run up, tend to fall back to prior levels (except after WWII when returning GI’s gave a permanent demand bump to the industry). For current or future sellers this is very bad news. For those us looking to buy a summer house in the next year or so, it is looking as though patience here will be rewarded…
A point here is that people need to stop looking at their primary residence as an “investment”. The typical 30 mortgage requires the buyer to pay about 3x the original mortgage back. Add in 30 years of repairs (new roof, heating system, driveway and general maintainance) plus property taxes and insurance and anything short of a tripling in the value of your home means you have essentially rented it for 30 years with a refund at the end in other words 0% return. This does also not take into account upgrades you put into over the years that add nothing to the resale value. Anything short of a tripling in the resale price and your investment has been a “cost”. Would you make a $20,000 annual payment in a stock that at the end of 30 years was only worth the value of what you put into it?
Of course, the more you put down on the home, you now lower the price appreciation necessary to actually turn a profit down considerably. But since the vast majority of homeowner at best do 20%, talking about that now isn’t really necessary. If you bought it outright, ignore this post.
Now that second home, should you rent it when not there is an investment because your renters will be paying your mortgage (or helping you do it). These properties are falling in value fast now and this market will create some real wealth out there for people…it will take a while though and will not be as obvious to other folks as it is not easily measurable like the Dow Jones Average (DJI) is.
Disclosure (“none” means no position):Own my home….
Visit the ValuePlays Bookstore for Great Investing Books
5 replies on “Thinking of Buying That Summer House?”
“Anything short of a tripling in the resale price and your investment has been a ‘cost’.”
This is assuming that the gov’t printing press will not eat away at that principle in the form of very high inflation.
agreed
– assuming that a person uses a house for 2 rolling 15-year periods. After taking inflation, tax deductions, maintenance & insurance into consideration, who will have fared better – the person who bought a house or a person who rented it?
that depends on inflation. inflation is a negative for the renter as rents increase and a positive for the homeowner as the value of the home increases
peter…just re-read you comment..you cannot ignore inflation as it acts counter for the two parties