A bit of observation from a homebuyer and seller, in that first time homebuyer segment, and regarding what you pay for a house now, and what to expect in the future.
Obviously 2021 is a very different market than what existed 15-20 years ago. My wife and I bought our property in a pretty hot market, locally and nationally, in early 2004. We paid 162K, which was the going rate in the neighborhood and region we were in. We stayed there for 17 years, until we sold in this past spring, at 226K. During that time, we saw very marginal appreciation, and actually lost value during the housing crash of 2009, probably not recovering until 2012, 2013. At that point, we had been there 8-9 years, which might be considered the time when a FTHB might have decided to move on from a home, due to the family expanding, income growing, relocation, and really any reason.
But, if we had sold during that time period (09-12), we would have sold for less than we paid. So, we stayed.
The appreciation we saw to get to 226K, essentially all happened in the period between late ’19 and early ’21. A span of about 18 months. In 2019, homes on our street were still selling in the 165k-185k range. Meaning, virtually no appreciation over 15 years. Now, this neighborhood was small, but very secure, and very stable, with no problem neighbors, flood issues, the usual storm risks, but nothing outrageous for the area. A neighborhood with no HOA, but also only about 40 identical homes. Pretty standard suburbia stuff.
During that time, we replaced a roof, 10k, a hot water heater, 2k, an HVAC system, 7k, upstairs carpeting, 2k, and all major appliances, 7k. That’s 28,000 dollars of investment, and I’m not counting privacy fencing around the back, twice, as I did that work myself. Then, the interest, the taxes, the PMI in those first few years, and the insurance, none of which I’m counting, as those would likely all be a part of your equivalent rent.
So, bottom line is this: be sure you are prepared as best you can to remain in that property a while. Obviously, most markets appreciate faster, and you will benefit. But, things will need to be replaced over time, and they will be even more costly now, as opposed to the time I owned mine. Be financially prepared for those things. If you have bought or are buying in 2021, also note that you are buying into unprecedented house value price appreciation, and that may never be replicated in your time while you own the property. Finally, the old adage that homes never lose value, is outright untrue. It’s possible, and it does happen, though I pray it’s never in a national housing value crash, like we experienced, and has never happened prior. There have been regional bubbles to burst, and that’s more frequent, but not on the scale we saw in 2009-2012.
I contend that some home value pricing that accelerated in 2021, was mostly due to the pandemic, and I figure most won’t disagree. And, perhaps, some of the run up in prices was reverting back to the mean, when including home depreciation that occurred during that housing crisis of 2009. But, buyer beware. What you think you understand about the value of a home has been challenged in recent times, and it can, and likely will, be challenged again. We could continue to see runaway home value increases. We could settle for a bit. Or, we could see another financial calamity, which seem so frequent now, and you could be underwater on that mortgage for a time. All are possibilities, and nothing is off the table. Prepare for the unexpected, friends.