According to Zillow.com, the median house price in Portland, Oregon is $406,200. Home values rose 12.9% over the past year!
Imagine buying your very first home a year ago for $300,000. While you’ve enjoyed all of the personal rewards that come along with homeownership, your investment in real estate grew $38,700! (12.9% of $300,000).
Let’s really break this amazing opportunity down for you. I will simplify for the sake of keeping this lesson easy to follow for those of you a bit more mathematically-challenged:
- Imagine you put 5% down when you bought the house. That would be $15,000.
- Your initial $15,000 investment resulted in a $38,700 return…or 258%!
Yes, I know there are many other factors. Your monthly payment may be a bit more than what you could have paid in rent. Property taxes came into play. Homeowners insurance most likely cost you a few bucks more per month than your renter’s insurance. Perhaps you even put some money into fixing up the place, though that alone may have increased your future value of the house.
The lesson here to truly take away and understand is this:
Your return on investment is on the value of the house, NOT on the money you invested.
This leverage is why real estate can be the leading wealth building tool for so many people across the country. Where else can you go invest $15,000 and get a $38,700 return a year later? If there is, or someone says they can do this, I’d run.
I will say this…I don’t believe 12.9% appreciation is sustainable. And you shouldn’t want it to be. I liken it to a rubber band, as we saw in 2006. The further you stretch the rubber band, the harder it snaps back when you let go. This is why Zillow’s prediction of 5.5% appreciation for the year ahead is a relief to me and should be to you as well. This kind of growth is very sustainable, especially with the lack of housing inventory, the growth in the job market, and many people moving to Oregon every year. These factors play a big role in strong housing ahead for Portland.
Going back to our original example of a $300,000 house, you would enjoy a $16,500 increase in value a year from now (5.5% of $300,000)!
But what about those people who bought a house in 2006, at the peak of the market, right before everything crashed? Well, if they stuck it out, most have recovered all of their value and then some. Here is a great interactive website that tracks the top 20 cities (https://fred.stlouisfed.org/series/SPCS20RSA#0), and you can use the “edit graph” feature to add in Portland, OR. You’ll see for yourself we’ve more than recovered from the losses from 2008-2011.
For the average family across the country, owning real estate is a powerful wealth building tool if done right. Common sense rules…do not overspend, stay within your budget, and understand that the market is what creates the return for you, NOT your down payment or paying the mortgage down extra fast.