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Old 08-13-2008, 12:19 PM
 
Location: Chino, CA
1,458 posts, read 2,954,691 times
Reputation: 546

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What do you guys think? Would this be a possible way to somewhat "right" price a house? Take the 2001 price and multiply by (1.04)^8... basically taking 2001 price and adjusting it for inflation. Could that be the "right" price of the house today. Multiply the result with (1.04)^X (where X is the number of years you plan to stay there) and that is the "potential" price you will get when you sell. Based on that information you can determine whether or not it is "worth" it to stay or sell now.

Exmp:
Say a house was 200k in 2001. In 2008 the nominal price should be at
200 * (1.04)^7 = 263k. So if you paid 350k you'll have to sell it at around 263k or a lost of ~90k to get it to inflation adjusted price. Otherwise, you can wait X years for inflation to catch up to break even.

Equation:
P * (I)^X = F

P = Past price (base year pre-bubble)
I = Inflation rate OR traditional/historical appreciation rate
X = Years
F = Future price

To get number of years from P until F price:
X = ln(F/P) / ln(I)

So, X = ln(350/200) / ln(1.04) = 14.25 years from P (2001)
or 7 years from now 2015, until someone who purchased for 350k will see break even.

Calculate your situation accordingly.

What do you guys think? It depends on what you consider is the "base" year pre-bubble for your area and not counting any upgrades to the house since 2001. For a new development that wasn't around pre-bubble, you would have to find something comparable built in the pre-bubble time period.

-chuck22b

Last edited by chuck22b; 08-13-2008 at 12:29 PM..
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Old 08-13-2008, 12:27 PM
 
1,950 posts, read 5,305,114 times
Reputation: 1275
My house didn't exist in 2001. According to that formula, I should list my house for $0.
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Old 08-13-2008, 12:34 PM
 
Location: Chino, CA
1,458 posts, read 2,954,691 times
Reputation: 546
Quote:
Originally Posted by tamitrail View Post
My house didn't exist in 2001. According to that formula, I should list my house for $0.
Hehe, hince why I added, for those not around pre-bubble to find something comparable. *disclaimer* :P
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Old 08-13-2008, 12:37 PM
 
3,191 posts, read 8,227,066 times
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Calculate? my mama tole me not to.

Sorry you lost me on (1.04)^8...what is that?? I don't even how what it is much less how figure it!
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Old 08-13-2008, 12:49 PM
 
Location: Chino, CA
1,458 posts, read 2,954,691 times
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Quote:
Originally Posted by crazyma View Post
Calculate? my mama tole me not to.

Sorry you lost me on (1.04)^8...what is that?? I don't even how what it is much less how figure it!
1.04 = 4% inflation/appreciation rate
8 = 8 years

(1.04)^8 = inflation over 8 years

(1.04)^8 = 1.04 X 1.04 X 1.04 X 1.04 X 1.04 X 1.04 X 1.04 X 1.04 = ~1.37 or 37% appreciation in 8 years

So a house at the beginning of 2001 priced at 200k would get about 37% appreciation since 2001 or be at 274k at the end of 2008.

-chuck22b
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Old 08-13-2008, 01:33 PM
 
3,191 posts, read 8,227,066 times
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So a house that sold for 185k in feb 07, should be 'worth' 199,800 the end of 2008?
Well not in my neighborhood...
I wish. Our last price, prior to taking it off the market a few weeks ago was 194,500. And it was being suggested the price be lowered any where from $5000, all the way up to $30,000 off, to get it sold..........
thanks to a few short sales and foreclosures in our 'comp' area it really hurt the regular properties.
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Old 08-13-2008, 01:38 PM
 
Location: Spring, Texas
409 posts, read 1,519,785 times
Reputation: 161
Will consult the ouija board & get back to you...lol...Sunny
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Old 08-13-2008, 01:51 PM
 
Location: Chino, CA
1,458 posts, read 2,954,691 times
Reputation: 546
Quote:
Originally Posted by crazyma View Post
So a house that sold for 185k in feb 07, should be 'worth' 199,800 the end of 2008?
Well not in my neighborhood...
I wish. Our last price, prior to taking it off the market a few weeks ago was 194,500. And it was being suggested the price be lowered any where from $5000, all the way up to $30,000 off, to get it sold..........
thanks to a few short sales and foreclosures in our 'comp' area it really hurt the regular properties.
Actually the comp price of 185k for 2007 would still be considered "bubble" pricing so you can't take that price and multiply by 1.04/inflation. You would have to discount the "bubble", and that is why you have to use a pre-bubble price < 2003? and calculate up to the year at question.... so what was the price of the house in 2002/2003 or something comparable?

-chuck22b
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Old 08-13-2008, 02:03 PM
 
1,950 posts, read 5,305,114 times
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Honestly, I don't think any formula could work. It's different everywhere.
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Old 08-13-2008, 02:03 PM
 
Location: Halfway between Number 4 Privet Drive and Forks, WA
1,516 posts, read 4,200,067 times
Reputation: 656
My equation is take the price someone paid for it, multiply the "historical" appreciation (in our case 3-5%/per year) x how many years the sellers had it.

I don't take into account inflation.
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