Frustrated by the low end of the SF home market

[one.person]

This post is partially a rant sprinkled with some semi-rhetorical questions and aimed at sparking some discussion and getting some frustration off my chest.

A quick background on us and our requirements: we have a new baby and a combined income of around 85k, with good potential for that to break 6 figures in the next couple of years. We don't have a lot of money to put down, maybe 20k if we are lucky. We want a "starter" single family house with these minimums: 3 bedrooms, 1.5 bathrooms, 1400 square feet, 1 car garage, smallish yard, within 45 minutes 1 way of Seattle and Bellevue, located north of these areas (we just don't like S. King and N. Pierce county), and livable in the sense that we can move in without gutting something major like a kitchen or bathroom or having to replace a roof in 2 years.

My calculations tell me that we could afford a house priced at up to 300k, which I really feel is pushing it while budgeting for a rainy day.

We have been very frustrated with the selection of houses that fit our requirements. They are either in high crime areas (south everett), manufactured homes, over 55 communities, or total crap (see mls 28052890 or 27188636).

You have to get up into the $325k range to even begin to get a decent selection of homes that fit our requirements, and homes in that range seem to be selling quite well. Houses that were $350k+ get lowered by $25-$30k then sell. There really seems to be no shortage of buyers for houses like this. I am beginning to wonder if lower end homes will ever get down into an affordable range for families like ours.

To us, this situation is ridiculous. I really don't feel that our requirements are outrageous. Are they? There have to be a lot of people in our boat. Are there not? Are people like us part of the pent-up demand that real estate agents talk about that will prop up the market to some degree?

It seems that the only way to buy lower than this is to buy a condo. To us condos come with a whole set of problems that don't make them much cheaper or very tolerable: dues, special assessments, and sharing walls and financial decisions with people that have that special kind of northwest uptightness .

I mean, are there really that many people out there that can pay $325k+ for houses like this? How long can this last? When do the low end homes actually drop in price too? Do I really have to buy a condo first to "move on up"?

We have pretty much decided to rent for a couple more years, but I fear this situation isn't really going to change much at this end of the market. If it doesn't, we will be moving to a cheaper part of the country.

[Alan]

I'm in a pretty similar situation. Similar income. More savings. Married. New Baby. Mid-thirties. I don't see anything I would be willing to live in long term at a price I can afford.

I plan to rent for a while. If prices don't drop then I'll move to a less expensive part of the country.

[mike2]

Gee, back in early 2004 spending $300K on a starter home seemed ostentatious unless it was in a close in neighborhood. I can't believe we've gotten to this point.

[laxtosnoco]

[one.person]

[rmiller3]

I just plan on renting forever and investing the difference. It gives flexibility and you'll come out ahead.

[Alan]

OP,

I moved here in 2006 and was baffled by the real estate market. I thought I had a pretty good income, but I couldn't afford to buy here. Was everyone else really making that much more than I was?

I found the Seattle Bubble during my effort to understand the market. I'm still open to the idea that I don't understand something, but the conclusion I've come to is that prices have been driven up by speculation and irresponsible borrowing. Time will tell if I am right. If I am wrong then so be it. I'm willng to accept that I am just not competetive enough to survive in the hot economy that is Seattle.

I'm expecting price drops of 50%. I could using my savings from the past 15 years to afford a house, but losing that to a 50% price drop would be absolutely devestating to me.

"Trading up" by buying a condo doesn't make sense, by the way. If prices rise then the house you want goes further out of reach. If prices fall you would be better off renting. Historically real estate matches inflation. It is not a good investment. Yes, it is easy to leverage, but you can leverage in the stock market if that is what you are after.

[Ubersalad]

2002-2003 was probably the last year that the house was still affordable. People that were buying and selling just kept trading up, or use crazy finance and then trade up or cashout through rapid gain in equity.

A while back I had a discussion that turned into an argument about how moving up to 800k house from 300k is not exactly like, "Wow, I moved up 500k in 4 years". Consider how they sold their 300k home at 620k, it is really the same as if they had bought a 350-400k house 4 years ago. But now they have just gained 180k in additional mortgage, as oppose to only 50-100k if they bought 4 years ago. Then here's another argument "neighborhoods appreciate differently" even though it was pretty much the same plateau area. However, if that's the case, then one should hope that the old neighborhood is gaining faster than the new, so that new house appreciate at lower percentage than the old. Anyhow, he just can't get it through his head that he didn't actually move from 300k to 800k, but rather 620k to 800k and both number is heavily inflated through this real estate bubble.

[sniglet]

[Ubersalad]

[WestSideBilly]

I'd have to side with Ubersalad on this one. 2001, 2002 was still doable under conventional terms. DINKs could easily afford a median home, and a single person with a solid income (say, a programmer or engineer) could likewise get into a decent SFH.

2003, the prices started rapidly accelerating away from salaries.

[perfectfire]

You really need to save more. 20k on a 300k house is still pretty small. I'm mostly in the same boat, but I make slightly less (wife stays at home with the baby) and I want to buy in Bellevue, Redmond or Kirkland. I don't get too frustrated because I think it's not reasonable to expect to be able to buy a house just a year and a half out of college. Maybe you've been working a real job for longer, but I think historically people have had to rent for at least 5 years while saving money before they could put a downpayment on a house. The upside of being forced to wait in this market is that by the time you have the money saved up we'll have seen at least a 20% haircut (my guess is more like 50%) on your target house.

Also, I would think that you could rent a house with your requirements for less than $1500/month. I'm renting almost 1600sf in Bellevue for $1400 month.

[Alan]

I've been out of undergrad for 12 years. I owned for nine years before moving here. I could put down a very large percent downpayment. I have a good income. The inability to purchase anything in Redmond/Bellevue/Kirkland is frustrating.

[Notabull]

[Markor]