It is a great time to buy a home in Massachusetts. You cannot beat the investment. We have so much to offer: Our institutions of high learning, the culture, the history, the proximity to world renowned hospitals, the beautiful seasons (this year 2 summers), the "Red Sox," the "Patriots" and believe it or not the people. I think the "frozen chosen" are defrosting. I can say that because I have lived her all of my life. I started out in East Boston for my first 7 years and then on to Stoneham north of Boston and to Needham where I have spent the last 42 years. I have never been part of the "frozen chosen" but just probably more friendly than most. I am what you call a people person all the way. I just love people so I would say I have chosen the right career.
Some Talking Points from the Massachusetts Association of Realtors Housing Market 2007 September and Quarter Three -
Point 1 - For those buyers who have good credit, now is an excellent time to buy.
Point 4 - September is the ninth straight month that year-to-year inventory levels have decreased for both single-family homes and condos.
Point 5 - Despite the drop in sales in September, the thrid quarter was still the fourth most active third quarter since 1990.
Point 9 - Real Estate continues to be a good investment in addition to providing shelter. For example, had you brought a single-family home in September of2002 a the median price of $287,000 and sold it this September at the median price of $340,000, you would have realized a return of $53,000. Instead of investing in real estate, you decided to put that 10 percent in down payment ($28,700) in the stock market over the same time (assuming a generous 10% growth each year) the return would have been only $22,144. Had you used the 20 percent down payment, the return would only be $44,288.
;)
Links;)
Tags (Tag Cloud);)
Archives
Dear Pat,
The $53,000 profit you posit in your example is not realistic.
First of all, you neglect to mention property taxes. The median annual property tax bill in Mass is $2,974. Over the 5 yrs in your example, this adds up to $14,870.
If you choose to use a broker when you sell, you can subtract 6% off the price as well (in your example, this amounts to $20,400). So now we are left with $17,330 as a return on investment.
But it gets worse because we haven't subtracted any insurance payments made over the course of those 5 yrs or any expenses related to maintenance. Obviously, these costs depend on the location and condition of the house, but even if they only amount to a few thousand, you can already see that our overall return on investment is dwindling.
Also, is this an all cash purchase? Because if there is a mortgage involved, there will be fees when you close on that (which you must also subtract from your overall return).
Finally, we need to take into account the opportunity cost of this investment (i.e., that you could have invested your money elsewhere). Let's say you decided to invest your $287,000 in an ultra-safe, tax free investment such as Massachusetts municipal bonds (currently yielding 3.93%). After 5 yrs of compounding returns, you would have $348,005.84--- in other words, a total return on investment of $61,005.84 with almost zero risk. Right away you can see that this was a better investment than the house in your example, and it is far and away the better investment when you take into account the many expenses associated with owning a home that I listed above.
Now, what is especially interesting to me is that such a conservative investment as municipal bonds beats the pants off of buying a home even when we have just gone through the most wild and crazy appreciation of real estate in our lifetimes. How would buying a home compare over the next 5 yrs given that we are not likely to see such appreciation of real estate any time soon? I think it is safe to say that buying a home is a big loser right now in terms of investment potentional, wouldn't you? Might make more sense to try to market these products on other grounds.