How do I calculate what a house will cost in five years? Ten years?
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Anonymous
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We are renters who want to buy someday but we don't have the down payment. Our HHI is 270k but that is very recent, in the last couple of years, and we're unlikely to increase it significantly in the future (one fed, one non-profit) We have about 90K in student loans with low interest rates. We are also paying for childcare for one toddler and would like to have another, so we will be in the childcare years for awhile. We rent a spacious and affordable apartment in a great neighborhood. We both max out our TSP / 403(b), and I do a FSA for dependent care and healthcare, and we are contributing to a 529. We are saving money ($1200 per pay period), but it will take some time to have a sizable down payment.
I am constantly looking at redfin to see what kind of houses we can afford IF we had the down payment, which is silly because, well, we don't. I'm so afraid that the houses we could afford now will be out of the question in another five years, when we've saved for a down payment + closing costs and the baby/toddler years are behind us. Is there a general formula I could use to figure out what, say, an 800k or 900k house will cost in five years? Ten years? That is assuming there's not a financial crisis between now and then. Thanks for any help! |
Anonymous
| It's really hard to say. It depends on the neighborhood... We purchased our fixer upper rowhome in DC for around $200k back in 2010, and the fixer uppers in our neighborhood now go for as much as $500k, and renovated for $700k (and now creeping to $800k). But in MD or VA burbs, the appreciation may be less steep. If it's an area by the new Amazon campus, expect it to rise, but by how much? Who knows.. we'll be watching this as we'd planned to move to VA in a few years and hope the home prices will be affordable for us. |
Anonymous
| We're hoping to stay WOTP where there is not nearly as much room for appreciation as gentrifying neighborhoods. |
Anonymous
2-3% compounded year over year. So at 500k, expect 2% at the low end so 552k in 5 years. Maybe more. |
Anonymous
With your relatively low income for your debt and desired place to live I'd just accept renting forever. |
Anonymous
How do you figure? |
Anonymous
Or are you not basing your opinion on math? |
Anonymous
| You are looking at it the wrong way imo. You speak of the house you could afford now, without a downpayment. It’s easy to forget the hundreds of thousands of dollars in interest you would pay on that loan. Sure, the property is going to cost more in a few years, but you will also probably be borrowing less. It sort of balances out. |
Anonymous
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OP, I think even more of an X factor than home value appreciation is interest rates. There is just no way to know what interest rates will be in 5 years, and that can significantly affect monthly payment up or down.
I would just save save save. Throw every bonus, tax refund, etc you can into the savings pool. Put raises into the savings pool, etc. Find ways to trim the fat and save even more. And lastly, you may want to expand your search criteria outside of WOTP DC. I know it’s not what you want to hear, but living in the suburbs has its advantages! Good luck! |
Anonymous
Thank you. It feels like we’re being responsible and saving whatever we can but just can’t catch up. Sigh. |
Anonymous
?? They owe $90K on $270K income. They could literally pay it off this year and live on income that is still more than twice the average HHI in DC. OP, I wouldn't worry about the debt given that it's at a low interest rate, but I would aggressively save for a downpayment. When you can do 20%, see what that gets you. |
Anonymous
Lol! They are saving 2400/mo. Where is the rest going to come from? The money tree? |
Anonymous
They’re actually saving 1200 every two weeks, which is a little over 31,000 a year and we don’t know how much they have saved yet. OP knows it’s going to take time but it seems to be they’re doing it right. That’s not something to lol at. |
Anonymous
The same place it comes from for everyone else who saves up for a downpayment. The idea that you should be able to save for a downpayment in a couple of months is kind of insane unless you are extremely wealthy. If OP wants a $1M house, she needs $200K saved. At current rate of savings, that's 6.5 years (assuming they have nothing saved yet). Many people save for far longer than that to afford a downpayment. If OP wants to buy before then, she can either escalate the saving (which she should be able to do on $270K even with daycare, though it may mean cutting back on other things they enjoy) or look at less expensive homes. That's how this works. She could also do 10% down, but you typically pay for that in the interest rate, so it's not necessarily a win. Especially if the bump in HHI is recent, take everything over what you previously earned and put it in the downpayment fund, rather than using it for upping quality of life. You won't miss it the way that you would if you'd gotten used to including it in your spending and had to cut back. |
Anonymous
| You need to create a simple model that takes into account likely interest rate changes, inflation in cost of building materials, productivity in the house-building sector, land availability, changes in average household size, changes in population in the area you are looking at, average wage growth, and demand for housing as an asset class. This should give you a rough picture. |