Buying and Selling in Uncertain Times

It is 1979.

Oil prices are skyrocketing as the American hostage crisis in Iran begins and the Middle East is plunged into more turmoil. Brenda Spencer opens fire at a school, killing 2 and wounding 8. When asked why, she stated, “I don’t like Mondays.” McDonald’s introduces the Happy Meal. Los Angeles passes an ordinance to protect the civil rights of gays and lesbians. Inflation is running 11%. Interest rates on homes loans average 11.2% and they are rising. Unemployment is climbing.

Despite the uncertainty, Mike and Debi buy the average single family home in metro Denver, priced at $66,051. The seller contributes money to buy down the interest rate to 10.375%.

What happened? Home Value 5 Years Later = $95,137; 10 Years Later = $98,937; 20 Years Later = $185,733. Today the home is worth $513,897.

It is 1988.

A banking crisis is in full swing, with many bank and savings and loans failing and being taken over by the US government. Anthony Kennedy is confirmed as a Supreme Court justice (he just retired this year). Microsoft releases Windows 2.1. Richard Farley goes on a shooting spree at work, killing seven and wounding four more – he still sits on death row in San Quentin prison to this day. The worst drought since the 1930s dust bowl days has settled in on all of North America. Inflation has been tamed and is down to just 4% and unemployment is falling but a burgeoning federal deficit is creating fear of a looming recession. The 30-year home loan rate is 10.34%

Despite the uncertainty, Sam and Samantha sell their townhome and move up to the average single family home, looking for a great school district for their kids in early elementary school. They pay $98,937 for the house.

What happened? Home Value 5 Years Later = $188,885; 10 Years Later = $185,785; 20 Years Later = $270,261. Today the home is worth $513,897.

It is 2001.

The 9-11 attacks have just occurred. They are followed by repeated biological terrorist incidents involving the deadly anthrax bacteria – when inhaled or ingested, death rates are around 80% even with treatment. The unemployment rate is rising. A mild recession had begun even prior to the terrorist attacks. Timothy McVeigh is executed for killing 167 in the bombing of the Oklahoma City Federal Building. Robert Mueller is appointed director of the FBI. Interest rates on home loans are right at 6.97%. Inflation is low at 2.8%.

Despite the uncertainty, recently divorced Sue moves to Denver to be near family and buys the average single family home close to her work. She pays $257,394.

What happened? Home Value 5 Years Later = $317,112; 10 Years Later = $279,857; 15 Years Later = $441,172. Today the home is worth $513,897.

It is 2006.

Unemployment is low and the Dow Jones Industrial Average hits 12,000 for the first time in history. Google buys You Tube for $1.65 billion. However, economic concerns abound. Airline and auto industries have been hit hard in the aftermath of 9-11. United Airlines finally emerges from bankruptcy after four years, the longest filing in US history. GM reports an $8.6 billion loss for the prior year. Wars in Afghanistan and Iran drag on. Jennifer San Marco shoots and kill seven former co-workers at a postal facility before committing suicide. Home foreclosures are up 42% from the prior year but this fact is not on anyone’s radar screen … yet. The average 30-year fixed mortgage rate is 6.41%.

Despite the uncertainty, Mark sells his starter home purchased 8 years earlier and uses the equity to buy the average single family home, priced at $317,112.

What happened? Home Value 5 Years Later = $279,857; 10 Years Later = $441,172; Today the home is worth $513,897.

These hypothetical, but realistic, scenarios illustrate that there is always uncertainty in the economy and world events. Uncertainty is a given. A constant. It is ever present. We all make decisions about real estate and the rest of our lives not knowing what the future holds.

THE BEST ADVICE FOR BUYERS AND SELLERS IN TODAY’S UNCERTAIN CONDITIONS ARE:

• It’s a very good time to sell if you are moving out of Denver or want to cash in on equity gains from a rental property.
• If you own a place and want to upsize or downsize or get into a different part of the metro area, do so. You are already in the market. Whether the market continues to appreciate or pulls back some, you’ll experience those effects regardless of whether you move or stay put.
• Don’t buy if you know you will be leaving Denver in a couple years or if you are uncertain if metro Denver is where you want to be long term. People not currently in the market can buy with confidence if they know they will be living in the Mile High city for the next 10 years or more.