Have you ever heard someone say real estate prices double every 10 years? I can remember someone telling me that a long time ago and i couldn’t imagine it being possible. Of course it can’t happen everywhere but I spent a little time tracking prices in major centres in Alberta a couple years ago and the theory held up. Keep in mind I was only able to track back a few decades, but there was one house I was able track back further with the help of my Dad – my parents home in Red Deer.
My parents bought their home in 1972 for $22,000. Discussing it with my Dad a few years ago he remembered in 1982 it being worth $44,000. I was 22 in the summer of 1992 and I was digging around because I thought I could buy a house. That’s why I remember thinking my parents home was sitting in the $80,000 range. In 2002 I’d become more active with real estate monitoring and comparing revenue property investment ideas. Knowing prices in Red Deer at that time I estimated my parents house in Morrisroe at approx $165,000-$170,000. In 2014 we sold their house for $310,000. That didn’t show a doubling over the prior 10 years, only an increase of 77%. However it had been empty for a couple years and over the last 10 could have used some upgrading. I think if it was kept up to date it would have sold around $330,000 – $337,000 and that would have had it at an 89% increase in price over the prior 10 years.
Below is a chart showing the historic price trend over the last 10 years in Central Alberta and you can see homes have increase 94% on average since 2005. That’s pretty close to doubling.
That would be a 94% increase on your money if you bought your home with cash. Lets say you paid $159,900 cash in July 2005 and maintained the property, it could have sold at approx $312,000 10 years later. However most people in 2005 bought their home with only 5% down. A $159,900 home would require $8000 in cash to purchase at 5% down. Consider the same scenario as above and you’ve just made $153,000 on your investment of $8000!! That’s an increase of over 1800% in 10 years (not considering taxes interest and maintenance etc.) But remember… somewhere in there you have to factor in the cost of having shelter over your head and it would be much higher than the taxes, interest and maintenance if you were paying rent to someone else ;-).
The moral of the story above is that you’re missing building personal equity every year you wait to buy. Right now you could argue prices are as low as we’ll see them and don’t overlook how low interest rates are. Buy now and you will find a good house price and an incredible interest rate – positioning you to make the most on you investment.