We are planning to sell our Florida house during the next housing bubble so our home realizes its potential as an investment rather than a money pit. As we wait for the next housing bubble, though, we will have to turn it into a rental. According to a recent Trulia report cited by a Forbes article, home prices in most places are still 5 percent undervalued. Even though some people have wondered whether we are entering into a new housing bubble, it turns out the recent price recovery is a far cry from any kind of housing bubble. As homeowners who bought during the "original" housing bubble in 2005, we never saw the value of our home recover. Even though the value of our 401(k) accounts recovered after the stock market dips of the Great Recession, our home value is still down by $62,000. If I had lost that much in the stock market, I'd be in a state of panic.
Looking at the cost of renting
One of the ways the Trulia "Bubble Watch" determines whether housing is overvalued or undervalued is based on comparisons of rents, incomes and historical prices. Housing prices have risen faster than rents or income this past year, but are still cheap relative to historical fundamentals. It would cost us $1,300 a month to rent our own home. We would only be paying $741, including taxes and insurance, with a 30-year mortgage if we purchased our home at its value today. At this time, it would be foolish for us to sell our home. Instead of selling, we plan to rent it out until the value recovers.
Assuming our home would appreciate
We always assumed our home would appreciate in value. We never thought the only equity we have in our home is the money we spent paying down our mortgage. We purchased our home for $183,000. According to Zillow.com, it's now worth about $121,000. Unless we sell during the next housing bubble, it's unlikely our home will ever appreciate. However, it may take another 10 years before the value of our home shoots up.
Buying our retirement home
Because homes prices in Florida are still low, we are planning to buy our retirement home 25 years in advance. According to the Trulia report, the Lakeland area of Florida is undervalued with home prices 18 percent lower than fundamentals. After moving into our retirement home, we plan to rent out the home we purchased during the 2005 housing bubble.
Some people say it's a seller's market because of a recent run-up in values. Experts, however, say home prices are now slowing down. Expanding inventory, fading investor interest and rising mortgage rates are all contributing to the slow down. A recent Reuters article pointed out the demand from international investors has waned as home prices rose this past year. We made a mistake by buying a home at the top of the housing bubble. While prices in our area are still low, we plan to buy a second home. If there is never another housing bubble, we will continue to rent our second house to generate income for ourselves during retirement.
More from this contributor:Predicting the Future Value of a Home
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