The Calculation (Dave Ramsey Misery Index)
The Dave Ramsey Misery Index consists of four numbers made out in the form of money lost due to Dave Ramsey’s advice related to home purchases. (All numbers are based on an after tax calculation) They are as follows:
- Home Price Appreciation (Calculated based on actual data per market) I calculated the actual price difference between the median home price in October 2011 (when I read Dave’s advice about home buying) and the median home price for April of 2014. This area is represented by Chicago Illinois. The median home price increased 50% for that time period. Using the example of a $149,900 home in that market as of October 2011, the same home would cost $75,000 more or $224,900 as of April 2014. (Information gathered from realtor.com and Illinois Association of Realtors. )
- Rent versus Mortgage. This number has a minimal effect on the Misery Index calculation for Chicago Illinois between 2011 and 2014.
- Interest Rate Difference. The third number is the difference in interest rates between then and now. Interest rates only changed slightly the difference was negligible.
- Higher Mortgage Payment. The fourth number is the difference between what the mortgage payment would have been in 2011 and what the mortgage payment is now, calculated over the life of the loan secured in 2014.
Expressed in numbers the Dave Ramsey Misery Index for Chicago Illinois would be as follows:
- Home Price Appreciation $75,000
- After tax rent vs. After tax mortgage negligible
- Interest rate difference in payment negligible
- Increased mortgage payment next 360 months $124,699
TOTAL MISERY $199,699
Each time I post a new misery index it will be for a particular community showing the misery Dave Ramsey has caused his followers regarding his advice to wait to purchase a home. Back in 2011 I was screaming at the top of my blog posts and videos that it was time to buy a home, an investment property or a primary residence. With interest rates as low as they were and home prices at unbelievable prices it was almost impossible not to see the writing on the wall as to what was going to happen. It has happened. Going forward it appears to me that we are faced with a high probability of increased inflation. With that being said, it is still a good time to buy while interest rates are low and before prices go higher! And, please don’t listen to Dave Ramsey when it comes to buying a home. His advice has created a lot of misery for folks.