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Home Prices Rose Dramatically After 1996
We’re at Historic Norms
Between 1971 to 2015, mortgage rates (APY) ranged 4.6 to 16.63 percent.
Average mortgage interest rates spanned 6 to 10 percent during that timespan.
Mortgage Median
Median length of homeownership has NEARLY TRIPLED over the last 40 years.
Homeowners are growing equity.
“But … won’t home prices drop when interest rates rise??”
– people in 2023
“The United States suffers from a severe housing shortage.”
– Freddie Mac in Feb 2020, before the supply crunch became much worse
“There is a strong [inverse] correlation between Months’ Supply and home price growth …
At the same time that sales were increasing due to higher demand, the tight supply got even tighter as builders were slowed down by pandemic related issues.”
https://www.freddiemac.com/research/insight/20220609-what-drove-home-price-growth-and-can-it-continue
Three Key Takeaways
#1: Home prices historically rise.
#2: Our current mortgage rates are normal.
#3: Home prices are positively correlated with mortgage and inflation rates.
Housing Makes Us Sad :(
Two options:
#1: Buy your primary residence. Also buy investment properties locally.
#2: Rent your primary residence; buy out-of-state in an area with great price/rent ratios.
Price-to-Rent Ratio:
Home Price / Annual Rent
Example: duplex listed for $300,000
Rent: $1,500/unit
=$300,000/$36,000
= 8.3 😍😍😍😍😍
Rent: $500/unit
=$300,000/$12,000
= 25 😭💔👎🙅♀️☹️
Price-to-Rent Ratio
•15 or less is a fantastic purchase.
•16-20 is light grey zone.
•21-25 is dark grey zone.
•26 or more is rent this, buy elsewhere
Robust AF Calculator
New York Times Rent vs. Buy Calculator – Revised 2024
Affordability is two components:
#1: Down payment
#2: Monthly payment
Issue #1: Down payment
For househackers:
For distance:
Issue #2: Monthly payment
For househackers:
For distance AND local:
“I’m so happy I bought a rental property in 2024.”
– people in 2030