Why Didn't I Buy Google back in ......?

How many people, yourself included, have heard/said the oft repeated refrain "If I had only bought XYZ back in the day, I’d be rich now" or words to that effect? I don't know if I'd be rich but I do know I would have at least a 4-bagger if I had purchased Google stock back in 2004.  I have a feeling the current real estate market will be one that 10, 15, 20 years from now people will replace the word Google (or IBM, CISCO, or Berkshire Hathaway) with 'real estate' or 'my home'.  Why?  We have a unique confluence of lower cost inventory thanks to the now three year old recession with financing costs at their lowest levels in five decades. 

We’ve all heard that interest rates are low, but how low are they?  Well for the younger generation out there (those who don't remember phones with cords or car windows had to be "rolled" down) there was a time when a 15% mortgage rate was considered a 'good' rate.  The chart at the left shows the average 30-year fixed mortgage rate since 1972 (my chart that goes back to the 1950s just isn’t legible but the same trend lines are in play). I put a reference line in the charts at the 6% level.  Take a look at the historical rates relative to that line prior to the current decade.  The second graph narrows in on the past decade with a highlight for the last two years. Now compare the past two years data with all of the other data for the past 40 years. Click on either graph to view a full size image.

As you can see, we are at an historically low point in terms of the cost of financing for a home purchase. Couple that with average home price declines of between 20-30% for much of the Salt Lake & Davis County markets since their peaks three years ago, and you have an opportunity that, in many ways, resembles the deal back in 2004 when you could buy Google stock for less than $150 share.

As the economy recovers and interest rates begin to adjust (as the Fed has already indicated is the plan), are you going to be one of those that laments "if only……?" 

I will post another article shortly illustrating the impact interest rates changes will have on buyers' ability to leverage their home purchases.  It is an interesting peek into the future of home buying and the potential opportunity cost of waiting to purchase.