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When Did You Buy Your House?

When did you buy your house?

“When did you buy your house?” writes real estate reporter Marcie Geffner [1] in her recent Inman article by the same name [2].

That was the question my friend Marilyn Stotts asked me during a recent gathering at a local restaurant. Not, “Where is your house?” “Do you like your house?” “How big is your house?” Or even the open-ended conversation starter, “Why did you buy your house?” But instead, “When did you buy your house?”

The fact is that with the rise and then fall in home values that has taken place in the last decade, the timing of your purchase is a good indicator of whether your home is worth more or less than you paid.

Just as “where” divides a city by communities and “how much” splits a city into smug homeowners and risk-adverse renters, “when” separates those homeowners who are probably safe from those who more than likely aren’t. What the question really means is: Did you buy your home when prices were affordable and a mortgage meant 30 years at a fixed interest rate? Or did you buy your house when prices peaked and mortgages were creative, toxic and exotic? Do you have equity or are you underwater? Have you made a paper profit or lost your shirt? Are you a stable homeowner or are you just cycling through homeownership on your way back to renter status? Were you smart and lucky, or stupid and cursed by the house gods?

According to most sources, home prices peaked in 2006. By summer 2008, the Chicago residential market was trading at 2005 prices. It is even lower today. Here is how the timing of your purchase may play out in Chicago where I sell residential real estate:

– If you bought in 2002 or earlier, your home is most likely worth more than what you paid.

– If you bought in 2003, there is a good chance your home is still worth about what you paid.

– If you bought after 2003, your home has probably lost value.  The amount of the discount is based on your timing. Prices peaked in 2006.

Most experts, including those behind the Case-Shiller Index [3], predict that the market has not yet hit bottom. So these values are only a snapshot in time. And, there are a few caveats:

– The previous points assume you paid fair market value at the time of your purchase. If you bought at a discount, your value may not have dropped as much as similar homes. And, if you paid over the market, you may have lost more in value than your neighbors.

– The value of your home will be influenced by where and what you bought. Some properties and neighborhoods have fared better than others.

– If you made significant improvements, then your value should be higher than what you paid but not necessarily to a level that will cover both your initial purchase price plus the cost of your improvements.

So, it seems at least for the near future, we’ll all continue to ask, “When did you buy your house?”

You can read Marcie’s full column and others by her at www.housekeysblog.blogspot.com [4].