Some say I am biased becase I live in the area. However, even if I don’t live in the area, I will consider this disparity between highest wage and moderate home price, combined with long term local supply shortage as a strong foundation continued home price appreciation. This new report reinforced such trend.

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Friday, January 18, 2008 - 9:46 AM EST
D.C., Arlington home to highest wages
Washington Business Journal - by Joe Coombs Senior Staff Reporter
The District and Arlington County are neck-in-neck in the latest survey of high-paying jobs among the nation’s largest counties.

What time is the best time to buy a house (if you still have buying power) ?

From studying history, I find that the best time is not pre-recession (Jan 2008). It may not be in the middle of recession, end of 2008 or end of 2009 (we don’t know how long this recession will last). The best time is when recession is passed (at least officially), when unemployment reached its highest level, that would be sometimes in 2010. I know you don’t have such patience to tame you desire for that long, but let’s throw our emotions aside, that’s the best time to pull the ‘buy’ trigger.

1) From market value appreciation angle: both land and structure will appreciate in its initial 2-3 decades, the structure value may flatten or decay after that, although very slowly.

2) From IRS tax point of view, they only think of structure depreciation. Over the period of 27.5% years, the value of the house will be depreciated to zero. That’s about 1% a year decay.

Miat’s comment: I print out the following OFHEO data for LA region as a study material. We can see that over the past 3 decades, LA region averaged annual growth rate in home price is about 8% a year. However, if a short sighted Electrical engineer (and the most unlucky one) bought his house in 1990 and couldn’t put up with the pain of home ownership, he sold it in 1996, he lost lots of money. However, another patient Medical doctor bought in late 70s, and still own his house till today, he has seen his house rose about 10 multiples in value. Historical pattern is simple, but to a unprepared soul, its effect can become relentlessly brutal. Where are we now? Pattern matching tells us that we are at 1991 or 1992, +/- one year. So, when you decide to buy a house today, first decide who you want to be: The short-sighted EE or a patient MD?

The factor you missed to consider is that all investors are greedy. They will always try to rent the house using market rent. They will not base rent on their mortgage payment. For example, if their P.I.T.I (Principla, Interest, Tax and Insurance) is $1400/month, they will not rent out at $1400/month. They will always check with MRIS to get the market rental rate, currently $1700/month. They are happy to retain the profit of $300/month. In some cases, in order to increase competitiveness, the investors can reduce rent by 50-100 to rent out. However, not everybody will do so.