Here’s an email I got from someone named Andy:
I am in the process of relocating to the Seattle area from the Midwest and have been monitoring your blog in an attempt to get some insight into the local real estate scene.
First, thank you for your highly interesting and informative blog. Knowledge is power and you certainly are providing some interesting information for the consumer.
Here are my questions for you. What is with the psyche of local home buyers and sellers in the Seattle market that they are willing to overpay for housing (at least that is my impression)? Am I crazy to pay what people are asking for a home?
Let me elaborate. I have been scouring every information source I can for real estate information in order to become the most informed consumer I can. Here is what I have learned in a nut shell. Nationwide housing is in a slump (to put it lightly). For example the recent announcement that U.S. median sales price of a new home fell 13 percent in October, compared with a year ago. There are some markets however (Seattle, Salt Lake City, San Jose) whose home prices actually rose YOY. I get that Seattle is somewhat special in terms of real estate markets.
An additional piece of information is that I’m one of those people that wants to be a home owner. I appreciate that home ownership may not be the smartest financial move when compared to renting (especially at this time) but I put a great deal of value on the intangibles. I have two small children and the concept of “home” is very important to me so I accept the potential financial downside of home ownership.
BUT as you have stated on your blog, Seattle prices rose 4.69% YOY as of September. So here is my conundrum. I have been monitoring housing prices on the internet using various real estate tools. I have been specifically monitoring a few houses to see if their asking prices are dropping, how long they stay on the market and what the actually sell for. I have noticed a disturbing trend that I simply can’t figure out and would like your insight. I have monitored a couple of houses (in Issaquah and Bellevue for example) that were purchased in September of 2006 for around $600,000. They were put on the market in the fall (September-ish) and the asking prices were about $720,000. My calculations show that these people were expecting a 20% increase in the value of their property in one year. Is that realistic for Seattle regardless of the market – prior to 2007 were people really getting 20% annual growth. The interesting thing is that I have seen the asking price for these properties now drop to about $695,000. This is still a 16% increase. If the numbers show that Seattle prices rose 4.69% YOY as of September, why would anyone pay more than $628,140 for a house that was previously purchased in 2006 for $600,000? Furthermore, I’m thinking for that house that was purchased in 2006 for $600,000 I would pay about $610,000 right now because even though it gained 4.69% in 2007 it will probably lose value in 2008. Are Seattle home purchasers crazy enough to pay $700,000 for a house that was just purchased a year ago for only $600,000?
Andy seems to have three basic questions: Do you have to be crazy to pay today’s home prices in Seattle? Is an asking price 20% over last year’s purchase price realistic? And lastly, how does the median home price relate to specific houses?
To address the last two questions, I will point out the statistics only tell part of the story. We primarily focus on the median single-family home price in King County when discussing prices here, but that number is useful only in gaining an overall picture of market direction, and is fairly useless when trying to determine a reasonable price for a specific home. There are a few reasons for this. First, as has been discussed here a couple of times before, the median price can easily be (and has been) skewed by a change in the demographic mix of homes sold.
Secondly, while the market in general tends to build momentum and move together in the same general direction, every neighborhood has its own unique considerations that will result in larger or smaller changes in price. For example, looking at the county-wide statistics (or even the more local NWMLS areas within a county) won’t tell you that a particular neighborhood just had a big box store approved to build two blocks from a home you’re looking at, causing its value to drop like a rock. When you are seriously interested in a particular home or neighborhood, you really need to look at all the factors that affect that particular location.
That being said, if the county-wide median is flat year-over-year (which it is), it’s a pretty safe bet that someone asking 20% over last year’s price has got their head in the clouds (to put it politely). Maybe that neighborhood has had some significant improvements in the last year, making them more desirable relative to other choices in the Seattle area, and a 5% would be realistic. You can’t tell just by looking at median prices though. Statistics are useful for gaining a high-level view, but to know whether a particular house should be appreciating and by how much, you have to look at that particular house.
As far as the more general question about the sanity of those that would shell out $600,000 for a run-of-the-mill house in Seattle, my personal opinion is that most people paying these prices have been caught up in the “bubble mentality.” It’s the little voice that says:
Look how fast prices are going up! Don’t you want to get in on that action? You know, if you don’t take advantage of it and buy now, you’re going to be priced out forever! You don’t want to be the only one of your peer group that doesn’t get a ride on the equity train, do you? Buy now before it’s too late!
For a great example of this mentality in action, check out this article I highlighted in 2006. It’s that mentality coupled with the easy, standards-free lending we saw 2004-2006 that pushed prices up to their present ridiculous highs.
However, as I’ve said many times before, if you have the finances, place a high value on the “intangibles,” and can tolerate the downside risk of buying now, more power to you. I’d at least hope that you will take your time home shopping and not pay full asking price for whatever place you end up selecting.
Jump to the bottom to add your comment. ↓
77 responses so far ↓
1
Markor
// Dec 12, 2007 at 12:00 pm
I’d like to know the MLS numbers for those overpriced houses, out of curiosity. I’d focus on selling prices. There are lots of “head in the clouds” asking prices out there; many sellers don’t realize or fully appreciate that the market has turned. On the Eastside, selling prices have fallen 10 to 20% just in the last six months or so.
2
on topic
// Dec 12, 2007 at 1:08 pm
there is very little downside _risk_ associated with buying now.
there is a downside guarantee. the only question is how long and how steep the fall will be.
does anyone know of a single economist (excluding those funded by the NAR) that is predicting a soft landing for housing prices or even for the economy in general?
considering how much they are talking about whether international market will decouple from the US and suggesting that gold still has room to grow, i would say most of them are looking for ways to reduce their exposure to the falling US market.
3
locust
// Dec 12, 2007 at 1:17 pm
Even the brokers think 20% appreciation in a year is a seller’s fantasy. Ardell over at Rain City Guide concluded that sellers are asking 23% too much, and that is why sales are slow.
http://www.raincityguide.com/2007/11/25/why-are-sales-down-and-prices-up/
4
Angie
// Dec 12, 2007 at 1:28 pm
As far as the more general question about the sanity of those that would shell out $600,000 for a run-of-the-mill house in Seattle
The author of the question seemed to be looking at prices on the east side, not in the city of Seattle. If nothing else, median prices should give a sense of what is “run of the mill” in any given town, and in city of Seattle proper, “run of the mill” is $100K less than that.
Just for fun, I went over to the Windermere web site and did a search for single family homes listed at exactly $600K, throughout the greater Seattle area. I pulled up 36 listings, some of which were across the sound. On this side of the sound, the possibilities ranged from a 625 sf, 1 bed/1 bath houseboat on Lake Union to a 7 bedroom monstrosity up in Bothell.
I’d say if the querant is looking to buy a house in the $600K range in the Seattle area, he’ll have a wide range to choose from.
5
off topic
// Dec 12, 2007 at 1:34 pm
dunno if anyone else noticed this, but there is a bill in process to allow a court to implement “cram downs” in foreclosure cases.
it works as follows:
1) i get a stupid loan
2) i find out i can’t afford it
3) i’m underwater so i file for chapter 13 bankruptcy
4) the court reduces the interest rate, fees, and principal on my loan
let me say that again and give it a chance to sink in:
the court reduces the principal on my loan to match the current market value of my house
http://www.speaker.gov/blog/?p=991
talk about “heads in the clouds”.
it has passed the House Judiciary Committee
6
Scotsman
// Dec 12, 2007 at 1:47 pm
Think about the post above. If you were a lender, and knew that the courts could force you to reduce the interest rate on any loan you made where the borrower entered chpt. 13, how would your credit standards change? A few more stupid moves like this and there will be credit only for the most qualified, those with perfect credit scores and high down payments. The lack of reasonable credit will drive home prices even lower, causing more to consider walking away, etc., another downward spiral.
Why anyone would buy a home now completely escapes me. Even if you’re going to stay in it a long time, wait until Spring to see how the markets go. Another six months in a rental is nothing compared to the pain of over paying by hundreds of thousands of dollars for a crappy little box in Ballard.
7
patient
// Dec 12, 2007 at 1:57 pm
$700k for a run-of-the-mill home with no view, small yard, more than walking distance to big city cultural venues etc, etc that fits the typical 2006 east side $700k home is craaaazy. That’s for sure. And to buy it is insane.
8
Joe Kennedy
// Dec 12, 2007 at 2:07 pm
Markor - I’d say it’s pretty easy to find the overpriced homes on the MLS - just look for anything that has been on the market for over 30-60 days and there is a great chance that it is overpriced (probably by a lot).
9
Joe Kennedy
// Dec 12, 2007 at 2:09 pm
There are still a lot of “home sellers” out there who are really just fishing - and real estate “professionals” who are enabling them. I’ve seen that many of them have started to give up and either cancel their listings or simply let them expire.
The people that are serious about selling (and/or have to) are pricing their properties more realistically. In many cases, those are the first homes that sell.
10
NotaBull
// Dec 12, 2007 at 2:10 pm
“$700k for a run-of-the-mill home with no view, small yard, more than walking distance to big city cultural venues etc, etc that fits the typical 2006 east side $700k home is craaaazy. That’s for sure. And to buy it is insane.”
Right now you can find several houses in the 600-700K range (still crazy) that are 3000sq ft, in a 1/2 acre or more, and are remodeled and look awesome.
Prices are really coming down. Look at what’s selling (not a lot!) and not what’s listed…
However, it’s still crazy to buy right now. A few price declines does not make a “bottom”. Nowhere near it.
11
Brian
// Dec 12, 2007 at 2:15 pm
My wife and I moved up here from California a year ago and have looked at Issaquah Highlands as well for our first home. We have come to realize that prices are way out of whack even up here (and we are from California). I’m hard pressed to understand why anyone would buy a house right now unless money is no object at all (and who would think that other than the top 2% of the population?).
12
patient
// Dec 12, 2007 at 2:38 pm
Personally I don’t think price declines is a good measure on the sanity of a homes value. Affordability in regards to local income and price compared to a similar “national” home are better measuring sticks and by those we have far to go before a purchase can be considered sane.
13
on topic
// Dec 12, 2007 at 2:40 pm
//yes, if money were no object, i would absolutely go buy a place in the Issaquah Highlands.*/
sarcasm
i know that wasn’t your intent, Brian. just making a joke
14
Robert H
// Dec 12, 2007 at 2:43 pm
I cannot echo more strongly what Brian ( above ) said
I live in San Diego, but daughter is in Issaquah ( she used to live in SD ).. Seattle and NW came to the RE party late, but really poured down the stuff fast and then got giddy and finally stupid. So Cal did also but that is another story.
Look back only 3 - 4 months and you see self smug realtors, etc saying Seattle was different, there wouldn’t be any declines, etc. etc. Now look at it. Many still in denial. And wait till all the ‘08 resets. It mirrors what has happen in SD and So Cal starting about 18 months ago and look where we are today. Except the whole credit squeeze, affordability, flat wages, inflation, you name it stuff is finally being uncovered and brought to light. As the US falls into recession and a hard landing there is no way Seattle will not also feel part of the pain.
Do yourself a favor and read blogs, reports about So Cal and see what Seattle is in for and hold onto your $$$. You have everything to lose and nothing to gain by buying. Unless as Brian says you have $$$ to blow.
15
Buceri
// Dec 12, 2007 at 2:47 pm
Market Dispatch - 4:08PM Eastern
“Weakness in financial stocks erodes a huge opening rally. The Fed offers a new plan to add liquidity to the global markets. Crude oil tops $93, and energy stocks jump. Morgan Stanley rates Citigroup a ’short.’ Bank of America announces ‘unknowable’ future write-downs.”
I need a drink….
16
patient
// Dec 12, 2007 at 2:54 pm
The banks needs to come clean once and for all, this continous trickle of bad to worse announcements is the real killer. Is it really so that they don’t have a clue or do they hope some miracle will fix it before it becomes obvious?
17
tlw
// Dec 12, 2007 at 2:56 pm
to Andy,
1. The high asking price could be just a sale tactic. Ask really high price so that when it’s offered at lower price, you’ll feel like you’re getting a bargain.
2. Consider this intangible: would you want to bail out some speculator that bought that $600k house with zero down payment? Ask your real estate agent to look up loan info on the interested property and see the last loans (1st, 2nd loans) on the property.
3. Consider this intangible: could the money that you’d overpay for the house be used for in/tangible things (private school, college funds, etc.) that would be more beneficial to your children? Why pay the specuvestor and the RE agents?
18
WestSideBilly
// Dec 12, 2007 at 4:08 pm
From the site:
It targets existing nontraditional (e.g., interest-only) and subprime mortgages originated after January 1, 2000 up through the legislation’s date of enactment.
I don’t think it would have any immediate impact on lending standards. I think the banks already learned their lesson on giving money out with little or no standards, and it’ll be at least 5 or 6 years before they forget.
It applies to debtors who file for chapter 13 bankruptcy relief (a form of bankruptcy relief by which individuals restructure their debts) who lack sufficient income after payment of specified expenses pursuant to IRS guidelines to remain current on their mortgages and cure arrears, as required by current law. Debtors who so qualify may:
· reduce exorbitant mortgage interest rates and avoid onerous prepayment penalties;
· set aside excessive and often secret fees charged by unscrupulous mortgage lenders ;
· modify the principal amount of the mortgage to reflect the home’s actual value.
Even though the idea of a court letting someone who woefully over spent on a house off the hook, this has some interesting possible ramifications…
Who decides what the house is worth? A lot of these chapter 13 cases would be people who bought a house with an option ARM or IO loan with price:income ratios over 10:1. Does the court go and say that the $75k/year income family should have only been approved for $225k, not $750k, and that therefore the house is really only worth $225k? Or do they pull comps and see they’ve been selling for $575k - which the family is nowhere close to being able to afford on a conventional loan, no matter what the interest rate is? If the court says the house is still worth $575k, but they only need to pay back $225k, does that show up as a comp, massively deflating the value of other similar houses?
19
Brian
// Dec 12, 2007 at 4:37 pm
patient: The banks don’t know what their total risk is yet, that’s why you see trickles of bad news. When you turn $1 into $11 like the CDOs and SIVs were created to do, you don’t know how much of that fake money is going to turn into a loss versus a gain. We might be seeing bad news for the next couple years.
20
Lionel
// Dec 12, 2007 at 4:42 pm
I’m going to look at this question from a different angle. He mentions that he has two young children and thus home is very very important to him. I have a 5-year-old daughter and home for her is where my wife and I are currently renting. If we move, home will be that new house. Kids are extraordinarily flexible, much more so than adults, with the caveat that their lives should be safe and structured otherwise.
21
Happy Renter
// Dec 12, 2007 at 4:50 pm
Ah intangibles.
I want a dog and need a yard (not worth 500k, though some would disagree).
I want to be able to show my parents I’m capable of owning (still not worth 500k).
I want to be able to play ddr without disturbing the downstairs neighbors (…still not worth 500k)
I like mowing the lawn (not worth 500k to do more work, even if I like it)
I want a garden (ok I’d overpay by 10% to have a garden)
I want to paint my house colors I like (not worth 500k).
I already live in a nice area, so that intangible is no lure.
Yup, I guess I’m waiting to buy.
22
patient
// Dec 12, 2007 at 4:52 pm
Thanks Brian, hopefully the last couple of months will give them a model to make better predicitons on likely scenarios to come up with a low side that can be bettered in consequtive reports to build some confidence again.
23
declinest
// Dec 12, 2007 at 5:00 pm
Your kids will thank you if you rent and put the money in your college fund. kids don’t know if you own or rent, so rent a house and say you own it.
why be possibly insolvent if you don’t have to?
24
jon
// Dec 12, 2007 at 6:22 pm
“I have a 5-year-old daughter and home for her is where my wife and I are currently renting.”
That will all change when she makes a best friend at school.
25
uptown
// Dec 12, 2007 at 6:41 pm
I always recommend that people who relocate rent for a year before they buy in a new city. Otherwise you can be stuck in an area that just doesn’t live up to it’s marketing:
- schools may not be up to your standards
- neighbors are not the kind of people you want to spend time with
- no social life in chosen suburb
- commute is just terrible
- some other horrible thing you didn’t notice about the area
Give yourself time to settle in at the job, and look around /talk to people about the neighborhoods they live in.
26
Joel
// Dec 12, 2007 at 6:56 pm
Has it occurred to you that it might be possible to move to a different house that feeds into the schools? I just moved a few months ago and we restricted our search to very small area and still found a great place to live.
27
Joel
// Dec 12, 2007 at 6:59 pm
Edit: *feeds into the -same- schools.
28
Lake Hills Renter
// Dec 12, 2007 at 7:39 pm
My parents rented when I was a child, and I grew up just fine. We even moved a few times. *gasp* Some people act like renting with kids is child abuse.
29
S-Crow
// Dec 12, 2007 at 7:49 pm
Andy,
The key is being fully informed. To me this means taking a patient perspective on buying by knowing the the real estate market in aggregate (Seattle Metro) and in the specific area of interest (school discrict/neighborhood/development). A long term outlook must be in play for you personally, professionally and financially. When it comes time to arrange financing, please shop. There is no place like my being in the escrow business, as my spouse and I are, to see the enomous differences in fees and service levels of mortgage brokers/loan officers. Take your time, research and then decide.
When the time comes to buy, you’ll buy. If not, you are no worse off than before.
30
Markor
// Dec 12, 2007 at 7:58 pm
You beat me to it! Yes there’s a chance one could find another acceptable rental that feeds into the the same schools and within walking/biking distance of the kids’ friends (like the last place). That’s a small area though. It’s an opportunity cost of renting for parents.
31
Markor
// Dec 12, 2007 at 8:11 pm
There’s a little more to it than that I think. Lenders made megabucks doing quasi-illegal things, now they’re giving up some of the spoils to save the economy and thereby themselves. They may disagree, but it’s probably because they think they can survive longer than their competition in the downturn. I doubt lenders believe the economy can stay upright if all lenders allow ARM resets to happen.
32
Markor
// Dec 12, 2007 at 8:21 pm
I suggest you run, don’t walk, to the north side of Squak Mtn. and May Valley on the south side. For the price of a cheaply-made house on a tiny lot with $300/month HOA dues in Issaquah Highlands, you can get a much better-built house on anything from 8K sq. ft. to 1+ acre in the other areas, with low or no HOA dues. And the commute is the same or not much longer from Seattle.
Right now in Bellevue (Phantom Lake area) there’s a 2700 sq. ft. house on an 8K sq. ft. lot, built in the 1950s (decent construction), for $460K, the price of a 1600 sq. ft. townhouse in the Issaquah Highlands. Buyers are mesmerized by the stainless steel appliances and engineered wood flooring in the Highlands—they’re not worth that much!
33
Brian
// Dec 12, 2007 at 10:02 pm
Markor, actually, my wife is mesmerized by the fact that Target, Costco and Trader Joes are right down the street. I’m not mesmerized by anything that has to do with buying a house, that’s why we are renting still.
34
Peckhammer
// Dec 12, 2007 at 10:26 pm
“I have a 5-year-old daughter and home for her is where my wife and I are currently renting.”
“That will all change when she makes a best friend at school.
Give me a break. This sort of reasoning is pathetic. Children are the most resilient of parasites.
Abe Lincoln grew up in a ~300 square foot cabin. Buy your kid a trailer, turn the title over to them and you’ll be doing our country a favor. Maybe your kid will end up as an American hero, too.
35
Ouch
// Dec 12, 2007 at 10:47 pm
Regarding the school issue, we owned a house and our children were raised here. The school district changed school boundaries many times, thus even though we stayed in the same house our kids’ schools/friends changed. In the real world, owning a home is no guarantee that your kids will attend the same neighborhood school.
36
Lionel
// Dec 12, 2007 at 11:07 pm
Markor said,
ON DECEMBER 12TH, 2007 AT 7:58 PM
“I have a 5-year-old daughter and home for her is where my wife and I are currently renting.”
That will all change when she makes a best friend at school.
You beat me to it! Yes there’s a chance one could find another acceptable rental that feeds into the the same schools and within walking/biking distance of the kids’ friends (like the last place). That’s a small area though. It’s an opportunity cost of renting for parents.
Thank you to Joel and Markur for stating what I hoped would be apparent. There are plenty of rentals where I am in North Seattle, all of which feed into the school she’s currently in. And if the house didn’t, I have this sneaking suspicion that she’d make friends at her new school. She’s funny that way.
37
Ubersalad
// Dec 12, 2007 at 11:16 pm
“Right now in Bellevue (Phantom Lake area) there’s a 2700 sq. ft. house on an 8K sq. ft. lot, built in the 1950s (decent construction), for $460K, the price of a 1600 sq. ft. townhouse in the Issaquah Highlands. Buyers are mesmerized by the stainless steel appliances and engineered wood flooring in the Highlands—they’re not worth that much!”
2700 sq/ft? You meant 1600 sq/ft with rest consider as basement?
38
whats my name
// Dec 12, 2007 at 11:28 pm
“That will all change when she makes a best friend at school.”
I took that to mean that home would be the best friend’s house. Are you guys getting a little prickly?
39
stephen
// Dec 12, 2007 at 11:40 pm
Going out 45-50 minutes will get you in the 300’s and plenty of perfectly nice homes to choose from. For those of us who decided to buy and to do so within our means this has been the only available choice for the past couple of years.
Do yourself a favor and take some nice weekend drives and see if there are some outlying communities that fit your lifestyle.
The drive is no where near as tough as I thought it would be (no traffic and beautiful scenery) and the 1 acre lot with newer 1600 sqft house (no kids :-) fits us perfectly.
40
economist
// Dec 13, 2007 at 2:29 am
However, as I’ve said many times before, if you have the finances, place a high value on the “intangibles,” and can tolerate the downside risk of buying now, more power to you
Which is a polite way of saying, “If you have money to burn, go ahead and burn it”.
41
Scott G.
// Dec 13, 2007 at 7:01 am
Andy does mention drop the keyword bombshell that does throw reasoning and logic out the window:
Intangible=Emotional
42
Lionel
// Dec 13, 2007 at 7:06 am
Plucked this off of itulip. Made me smile:
“Next to food and clothing, the housing of a nation is its most vital problem. . . . The sentiment for home ownership is embedded in the American heart [of] millions of people who dwell in tenements, apartments and rented rows of solid brick. . . . This aspiration penetrates the heart of our national wellbeing. It makes for happier married life. It makes for better children. It makes for courage to meet the battle of life. . . . There is a wide distinction between homes and mere housing. Those immortal ballads, ‘Home, Sweet Home,’ ‘My Old Kentucky Home’ and ‘The Little Grey Home in the West’ were not written about tenements or apartments. . . . They were written about an individual abode, alive with tender associations of childhood, the family life at the fireside, the free out-of-doors, the independence, the security and the pride in possession of the family’s own home. . . . Many of our people must live under other conditions. But they never sing songs about a pile of rent receipts. . . .”
43
what goes up comes down
// Dec 13, 2007 at 7:12 am
Lionel — that and $5 will buy you latte.
I guess for some reason there are never songs about Foreclosure.
44
Lionel
// Dec 13, 2007 at 8:51 am
I guess for some reason there are never songs about Foreclosure.
I’ll bet there are some country songs about it.
45
on topic
// Dec 13, 2007 at 9:57 am
i like the intangibles of not being the one who has to worry about plumbing, rezoning, local roads becoming arterial, a foreclosure on my block, the neighbors building mcmansions that block my view and makes the ‘hood feel cheap, increasing property taxes, a stagnant or declining MSFT dragging the market down, having to repaint, or being relocated.
i honestly wonder if there won’t be a premium to rent over buying before this is over. when you rent, you can only lose your $700 deposit. when you buy, you risk losing your $70,000 downpayment.
46
on topic
// Dec 13, 2007 at 10:01 am
that being said, true to my middle-class roots, i would still pay a 20-30% premium to buy.
and yes, i do understand that a landlord can theoretically sue for damages beyond the deposit, but i consider this a remote possibility.
47
Angie
// Dec 13, 2007 at 10:30 am
On Topic, it *is* easier not to do those things. Owning a house doesn’t guarantee that someone will be involved in civic issues (or commit to upkeep of the property), but it does increase the likelihood because the stakes are higher.
The real problems start when no one is willing to step up and take on those civic responsibilities—that’s when things really go to hell in a handbasket.
About those kids and stability questions—of course you can do a fine job of parenting if you rent, I don’t think there’s any serious question about that. What is more serious is shaking up a kid’s world when the family moves. Yes, kids are resiliant and they survive it just fine, but disrupting all those relationships in the village of people who are your kid’s world—not just friends, but caregivers, teachers, neighbors—IS a big deal, and not one that a parent undertakes lightly.
Ever wonder why people freak out and buy houses when they have new babies? Every wonder why people pay a premium to live in a school district with a good reputation? Some of those “intangibles” are rooted pretty deeply, and gain new importance when people become parents.
48
Markor
// Dec 13, 2007 at 10:35 am
Funny! When she forces you to buy, consider that the older houses on Squak Mtn. are closer to Target and most other Issaquah amenities. (Maybe you meant Fred Meyer.) I bet it’s faster to get from Squak Mtn. to Trader Joes & Costco than from the Highlands. If she wants new, there’s new stuff in downtown Issaquah. The one benefit of the Highlands is that kids would probably love it—lots of other kids, a big park and they have sidewalks there, which is rare in Issaquah.
49
Markor
// Dec 13, 2007 at 10:42 am
Yeah, hate it when they do that. The best you can do is be close to the school, but there’s three of them scattered around.
50
Markor
// Dec 13, 2007 at 10:52 am
Yes. How is a sq. ft. in a basement sub-par? I’ve not understood that. There might be some duct work there, but if it’s full height I’d like a sq. ft. there just as much as one at the first floor. Given a choice between 2700 sq. ft. on one level and the same size split between first floor and basement, I’d rather have the latter.
51
Brian
// Dec 13, 2007 at 10:54 am
Markor: Forces me to buy? Ha, ha. We make decisions together. No one should be forced to do anything. I’m an economist by degree and don’t make rash decisions because “fill in the blank”.
Angie: Good post. You know, I’ve never understood why someone would rush into making such a big decision either. “Yes, you are having your first child. Calm down. Being a good parent has nothing to do with being a renter or an owner. Breath.” =)
52
ira Sacharoff
// Dec 13, 2007 at 10:59 am
If you plan on spending 7-10 years in the home, the overpaying you’d be doing would be cushioned somewhat.
And, even in this market there are a few relative bargains to be found, but if you plan on living in the house for a shorter time and are not willing to hunt down a relatively good deal, then yes, you’d be totally nuts to buy now.
53
Markor
// Dec 13, 2007 at 11:03 am
People should factor in the cost of the commute though, in terms of gas, auto depreciation & maintenance, and time.
54
Markor
// Dec 13, 2007 at 11:08 am
You mean to tell me you wanted that floral print bedspread?
55
Brian
// Dec 13, 2007 at 11:19 am
Markor: That’s exactly what I’m saying. Ha, ha.
56
Lionel
// Dec 13, 2007 at 11:20 am
Yes, kids are resiliant and they survive it just fine, but disrupting all those relationships in the village of people who are your kid’s world—not just friends, but caregivers, teachers, neighbors—IS a big deal, and not one that a parent undertakes lightly.
Once again, I’m not talking about uprooting my family and moving to Nebraska. I’m saying that if my rental in Ravenna expires, I can find a house in… Ravenna! Or Wedgwood. Or Meadowbrook. Or Greenlake. All near enough where she can see her friends and be a part of her village.
57
monkey
// Dec 13, 2007 at 11:23 am
Does any one know that houses in Lynnwood, Washington are overvalued too. Let me tell you that houses in Lynnwood, WA 98037 are way over-the-head in values, let me put it that way. I purchased my house in 2000 for $220,000 for a 3 bedrooms, 2 1/2 baths, the house is about 8 years old at that time. Then in 2001 - 2002, new houses around that neighbor were about $250,000 to $325,000. In 2003 - 2004, it jumped $100,000 to between $350,000 - $450,000 and then way up to $600,000 to $700,000 in 2006 and now in 2007, there are lots of homes are for sale and I am hoping that more houses are on the market so it can correct itself.
58
patient
// Dec 13, 2007 at 11:46 am
monkey, that’s what happens when lenders are giving money to anyone coupled with the greed cycle it feeds. People with stakes in re-value are trying to convince us that it’s a new economy combined with pouring out noise on how special we are and the benefits of home ownership. The truth is that it has nothing to do with those things. Seattle is what it is and has been before the run-up in prices. It’s location, climate or big employeers did not change significantly during this time. It’s not a question if you value home ownership and Seattle’s virtous. You probably do if you are on this blog. It’s a matter of patience, things are already and will continue to correct itself according to the availibility of funds. Those funds are rapidly shrinking and so will likely home values/prices.
59
b
// Dec 13, 2007 at 12:39 pm
I am not following this line of reasoning that renting means you will be uprooting your children all of the time. Do people think its really that difficult to find a new rental in the same basic area if you must move? Go on craigslist or apartments.com sometime, there is no shortage of rentals out there.
60
James
// Dec 13, 2007 at 12:54 pm
granted there are lots of arguments for home prices decreasing next year, but what about the anticipated increase in rates as inflation increases. i am renting and in the market for a house. Do i hope for a 50K drop next year and have to get locked into a 8% rate - so monthly payment they same.
my circumumstances - 36, $ for 20% down, lived here in Seattle a year, and tired of renting (been doing it for 3 years), also lost money on my previous home (bought for 196K in 1999 sold for 189K in 2004 - gotta love prices in Austin), so some fear… right now debating buying or waiting to see how it looks in the Spring… prices have not come down in the area i am looking in Kirkland, with sellers simply taking houses off market rather than lowering price. Also people are still buying these houses for 500K and putting rental signs up (which i don’t get) - my realtor says they are banking on appreciation, which i guess is the only thing that makes sense.
61
monkey
// Dec 13, 2007 at 1:51 pm
Don’t worry, home prices will go down no matter what. It is falling all over, nationwide problem. When the market is up, realtors tell you to buy it otherwise you will be priced out. When the market is down, realtors tell you that this is a buyer’s market so you better buy it now or there are other bidder’s out there to grab it. Let me ask you a question: How do realtors make money? and where does it come from? I think you should wait until next year, don’t worry, there are tons of opportunities out there, if people take their homes down they have to pay utilities and make payments too, so what happen if they cannot afford it anymore. And the economy doesn’t look good right now especially at the beginning of the year, after the holidays’ season people are looking for money to pay for stuffs and what happen if they loose their jobs. So you will get an answer from here.
62
economist
// Dec 13, 2007 at 1:51 pm
i honestly wonder if there won’t be a premium to rent over buying before this is over.
A premium to rent was in fact the historical norm, for the very reasons you enumerated above this comment - it’s less risky than buying.
A premium to buy is ass-backwards, it means landlords will lose money, and is not sustainable.
63
Brian
// Dec 13, 2007 at 1:52 pm
James: I wouldn’t worry too much about rates going higher. I would much rather buy at a lower price and higher rate than a higher price and a lower rate if the monthly expense is the same. You can always refinance, but you can’t lower the purchase price. My take is, if you can afford a home and don’t care if you can sell for more than you paid initially, go ahead and buy. Otherwise, you should just stay a renter.
64
redmondjp
// Dec 13, 2007 at 3:46 pm
James: It’s normal that inventory comes off the market for the next month or two. Everybody is waiting for the spring to relist, hoping for that ’spring bounce’, when we get that nice sunny weekend in late February or early March when people’s thoughts turn to, why, going and buying a house, of course!
65
Cringe
// Dec 13, 2007 at 5:30 pm
“Look how fast prices are going up! Don’t you want to get in on that action? You know, if you don’t take advantage of it and buy now, you’re going to be priced out forever! You don’t want to be the only one of your peer group that doesn’t get a ride on the equity train, do you? Buy now before it’s too late!”
You forgot one of the main concerns! Location, location, location. Seriously, this is a major factor for most people. Why are houses near downtown Seattle more expensive? A lot of people want to live near downtown Seattle. Simple as that.
66
Markor
// Dec 13, 2007 at 6:52 pm
Crazy. Significantly less appreciation in my Issaquah exurb over the past decade, while the number of homes for sale has been consistent: hardly any. I guess we’re too far out to have reached the loftiest heights.
67
Markor
// Dec 13, 2007 at 7:04 pm
I doubt rates will move up so far so fast. Another rate cut looks likely in the next round. Deejayoh noted that you might be able to buy a long-term lock on interest rates, if only in the futures market. Could be worth researching.
The masses will be doing the same, so I’d suggest making a decision by Feb. The early birds will probably have provided the answer by then, esp. if there aren’t any!
68
Aaron
// Dec 13, 2007 at 7:22 pm
The falt YOY prices is very deceptive since only the most desirable houses are now selling (with undesirable homes pretty much sitting on the market). Therefore, even though the YOY is flat, if you look at the specific homes sold, the prices are on the decline (i.e., compare the same desirable home as sold earlier). And with 8-10 months inventory in the Eastside, the prices will drop next year once the initial round of sales go through.
The exception here are some of the flipper homes who completely renovate older homes and then sell them for higher prices.
The exact same scenario played out in DC last year, the prices were flat while the inventory built up as only the desirable homes sold. Eventually, the other sellers had to lower to sell and the prices have come down 10-30 percent from the peak (depending on the area).
69
toad37
// Dec 13, 2007 at 7:56 pm
Hi, I’m selling my house… how much should I ask… to get it sold. Thanks, Todd
http://www.zillow.com/HomeDetails.htm?zprop=48840084
70
stephen
// Dec 13, 2007 at 9:37 pm
People should factor in the cost of the commute though, in terms of gas, auto depreciation & maintenance, and time.
My wife and I both work for the same company and commute together so our numbers are times two.
We spend about $180 a month on gas going 70 miles round trip. With no traffic until we hit Redmond, it takes 50 or so minutes each way. We drive basic cars (20k ish) so 17k in annual mileage would be about 2k in depreciation and another grand for repairs/maintenance. That works out to about $350 a month. You do have to buy more often so that’s a consideration…
When we commuted from Kirkland it was at about a third that cost so I would tack an extra $200-250 or so per car in additional cost to commute in.
Time is relative to each of us. It took 30-40 minutes to commute in from Kirkland to Redmond (7 1/2 miles) more gas per mile but less miles and the time is more but not as much as I figured.
It’s not for everyone but paying 450-600k for a house? We didn’t even consider it, although we could have swung the lower number on a fixed rate. Driving or renting was all we looked at since there was nothing but junk in the 300’s close in.
71
Ray Pepper
// Dec 14, 2007 at 4:34 am
TOAD 37 go check out 1745 NE 89th Maple Leaf Community listing # 27128714. Closed a few weeks ago @ 460k Listed 7/16/07 for 475k. That should answer your question.
Ray Pepper
Broker
http://www.500Realty.net
72
James
// Dec 14, 2007 at 10:58 am
thanks for everyone’s comments, although i’m still no clearer in the decision to buy now or wait. The houses continue to sell, so finding it hard to predict if prices will eventually fall. great blog and thanks again for the responses.
- James
73
patient
// Dec 14, 2007 at 2:24 pm
Fannie Mae gets it right.
Finally someone willing to tell it as it is.
http://money.cnn.com/2007/12/14/news/companies/fannie_annualmeeting/index.htm?postversion=2007121413
It’ so simple. The problem for the housing market is that the prices are to high still you only hear symptoms as “high inventory”, “credit crunch” etc being touted as causes. I’m glad to see that someone got it right. Now we just need the industry and markets to start acting to speed up the deflation of the bubble.
74
SeattleMoose
// Dec 14, 2007 at 3:33 pm
Last year people camped out to buy a place. This year things are so bad the RE professionals are offering a free Zune to any buyer who buys at list price.
No bubble here folks…..anyone up for a cruise on “De Nile”?
75
Jess
// Dec 14, 2007 at 5:20 pm
Toad37- you’re on a pretty busy street there (I drive by every day). Have you looked at comps yet?
76
Erik
// Dec 14, 2007 at 5:57 pm
James: I agree with Brian on the matter of interest rates.
Also, I think it is worth bearing in mind that if interest rates increase dramatically, the higher rates will apply to all prospective buyers, reducing the amount that they can afford to bid. In other words, demand (meaning willingness AND ability to pay, not just fondness for houses) will decline and there will be further downward pressure on prices.
Buying at the peak of a market cycle is bad enough without borrowing to do so at a rock-bottom interest rate. The combination could really stick you if anything in your life changes after the purchase. Losing money is bad and being upside-down on a mortgage is perhaps worse.
77
LiquidCrash
// Dec 18, 2007 at 5:05 pm
I’ve got two small kids, sold our two houses in the puget sound area in the last couple years (one was a rental) and we are now renting a very nice $550,000 house 5 minutes from my husbands work for $1700 a month. With two small kids that I need to save for college, weddings, etc. Owning a house here and seeing it drop $100K in the next 5 years is not a luxury we have as parents who care about their future. If you do the research you will find that Seattle is not special, just late to the party, late to go up initially and late to come down. This is not unusual, even in the disaster of the savings and loan crisis in the 80’s that devastated parts of TX, different parts of TX real estate started going down earlier, and the last ones to drop started dropping 3-4 *years* later, still with very significant drops. I’d love to own a home, but the cost is **way** to high for that right now. You must prioritize what is best for your family.
Jump to the top of the comments. ↑
Leave a Comment