Is it Worth it to Wait? Analysis of Home Prices in Booming Markets

My wife and I have recently been exploring moving from Louisiana back to where we both grew up; Dallas, Texas. It’s home sweet home for us, but we haven’t lived there in quite a few years. Since we left, housing prices have apparently been booming…which is causing us some worry. There was some housing price parity between Alexandria, Louisiana and Dallas about 3-4 years ago, but since then Dallas has zoomed ahead with what I’ve read is around 7-8% annual home price growth. For a data nerd like me, this had my head spinning with questions that I knew Excel could answer. This data analysis specifically concerns Dallas, but I decided to write about this because there are many cities across the U.S. with brisk housing price growth (another bubble, anyone?), so maybe others will find this useful.

The big questions I had were these:

  1. How will housing prices in Dallas increase the longer we wait to get back to Dallas? What if we move in early 2018? How much worse will it be in late 2018?
  2. If we move to Dallas and stay with family for a while to save some more down payment cash, will home price growth outpace our ability to save? In other words, is it better to buy quickly or try to save up more up-front money?
  3. Can our home equity in Louisiana offset some of this? How does Louisiana home price growth compare to Dallas?

It turns out, most of these questions were relatively easy to answer. First, I started with some assumptions. Some articles I’ve read have pegged Dallas’ annual housing market growth around 8%, with some recent ones indicating around 7%. I figured 8% was a decent figure to estimate with, so I used that value divided by 12 to calculate monthly growth. These growth rates were applied to starting purchase prices of $250,000, $275,000, and $300,000, which (depending on the neighborhood) might buy you a decent single family home in some Dallas suburbs. For our home in Alexandria, I used yearly city housing cost value averages for four-bedroom homes from Zillow.com to determine yearly growth estimates.

I’ll start with a chart depicting actual historic growth for Alexandria compared to estimated future Dallas growth using that 8% increase value. Then, I’ll show down payment savings gains versus housing price growth, to indicate whether it’s worth buying now or not. As I said, you could apply this to any city with comparable home price growth.

Home Price Increase Over Time

Figure 1. Home price increase over time, actual historic Alexandria values (2014-2017) versus estimated future Dallas growth at 8%.

Monthly View - Savings Gain 2K Versus Dallas Home Price

Figure 2. Savings gain at $2000 per month versus estimated Dallas home price growth at 8%. Graph is displayed in monthly view, with each dot/plot point representing a month. Positive y-axis values represent net money saved/gained, negative values represent housing prices outpacing any savings.

Savings View - Savings Gain 2K Versus Dallas Home Price

Figure 3. Savings gain at $2000 per month versus estimated Dallas home price growth at 8%. Graph is displayed with x-axis representing gross sum of money saved, with each dot/plot point representing a month. Positive y-axis values represent net money saved/gained, negative values represent housing prices outpacing any savings.

Savings View - Savings Gain 500 Versus Dallas Home Price

Figure 4. Savings gain at $500 per month versus estimated Dallas home price growth at 8%. Graph is displayed with x-axis representing gross sum of money saved, with each dot/plot point representing a month. Positive y-axis values represent net money saved/gained, negative values represent housing prices outpacing any savings.

As usual, a picture (or graph) is worth a thousand words. The first graph helps with a bird’s eye view of how Dallas is outpacing Alexandria. It also shows quite clearly how, without significant salary gains, housing prices in a boom market can fairly quickly outpace a person’s comfort zone. The next two graphs answer exactly what I was most curious about. If we live with family for a while and save our current mortgage and utility costs (plus a little extra, at $2000), we could actually outpace the housing price increase and it would be worth it to save…but only for a $250,000 house. For a $275,000, it may not be worth it, because even after two years of saving, we wouldn’t outpace home prices by more than $500 or so. At $300,000, we’d be losing money by saving! If we wait too long to move back, $300K might be the only option to get a home comparable to our current one.

Out of consideration for someone trying to pay rent or another mortgage in Dallas, I also put together a graph for someone saving only $500 per month. As you can see, there is no circumstance among the prices I considered that would be worth saving. At that saving rate, you might as well just dive in. This is very troubling to me, but I guess that’s life in a booming real estate market.

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