mcmahon group

Timing The Real Estate Market

We’ve been hearing a lot about bubbles, market crashes, and gloom and doom for the past couple of months in real estate; even as the economy keeps up a brisk pace, there is a certain group that always talks as if “the sky is falling”. Even I have become “negative” a couple of times in the last few months, but not for the reasons you might think. It has to do with folks who think they can “time the market”.

When I look at buying and selling real estate, I tend to look from a different perspective; that of a marathon runner, and not so much as a sprinter. In November 1998, the median house was $162,200 in California. In November 2018, the median price is $476,600 (Zillow) That’s nearly three times the original price. I did not pick 1998 because it was a good or bad year, I was only going back 30 years to give some perspective. 

Now let’s have some fun! Assume you purchased this house in 1998 and as of this month (unless you used your home as a credit card and borrowed against it), you are making your last payment. You haven’t thought much about it in the last 10 years or so due to the fact that  inflation has reduced your payment to a much smaller amount than when you first purchased your home.

In 1998, you paid a whopping 10.46% interest rate. Your payment would have been $1612.52 (this includes your payment, interest, tax and insurance, or PITI) per month for the last 30 years. Of course you may have refinanced into a lower rate along the way, but you get the idea. The average rent in California is now $2795 per month.

If you had never purchased a home in 1988, that’s what you would be paying every month with no end in sight. Compare that to the home you bought; after you pay it off, you will only owe taxes and insurance, about $230 per month (plus maintenance). 

So, is it a good time to buy?

Yep, it’s always a good time to buy. If you’re thinking of buying or selling, please contact us so we can show you how. Be prepared to stay in for the long haul, and run the race to the end.