Real Estate Investment Models: Price Analyses (Housing Affordability)

PROJECTIONS
	1993	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012
Mortgage Rates	11.0%	10.0%	9.5%	9.0%	8.5%	8.0%	7.5%	7.0%	6.5%	6.0%	5.5%	6.0%	7.0%	8.0%	9.0%	10.0%	10.0%	11.0%	11.0%	11.0%
Total Expenses	42,000	39,600	38,741	37,925	37,156	36,437	35,722	35,163	34,616	34,134	33,722	36,488	40,854	45,326	49,914	54,627	56,477	61,474	63,630	65,961
Mortgage Interest	33,000	30,000	28,500	27,000	25,500	24,000	22,500	21,000	19,500	18,000	16,500	18,000	21,000	24,000	27,000	30,000	30,000	33,000	33,000	33,000
Total Other Expenses	9,000	9,600	10,241	10,925	11,656	12,437	13,272	14,163	15,116	16,134	17,222	18,488	19,854	21,326	22,914	24,627	26,477	28,474	30,630	32,961
Real Estate Taxes	6,000	6,360	6,742	7,146	7,575	8,029	8,511	9,022	9,563	10,137	10,745	11,390	12,073	12,798	13,565	14,379	15,242	16,157	17,126	18,154
Homeowners Insurance	600	648	700	756	816	882	952	1,028	1,111	1,199	1,295	1,399	1,511	1,632	1,762	1,903	2,056	2,220	2,398	2,589
Maintenance	2,400	2,592	2,799	3,023	3,265	3,526	3,808	4,133	4,442	4,798	5,181	5,700	6,270	6,896	7,586	8,345	9,179	10,097	11,107	12,218

This is attempting to illustrate that although we have had falling interest rates over the past decade and thereby this has lowered our housing interest expense, all other expenses associated with owning a home have gone up. If interest rates rise and mortgage interest as a housing expense increases then rising real estate taxes and homeowners insurance will become more apparent. The above graph and numbers illustrates this statement. If your real estate taxes were $6,000 annually in 1993 they may very well have risen to $12,000 by 2006.

These model are not intended to be a substitution for seeking professional legal, professional tax, and professional financial advice. In all circumstances it is solely up to the user to determine input values. Changing the input values can materially alter the financial results of these models and these models are not designed to be an accurate accounting of a business. We can not guaranty the accuracy of these models and because of the possibility of output errors as well as input errors, it is the responsibility of the user to verify that all of the output and resulting calculations are correct. These models should not be used by anyone to make material financial decisions and should solely be used for informational purposes only. Users should develop their own models for the purpose of forming their own conclusions and are encouraged to seek professional advisement from all of the following: 1) a lawyer, 2) a tax specialist and 3) a financial planner.

PROPERTY DATA:
Beginning Real Estate Taxes (1993)	6,000
Beginning Homeowner's Insurance	600
Beginning Maintenance	2,400
Annual Increase In Real Estate Taxes	6.0	%
Annual Increase In Homeowner's Insurance	8.0	%
Annual Increase In Maintenance 1993 to 2003	8.0	%
Annual Increase In Maintenance 2003 to 2012	10.0	%