A couple of years ago, when property values plummeted, I was inspired to finally begin the journey towards purchasing a home. I live in an area of very high property values compared to the rest of the nation, hence why I waited so long. I knew I had to do three things: improve my credit, pay down my debt, and save for a down payment. I’ve completed two of these three things with the last one being a bit more challenging for me. However, I know I should buy a home in the near future before things swing the other way.
Why is now a good time for me to buy?
Housing prices have fallen to an all time decade low while rent has continued to shimmy up. I currently pay a hefty price for a rental when I could instead be paying one-third less and own something in a comparative neighborhood. If I were to continue living in the area I currently reside, there’s one neighborhood in particular I’d choose; it’s the neighborhood in which I grew up in. It’s still a safe, primarily residential, middle-class neighborhood.
Using Zillow to focus on this neighborhood’s housing prices, I selected one property for sale to focus on to analyze buying viability. This particular property is similar in square footage to my apartment, almost 1,600 square feet, and has been updated with granite counter tops and refurbished wood floors. It’s definitely a “starter” home but not considered a fixer-upper. Using Zillow’s Zestimate chart, the property I analyzed has dropped over 10% in value over the past 10 years. That’s a huge drop considering this same property increased 35.22% by the end of 2002. It’s currently selling for a reasonable price of $345,000; steep for a “starter” home in most states, but a deal in Southern California.
Of course, this is a short-sale home, meaning there’s a lot of messy paperwork surrounding this sale I’m sure. Researching the sales history, this home sold for $315,000 in 2003 and then $540,000 in 2005. Ouch! That was a 71% increase in two years. However, at $345,000 with a 20% down payment and a 3.75% interest rate (lowest interest rates in history!), the monthly mortgage payment would be $1,510 including tax and insurance – that’s $700 less than what I pay in rent.
So Why Am I Not Buying Just Yet?
I can’t predict what will happen to property prices over the next couple of years; they could go down or they could go up. Yet, that’s not why I’m hesitating to purchase property. My two biggest roadblocks to my decision are: 1. I still don’t have my down payment saved yet. As much as I’d like to save 20%, my goal at the moment is to save up 10% of $350,000 and I’m just not there yet. and 2. I may not be living in my current neighborhood within two years. Crime, graffiti, population increases, and the lack of job possibilities have made me rethink the area I live in and I don’t know if I want to live here another 10-20 years. If I purchase a house, that’s the minimum amount of time I’d live in it.
So for now, I’ll continue to rent, work towards my savings goal, and keep my eye on property values. If I see them begin to inch up at an alarming rate, like it did in the early 2000’s, I know I will have missed the boat…again. However, I think it’s safe to say we won’t be seeing that kind of increase anytime soon.
Are property values in your area declining or reversing?