@Mike D'ArrigoI agree the best time to buy was 3-4 years ago. I'd say that about most US markets. But when looking at a bench mark for prices I prefer to look at the inflation adjusted historic norm. I'm in no way trying to be critical of your post. I'm only trying to offer a different type of analysis that I prefer. Hopefully I can add a little value to the thread...
The reason I like to go back in time and look at inflation adjusted prices is it takes us back to a time in our country when the things that affected prices were real wage growth or population growth. Said another way, fundamentals that made an increase in prices sustainable.
Some newer investors may not realize this but throughout our history most banks required a 20%+ down payment, solid credit score, and income sufficient to pay back the home loan. These were rules that stayed consistent for decades, and magically, we never had a massive housing crash. At a national level housing prices went up and down slightly, in real terms, but would always revert back to a mean.
Then in early 2000's prices skyrocketed. Why? Did real wage growth skyrocket?...no. Did our population skyrocket?...no. So if people were spending the same percentage of income on housing and income didn't increase how did prices go up so dramatically? Obviously with increased credit via lowering lending standards and artificially low interest rates (below what the market would set).
The reason I mention this is a rise in prices based on credit expansion is only sustainable if real wages increase (more income means higher mortgage payments are affordable) or interest rates go down (although amount of credit increases the monthly payment is not increased therefore an increase in income is unnecessary).
So what's my point? We haven't had a significant rise in real wages or population, therefore if prices go significantly above their historic inflation adjusted trend line, those prices are most likely unsustainable and will revert to the mean. This is why I prefer this metric when analyzing prices for xyz area instead of an absolute high water mark.
Here's an inflation adjusted chart of Orlando that illustrates my point. Notice where prices are now compared to the 2005/06 high water mark and the historical mean.
What becomes obvious from the chart is the historic norm is about $175,000 inflation adjusted. This gives you the data I would use to determine if prices are high or low. Example: If real prices were at $250,000 I'd say they're high. Another person that looked at the absolute high water mark of $340,000 would say they're low. I'll let the reader determine which camp they fall into but hopefully it provides food for thought.
So, having said all that, it would seem based on my analysis prices are close to their historic inflation adjusted norm (please note prices could be different now, this chart only goes to 2014), therefore now is a reasonably prudent time to buy in Orlando.
Hope that helps,
George
Hi @Adam Bartomeo,
"My customers don't normally pay MLS prices".
I am a Cape Coral investor, please tell me more.
@Mike D'ArrigoI agree the best time to buy was 3-4 years ago. I'd say that about most US markets. But when looking at a bench mark for prices I prefer to look at the inflation adjusted historic norm. I'm in no way trying to be critical of your post. I'm only trying to offer a different type of analysis that I prefer. Hopefully I can add a little value to the thread...
The reason I like to go back in time and look at inflation adjusted prices is it takes us back to a time in our country when the things that affected prices were real wage growth or population growth. Said another way, fundamentals that made an increase in prices sustainable.
Some newer investors may not realize this but throughout our history most banks required a 20%+ down payment, solid credit score, and income sufficient to pay back the home loan. These were rules that stayed consistent for decades, and magically, we never had a massive housing crash. At a national level housing prices went up and down slightly, in real terms, but would always revert back to a mean.
Then in early 2000's prices skyrocketed. Why? Did real wage growth skyrocket?...no. Did our population skyrocket?...no. So if people were spending the same percentage of income on housing and income didn't increase how did prices go up so dramatically? Obviously with increased credit via lowering lending standards and artificially low interest rates (below what the market would set).
The reason I mention this is a rise in prices based on credit expansion is only sustainable if real wages increase (more income means higher mortgage payments are affordable) or interest rates go down (although amount of credit increases the monthly payment is not increased therefore an increase in income is unnecessary).
So what's my point? We haven't had a significant rise in real wages or population, therefore if prices go significantly above their historic inflation adjusted trend line, those prices are most likely unsustainable and will revert to the mean. This is why I prefer this metric when analyzing prices for xyz area instead of an absolute high water mark.
Here's an inflation adjusted chart of Orlando that illustrates my point. Notice where prices are now compared to the 2005/06 high water mark and the historical mean.
What becomes obvious from the chart is the historic norm is about $175,000 inflation adjusted. This gives you the data I would use to determine if prices are high or low. Example: If real prices were at $250,000 I'd say they're high. Another person that looked at the absolute high water mark of $340,000 would say they're low. I'll let the reader determine which camp they fall into but hopefully it provides food for thought.
So, having said all that, it would seem based on my analysis prices are close to their historic inflation adjusted norm (please note prices could be different now, this chart only goes to 2014), therefore now is a reasonably prudent time to buy in Orlando.
Hope that helps,
George
Where did you get the data from?
We focus on obtaining HUD homes for investors from coast to coast across Central and Southern Florida.
It is currently a very strong market, and there is funding available for investors.
Those two things make this a strong investor market for both wholesalers and rehabbers.
How can I help???
@John KentI am looking at turn key to start off with. I am not experienced with any real estate so far. So sticking to Turnkey for my first 2 investments. I am looking for both cash flow and appreciation, safe, SFH
Over the past year we have had double digit appreciation in most of the metro area along with steadily rising rents to boost cashflow. I am an investor friendly agent in the area feel free to PM me if you need help finding a turnkey property. Properties in your price range rent fast so I recommend looking into tenanted and rent ready properties.