Real Estate
Bubble?
Housing prices have accelerated
rapidly in the past couple of years, and it seems
every day there is another article out there
screaming "bubble", and warnings that prices are
going to fall rapidly. Although we
believe there is some truth to the "bubble" talk, by
no means is this a nationwide phenomenon. The
reality is some areas of the country are in a
bubble, while others are not.
There are some simple tests you can
do to check if your area is in a "bubble" zone, and
then figure out if you should buy or sell a home.
These are by no means perfect test, but should give
you a hint if you should be thinking about either
selling your home or if you should keep renting and
wait for prices to drop.
The easy rent test for housing bubble
prices:
-
Find the price of a suitable
home that you would like to live in, be it an
apt or house. Find out how much it would
cost to rent a similar space.
-
Find out how much a similar home
is selling for, along with monthly maintenance
fees and taxes, etc.
-
Find out how much a mortgage
payment would be for how much you would need to
borrow. Add the mortgage payment, main,
and property taxes together.
-
Calculate your monthly payment
on buying the home with the tax advantage of
interest and property tax deduction. Use
your marginal tax and state rate, look up the
IRS tables below to see where you fall.
Remember to use the highest rate you fall into
and add your state rate if any:
|
Single filers |
Married filing jointly or qualifying
widow/widower |
Married filing separately
|
Head of household |
Tax rate |
|
Up to $7,150 |
Up to
$14,300 |
Up to $7,150 |
Up to $10,200 |
10% |
|
$7,151 - $29,050 |
$14,301 - $58,100 |
$7,151 - $29,050 |
$10,201 - $38,900 |
15% |
|
$29,051 - $70,350 |
$58,101 - $117,250 |
$29,051 - $58,625 |
$38,901 - $100,500 |
25% |
|
$70,351 - $146,750 |
$117,251 - $178,650 |
$58,626 - $89,325 |
$100,501 - $162,700 |
28% |
|
$146,751- $319,100 |
$178,651 - $319,100 |
$89,326 - $159,550 |
$162,701 - $319,100 |
33% |
$319,101
or more |
$319,101
or more |
$159,551
or more |
$319,101
or more |
35% |
5. Multiply your total estimated
payment X (1-your tax rate from above) This is
basically your monthly payment.
Compare your monthly payment net of
tax with your rent number. Is there a big
difference? Over 25%? If there is, this
is a good sign of a housing bubble in your area.
We would recommend you stay away from buying and
save your money until things cool off. This is
especially true if there are a lot of new
developments going up around the area and people are
"flipping" properties. This is a sure sign of
a bubble, be careful when interest rates rise
because prices could come down fast.
Good luck and happy
house hunting!
|
