February in Boulder County means the beginning of the busy season for residential real estate. Since the last dip in the local markets in 2008, most local communities have seen significant real estate appreciation. Often cited reasons include a limited supply of buildable land in Boulder County, the consistent quality of local schools, and the impending influx of Google and other high paying employers.
If you’ve been patiently saving for a down payment or had your eye on some local move-up properties, you may wonder if it’s time to make a move. Keep these tips in mind as you ponder your next Boulder County home.
Don’t confuse the immediate past with the future. One local real estate investor once told me that the best time to invest in Boulder County real estate is always five years ago. In truth, it’s hard to argue with that assertion. Except for some brief interludes in the middle of the last decade and the energy and storage technology bust of the 80s, we have seen appreciation in local real estate far above inflation. Local employment growth and the modest level of local residential building activity certainly support continued residential price growth, but it’s unlikely to continue at its recent pace.
Don’t rely on lenders to put on the brakes. Mortgage lenders are motivated to give you the biggest loan possible that will pass through underwriting. This is easy to understand as bigger loans generate higher fees. Plus lenders do not retain the loans on their balance sheet and instead sell them to other institutions or quasi-public agencies.
Imagine your family earns $150,000 a year, has a monthly $300 car payment and $200 student loan payment. Punch those numbers into a popular mortgage calculator, and it spits out that you are ready for a mortgage of $690K to $847K. This translates into a mortgage payment of $3,750 to $4,500 a month including taxes and insurance. Spending 40 percent of your gross income on housing expenses and other debt is a clear road to financial stress. Keeping that level to 25 percent is much more manageable. While there are many wise mortgage lenders who will caution you against excess, ultimately you need to be the adult here and keep your real estate dreams in check.
Don’t Even Think About a Variable Rate Mortgage. While we are not at all time lows for 30-year-fixed rate mortgages, they still can be found close to 4 percent. This is a screaming good deal if you plan to own your home for seven years or more. It’s tempting when you see five-year adjustable rate mortgages available at under 3 percent, especially if you’re trying to stretch in today’s market. In most cases you should look past the adjustable rate and take advantage of what are still historically low fixed rates.
For most it’s a place to live, not an investment. This message is not directed at professional real estate investors, house fix and flippers, or those building their residential rental portfolio. Rather it’s for home buyers who conflate a primary home purchase and an investment.
For most of us purchasing a Boulder County home really isn’t about future appreciation, although we may lead ourselves into that line of thinking. Instead it’s about securing a place in a community where we want to live, connect with neighbors, and perhaps raise our children.
Remember when renting is better. Millennials have lower rates of home ownership than their generational predecessors. While this does have concerning implications, for many people renting does make sense. The common meme is that renting is equivalent to “throwing your money away every month.” But we need to remember that whether you own or rent a home, you are paying for a place to live.
David Gardner is a certified financial planner with a practice in Boulder County and can be reached with questions at dave@confluencefa.com and on Twitter @Dave_CFP
