Let’s say that your house today is worth about $250,000 and you want to know when it will once again be worth the $355,000 you originally paid for it in 2008.
First, we will need to estimate about how much real estate is growing in value per year these days. Unfortunately, no one knows for sure… but looking back to those glory days just before the market peak in 2008 we find that values were going up about 8% per year… so let’s agree to “be thankful for what we are about to receive” (Amen) and settle for just half of that. Let’s assume an annual appreciation rate of 4%.
As it turns out, my assumption of a 4% annual value appreciation matches very closely with what is found in a November 7, 2013 article written by Cory Hopkins of Zillow, the country’s leading real estate information marketplace. Here is what Mr. Hopkins wrote:
“Home values have been growing at a breakneck pace (6.7%) for much of 2013… but is expected to slow considerably next year and over the next 5 years. The survey of 108 economists, sponsored by Zillow, said they expected rates to slow to roughly 4.3% next year (2014) and eventually fall to 3.4 % by 2018.”
Using a constant annual growth rate of 4%, here is a chart showing how the value will grow each year:
|In 1 year||$260,000|
|In 2 years||$270,400|
|In 3 years||$281,216|
|In 4 years||$292,464|
|In 5 years||$304,163|
|In 6 years||$316,329|
|In 7 years||$328,983|
|In 8 years||$342,142|
|In 9 years||$355,827|
But, there will most certainly be a few “no growth” years in this period, let’s just assume 3 of them, so adding those 3 years to the 9 from the chart you may have to wait about 12 years from now just to get back to what you paid for your house. Ignoring closing costs, in about 12 years you will just break even on what you paid for the place. 12 years … MAYBE!
QUESTION – “So when could I make at least a little profit on it?”
ANSWER – Well to be fair we should add in those pesky closing costs (5% Realtor fee + 3% misc. selling costs) of about 8%. I am guessing that in 15 years you might be able to sell through a Realtor and realize $13,000 more than you paid for it… MAYBE!
No one knows the future, but at Red Roof Rentals we are not afraid to use our 35+ years of real estate experience to attempt to answer the tough questions that exist in today’s Real Estate world. We may not have all the answers for you but we are not afraid to take a shot at it!