Are stagnant home prices really a bad thing? (Chicago, Naperville: renters, mortgages)

[JJski]

Hiruko, we bought ours in 2013 core dtlg... our appreciation rate (if Zillow is correct is 5.5%) today.

Now I also don't think zillow numbers are accurate but we easily are over 3% and houses are selling here...

[fusillirob1983]

Originally Posted by Hiruko

I don't know where you are, but both of those scenarios are highly, highly unlikely in Chicagoland. 1-2% appreciation per year is very good in even the most desirable areas.

They aren't, actually. Again, these are all solid locations and timing was ideal to see gains. I'm in Naperville. Bought in 2016. Most comps for my house over the past year basically until today indicate I'd make about a $20k gain compared to when I closed. A CAGR of 2% from closing until today is $28k.

Various friends/acquaintances or houses I saw during my search:
-2BR 2BA condo in Wrigleyville in 2012 that would sell for about $100k more today than when they bought, based on comps. They've done almost no work to it other than painting a bedroom and replacing the washer/dryer. Its CAGR is approx 3%.

-Bought in 2013 around the Humboldt Park/Bucktown border in 2013, sold in 2016. Their CAGR was approx 4.5%. They didn't do any work.

-Bought in Ukrainian Village in 2012. Based on comps, literally the neighbor in their building, they'd sell for about a 6% CAGR. They painted and put in new bedroom carpeting.

-Bought a house in Plainfield in 2017 and sold in 2019. Didn't do any work. His CAGR was approx 3.5%.

-Bought a house in Lombard in 2013. Based on today's comps, they'd have a CAGR between 2% and 2.5%.

-Friends bought in Elmhurst in 2016. Based on today's comps, they'd have a CAGR between 1 and 1.5%, which is probably more realistic for many areas. There's probably certain parts of town in which they'd see a higher return and others worse based on what's occurring there with teardowns.

-I viewed a house in Downers Grove during my search in 2016 that sold in 2016 and sold again in 2018. They repainted and put new carpet in one room. Their CAGR was over 2%.

-I viewed a house in LaGrange Park. The owners purchased in 2012 and sold in 2016. Their CAGR was about 8%. My understanding is they did minimal to no upgrades from questions when I viewed the house.

[fusillirob1983]

Originally Posted by JJski

Hiruko, we bought ours in 2013 core dtlg... our appreciation rate (if Zillow is correct is 5.5%) today.

Now I also don't think zillow numbers are accurate but we easily are over 3% and houses are selling here...

Exactly. You're in LaGrange. People want to move there. At some point that market will probably reach a level where people won't be jumping over themselves to bid places up, but it seems like that's become a tough market to crack into at a reasonable price.

[jetdoc76]

Originally Posted by Berteau

Comparable cities are Boston, NYC, Philadelphia, DC, Seattle, California Cities. You get more for your money than all these locations in Chicagoland. Not all these have higher property taxes percentage wise, but what you end up paying in taxes due to inflated home values is about the same.

But it's not the same. It absolutely is not the same. I would much rather have a higher home price, or inflated if you want to use that term, than an inflated property tax. Yes, in the end your monthly payment is the same, but it's all about equity. In Chicago you have principal and interest for your mortgage fairly close to your tax bill. I get nothing back after 20 years of inflated taxes, but at least I get back that inflated equity from inflated home prices. So you just gave me comparable cities, can you explain why their home prices have stagnated less than Chicago and why their home values are higher than ours?

Inflated home prices make the cost of ownership high, and you get less home than you would otherwise, but the one good thing is you gain equity and down the road you get a much higher sale for your home than what you paid for it. Having inflated property taxes stagnates the price of your home, or appreciation lags other comparable cities. So not only are you paying inflated taxes and losing money you will never get back, you're also losing a second way with your home value not going up like it should. You're screwed two ways.

[guidoLaMoto]

Some of you seem to be missing the point of my earlier post: just because you buy a house and then sell it at a higher price a few yrs later doesn't necessarily mean you made a good profit-- Subtract the cost of mortgage interest from the final price and that profit dwindles considerably, maybe even becomes a net loss...(.Remember you pay most of the interest on a mortgage early.)


When you tie up 1/4th -1/3rd of your income in paying for something, you'd like to see inflation (not to be confused with value increasing due to changes in supply/demand factors) mollify your lost investment potential.


Of course ownership has certain subjective benefits that you may value complicating the objective costs vs renting: desire for privacy, prestige, extra space, garden/yard etc .


The answer to the question posed in the thread's title is: stagnant house prices may make it easier for the novices to save for a down payment, but also makes it much less advantageous to buy a house.


For you youngsters who have grown up during the longest continuous expansion of the economy in history (we'll take poetic license and ignore The Great Recession) and inflation rates in the 1-2% range, please recall the inflation rate of 15% during the Carter yrs. and IIRC 6 or 7% during Nixon's admin.....taken as a ratio of price to average income, food, clothes, cars, gasoline & housing are cheaper now than they've ever been.


In the '50s, our family lived a typical, urban, working class lifestyle, but money was still so tight, I had to wear nothing but hand-me-downs--- and it was embarrassing to wear my sisters dresses


https://census.gov/library/publicati...o/p60-024.html Median income 1955-- $4400 ($84/wk). Gas was 25c/gal then, so a wk's salary would buy 336 gal of gas. Today's median income is $1230/wk and gas $2.50 a gal-- That buys 490 gal. Similar calculations can be made for food, housing etc

[fusillirob1983]

Originally Posted by guidoLaMoto

Some of you seem to be missing the point of my earlier post: just because you buy a house and then sell it at a higher price a few yrs later doesn't necessarily mean you made a good profit-- Subtract the cost of mortgage interest from the final price and that profit dwindles considerably, maybe even becomes a net loss...(.Remember you pay most of the interest on a mortgage early.)

If you want to look at it that way, couldn't you say that in most metro areas for someone with a 30 yr fixed rate mortgage?

Say I bought a property for $400k with a 3.5% 30 yr fixed and sell for $463k 5 years later (3% CAGR), and say it was in a metro with $3k per year property taxes (assume they don't increase) instead of places in the Chicago area ranging from like $7k to $10k annually.

$15k property taxes
~$57k interest paid
$23k agent commissions (assume 2.5% to each agent at close)

Total paid = $95k
Principal paid down = ($32k)

Net paid to someone other than yourself $63k.

Assume inflation is greater than 0%, and you've made no gain in a market with 3% annual growth either.

I get that this sounds counter to all the examples I provided yesterday, but it was to make a different point entirely about prices being stagnant (they weren't).

The point here is does it make sense to move to one of these sunbelt cities, or Boise or some place with run away SFH home growth to try to make money on home appreciation? I guess if you happen to find a job you like or want to move to a different place anyway, but that in and of itself doesn't seem like a reason. You're probably falling behind if you're trying to make big money of your primary residence's appreciation.

[smegmatite]

so much anecdotal data and bad math in this thread, yikes!

[fusillirob1983]

Originally Posted by smegmatite

so much anecdotal data and bad math in this thread, yikes!

This is a message board. Almost the entire thing is anecdotal. That said, if any of my math is wrong, I'd be happy to see it refuted.

[flamadiddle]

Originally Posted by jetdoc76

But it's not the same. It absolutely is not the same. I would much rather have a higher home price, or inflated if you want to use that term, than an inflated property tax. Yes, in the end your monthly payment is the same, but it's all about equity. In Chicago you have principal and interest for your mortgage fairly close to your tax bill. I get nothing back after 20 years of inflated taxes, but at least I get back that inflated equity from inflated home prices. So you just gave me comparable cities, can you explain why their home prices have stagnated less than Chicago and why their home values are higher than ours?

Inflated home prices make the cost of ownership high, and you get less home than you would otherwise, but the one good thing is you gain equity and down the road you get a much higher sale for your home than what you paid for it. Having inflated property taxes stagnates the price of your home, or appreciation lags other comparable cities. So not only are you paying inflated taxes and losing money you will never get back, you're also losing a second way with your home value not going up like it should. You're screwed two ways.

But there is no guarantee of appreciation so buying at "inflated" prices is a risk. The home I sold in the Atlanta burbs 4 years ago has a lower zestimate today than when I sold it. Will home prices continue to increase in hot markets like Nashville/Denver or will they stagnate and maybe even trend downward (bubble burst)? No one really knows. If the SALT cap is ever reversed, I believe you'll see home prices here in Chicago start to trend upward so buying low today "could" be a good strategy. In my eyes, it's six one way, a half dozen the other.

[wjj]

I think you need to take cost to dispose into account when assessing value. Once in a while you see a study examining the lock-in effect that looks at effective equity in homes by adjusting the sales price to take into account cost to dispose to determine whether a homeowner is in a net loss position and considered to be locked into a home (i.e., walks away with less cash than when they went in) or even under water if there was a small down payment made. It's not just real estate commissions, but many governments have enacted stiff transfer taxes too. There are a fair number of people who sell at a profit on the top line but ended up with a loss on the bottom line after paying all the costs to dispose. Some have to bring cash to the table just to close. More so if they made capital improvements to the house that went poof when sold, adding to their loss. One percent appreciation/year is effectively a loss for many years once cost to dispose is taken into account.