Although I’ve never felt it overly wise, or even helpful, to view a house purchase strictly as an “investment”, at the same time I believe it would be negligent to ignore some of the more obvious macro data that exists that might help determine what constitutes a relatively good (or bad) environment (and/or time) to buy into. Since the latter half of last decade, the question of good v bad time to buy has certainly become more prominent and that is for fairly good and obvious reasons.
The NAR (National Association of Realtors) recently generated statistics that show that housing pricing in the U.S. grew at a rate of 6.4%, on average, between the years of 1968 and 2004. Needless to say, there were some obvious “hiccups” in this statistic over this timeline. None, however, proved particularly crippling, or long lasting to the individual buyer.
I feel it is important to note that this statistic does not account for regional diversions from the mean, nor does it account for the ever growing average house size that has taken place in this country over that same time frame. By definition then, this overall increase in house size (on average) will predicate higher average values in the housing space. Subsequently housing prices from 10,20 and 30 years ago would not really constitute an apples to apples comparison to those of today.
As averages go, however, I still find this housing growth stat fairly important in terms of what it has meant to the “average” buyer of this countries housing for the better part of some 35 years. That is, all things being equal, housing generally has generated a fairly good – to very good investment for the typical home buyer in this country over this time line.
This would prove particularly true, after one adjusts these average cash/cash returns in our “housing investment” for the leverage most all of us have used to purchase our homes via our mortgage lenders. Perhaps more to the point, though, is the belief that this statistically based understanding underscores why owning a home has largely helped to define what most of us think of when we talk about achieving the “American dream”.
What is also interesting about this statistic, is that it was generated up through 2004. Why not 2005, or even 2010? As the NAR are the original housing cheerleaders, I’m guessing that this largely has to do with the fact that the 2004-2010 time period was aberrant enough, that it might have skewed this statistic considerably downward as a result of the real estate implosion that took place in this country over that period. So buying in years like 2004-2008ish (generally speaking) is obviously something we all would have liked to and still want to avoid, if at all possible. That said, where might the evidence be that suggests potential home buyers today are avoiding that type of aberrant and financially destructive time frame for buying?
I think it is here: according to another recent study done in the Economist, the average house price in 2004/05 represented roughly 4X the average purchasers income level. Today that multiple has shrunken to and stands at a much more reasonable 3X. Concurrently, the 3X also corresponds very closely to the historic price/income average generated from this study. This in mind, this analysis seems to help provide a very good statistical backdrop to the question .. “is it a good time to buy?”.
The comparison of the 3X income versus the 4X is, to my mind, very telling and suggests that today is an objectively reasonable time to buy. When you incorporate mortgage rates that are near there 50 year lows into the broader equation, I’d suggest this time might represent a very good to even excellent time to be purchasing a home, should that be on your radar. So if you are thinking of buying, hopefully this will help answer the ever pressing question of.. is it a good time.
bullmarketrealty 