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
Subscribe to:
Post Comments (Atom)
2 comments:
I would tend to agree. Even though the market is a bit mushy right now, there is only so much land. With more and more need for land for living space there will inevitably be a turn-around in the market.
You can never catch the bottom of a dip. The rule of 72 applies over the long haul, and smooths out those dips.
With inflation in building material costs going on constantly, coupled with limited space and the current buyer's market, it would seem that now is the time to buy.
Don't forget though that while the amount you put in will double, its worth won't have doubled because of inflation. Hopefully inflation won't reach 5.6%, and certainly it would be insane for it to be that high for the entire time - this is something of a nitpick. But it is a factor to take into consideration with all kinds of money things. It's interesting to throw current and past salaries into inflation calculators and see how much of a raise, for example, is eaten up by inflation!
Post a Comment