Tuesday, October 30, 2012

You call that a recovery?

There has been a lot of talk about how there is finally an up real estate market. I have heard a whole lot of people try to tell me this is the lowest I am likely to see so I need to buy now. So here are a whole bunch of graphs of home prices over the past decade in the cities I am likely to end up in.

In Corona home prices increased 2% in the past year.
Corona Zillow Home Value Index

Fullerton did slightly better. Prices increased by 2.9%.
Fullerton Zillow Home Value Index

[La Habra](http://www.reddit.com/r/LaHabraCA/) was similar with a 2.3% increase in the past year.
La Habra Zillow Home Value Index

Hacienda Heights was 1.5%.
Hacienda Heights Zillow Home Value Index

Diamond Bar did slightly better with a 3% rise.
Diamond Bar Zillow Home Value Index

 Rowland Heights was 2.6%
Rowland Heights Zillow Home Value Index

Brea was 4% making it the highest value I saw.
Brea Zillow Home Value Index

Placentia was 3.8%
Placentia Zillow Home Value Index

Yorba Linda was 3.5%
Yorba Linda Zillow Home Value Index

And finally Chino Hills came in with no change over the past year.
Chino Hills Zillow Home Value Index

It is obvious by looking at these graphs that this recovery is over-hyped in this area. The rise in prices is tiny compared to the normal fluctuations in price. We have seen bigger bumps since the original crash which have quickly undone themselves.

It is safe to say that no home owner in this area has made money off their property investment in the past year. To make money the investment has to make more money than it costs to hold the investment. It has to beat maintenance, taxes, insurance, inflation and any interest the owner is paying on a mortgage. First of all, it takes a 2% return to match inflation, so several of the cities actually saw a decline in real prices. Then there is the price of interest. If you are paying 3.5% on a mortgage and only had a 3.5% down payment you will certainly lose money unless the property increases by a fair bit more than 3.5%. Then there is taxes, another 1% or so.

Still though, that is true in almost every real estate market. Thinking of real estate as an investment is the real problem there, it has almost never made sense as one. A better question is are you losing less money by buying than renting. With rents rising so fast in this area that may soon be the case. As someone in a cheap apartment, I don't see that being true for me soon though.

No comments: