Rate of Return on a house
Hey, here is a great site that calculates the rate of return on your investment should you buy a home.
http://finance.yahoo.com/calculator/real-estate/inv-04
I plugged in numbers comparable to any home that I would look at here and assumed a 3% increase in value over 20 years, which is the average over a period of time. It came up with a -0.9% Not very good for an investment I would say.
http://finance.yahoo.com/calculator/real-estate/inv-04
I plugged in numbers comparable to any home that I would look at here and assumed a 3% increase in value over 20 years, which is the average over a period of time. It came up with a -0.9% Not very good for an investment I would say.
Comments
That CAGR, in Seattle Bubble land, is 7%, from year of purchase to the present date. I used the following formula:
(Current Value/Base Value)^(1/# of years) - 1
Yes I live in Seattle proper, in a SFH, in a school cluster where children do very well -> outstanding compared to all other clusters (averaging 80-88% WASL passing in reading and math), and where I can walk to parks, shopping, community centers, and libraries. The stores I walk to do not have iron bars on them. Nor do my windows rattle from the traffic on the freeway. But it's not where childfree professionals want to live, and it's currently not affordable, even at 7% CAGR, to many families of young children.
Yes I know there are Seattle/Bellevue/Tacoma/Everett zip codes that are currently hot and overvalued.
I suspect I am not living in one of those zip codes.
So, 30% depreciation of house price, or a 30% reduction of that CAGR, would put my overall home appreciation rate at 5%, just 2% or maybe 1% beyond inflation. I would still have over $100K equity in the home if that happened, so am not chewing my cuticles over it.
Have any other homeowners used my method of determining what their house is currently worth?
Median home price for March this year in Seattle is only up 2.7% from a year earlier. In other words, in the last year housing was a terrible investment compared to just about anything else.
Seven per cent is relatively high considering the appreciation of houses since 1890, true, but not high considering the appreciation of properties on the Eastside and other hot neighborhoods. The years I used are 1999 to 2007.
I take back what I said about inflation being 3%. The Consumer Price Index might be officially 3%, but it does not factor in food and energy. Food and energy prices have risen much higher than that. In fact, when I was playing with a sophisticated rent vs. own calculator, the inflation rate and appreciation rate used to most closely approximate the current reality of my house price came to 10% and 11% respectively.
But I understand why neither the housing bulls nor the housing bears want to factor a 10% inflation rate, including food and energy, since oh 2003 or 2004: for the bulls, it means their properties aren't appreciating vastly beyond the inflation rate; and for the bears it means their argument of renting being superior to owning is watered down... only the maintenance costs, utilities, and the fixed rate mortgagee's insurance and real estate taxes are going up, but the principal and interest of the monthly payment stay constant. At least they have the incontestable argument that buying too much house at the height of the market is a risky move...
Actually, that's a statistical anomaly. You'll see much higher gains for the city of Seattle later today when the April #s come out. Last month the U District (Area 390) had negative YOY appreciation. Most likely a fluke from the vast amount of townhomes being sold there which brought the median down. Every other neighborhood had very high appreciation. Ballard had 6.63% YOY, Quenn Anne/Magnolia had 10% YOY. But thelower U District #s brought the overall city's median down.
All of King County had 9.45%...that's really stellar appreciation.
Don't think thats true. here's what Altos says about 98105
SFH in Laurelhurst appreciated 6.5% in March.
Madrona/Leschi/Capitol Hill is 98112 (my zip code). Median price and $/sq ft are flat - so it doesn't sound like there hasn't been a shift to smaller places there either.
Moved to Seattle.
Got a job.
Started renting, have a roomate. Rent for 2 BR 2 Bath and 1 car attached garage condo = $1150 month. So I was paying $575 a month (half the rent)
I spent my last pennies for 1st months rent and deposit. My roomate had no $$ so I paid for his up front.
As of today...
Still rent the same place, I've gotten my landlord to LOWER the rent twice, my roomate (same person) and I now pay $900 a month, which equates to $450 each.
Still have the same job, this company paid for my MBA and CPA and now I am about to go back for some sort of IT degree/certification (switched jobs, I went from accounting to IT).
In the last seven years I have gone from oweing 30k in student loans and 19k for a Jeep Wrangler Sahara I bought to being debt free!! (woot!) Also worth noting...
I have 90k in my company matching 401k.
I have 50k in my savings account earning 5% annually (currently).
I have 60k in my stock investment account, 40k currently invested.
Thats 200k, plus I still own my Jeep. So tell me, was I better off renting, or should I have bought something. Could I have even done it? :?: Remember, I only had a couple thousand dollars to my name back then, and 49k in debt.
I'm thinking I was better off renting, I even have a 50 inch plasma, a queen sized bedroom set, and a nice living room set. :P
My real estate agent dumped me, saying I cost her to much to continue to show houses, so I got my buddies brother enlisted, he agreed to only make offers on houses, that I would set up showings on my own. He also said he'd only charge me a 1.5% commish max, so if he gets 3%, I get 1.5% back. I don't plan on buying anytime soon, maybe this time next year, probably January - March 2009, to build up more cash savings for at least 20% down payment.
That said, could you have more paper equity today if you had bought in 2000 or 2001? Probably. If you leveraged to the hilt and bought the most expensive house you could just before the most massive housing bubble in US history, you would have done quite well for yourself. Of course, nobody knows if the same would be true if you held onto the same hypothetical house for another 2 or 5 or 10 years.
Also, you've done something you couldn't have done with a house. You have diversified your savings. You have some put away exclusively for retirement (401k) and other money you can spend when you like. Your investments you are managing for gains while your savings are available if you want to buy a car, take a vacation or like I said earlier if you are laid off. That's all pretty great. Meanwhile buying a house would be putting all your eggs in one basket.
Here's a healthy attitude. You could do better if you took all that cash down to Vegas and placed it on black 14, but even if you win, that doesn't make the move an investment or a wise decision.