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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.
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.
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?
Location: Halfway between Number 4 Privet Drive and Forks, WA
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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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