I agree with paramount’s summary, “yeah, right.” Marion, it’s anyone’s guess what price level year equivalent we will reach but returning to 1997 nominal prices is too far fetched. If you go back ten years in pricing and count inflation, then they would actually be far worse, since there was no appreciation from 1992 to 1997, that guess would put you in the 1980’s and that is just silly. It’s going to land somewhere between 1999 and 2002 nominally. That would give you an inflation adjusted price of a little under 200k as a worse case scanrio for your parents house and that will be as low as it will go for an average property in fair condition or a new property. My guess is 2001 numbers nominally, giving it a 1999 feel, 250-280 for their house as a realistic guess. With your plan, condo’s will be going for 80k and that is too close to the median income. Think of rents as the floor, rent didn’t go crazy and people in this area are comfortably affording $1000 to $2000 in rent. If rent goes down, it only drops a little so you have to look for the floor at the point that zero down is cost neutral to buy (not that there will be zero down loans and don’t use the pmi for a zero down but don’t factor downpayment when determining the number for cost neutral). So a $1500 a month renter that is comfortable with their rent will buy it or an investor will buy it when it crosses a line, for 1500 that line is between 150k to 225k based on variables for a particular property (hoa, taxes, and other carry costs). You have to factor the thinking, ability and behavior of others when determining a floor price.
You parents house at 140k is (140k for 30yrs@6%=$839 a month P&I) so let’s say I rent it for 1500, my income tax deduction is roughly equivalent to the taxes and insurance so I can buy it for $839 or rent it for $1500. That is also just a formula counting nothing down, with 28k down (20%) my loan is 112K and I’m paying $671
If interest rates double, all these numbers are moot but when you get inside the numbers you will see that a return to 140k for a 1800 sq ft. sfr is a pipe dream. So, “yeah, right” is the correct response.
