Don’t Buy Unless You Consider Magic Number 7

The number seven has been associated with many things.  It’s the series of winning numbers on a jackpot machine. It’s the number that takes you out at the craps table (I was recently in Vegas … can you tell?).  There’s the seven sins (which I’m not sure what they are).  I’m sure you can think of more.

Now the number 7 is the magic number you should take into account when shopping for a new home.  A New York Times recent article pointed out that unless you plan on staying put in the next home you buy for 7 years, it may just not be worth it.

 In today’s market, this espeically holds true.  It may not have been during the housing heyday, when even builders made buyers sign agreements not to sell their newly built home for 1-2 year, because flipping was rampant and successful.

Consider this:  “[O]wners who sell a $300,000 home, for instance, will pay roughly $24,000 in commissions and other fees, and another $2,000 to $3,000 in closing costs on the new mortgage. Most real estate projections… suggest that prices will drop a bit and then flatten over the next two years, then slowly recover over the following five years, appreciating at an annual rate of 2 percent to 3 percent.”

Based on this theory, one would need to generate an 11% appreiciation over 7 years for buying a house with similar characteristics as above just to come out break even.  While this is about 1.5% appreciation per year, in today’s market most homes seem to be depreciating, rather than appreicating.

While this Magic Number 7 rule is an easy one to consider, my personal theory of home buying has been for the long term.  As I told an agent recently at an open house, where we chatted a bit about the markets, I’m looking to buy a home, not an investment.  In an ideal world, my home would appreciate over time – because I plan to be in it for the long term (i.e. 7-10 years).  But if it doesn’t (granted, I hope not to lose money), the return on my investment I hope would be many happy memories of having a place to call home for my family and me and good times spent with friends.