Then again, this chart NYT chart assumes that I would be living in a 750 square foot apartment on the north side of chicago all my life, which I don't think I would be doing. Not that there's anything wrong with that, I would just really like to have a basement with tools to be able to build stuff, and of course, have room for a family someday.

I would like to see these NAR Home price appreciation charts go back to include more years. There's a site that includes the normalized ration of mean house price and per capita since 1969. Although it's for Marin County of California. But you get the idea of the cycles that real estate go through: http://marinrealestatebubble.blogspot.com/2007/04/mars-propaganda-blitz.html

When the market peaks, it drops for about six to eight years and then recovers again.

I don't know much about real estate. But it looks like the housing market bubble has burst. Now, I'd guess some places are still trying to get top dollar for their townhomes/condos/houses. You don't want to pay top dollar for a place just as the bubble is bursting.

It might be smart to wait for all industry reports to say that housing is clearly on the decline. So wait until it's a 100% buyers market. In fact, it's probably best to wait until everyone is saying that the sky is falling on the real estate market. Then you'll get great value. You'll be able to buy a quality place for bottom dollar. You're in an ideal situation because you don't have a place to sell. If you had a place to sell, then you'd be worrying that you wouldn't get much value for the property you're selling.

There is no general rule for this. It depends on where you are in your life, and what you plan to do.

If you want to be buying towards a mansion to retire in, you best start buying now. But, if you plan on moving around the country and not settling down, you best stay a renter.

And yes, just like any other investment (like playing the market), there are risks.

Why worry about your financial future? Hire a CPA to give you options, and choose the option that fits you the best.

Would a CPA explain what all these terms mean? And would a CPA give me lots of graphs like this? Because I don't finance numbers like this unless I have graphs. And I would want to see historic trends. Just taking someone's words about my finances aren't enough. I need evidence for what is being presented. Like if someone said, "oh you can expect a 5% Annual home price appreciation." I'd want to see the evidence for that.

I have a feeling that CPA would just throw numbers out and say, "Trust me." Am I wrong?

Well, picking a CPA is like picking therapist -- you have to try them out until you find the one you like. For someone like you that wants more interaction, you may have to spend a little more effort and money in a CPA.

Yes, most CPA's throw out numbers; but there are interactive ones as well. You hire them to give you advice about investments; your level of involvement is up to you. Choose the personality that best fits your needs.

Yes, you can do this all yourself. But if you're looking into buying property, you are going to have stresses beyond your imagination. Best to minimize this by having your finances in order.

These graphs are useful to a point, however, it doesn't take into account where you live. Chicago's home appreciation is quite good, unless of course you live in Englewood or some other neighborhood that no one wants to live in. Also, it depends on your home itself. If it has what everyone wants (typically, good sized kitchen w/ nice appliances, nice baths, outdoor space and parking) then you'll have no problem gaining a nice return on your property in a few years. I've emailed Jason about this, so he might be leaving a comment with all the industry jargon, etc.

Oh, and renting is like throwing money out the window. When you own, you're at least earning equity, which is always better in the long run.

I'd really like to see a graph with the annual home price appreciation in chicago, and for specific areas of Chicago over the past 30 years. I googled "Annual home price appreciation" chicago, but nothing really came up. It would be great if the Sun-Times or the Tribune covered this more closely. The key element here is what is the percent over a long period of time? 3%? 5%? It it's 3%, you're certainly not making any money by buying. Yer stickin it all down into interest and property taxes.

Here's what the financial genius had to say:

eh, yes and no. I haven't had time to really dig into it, but it appears that this could be correct assuming an interest-only mortgage. If you are actually amortizing there are a few other issues to take into account.

1. Equity payments - They start off small (maybe you are paying back $100 a month for the first few years) but by year 15 on a 250k mortgage you are close to 50/50 interest and principal in your payments. This seems fair since the horizion on the analysis was 11-30 years. There doesn't appear to be any benefit baked in for this.
2. Tax Breaks from Interest & Property Taxes - Should probably be factored in (probably as an increase to the rent escalation rate under an opportunity cost concept).

So without going too in depth it looks like this is strictly based on home appreciation verses rent escalation. I'm not totally sure though

It is assumed that you will live in that home for 30 years. Sorry, but I'm not living in ONE home for 30 years. So these numbers are all bunk for me.

If ya stay at one place for about five years, then move, you'll get a nice return in your investment and be able to afford a bigger, better and more expensive place. But the more you spend, the more you'll get back. It's kind of a cycle.

Abhay: I totally agree. Can you imagine living in a one bedroom condo when you're 50? That's crazy. ha ha..

Well, if you are able to get an annual home price appreciation that increases. Now... where are some chicago numbers on this value?

Sure, this MIGHT work if you live in the same place for the rest of your life, but the next generation doesn't do that, nor do they plan on it. My mother has vowed to never move. Me? I'm MUCH more flexible. I'm even thinking now after only living in my condo for two years of moving to Africa or France or Dubai. The world is TINY [like the big letters for my tiny word?] What's keeping people in the same place for 30 years?? Nothing, I say! Let's all be global citizens and get off this "American" market. It's totally false anyway!

I don't know what the long term trend is, but I can tell you that the price difference between what I paid and what my seller paid turned out to be about 7% annualized over 4 years. Granted, we're only talking about 4 years here, but 7% return annualized isn't a great number, but it sure as heck isnt' a bad number either.

I think 4-5% might not be a bad number for 30 years. You will could very well have long periods of 0% growth.

Actually, come to think of it, given that the stock market tanked in those 4 years (2000-2004), that 7% annualized number is REALLY good.

7% is INCREDIBLE. But that's exactly the problem we face now. Things went totally crazy the past six years with the real estate market going through the roof. Eventually it will have to correct itself. There are just too many people going into debt that they cannot handle. And all the new construction in Chicago is CRAZY. Just look around. You see new condos going up everywhere. There is going to be WAY too much supply in Chicago. Just look at all the SKYSCRAPER condos in the downtown area. It's insane. Wasn't there vacancy problems just 10 years ago downtown? Now there's all these new SKYSCAPER condos going up... that are ALL CONDO. Something just doesn't add up.

Rent or buy? What a ridiculous debate.

If you can afford to buy, there's no reason not to. Even if your home depreciates by a few percent, you still recover most of your principal when you sell and you still deduct your mortgage interest from your taxable income.

When you rent you kiss your money goodbye forever. You pay someone else's bills and live under THEIR roof and their rules. Fuck that.

The thing that most people are taking for granted here is that your condo/home will increase in value. We have been very blessed to live in a country that has seen such economic prosperity. I'm just trying to give a perspective where what happens when you only see a 3% increase over a period of time? You still have to pay property taxes on your place. Even when you get to deduct your mortgage interest, you don't get all of it back. There are certain costs that you put in that you might not ever get back if the appreciation isn't high enough.

I want to see what annual appreciation/deprecation for homes in the different Chicago areas are for the last 50 years. I want to see the periods of time when there's been no appreciation and depreciation. If there's been solid periods of depreciation in the past, then we certainly are in a timeframe when depreciation will happen.

Look at the stock market in the 90s. It went sky-high (like housing in the last few years), then the stock market bublle bursted and everything dropped like crazy for quite some time. Then the market leveled off and didn't go up or down too much. I wonder if that's what will happen with home values. It's scary when you see the similiarities between the stock market of the 90s and the housing boom of the 2000's.

The chart hat concerns me the most is the one on this blog showing "Incone Not Keeping Pace with Home Prices". 2001 is when it really started to break away. Remember when internet stock was very expensive? Stock like Cisco went up to 100+ and it dropped to 20 with the stock market bust. That's because their stock was overvalued. The only reason it went so high was because everyone was buying it and it was the trendy thing to do. The true value was not anything near 100+ points. The hosing market is running a parallel course. Everyone was buying property like crazy in the 2000's. Is the true value the same as what people have been paying? Probably not.

Again, I don't know much about real estate, but it sure seems like it's not a good time to invest in real estate now.

If you rent, you are paying the property taxes. I'm going to become a landlord soon (hopefully) and while I will stick the property taxes to the renter. Believe me, you pay for taxes.

Also, a timeframe needs to be applied when people look at property values. If you bought a home in LA in 1990, it wasn't until 2004 that you broke even. However, if you bought in 1980, you were so far ahead by 1990, that you could "afford" nearly a decade of negative to zero percent growth.

I am going to forward an article that was in WSJ to matt. It's a good read.

Your home should not be viewed as your ONLY investment. It should be viewed as AN investment. Hopefully you have your money elsewhere making money at the same time.

The rent vs. buy decision is not ridiculous. Start a spreadsheet and run the numbers yourself instead of speculating. Buying is certainly not always the answer financially, however there are also many intagibles that one must consider. Strictly speaking numbers, you need to factor the expense of borrowing for different loan-to-value ratios, associated mortgage rates, property taxes, monthly assessments, estimated inflation rate of property, costs to sell property, how long you plan to live there, tax savings, property maintenance, the monthly rent equivalent to the type of place you would buy, estimated inflation rate of rental, etc etc. Compare the total costs of the property versus that of renting. Determine the net present value of your investment based on an expected after tax return of rouhgly 5%, which is what you could pry make elsewhere outside of real estate. This is not a gut decision! Run the numbers!

I prefer renting. I can't buy a place in Chicago at these prices.

Do you think it would be a good idea for a 22 year old to start right out by buying my own place? Or would it be smarter to sign my income away to a landlord? Also, what are the best areas to look into, given my job location (the Loop), salary, and current property value trends in the Chicago area.

Masini, I tend to be very pessimistic about where this country is going. I think prices will still continue to drop. And that our country is just really screwed up, because we are entirely too greedy, and too many people overbuy things and it just really messes up the system.

BUT. I do think it's a good time to buy, because despite my pessimism towards America's financial state, I do think things will get better under Obama. A large role our president plays is the image he protrays for our country. He is one that is a healer, and not a fighter. We've had too many idiot fighters leading our country lately, and our suffers as a result. Under Obama, we should be able to move ahead to a brighter future.

Also, I would hope that Mayor Daley is able to stick around for many more years. Yes, there is scandal around him, but there is that with many politicians. What sets him apart is that he is good for the image of Chicago. People under Daley get stuff done. If Daley passes away, then the image of Chicago would surely suffer. But i hope that won't happen anytime in the future.

Now the biggest point you should consider is how much salary you make, and how secure you are in your job. You are 22 years old, and i'm assuming you are buying the place by yourself. It's much easier to afford a place when you buy with someone else. Or if you have someone helping you (like maybe your parents). I STRONGLY suggest you use the New York Times' "How much can you afford" calculator. http://homefinance.nytimes.com/nyt/mortgageCalcs/calculator/house/

And DO NOT buy something more than you can afford. PLEASE don't follow all the other stupid Americans who bought houses they could not afford. And make sure your interest rate is fixed. Not variable. So many people got screwed over their variable interest rate. I know a friend who got a 3% interest rate, and then four years later it jumped up to 10% OUCH.

Spudart - Great comment! It's so easy for low-interest rates to woo you into buying your first home. But, you're right, you have to be careful and read the fine print.

Masini - Use that NY Times calculator! (good call, Spudz. I didn't even know that existed). I totally understand why you wouldn't want to waste your money on renting. But it's important to be financially stable prior to buying. A great way to be more attractive to mortgage lenders is to be able to put 5 or 10 percent down -- It may seem like a lot upfront, but it'll pay off in the end.

As far as good places to look, I'm partial to the West Loop (!) There are a TON of new condo developments going up in that area. I bet you could get a good deal on one if you looked.

Good luck to you, Masini!

Oh! And one more thing about lovely Chicago and all its taxes (as if we haven't had enough with this 10.25% business). When you buy a home in the city of Chicago, you have to pay a "transfer tax." This tax is cheaper in the suburbs. In the city, it is $7.50 per square foot of your home. So if you buy a 1,000 square-foot home, you pay $7,500 in transfer taxes.

Fun!

Sha-zaam! A transfer tax? I'm assuming this is a one-time fee. But $7,500. OUCH. Man. I'm sure that screws a ton of people over who didn't know about it. Wow. That has pretty much sealed the deal for me not buying a place.

great post, thanks