Feel like home prices are too high? Here’s how to buy at a reasonable price in 4 easy steps.
- Ask yourself, prices are too high by what standard?
When looking at prices in nominal dollar terms, yes, they’ve been trending up since 1942. But what happens if you adjust for inflation and factor in historically low-interest rates?
- Look at the history of housing costs in real monthly payment terms.
When you look at what today’s money will buy, accounting for inflation and today’s low-interest rates, the real monthly payments on a home today are as low as they were in 1990.
- Google “new york times rent vs buy” for an outstanding calculator.
Use this to determine whether renting or buying is more prudent for you. You can play with the numbers including price, down payment, interest rate, taxes, time horizon and more.
- Look at the numbers versus your life plans with history as a backdrop.
Then decide if prices are still too high or maybe not so much given this new perspective. There’s no right or wrong answer. Markets constantly change as do our personal circumstances, so do what’s best for you.
When we bought our condo in 2019, I thought sure we were buying at the top of the market. Prices had been going up for years, interest rates had inched up to 4.5%, and the market was starting to slow down (which was why we were able to get our offer accepted at a 7% discount).
But we were buying for personal reasons with an immediate need to move. Our lease was up, there was nothing else decent in town to rent, so we looked at our purchase options. The condo we bought had been completely remodeled, it had a gorgeous view, and the monthly payment was similar to what we’d pay for a nice rental.
Still, even with our discount, we paid the highest price for any unit like ours, ever.
Were we a little nervous about that? Yes. But the remodel was so extensive and so exquisitely done, we figured we were still getting a pretty good deal because there was nothing else like it in the complex.
So we went for it, resigned to the possibility that it may go down in value, but ultimately wanting to own it forever.
Then Covid hit, releasing the 2020 housing stampede. Now our value is up significantly. But even if it hadn’t gone up, we love living here, we’d be paying more to rent, and we’d have to deal with the insecurity of a landlord possibly asking us to leave.
Sometimes it makes sense to pay a bit more for long-term peace of mind, and putting these nuances into perspective is one way I help clients decide what is reasonable.
If you want to go from renting to owning with clarity and confidence so that you can build wealth, control your environment, and enjoy the comforts of home, comment below, send me a DM or book a call.
About Diane Cohn
Diane Cohn runs a mastermind for female breadwinners who want to go from renting to owning with clarity and confidence so that they can build wealth, control their environment, and enjoy the comforts of home. A prior top-producing Realtor, real estate industry marketing executive, and housing market commentator on YouTube, she has profitably bought and sold property in every kind of market over 30+ years.