I have heard a lot of talk about when is the best time buy a home. Is it now while the market is a buyer’s market or should one wait because prices may go down even more? I would like to address this issue with the law of 72. Created by Albert Einstein, the Rule of 72 is a mathematical shortcut used to determine how long it will take for an investment to double. This rule is widely used in Real Estate to determine when the value of homes will double in the market. I will be using this rule to highlight why now is the best time to invest in a home rather than later.
The formula is:
Years to double = 72/ interest rate
Although for the purpose of calculating real estate we will use appreciation rate rather than interest rate.
The average appreciation rate in Colorado Springs: 5.8%
Years to double = 72/5.8
Years to double = 12 years (rounded)
Therefore:
The median prices of new homes in Colorado Springs:
Now (2008): $264,995
In 12 years (2020): $529,990!!
This is a substantial increase in median home prices. The obvious choice would be to invest in real estate now while prices are still low. Still not convinced that the law of 72 holds true? Let’s take a look at some historical data:
In April 1996, 12 years ago, the median price of a home in the United States of America was $140,000. This past April (2008) the median price of a home in the United States of America was $246,100. that is an increase of $106,100 also seen as a 5.6% appreciation rate.
Historical trends have always shown the real estate market increasing in price. Despite many people over the years stating that real estate being a bad investment, it would seem that real estate is not only a great investment but NOW is a better time to buy than tomorrow because prices have historically gone up AND mathematically been predicted to go up.
For more information about the Rule of 72, Real Estate in Colorado Springs, or Campbell Homes new homes being built in Colorado Springs and the Pikes Peak region feel free to contact me at knoble@campbellhomes.com.
Tuesday, May 27, 2008
The Rule of 72
Wednesday, May 14, 2008
The Truth is Out About the Housing Market!
The media has been reporting for sometime that the housing market is bad and that now is not a good time to buy a new home. I beg to differ. With interest rates at an all time low and the supply of new homes starting to decline it’s only a matter of time when supply and demand take effect and prices will start to climb again. It’s a known fact that when demand is high and supply is low prices rise. Therefore NOW is the best time to purchase a new home since prices are reasonable and stable, and there is still enough supply of homes to suffice for the demand that we are starting to see. The following is a fantastic article from REALTY TIMES covering this very topic.
Columnist: 'Media Is Wrong About Housing Slump'
Realty Times feature article by Blanche Evans
Why buy a house now? You've been getting bad information. Here's why.
The financial press is worried that they might have gone too far - paralyzing the nation into recession by piling on housing. So they're finally beginning to question the indexes where they get their data, and whether the news is really as bad as it seems. Slowly but surely, headlines are changing from Don't Buy a Home Now to Is It Time To Buy?
We said it here first on Realty Times - that consumers aren't getting the full story. Indexes can be misleading because of the locations, prices, types of housing, and rates of increase they track.
In late April, Robert Shiller, founder of the Case-Shiller Index, announced that there was a good chance housing prices would fall further than the 30 percent drop during the Great Depression.
Shiller has plenty of reason to be negative - he makes money when people buy housing hedge funds, licensed with data obtained through his company Macromarkets LLC.
Now, finally, one brave journalist is writing that Case-Shiller is flawed.
In his story "Home-price data has its flaws," Chris Plummer of MarketWatch slammed both Shiller's Index and the Associated Press for being "grim reapers."
For the first time, S&P Index Committee Chairman David Blitzer "acknowledged his organization's overall and metro-market readings paint an incomplete picture."
No kidding. The index covers only 20 markets, heavily weighted to the most volatile metros in the nation.
Plummer also lampooned the AP for writing that "despite that index's limited seven-year history, home prices plunged by a record percentage at their fastest rate ever."
He also notes, "The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78 percent of the 330 metropolitan regions that the NAR tracks reported price increases ... "
Bravo, Plummer. But the rest of the financial press still has a long way to go.
When Shiller says home prices are going to fall 30 percent, not one reporter who covered the story asked this simple follow-up question: "Bob, during the worst part of the Great Depression, one in four people were out of work. Our unemployment rate is a little over 5 percent. So what's going to drive home prices that low?"
Instead, no one did even the minimum Wikipedia search to find out what conditions were really like 75 years ago.
What that means is not only are the indexes misleading - the reporting is worse.
Right now we have mortgage interest rates three points below historical norms. We have housing inventories five months greater than balanced markets. Combine that with unemployment that is a half percent lower than the recession of 2003, and you have excellent homebuying conditions.
Stop listening to the media. Go buy a home.
Copyright © 2008 RE/MAX International Inc. 5/6/08
