“5 Years Ago” Was The Best Time To Buy A Home!
Every time I mention this, my clients chuckle! Rightfully so, because as they say hindsight is 20/20.
When I started in the Mortgage Industry in 1988, I was earning $6 an hour plus commission! That was the minimum wage back then. I was hired as a Junior Processor and my job was to get paperwork together for the Loan Officers. As a result, I read hundreds of applications and what I saw astounded me: The applicants that were financially sound, were the ones that had purchased real estate in the early 70’s and now we’re sitting on a sizable amount of cash! In 1970, a 3 bedroom detached house in Irvine cost $30,000. That was considered expensive! By 1988, that same house was worth over $200,000!
I was so inspired by this that within 2 years I had managed to save 3% downpayment and bought my first condo home with an FHA loan program in 1990 in Tustin Ranch for $119,000. That was a lot of money back then! But I loved my 800 square feet one bedroom home. It was cozy, but it was mine!
That was the beginning of my real estate investments. Since then, I have bought and sold 11 homes personally aside from the many purchase transactions I have helped my clients with.
I didn’t necessarily time my purchases with the market ups and downs. I bought them knowing I was committed to keeping them for at least 5 years. Most of them were profitable and on a couple of properties I broke even. But I never lost money on my real estate investments! Call it good luck or good strategies!
Single family and condominiums on average appreciate about 5% per year.
What many don’t realize is that buying a home is a long term investment. Yes it’s true that Orange County real estate can and has appreciated 20% to 40% within one year, but that’s not the average. Single family and condominiums on average appreciate about 5% per year.
Many are afraid to ever buy, waiting for the right time! When is the right time? That is different for everyone.
Prices increase and everyone is waiting for the “bubble”. Prices drop and everyone is waiting for the “bottom”. Are you one of them? Now thinking back and seeing today’s home prices and rising rents, do you wish you had bought “5 years ago”?
I have lived through 4 recessions in the past 28 years, since being a licensed agent. Each one was a bit different. Not all affected the housing market like the last one.
The last one was different and brutal. There were many nuances that forced the market’s hand, but here a few important ones, which do not exist these days anymore.
The easy and stated income loans, were in fact “easy” to qualify for. There were many that simply shouldn’t have bought a home. Banks were greedy and wanted to cash in. Now banks can only offer the full documentation programs, and all income is verified.
The Neg Am loans, were loans that started with a very low payment. So low in fact, that it didn’t even cover the interest due. So the balance of home mortgages would increase in the first five years. That was a deadly combination when the market bubble burst. Homeowners ended up with “negative” equity and many were under water.
Credit lines were also very simple to apply for and had high loan to values. Americans started living over their means and using these credit lines for vacations, buying more and more homes, luxury cars, and paying off their credit cards just to charge them back up. Although lines of credit are still available, they are also only with full documentation and most only allow up to 80% loan to value.
Our market today is not the same! Many of the hazardous situations that were put in place by banks, ended up costing the banks in the long run with thousands of foreclosures. As a result the government stepped in and made many changes to make sure this kind of disaster does not happen again to homeowners nor the banking industry.
Yes there are better times to buy than others, but at the end of the day if you plan to live in the home for at least 5 years – good deals are always available.
While you’re waiting for your equity appreciation, you can enjoy the tax benefits, be “free” of landlords, have as many guest or pets (within reason) in your home and no housing payment increase!
Now that’s the true value of Homeownership!
By Pari Kazerooni
Broker of Record “Green Life Real Estate”