tsgrayson -
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Median sales prices are down 12% from last year in Kitsap County with nothing indicating a trend reversal in the near future. Being in the military, there is a good chance that you would be transferred within the next few years, right? Why take the unnecessary risk of taking a possible depreciation hit. I would recommend that you rent for awhile and check out the situation for yourself.
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I would recommend that you rent for awhile and check out the situation for yourself.
Why even rent? He should take the on-base housing and not even be wasting time with the real estate market in the Puget Sound right now. Unless he wants to lose more money.
But if you really want to gamble with your money, at least find a game where you have some chance of doing well. Buy a lotto ticket or go put it on black 29. Sure the odds suck, but at least you are certain to lose your money like you would be buying another house.
It's difficult to advise someone on this issue. There are many considerations. It sounds like you have family and, despite rose-colored-coolaid's suggestion, it is is understood that military housing can sometimes be less than ideal and may not be an option for you.
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From a purely financial perspective, unless you are prepared to take a loss for the short term, I would not recommend buying any real estate in the Seattle area right now, unless you find something for 15% to 20% below neighborhood comps. If you do buy on Bainbridge and later transfer, do not expect to generate positive cash flow by renting your home out.
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The above is just my personal opinion. I also am in the local market, but because I truly expect to see some major depreciation, I do not expect to buy until sometime after the end of the decade. Housing depreciation is "sticky" and takes awhile to find equlibrium.
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There are other informed "regulars" and "lurkers" who visit this blog who should weigh in.......
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tsgrayson,
In some parts of the USA you can buy a house and rent it out and have the rents cover the mortgage payments and even leave some extra, but in the Seattle area that's mostly not true, so if you bought a home on Bainbridge and rented it out the likelihood is that you'd be subsidizing it by several hundred dollars per month. It's also very unlikely that Bainbridge home prices will increase in the next year.
But yes,Bainbridge is a nice place with a great school district, and over the log haul it probably makes sense to own a home there. But is there any urgency to do it now?
No offense, but you're repeating a lot of common real estate fallacies here.
I don't want to pay someone else's mortgage: Nobody likes doing that, but that's not what's happening here. If you rent from landlord X for $2000 a month, and X has to pay $3000 a month after tax benefits, insurance, maintenance, etc., to cover the cost of carrying the house, then even though you may feel like you're paying X's mortgage, in reality X is actually paying YOU a subsidy to pay his mortgage. So you are getting the house cheaper than it would have cost you to own it. If you save the difference, then financially speaking, your buying power will increase over time, just like an owner's would, and now you are NOT carrying the depreciation risk... X is.
At least we would be paying down the principle [sic]: Paying principal != building equity. If the value of the house falls faster than your principal is being paid down, you are still losing equity. Also, you need to factor in the equity you are throwing away by paying a higher carrying cost than a comparable rental.
I need to make up my losses: Meaningless. What equity you gained or lost in the past has no bearing on the best financial decision going forward. The money you lost is gone forever. It's not going to magically reappear especially for you over someone else in the same situation.
This does not mean that you shouldn't buy - there are lots of other factors. I am just pointing out some poor reasoning. My advice is to think about the following: What are your family's needs? What are your priorities? What actual value do you personally receive by owning your home instead of renting it? What do you plan to do if your new house also loses value and you are forced to move again? What rentals could you live in comparable to the houses you are looking to buy? What rentals could you live in up to the carrying cost of the houses you are looking to buy?
The bottom line is you need to convert all of these disorganized, emotional thoughts into something financially concrete. The better you can quantify all of these things, the more the decision becomes as simple as balancing a checkbook.
The reason for the rush is that I lost 50K (including comission) on my home that we just sold in Memphis.
I guess I'm must not be understanding the situation correctly, because it sounds like you're saying that the reason you're in a rush to lose money on a house is because you just lost a lot of money on a house. If I am understanding correctly, you've decided to double down on your real estate loss and are looking for other people to help justify your decision. You're looking for support because you feel bad about the decision, and the reason that you feel bad about it is because you know it's the wrong decision.
I'm not going to tell you not to buy a home on Bainbridge Island, but if you do, do whatever you can to make sure that the home you buy sells for considerably less than comparable properties, and just because a real estate agent tells you something is a good deal doesn't make it so.
I am refering to the 50K loss as simply my illustration of the downturn in the market. I lost roughly 12% on my house. My logic is simply that the market is going down, and I might be able to come in at a lower price and attempt to make up the money I lost on the backend when the market eventually starts to turn around. We love the area and would really like to come back. If I just say forget it...I might be missing a chance to get a good deal when prices are lowering and when I hopefully come back to the area in 4 or so years...prices could be back up out of my price range.
Wherever you move to you should rent for a few months at least before you buy. That way you have a much better idea of how to evaluate the prices you see. A price that looks good on a website may not be so good when you learn more about the areas. You will also be in a position to have the most important asset in a buyer's market: the ability to walk away. Even if you have to buy out the rest of a one year lease, that it is small compared to taking your time in getting a better deal.
Sellers know they are looking at a 1 year wait before they can sell their house. Use that to your advantage.
tsgrayson –
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Housing depreciation has just started in the Seattle area. The recent national housing price run-up is unprecedented. No one knows how long the "correction" will last. If you buy now, you may be underwater for a long, long time.
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I assume you have been reading the blog postings by Tim on this website. You may also want to visit Eleua's blog Clearcut Bainbridge. He is a bona-fide resident of Bainbridge and is more real estate "aware" than most IMO.
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Thanks for the websites...the only way I am going to buy now is with a very good deal...
Unfortunately, I don't think that any good deals exist anywhere in the Puget Sound just now. Considering how we are likely going to be seeing greater than 50% average declines from peak prices, even a 10% price drop today wouldn't mean much.
Or to put it another way, unless you are putting more than 50% down you will almost certainly find yourself with negative equity sometime in the next four years as price declines really pick up.
This is NOT to say you shouldn't buy. There is a lot of intangible value to owning your own home, and the fact that it may well drop significantly in price shouldn't keep you from buying. So long as you have a good job and can afford the mortgage payments what does it matter if the price drops 50% in nominal terms in a few years?
Wow 50%...have they even started dropping yet? Does that mean in the next year or so we can expect to see the median price drop to 300K something on the island?
I am not going to pull any punchs....don't buy now.
The Seattle area was "late to the party" and as such the Seattle "roller coaster" is just at the top of a long ride down (nosing over and gaining momentum). I think Sniglet's estimate of up to 50% off peak is VERY reasonable given the huge runups we saw.
We moved to Seattle from Texas in late 2005 when things were still going up and started wondering what the bleep was going on because I make a nice 6 figure income and could barely afford a shack in "da hood". But this blog and others saved me from making the biggest financial mistake of my life.
Now we rent...biding my time and REALLY glad that I did not buy into the mania.
Wow 50%...have they even started dropping yet? Does that mean in the next year or so we can expect to see the median price drop to 300K something on the island?
My guess is that by the end of 2009 you might see a 15% to 20% year on year decline in Puget Sound prices. However, that won't bring prices down to the $300K range. It will take 3 or 4 years of 15% price reductions to reach that point.
I am in a similar situation as you, except I have been looking here for about a year, I don't know if it will be 1 year or 5 until recovery, but personally I think that I will have a better idea at the end of 2009. I am comfortable that the risk of the market jumping up in that timeframe is low...
If I just say forget it...I might be missing a chance to get a good deal when prices are lowering and when I hopefully come back to the area in 4 or so years...prices could be back up out of my price range.
This could be the bottom now! You're going to miss out on the massive appreciation due to pent-up demand! Wow, the realtors have you eating out of their hand. You also will be priced out forever!
Buy a house because it's a place to live long-term, not as a speculative investment vehicle.
Yup. It took years for the current bubble to build and it will take years for it to deflate. Look at Japan, their bubble took a good 15 years to hit bottom and prices are still dragging along the bottom.
The current real-estate cycle is not really comparable to previous ones. This is the first time we've had a global credit bubble of anything like the magnitude that has happened in the last 10 years. There won't be any swift conclusion to this downturn.
By the way, Mish has some thoughts on how long it will be before California hits bottom, and there is no way the Seattle area will crater before they do.
I just wanted to say thank you for all the insight and help!
While not specifically looking for a home (we were looking for a place to rent), we found a great deal on the island at around $124/ sq foot. Not bank-owned...no issues!
Comments
You can make up the money by saving money.
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Median sales prices are down 12% from last year in Kitsap County with nothing indicating a trend reversal in the near future. Being in the military, there is a good chance that you would be transferred within the next few years, right? Why take the unnecessary risk of taking a possible depreciation hit. I would recommend that you rent for awhile and check out the situation for yourself.
.
Why even rent? He should take the on-base housing and not even be wasting time with the real estate market in the Puget Sound right now. Unless he wants to lose more money.
But if you really want to gamble with your money, at least find a game where you have some chance of doing well. Buy a lotto ticket or go put it on black 29. Sure the odds suck, but at least you are certain to lose your money like you would be buying another house.
It's difficult to advise someone on this issue. There are many considerations. It sounds like you have family and, despite rose-colored-coolaid's suggestion, it is is understood that military housing can sometimes be less than ideal and may not be an option for you.
.
From a purely financial perspective, unless you are prepared to take a loss for the short term, I would not recommend buying any real estate in the Seattle area right now, unless you find something for 15% to 20% below neighborhood comps. If you do buy on Bainbridge and later transfer, do not expect to generate positive cash flow by renting your home out.
.
The above is just my personal opinion. I also am in the local market, but because I truly expect to see some major depreciation, I do not expect to buy until sometime after the end of the decade. Housing depreciation is "sticky" and takes awhile to find equlibrium.
.
There are other informed "regulars" and "lurkers" who visit this blog who should weigh in.......
..
In some parts of the USA you can buy a house and rent it out and have the rents cover the mortgage payments and even leave some extra, but in the Seattle area that's mostly not true, so if you bought a home on Bainbridge and rented it out the likelihood is that you'd be subsidizing it by several hundred dollars per month. It's also very unlikely that Bainbridge home prices will increase in the next year.
But yes,Bainbridge is a nice place with a great school district, and over the log haul it probably makes sense to own a home there. But is there any urgency to do it now?
I don't want to pay someone else's mortgage: Nobody likes doing that, but that's not what's happening here. If you rent from landlord X for $2000 a month, and X has to pay $3000 a month after tax benefits, insurance, maintenance, etc., to cover the cost of carrying the house, then even though you may feel like you're paying X's mortgage, in reality X is actually paying YOU a subsidy to pay his mortgage. So you are getting the house cheaper than it would have cost you to own it. If you save the difference, then financially speaking, your buying power will increase over time, just like an owner's would, and now you are NOT carrying the depreciation risk... X is.
At least we would be paying down the principle [sic]: Paying principal != building equity. If the value of the house falls faster than your principal is being paid down, you are still losing equity. Also, you need to factor in the equity you are throwing away by paying a higher carrying cost than a comparable rental.
I need to make up my losses: Meaningless. What equity you gained or lost in the past has no bearing on the best financial decision going forward. The money you lost is gone forever. It's not going to magically reappear especially for you over someone else in the same situation.
This does not mean that you shouldn't buy - there are lots of other factors. I am just pointing out some poor reasoning. My advice is to think about the following: What are your family's needs? What are your priorities? What actual value do you personally receive by owning your home instead of renting it? What do you plan to do if your new house also loses value and you are forced to move again? What rentals could you live in comparable to the houses you are looking to buy? What rentals could you live in up to the carrying cost of the houses you are looking to buy?
The bottom line is you need to convert all of these disorganized, emotional thoughts into something financially concrete. The better you can quantify all of these things, the more the decision becomes as simple as balancing a checkbook.
I guess I'm must not be understanding the situation correctly, because it sounds like you're saying that the reason you're in a rush to lose money on a house is because you just lost a lot of money on a house. If I am understanding correctly, you've decided to double down on your real estate loss and are looking for other people to help justify your decision. You're looking for support because you feel bad about the decision, and the reason that you feel bad about it is because you know it's the wrong decision.
Sellers know they are looking at a 1 year wait before they can sell their house. Use that to your advantage.
.
Housing depreciation has just started in the Seattle area. The recent national housing price run-up is unprecedented. No one knows how long the "correction" will last. If you buy now, you may be underwater for a long, long time.
.
I assume you have been reading the blog postings by Tim on this website. You may also want to visit Eleua's blog Clearcut Bainbridge. He is a bona-fide resident of Bainbridge and is more real estate "aware" than most IMO.
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You may want to check this out-
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House Valuation Workshop
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Also Google "Japanese Real estate Bubble". You will find amongst the results:
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Lessons from a "lost decade"
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Something to think about, yes?
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I forgot to add that Eleua of Clearcut Bainbridge served in the active military. Maybe he has a little more credibility for you.
Unfortunately, I don't think that any good deals exist anywhere in the Puget Sound just now. Considering how we are likely going to be seeing greater than 50% average declines from peak prices, even a 10% price drop today wouldn't mean much.
Or to put it another way, unless you are putting more than 50% down you will almost certainly find yourself with negative equity sometime in the next four years as price declines really pick up.
This is NOT to say you shouldn't buy. There is a lot of intangible value to owning your own home, and the fact that it may well drop significantly in price shouldn't keep you from buying. So long as you have a good job and can afford the mortgage payments what does it matter if the price drops 50% in nominal terms in a few years?
I am not going to pull any punchs....don't buy now.
The Seattle area was "late to the party" and as such the Seattle "roller coaster" is just at the top of a long ride down (nosing over and gaining momentum). I think Sniglet's estimate of up to 50% off peak is VERY reasonable given the huge runups we saw.
We moved to Seattle from Texas in late 2005 when things were still going up and started wondering what the bleep was going on because I make a nice 6 figure income and could barely afford a shack in "da hood". But this blog and others saved me from making the biggest financial mistake of my life.
Now we rent...biding my time and REALLY glad that I did not buy into the mania.
Best of luck to you and your family......
My guess is that by the end of 2009 you might see a 15% to 20% year on year decline in Puget Sound prices. However, that won't bring prices down to the $300K range. It will take 3 or 4 years of 15% price reductions to reach that point.
I am in a similar situation as you, except I have been looking here for about a year, I don't know if it will be 1 year or 5 until recovery, but personally I think that I will have a better idea at the end of 2009. I am comfortable that the risk of the market jumping up in that timeframe is low...
This could be the bottom now! You're going to miss out on the massive appreciation due to pent-up demand! Wow, the realtors have you eating out of their hand. You also will be priced out forever!
Buy a house because it's a place to live long-term, not as a speculative investment vehicle.
Yup. It took years for the current bubble to build and it will take years for it to deflate. Look at Japan, their bubble took a good 15 years to hit bottom and prices are still dragging along the bottom.
The current real-estate cycle is not really comparable to previous ones. This is the first time we've had a global credit bubble of anything like the magnitude that has happened in the last 10 years. There won't be any swift conclusion to this downturn.
By the way, Mish has some thoughts on how long it will be before California hits bottom, and there is no way the Seattle area will crater before they do.
http://globaleconomicanalysis.blogspot.com/2008/09/when-will-southern-california-home.html
While not specifically looking for a home (we were looking for a place to rent), we found a great deal on the island at around $124/ sq foot. Not bank-owned...no issues!