Have you ever seen the Wizard of Oz? Man that movie creeps me out. I should give it another shot, and with Halloween coming there will be plenty of opportunities. Every time I see a commercial for it, I can clearly envision that scene with the Wicked Witch of the East’s feet curling up under the house after she gets crushed, and I get the shivers.
The other scary part that has me worked up lately is the fact that the house that crushed the witch, in today’s real estate market, is worth more than those ruby red slippers. I’d say it’s a three bedroom, 1,300 square foot farmhouse, and depending on where in the country it lands, it could go for $400,000 to $800,000. According to the S&P CoreLogic Case-Shiller Home Price Index, home prices in the United States have risen 45% from July of 2016 to July of 2021.
For you sellers out there, the going is good. For you buyers out there, the going is going to have to work a little harder for a little longer. With mortgage rates at historical lows, these elevated home prices are still affordable for many families, but not without a literal long term cost. Depending on where you look, the average home price in the United States is somewhere between $325,000 and $410,000 which is an increase of 400% since 1980. The proverbial “house falling” is the fact that paying $400,000 for a home, even with low interest rates, is still an enormous long term financial commitment. At a 3.00% mortgage rate, when you combine the principal of $400,000 with the interest of $207,000, you’re up to $607,000 to own it outright in 30 years. What if we throw in some New York state property taxes of $10,000 a year, which would stack on $300,000 more. Finally, if we throw Brian’s rule that a house costs 1% a year to maintain, we can easily add another $4,000 a year totaling $120,000. This total adds up to $1,027,000!
Much like many other areas of your financial life, if you want A or THE house and purchasing it doesn’t leave you slipperless underneath it, then carry on. If you are hesitating, or are not sure where to set your price ceiling, just give us a call and we would be happy to help. If I’m not available, it’s because I’m busy getting mocked by my wife for being afraid of a children’s fairy tale.
Happy Friday! Please stay healthy and be safe!