I was thinking about some of the conversations I have had recently with my buyer clients and realized that they have no idea what an appreciating market is. It took me back a moment because I remember when I purchased my first home, more years ago than I will tell you, we bought what we could afford and knew we would realize some appreciation so we could buy our next home. We sold the home 7 years later and purchased our next home which was small but in a much nicer neighborhood. Again, another 7 years later we sold that home and purchased our big house in the same nice neighborhood and have been here almost 20 years. That type of stair-step buying was very common for people of the Baby Boomer generation. Unfortunately the housing crash of 2006-2012 has affected so many people for so long that they don’t know anything other than a down market. Home appreciation is a completely foreign concept to them. Thus the resason for this article.
The market that we have experienced since February, 2012 has been an appreciating market. Prices have gone up which means simply that if you bought a home in March, 2012 it is now actually worth more than you paid for it. For veteran home owners this statement seems obvious, but for first time buyers and people who bought at the height of the market this is a new idea for them. They have only watched home values drop for a very long time and having a home be worth more than you paid for it seems strange. I had a client comment to me this week that when he bought his second home he wanted to live in it for 20 years so maybe it would be worth more than he paid for it. Actually that comment broke my heart because homes represent dreams to me, and a dream of only not losing his shirt seems very sad.
The current frenzy of home buying with escalating prices, multiple offers and removing contingencies and buyer protections is actually a normal part of the home appreciation cycle. The fact that home values in my neighborhood are escalating so quickly is scaring everyone. I have had more than one conversation with neighbors and friends about a new housing bubble. I have been calming frayed nerves and giving history lessions about the cyclical nature of real estate. I have been explaining that the reason behind the rise in home prices in my area is simply caused by low inventory and lots of buyers. It is Supply-side Economics 101.
Most of my buyers are stepping aside now to wait for the frenzy to cease. Maybe they will pay a bit more for the next home, but they won’t feel like they are on the spin cycle of a high powered washing machine. What they will find when the dust settles is an old fashioned appreciating market and perhaps stair-step home buying, just like the old days.