Cheat Sheet Q & A:
Topic: Real Estate Prices
I am 22 years old. Last year in March I purchased (a duplex) that I rent out and a single family that I live in. I paid 165 for it. The man I bought from got it at foreclosure auction for 60. However (in 06) it was purchased for 500. I know this was during the boom and wanted to know your opinion if it will ever come close to this again. It is in Jensen beach
Bottom Line: Today’s question is one many wonder but most are afraid to ask. Will we ever see boom level pricing in local real-estate again. The answer is almost certainly yes. It’s just a matter of when. But I can be more specific than that… I’ll analyze this situation for you.
First congrats! At 22 you’re well ahead of the curve and your timing on your real-estate investment was outstanding! Now for the analysis:
Based on the above I estimate the market value at about $193,000 (assuming no improvements have been made to it). So $193,000 is an awfully long way from $500,000 – so how could I say that this property will most likely reach that value again? Inflation, the historical rate of appreciation for real-estate and compounding those returns…
The historical rate of return in real-estate is 4.1% per year. Through the power of compounding rates of return, this duplex will be worth $506,000 in 24 years if the averages sustain over that period of time. Now for someone who is 22 – this sets up very well. Obtain rental income and the potential to sell for a large gain down the road. For older individuals waiting for a new peak in local real-estate values may not be as realistic for the purposes of planning their financial future.
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Jobs report takeaways and implications for the second half of the year:
Bottom Line: Friday’s jobs report was fairly impressive and it provided a greater picture of where we have been, where we are currently, and can allow for decent second half projections as well. Let’s break it down:
Those are all pointing in the right direction at the same time (though service sector and part time work are still far higher than we’d ideally like to see).
Additionally with businesses not having to comply with all facets of the Affordable Care Act until 2015, many businesses that had been sitting on their hands waiting to see what the actual impact on their business will be, may pull the trigger and hire anticipating that a growing economy and revenue. Put it altogether and you have a second half of 2013 that would appear to be set for greater economic growth than the first half of 2013.
5% mortgages rates on the way?:
Bottom Line: The better news from the jobs report on Friday brought about a renewed thought that the Federal Reserve may indeed begin to pull back on Quantitative Easing which could lead to higher mortgage rates (among other factors).
The initial thoughts of this occurring resulted in a run up in mortgage rates from 3.5% to 4.5% in about a month. So where are mortgage rates likely to go from here? Real time mortgage rates are at about 4.4%. Multiple economists are now projecting 5% mortgage rates this fall along with a taper from the Fed. So what are you to do if you’re nervously watching this play out?
The risk is still mostly to the upside if you’re trying to time the markets. With what appears to be a slightly strengthening economy, it’s unlikely that rates will get anywhere near 3.5% in this cycle. With average mortgage rates averaging 8% historically it could prove to be a costly mistake to try to time rates in the short term given the backdrop I just described. Many would be borrowers have been sorely disappointed within the last month. Commonly people had been house shopping without locking in rates. Many discovered they couldn’t afford the properties they found with the increase in borrowing cost.
Knowing that you’re locked into a historically low rate, acknowledging that you missed the bottom, may make more sense than hoping you can shave a tenth of a percent or two off of your rate by waiting until you’re close to closing on a property.
Unemployment benefit cuts:
Bottom Line: As a result of sequestration (Congress not extending extra money to fuel unemployment benefits at the same level as before), we’ve known that unemployment benefits would be affected as of July 1st. With a full week of unemployment benefit payouts behind us, we now know exactly what the impact is around the country.
The average impact is 15%. The average payout per week has been $289 thus far in 2013 and will be $246 going forward. Many states handled the reduction in Federal funds differently. In
Before you buy that book from Amazon look elsewhere for a better price:
Bottom Line: Amazon.com has been effective in so many ways. At first they were the largest online bookseller. Then they became the largest online retailer. Eventually they became the biggest bookseller period. Amazon has been so successful that most people don’t think of Amazon as a bookstore any longer – it’s just part of what they sell. With that in mind, Amazon has also been effective at locking you in as a customer.
The Amazon Prime service is the ultimate in online retailing. You pay them upfront for services such as “free” shipping for a year at a time. If you pay for that service you’re likely to be inclined to shop there on a regular basis. After all you want to get your “money’s worth” right? That practice can lead many to not shop around for the best price. Amazon is apparently counting on that occurring.
With Amazon.com now being the preeminent bookseller and having much less competition, they appear to be raising prices on books. Many recent increases have been 25% or even higher. Amazon hasn’t stated that this is all part of a plan but that doesn’t mean it isn’t. The take away is that visiting another bookseller’s website online could make sense before you buy your next book from Amazon.
We're drinking much less gas & dumping the car:
Bottom line: We’re driving less and when we are it’s often in a more fuel efficient vehicle. As a country our overall gas consumption per vehicle was at its all-time high. It’s been dropping since. The economy forced many to make changes. In some cases those changes included fuel efficient vehicles or even no vehicle. By the numbers:
Picking up on the second number… Household car ownership rates had been basically static from 1990 through 2008 with only about 5.5% of households not owning a car. As of this year that number is all the way up to 9.4%! That’s a huge change. You can see the economic change send that rate much higher starting at the end of 2008 & continue to today. This trend could continue even if the economy improves. Many younger adults have decided to live in urban settings close to work and not purchase a car. In any event we’re using much less gas and that’s certainly a good thing.