Of course this is a real estate website, and we are in the business to sell houses, but in this article I wanted to discuss why a good time to buy Real Estate is NOW.
As all are aware, most of the markets across the country have seen a decrease in home values over the past few years. Most industry professionals agree that the “bottom” has been reached. Regardless of whether or not it has or hasn’t been reached isn’t the question you should ask yourself if you are considering to buy. The question you should ask yourself is whether you will ever get an opportunity to purchase a house at the prices they are at now with the combination of historical low interest rates.
As a builder and Real Estate Broker, I look at housing prices right now in a different approach than other brokers may. I look at things from the “Cost” or “Replacement cost” approach (or as I like to call it “Brandonomics”). Let’s say you are a first time home buyer looking to buy in the under $100k range. Most of the properties in this price range are town homes (you own only the dirt under your building itself, but are usually attached to other units) or twin homes (you own your backyard and front yards, but have usually one attached neighbor). Let’s look at an example. I have a twin home listed right now for $94,900. This home is 1470 square feet, 3 bedrooms, 2 ½ bathrooms with a 1-car garage. The vertical construction costs alone, with building permits, appliances, etc. on this home would be roughly in the $88,000 range. Builders, who are in business to build things, have to make money. Let’s say the builder would build this house again for $5,000 (a very, very low number. You will see that I am only trying to prove a point here, and the exact profit a builder would charge doesn’t matter.) We also need to factor in a sales commission of 6%. The seller is paying the listing broker 6% to sell and market the home he has listed. This adds another $5700 in costs to this home. The seller has closing costs, real estate taxes, title insurances, etc. that he has to pay for as well. Let’s plug in a number of approximately $900. So as an update, we are at a cost of $99,600! We haven’t even discussed the land and development costs! Very quickly, the rough cost of developing ½ of a twin home lot (curb, gutter, sidewalk, asphalt roads, water, sewer, gas, power, etc.) would be in the ball park of $15,000. Land costs can vary, but I think my point is made. From the example above you can see that for some properties, the cost or replacement value of the property far exceeds the current prices of the homes.
At some point, Real Estate values will increase. Just like anything out there, if you can buy it for less than what it costs to make it, it’s a good buy!