Palos Verdes Source

Chris Ayres loves his house.  In his refreshing and thoughtful opinion piece in the LA Times, he challenges us to remember why we should love ours too.  He actually purchased his home one year ago and instead of bemoaning the fact that his home may be worth less today, he tells us why he is lucky.

First, the price - Ayres concludes a $1,200,000 purchase price, a loan of $1,000,000 at a fixed rate of 6%, and $200,000 of your own money for the down payment.  Next he factors a hefty devaluation of the property to $800,000 (and that is a big hit).  He moves on to inflation - ”At its current unbowdlerized rate of 5%, inflation alone will devalue your million dollar loan over the next decade to the “real money” equivalent of about $600,000, while at the same time causing your home to appreciate to $1.3 million..”  Ayres then factors in mortgage deduction and property tax deduction; in the 33% bracket over the decade, you would save $230,000.  He adds another $200,000 for the theoretical savings over the same period if you had waited to buy and paid a higher 8% fixed rate; “and the $700,000 of equity you’ll potentially end up with after inflation’s gone to work on both your loan and the value of your home.”   End result is a $1.1 million gain.

Palos Verdes real estate owners have been fortunate.  Our property values have reamained fairly steady this last year.  As perception can become a self-fulfilling prophecy, this article reminds us that we are really okay.