Tuesday, January 3, 2012

Bang for your buck? – Let the Stats decide…

If you are looking to buy your ideal home and keep within your budget it is a great idea to check out and review the S&P / Case-Shiller Home price index (we will call this ‘The Index’ from now on).  It will help you understand where you can get the most bang for your buck in the long and short term – as ‘The Index’ examines the stats for homes in San Francisco, San Mateo, Marin, Contra Costa, and Alameda County – among other metropolitan cities.

‘The Index’ latest stats help us rank homes into three simple categories:
  1. Top 3rd (homes over $599k) is down only 1.6% year-over-year, but rose 0.3% from September to October, 2011
  2. Bottom 3rd (under $319k) is down 9.1% year-over-year, and the
  3. Middle 3rd (everything in between) is down 8.1% year-over-year

What we are seeing is that in the Fall of 2011 the Middle and Bottom 3rd of homes lost the most value compared to the year before, and the Top 3rd of homes actually gained value when examined on a monthly basis. Hmmm, I know the question you are asking yourself: ‘Why did the Top 3rd do better?’

It can be interpreted that the higher priced, amenity rich homes in San Francisco tend to hold their values longer and stronger than homes found on the other side of the spectrum where a great degree of gentrification may be taking place, for example (i.e. Bayview-Hunters Point).  Am I suggesting buying outside your means?  Overspend?  No, I am asking that you think about your long term plans and if that extra ‘stretch’ will be worth it while also making sure you are okay with the compromises you may be making.  When you have a free moment, Google ‘mortgage calculator’ and run the numbers to see just how marginal an additional $50K to $100K mortgage may be on a home.  You may be surprised!

Often times, during my Buyer clients home search, we come across the hurdle of determining whether the additional monies needed to bump-up to the next tier of homes’ offers a true, longer-term benefit worth taking.  In the end, we have experienced time-and-time again that making that extra financial ‘push’ proves beneficial, as:

  1. the buyer pool is larger when one goes to resell the home
  2. the overall resale value is thereby greater
  3. supply / demand dynamics are more robust
  4. one typically gets a home they can ‘grow into’ vs. compromise on size and space 

So, take the aforementioned stats as an indicator that (more often than not) if one is able to afford slightly more and spring-up to another tier of homes offered, then you will likely get a more resilient asset with greater long-term benefits to boot.