Author Topic: How long 'til homes start appreciating?  (Read 7900 times)

freelancerNfulltimer

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How long 'til homes start appreciating?
« on: October 15, 2012, 12:43:55 PM »
I know it's going to be different in different markets but generally how long do you think it will take Real Estate to start appreciating again? How long are we going to see the depressed prices? I'm just curious what investors might be thinking. If you need a specific area to talk about I'm in North Florida.

tooqk4u22

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Re: How long 'til homes start appreciating?
« Reply #1 on: October 15, 2012, 01:26:51 PM »
Approximately 7-10 years.  Here is the logic for my opinion:

1.  Consumers need to be employed and feel confident that they won't be laid off - this not only leads to incomes to support housing purchases but also reduces the anxiety and peoples desire to retain flexibility. (years 1-4)

2.  Consumers need to repair their balance sheets so they can afford a house and a down payment. (years 5-7)

3.  When 1 & 2 happen we will be in a decent economic recovery, which means interest rates will be rising and will cause mortgage payments to rise thus potential gains due to #1 & #2 will be offset by this (7-10 years)

4.  Then housing begins appreciating - assuming no additional recessions or economic issues (can you say deficit and US Debt)


AJ

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Re: How long 'til homes start appreciating?
« Reply #2 on: October 15, 2012, 01:41:27 PM »
It also depends on what kind of homes you are talking about. In my neck of the woods, housing prices have flattened out for homes below the median cost (basically anything <$200k goes quick and for asking price), but higher priced "move-up" homes are still spending a long time on the market.

Even once homes begin appreciating, I would expect them to do so slowly. Like Tooqk said, even when prices start coming up interest rates will do so as well which will slow growth.

sol

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Re: How long 'til homes start appreciating?
« Reply #3 on: October 15, 2012, 03:27:52 PM »
I think it also depends on which corner of the country.  Places like Vegas and Phoenix are already seeing healthy growth in real estate prices, after horrible crashes in the local market.  My neck of the woods was mostly immune to the mortgage meltdown until about 2008 while the rest of the country peaked in 2005/06, so I expect the recovery here to be 2-3 years behind the curve as well.

arebelspy

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Re: How long 'til homes start appreciating?
« Reply #4 on: October 15, 2012, 08:28:36 PM »
Gosh, I hope not for a long time.

As Buffet says, I'm a net buyer of hamburgers.. er.. real estate. I hope houses stay cheap.

Big lag will occur due to eventual rising interest rates depressing prices. That's okay.

It'll bounce along the bottom for a few years, then track inflation. Rises we see will occur due to that, likely not much else.
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offroad

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Re: How long 'til homes start appreciating?
« Reply #5 on: October 16, 2012, 02:15:52 AM »
Wow. A good reason not to buy. My interest rate, plus tax cost; has to be lower than my house appreciation rate. Before I will buy a house.

Given the cost of closing, it takes ten years to make enough back to justify the expense.

arebelspy

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Re: How long 'til homes start appreciating?
« Reply #6 on: October 16, 2012, 08:01:29 AM »
Wow. A good reason not to buy. My interest rate, plus tax cost; has to be lower than my house appreciation rate. Before I will buy a house.

Given the cost of closing, it takes ten years to make enough back to justify the expense.

Well that's simply not true.  ALL the numbers matter, not just appreciation.

For example in my area my tenants pay me ~1k/mo.  My P&I is ~270/mo. (total PITI ~400). If they bought, even with no appreciate for a decade, and sold in five years, the extra money they save in rent over the next five years more than covers closing costs.

Appreciation isn't the only factor.  There's about a million of them (maybe a dozen important ones).  Run the buy versus rent calculators, and don't assume that because a house doesn't appreciate, it's not a good time to buy.
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freelancerNfulltimer

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Re: How long 'til homes start appreciating?
« Reply #7 on: October 16, 2012, 08:47:57 AM »
Gosh, I hope not for a long time.

As Buffet says, I'm a net buyer of hamburgers.. er.. real estate. I hope houses stay cheap.

Big lag will occur due to eventual rising interest rates depressing prices. That's okay.

It'll bounce along the bottom for a few years, then track inflation. Rises we see will occur due to that, likely not much else.

I hope the do appreciate so I get sell the loser I have on the books. I hope they don't so I can buy some winners.

galaxie

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Re: How long 'til homes start appreciating?
« Reply #8 on: October 16, 2012, 03:50:50 PM »
Why do we want homes to appreciate?  I have one, but I don't plan on selling it (I still need a place to live, and I will need a place to live until I die).  I'm not counting its value in the assets that can support me in my old age, so all that happens if it appreciates is that my taxes go up.

JohnGalt

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Re: How long 'til homes start appreciating?
« Reply #9 on: October 16, 2012, 05:13:11 PM »
Why do we want homes to appreciate?  I have one, but I don't plan on selling it (I still need a place to live, and I will need a place to live until I die).  I'm not counting its value in the assets that can support me in my old age, so all that happens if it appreciates is that my taxes go up.

This entirely depends on your definition of "we."

As someone who has already bought their house and never plans on selling or using it's equity - you don't care what prices do (so long as those prices aren't affecting other macro economic factors that may affect you). 
Someone buying a large family home now with plans to sell and move into a small or less expensive home down the line (say after the kids grow up) hopes for appreciation.
Investors like arebelspy are hoping that prices either stay flat or continue to decline while they are accumulating property.  When he is done accumulating, he would like to see some appreciation (even if he's not counting on it) during his holding phase until he sells and invests elsewhere. 

Me personally... I'd like to see rapid appreciation in my market over the next 6 months followed by a massive dive in another market over the following year.  But that's because I'm selling in 6 months, moving, and then will consider buying after 12 months in the new location.  Everybody's situation is different. 


arebelspy

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Re: How long 'til homes start appreciating?
« Reply #10 on: October 16, 2012, 06:31:00 PM »
Investors like arebelspy are hoping that prices either stay flat or continue to decline while they are accumulating property.  When he is done accumulating, he would like to see some appreciation (even if he's not counting on it) during his holding phase until he sells and invests elsewhere. 

As Nords would point out, perhaps, but a primary (likely? only?) exit strategy is probate, in which case I'd prefer no appreciation as well due to not wanting higher taxes.

Then again, higher home prices = higher rents.

Either way it likely just comes out to be a wash.
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Nords

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Re: How long 'til homes start appreciating?
« Reply #11 on: October 18, 2012, 11:45:35 AM »
As Nords would point out, perhaps, but a primary (likely? only?) exit strategy is probate, in which case I'd prefer no appreciation as well due to not wanting higher taxes.
Then again, higher home prices = higher rents.
"Probate" is just my anecdotal conclusion, although it certainly seems to be the default.  It'd be nice to see some objective data to stroke my confirmation bias and make me go "A-ha!"

I think that if that's the exit strategy, then landlords should invest for yield:  cash-on-cash returns in excess of some benchmark like CDs or REITs.  In Hawaii, with its staggeringly high cost of land, that works out to about 3-4% APY.  Looks pretty good now, but when inflation is high (and mortgages are expensive, and home prices tumble) then landlords look pretty stupid.

I also agree that another purpose of rental real estate is asset allocation:  you lock up a lot of your assets in an illiquid property with high transaction costs, which keeps you from doing something even more stupid with your money.

Undecided

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Re: How long 'til homes start appreciating?
« Reply #12 on: October 18, 2012, 06:11:00 PM »
Why do we want homes to appreciate?  I have one, but I don't plan on selling it (I still need a place to live, and I will need a place to live until I die).  I'm not counting its value in the assets that can support me in my old age, so all that happens if it appreciates is that my taxes go up.

Yes, that's absolutely correct (I say, having recently bought a house I'd like to hold "forever").  Of course, eight months ago, when I was getting ready to sell my prior house in a much more expensive market than I live in now, I totally disagreed.

capital

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Re: How long 'til homes start appreciating?
« Reply #13 on: November 09, 2012, 02:28:36 PM »
A lot of the reason housing had appreciated so much in certain jurisdictions in recent years is because many jurisdictions make it difficult to build enough housing units to satisfy demand in the most productive regions of the country, so people have used their high incomes to bid up the existing housing stock.

When New York City got rich and grew over the course of the 19th and early 20th centuries, high real estate values were handled by building housing and commercial space at high densities. On the other hand, even as much of California has gotten rich since the 1950s or so, the housing remains mostly single-family on large lots, and even multi-family is density-limited, either explicitly or by parking requirements. It's also become difficult for various regulatory reasons to build more housing in NYC. On account of housing demand vastly outstripping supply, both NYC and California have become extremely expensive in the past few decades, and keep their population in balance with their housing stock by pricing people out rather than by building more housing. That's why the same ranch house costs $90k in Indiana and $1M in Silicon Valley.

There are all manner of regulations in many places like minimum parking requirements, minimum lot size requirements, minimum setbacks, minimum square footages, and maximum floor area ratios that likewise distort the market and artificially drive up housing prices.

As many younger people are coming to prefer urban living again and suburban living becomes more expensive with higher oil prices, I'm hoping these artificial constraints on homebuilding and density are lifted, which would move us toward a housing market driven more by construction costs and less by artificial restrictions. That may be too much to hope for, though.

What all this is getting at is that there are a whole lot of factors driving housing supply and demand, which in turn drive housing prices. Most of the regulations (and geographic factors) determining supply, and the local job market and cultural amenities driving demand, aren't correlated nationwide. Research your own market, and diversify your assets unless you really want to bet everything on your hometown.

offroad

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Re: How long 'til homes start appreciating?
« Reply #14 on: January 15, 2013, 07:14:12 AM »
was thinking about this subject again.  assume $200k house

yearly costs.

1). property taxes on that can be $5000 ( you save via tax 20% so $4000)
2). maintenance $2000
3). commuting costs $2000 to $4000 extra per year
4). insurance costs. $1000
5). interest payments. $8000 ( save via tax 20% so $6400)
6) closing costs over five years. $2000 per year

lets say appreciation of $2000 a year.

crunch it all. you get $15000 per year out of pocket.  if you rent a place for less than $1500 you are pretty close to the price of buying a house.   so why buy a house?


arebelspy

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Re: How long 'til homes start appreciating?
« Reply #15 on: January 15, 2013, 07:24:28 AM »
Numbers you pulled out of thin air don't prove anything.  ;)

Appreciation of 1%, for example, is too low.  It'll match inflation long term (not more or less, aside from local markets due to job demand and such).

Property taxes vary wildly from state to state.  I'd expect to about half that amount here.

Most of those numbers seem quite arbitrary, though they may be applicable for you.

I think all it shows is that one should run the numbers for themselves, because every scenario is different, and blindly saying buy or don't buy is lazy and anti-Mustachian.

EDIT: Also, yes, as a real estate investor, I wouldn't purchase something for 200k that only rents for 1500.  Naturally one would rent in that scenario, emotions and other personal reasons aside.  But look at my numbers in post 7 of this thread and tell me renting is better than buying in that situation.  Once again, run the numbers.
« Last Edit: January 15, 2013, 07:45:23 AM by arebelspy »
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Skyn_Flynt

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Re: How long 'til homes start appreciating?
« Reply #16 on: January 15, 2013, 04:08:30 PM »
Homes don't appreciate much in real terms unless you buy in an area that draws future investment. IE, commercial activity picks up nearby and new shops and services open, a new school is built, etc. There needs to be a REASON prices increased.

Don't be fooled by long term "appreciation" in stable areas. The currency is devalued a little each year and prices just look bigger. It's like saying you have more time ... by dividing an hour into 100 minutes instead of 60. You still have an hour to work with in reality, similar to a $60K house that  is "worth" $100K someday.
« Last Edit: January 15, 2013, 04:11:20 PM by Skyn_Flynt »

arebelspy

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Re: How long 'til homes start appreciating?
« Reply #17 on: January 15, 2013, 04:29:44 PM »
Homes don't appreciate much in real terms unless you buy in an area that draws future investment.

Agreed.  However increasing in nominal terms is still not bad.

In other words, an investment that matches inflation, provides a place to live (or cash flow if it's an investment property), tax benefits and is easily leveraged is not bad, even if it doesn't appreciate in real terms.  I'll take one that matches inflation (and actually beats inflation since you're leveraged) but has those other benefits.
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GoCubsGo

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Re: How long 'til homes start appreciating?
« Reply #18 on: January 16, 2013, 11:26:54 AM »
Everything is local, the market I sell homes as a Realtor in the Chicago Burbs have begun to rise.  Two of the more affluent communities I sell in were up 7-11% last year.  From what I've seen in the past, when those communities rise in price, the surrounding ones tend to follow within a year or two.  I own investment properties as well and almost EVERY foreclosure takes multiple offers.  The investors are out in full force and are trying to snap up rentals as quick as they can due to record high rent rates (as am I).  Houses to flip are become very difficult to find due to the declining foreclosure listings.  The shadow inventory (foreclosures in the pipeline) are also dropping which will lessen the pricing pressure and allow for some appreciation going forward.    I'm WAY more nervous about the stock market going forward than I am about my local real estate futures. 

sol

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Re: How long 'til homes start appreciating?
« Reply #19 on: January 20, 2013, 06:24:19 PM »
The investors are out in full force and are trying to snap up rentals as quick as they can due to record high rent rates (as am I).  Houses to flip are become very difficult to find due to the declining foreclosure listings.

Shouldn't that lead to rapidly escalating sale prices?

arebelspy

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Re: How long 'til homes start appreciating?
« Reply #20 on: January 20, 2013, 07:14:14 PM »
The investors are out in full force and are trying to snap up rentals as quick as they can due to record high rent rates (as am I).  Houses to flip are become very difficult to find due to the declining foreclosure listings.

Shouldn't that lead to rapidly escalating sale prices?

Naturally.

My area has seen about 25% appreciation in the last 12 months. And out Phoenix's appreciation over the last year.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Steel_Rain

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Re: How long 'til homes start appreciating?
« Reply #21 on: January 21, 2013, 04:15:18 PM »
Everything is local, the market I sell homes as a Realtor in the Chicago Burbs have begun to rise.  Two of the more affluent communities I sell in were up 7-11% last year.  From what I've seen in the past, when those communities rise in price, the surrounding ones tend to follow within a year or two.  I own investment properties as well and almost EVERY foreclosure takes multiple offers.  The investors are out in full force and are trying to snap up rentals as quick as they can due to record high rent rates (as am I).  Houses to flip are become very difficult to find due to the declining foreclosure listings.  The shadow inventory (foreclosures in the pipeline) are also dropping which will lessen the pricing pressure and allow for some appreciation going forward.    I'm WAY more nervous about the stock market going forward than I am about my local real estate futures.

As a western burbs investor, I have to concur.  I may have bought my last home for this reason.  The deals are getting bid up enough to make it marginaly profitable, meaning all the late comers are going to get hammered :)  I may try to go the short sale route since its such a pain in the ass, most investors are not in that game yet.  But that will change as well i would bet.  I will try to get one more this summer, but im not optimistic.

Steel