One of the biggest questions debated today by “financial gurus” is, are we in another real estate bubble or not? If this is the case or not, should buyers be buying homes at today’s “inflated” prices?
Depending on why you are buying may help you determine what the correct answer is. If you are an investor looking for a short-term gain, it may not be the best time to buy. If you are an investor planning to buy and holding a rental property for current or future rental income, or if you are a buyer looking for a family home, the time is now.
Let’s assume the nay Sayers are correct and real estate is due for a correction, and let’s assume you are in the same market as the buyers who purchased in 2007, the last “bubble”. At the end of 2007, which many people believe to be the last peak in real estate, the average sale price of a home in Staten Island, NY was $456,333. The current average price in Staten Island, NY is $534,290, or +/- 17% higher than the last peek about 10 years ago. Let’s assume you put down a 20% down payment and took out a $365,000 mortgage back in 2007, that mortgage balance today on a 30-year loan would be roughly $299,000. With a mortgage balance of $299,000 and a value today of $534,290, you have an equity in your home of $235,290. If you subtract your original investment (down payment) of $91,266 you have a gain in equity of $144,024 or +/- a 32% gain in equity.
Whether you purchased that home in 2007 to rent as an investment or to live in with your family even after the last, “correction” you gained 32% in equity in the last 10 years. I think the answer is not to try and time the market, but as in any other investment, you need to consider your long-term 10+ year plan and goal to answer that question. As a homeowner who plans on occupying a home, you should also consider the many other long-term benefits to homeownership!
