[quote]- housing prices were reasonable (broadly, with less post bubble dispersion) in 1999
– according to SANDAG, median household income has risen about 50% since 1999
– therefore, one way to gauge reasonableness is to see if a home is priced approx. 50% over its 1999-era price
This btw is the ocrenter method… he always targeted a move back to prices in a certain year. So since I think highly of him it’s probably a solid approach… I wanted to throw it out there if anyone had additional thoughts. (And maybe easy tricks for adjusting to prices in different years, eg 01). [/quote]
Thank you for the kind words Rich. you of course articulated it much better than I. I also love the 50% adjustment per income as well. I tried using inflation adjustment in the past but I think income adjustment makes a lot more sense.
It is always nice to have a real life example, so I went to sdlookup and picked a middle of the road example.
11976 Caminito Ryone
San Diego, CA 92128
1815 sqft SFR built in 1987
–2/2011 sold for $450k. a very reasonable sales price that yields a $1800/month mortgage payment at 20% down and 4.5% interest rate. I think a similar house on the rental market should yield at least $2000/month.
here’s are two comparable homes with the same floorplans sold in 1999 and 2000 in the same complex:
11899 Caminito Ryone
–8/2000 sold for $290k
15836 Caminito Cercado
–2/1999 sold for $253k
so per the 50% + 1999 pricing formula Caminito Ryone would be a more appropriate purchase at $380k. (interestingly 50% + 2000 pricing would yield $435k, much closer to the actual sale price)
what is the SANDAG median income % increase from 2000 to 2011? I wonder if that % + 2000 pricing might be more appropriate.
I was thinking of another spin to this. adding the interest rate adjustment to the 50% + 1999/2000 pricing.
so typical interest rate was 7.5% in 1999/2000. monthly mortgage for 50% + 1999 at 7.5% would yield a payment of $2122/mo. whereas 50% + 2000 at 7.5% would yield a payment of $2433/mo.
applying the interest rate adjustment to both the 1999/2000 scenarios would make 11976 Caminito Ryone’s purchase price (assuming the buyer got the 4.5% interest rate) a fantastic deal.
I think we are getting close to an actual formula that one could potentially just plug in! your thoughts?
