Usually, the next headline is how interest rates are climbing, home prices are going up, lumber pricing is going through the roof. So…
That begs the question, should you wait to buy a home?
“Well gee, because the housing bubble is going to burst, prices are going to tank, and I can pick up a home for half price”.
If that’s you, get comfortable. You have a long wait ahead of you if you are in a market like Northern Colorado. And right now, there are a lot of markets just like this one.
First off, has housing ever tanked and provided that half price opportunity? Let’s look at the numbers over the past 70 years.
In 1950 the Median Home Value was, wait for it….. $7,400. Rent was $42 month. But remember, median annual income was $2,990 year. (Information via U.S. Census Bureau) So housing cost about 2.5 times your annual income.
]In 1960 that jumped up to $11,900, or about 61% in value over that decade where median income jumped 66%. Between 1960 and 1970 home prices jumped another 43% where income went up 76%. Good decade for incomes… But this is where home prices get interesting.
1970 to 1980 – Home prices jumped 178% where income went up 103%
1980 – 1990 – Home prices jumped only 68% where income jumped 69%.
1990 – 2000 – Homes 51%, Income 84%. And the median rent was $602 in 2000
2000 – 2010 – Homes 85%, Income went down 10%. Wait, wasn’t that the housing bubble. Why did homes outpace incomes when that huge bubble popped…. If we look closer at Fort Collins, Colorado where I live during the height of the impact, we see Fort Collins gained .6% appreciation…. Now other markets were declining, and some people really got into trouble during that time. But home prices did well, especially compared to money in the markets and incomes
Here in 2022, at the time of this writing our median home price in Fort Collins is $635,00, up from the 2010 national median price 186%. The largest decade gain in home prices. Income? Somewhere between $44,225 and $74,099 depending on the source of the data. It seems to keep getting sliced and diced differently.
What about inflation? We must take that into account, right? According to the U.S. Bureau of Economics’ Analysis of Monthly Annualized Wage and Salary income per capita, if we adjust to today’s dollars the normalized income in 2000 was $67,428 where it is $74,099 today. A 9.9% increase in buying power. Apply that inflation rate to home and we should be at $370,406.All that math tells us what we already see every day. Home values have outpaced income by a huge margin. Meaning if you purchased a home in 2000, its value has increased well above the rate income has risen or inflation. Where to spend all that equity? Oh yea, it is tied up keeping the rain off your head.
Wait a minute, where is that half priced home we started off looking for? If history doesn’t provide a glimpse of that opportunity, maybe the current projections will.
I’m sorry to say, those paint an even worse chance of finding that Easter Egg.
Here are some calculations, because you are still reading this you must love math, that show us where the market is going.
Joan Woodruff – Owens with Home Mortgage Alliance shot me a “Cost of Waiting” comparison for Larimer County assuming a $600,000 purchase price, 5% down, current interest rates and a whole page of required disclosures about those numbers from MBS Highway. Check it out here.
Projected home purchase price, for the same home will be $617,549 in 6 months, $630,301 in a year and $678,853 in 3 years. In my opinion, that is very, very conservative. But my crystal ball broke back in 2010.
In 6 months your payment will go up $268 more. In a year that number looks more like $392 a month and in 3 years, $583 based on these projections.
As prices go up and interest rates, so does the amount you need to bring to close. To the tune of $6,995.
As a buyer you want to wait 3 years to gather more down payment and pick up that perfect home for half the value it is going for today… You would have to save over $104,835 to buy the same home apples to apples as today… Don’t even get me started on the rent you paid out over the past 36 months…. That is just adding salt to the wound.
History tells us homes are a great investment, projections tell us things are going to be more expensive not less and interest rates are moving up quickly. If you want to be a homeowner and make that appreciation instead of paying it, today’s home will probably be that great deal you are looking for. So what do you think? Should you wait to buy a home?
Focused on being up to date in the NoCo culture and in touch with local businesses, Nathan has a podcast called “The More NoCo” and a YouTube series called “In Your Backyard”. Being in real estate for over 20 years, Nathan Weinland is one of the most experienced and well educated realtors in Northern Colorado.
I hope that you will check out my other blogs; Lance Sample with Sample CPAs. Or Celia Bowman with Bowman Architecture’s Kitchen Remodel.
As leader of The Weinland Team, Nathan is constantly working with the best in the industry to “perfect the art of service” in real estate.
If you are looking to buy or sell a home in Northern Colorado, Nathan and his team would love to introduce you to our NoCo culture; full of craft beer loving, dog focused, outdoor centric people that is Northern Colorado. Give the Weinland Team a call today!