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Home prices went up 19.2% last year. Hope you did not miss out.

Posted by John Reed on

Shiller Home Price Index increased from 19.2% in the year ended January 2021.
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Did I know that would happen? No.
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But I DID tell readers here and on Reddit who were fed up and abandoning trying to buy a home because the market was nuts and insane and ridiculous and all that that they were making a big mistake. They were going to sit out the market until the evil market learned how to behave and make them feel comfortable.
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I said I made that mistake in 1977-79 in CA. I refused to pay $80K for a home that in NJ where I moved from cost $40K. So I sat out the market and ended up paying $152K for that home. The median home price in 1977 in CA was $62,290. Today it is $834,400.
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That $72,000 I lost while sitting out would today be an increment of $834,400 ÷ $62,290 = 13.39 x $72,000 = $964,000.
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That is the why it is extremely important NOT to make such financial mistakes at the beginning of a long period of compounding.
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If you decided to sit out the market in January 2021, you lost the amount by which the media US priced house went up—about $60,000. That is similar to the amount I lost sitting out the market. So over the next 55 years you, too, may lose out on close to a a million bucks of compounding. Furthermore, the sitting out the market nonsense actually started in the summer of 2020 not January 2021.
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The pertinent facts here are that home prices only went down generally around the US twice since 1900. No stats before that. One was the Great Depression which for home prices was the 1920s and early 1930s. The other was the SupbPrime crisis in 2009.
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The only reason to sit out the market is you believe prices will fall like those two periods. What caused the Great Depression? According to Milton Friedman’s book A Monetary History of the United States, the depression was caused by the Federal Reserve not printing enough money. It ended in WW II when the Fed started printing enough money to support the war effort.
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Is the Federal Reserve now not “printing” enough money? Hell, no! They are doing the opposite. https://www.visualcapitalist.com/timeline-150-years-of-u.../
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So if you are rational and informed, you know another depression is not imminent. And if you are still sitting out the market, it must be because you think we are on the verge of another 2009. That was caused by massive bad lending to uncreditworthy borrowers more than the houses were worth. Is that happening again? No. Quite the opposite. Now, appraisers are not hired by lenders. They are assigned by the government so there is no incentive for the appraiser to inflate appraisals. Also, far from 110% of value mortgages of the early 2000s, now, many buyers pay all cash. I did in 2017. And we sold that condo to another all-cash buyer in 2021. We also bought a house in 2021 putting down 50%. That is common in the current market. And for those who get a normal 80% of value mortgage, the application process is now quite strict because of the 2009 crisis.
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So there is neither a too tight money depression nor a too loose mortgage money crisis impending, that leaves one reason for you to sit out the current market: you are an ignorant, impetuous, overage child.
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Are their reasons to buy now? Yes! Inflation. One of the best things to do in inflation is to buy a house with a max loan-to-value ratio mortgage.
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So what should you do now? If you want to own a home, and you can afford to do that, do it. What about getting outbid? Bid higher.
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What if you don’t feel comfortable? Irrelevant. All that means is you are inexperienced. I paid $900K for a house where the asking price was $750,000. We got it. Was I uncomfortable? No. Why not? I have been doing this since 1969. I was uncomfortable then. Now I know how to analyze it. Your discomfort is just your inexperience. The current home market is abnormal in a couple of way, but it is ALWAYS abnormal in a couple of ways. Every year I bought over 52 years there was a storm of yelling about why THAT YEAR was NOT the time to buy. A lot of my guys my age believed that crap over all those years. And that is why my wife and I are millionaires and they probably are not. There will never be a year when the consensus will be this IS a good time to buy a home. There NEVER has been such a year in the past. You have to ignore all that to buy a home.

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