Reader Stories: Skeptic Buys House

The following is adapted from a recent forum post by user Hyperbola.

After a year of occasionally posting comments on this blog, it’s only fair to disclose that my wife and I just bought a house in Woodinville! My rationale about the overall market hasn’t changed — I still think we would have gotten a better deal by waiting. There were many factors that influenced our decision:

  • The house is only a few years old and in good condition.
  • The price was good for the neighborhood and recent comps.
  • The commute to Redmond/Bellevue is about the same as our current apartment.
  • Our (downtown Seattle) apartment is too small.
  • We find significant sentimental value in owning our home. We wanted to be able to redecorate, make improvements, and not have to worry about being forced to move if our unit goes condo.
  • We were only willing to look at houses we could reasonably stay in for 10 years or more.
  • We were only willing to consider arrangements where my wife could stop working once we start a family.
  • Our plan is to pay off all loans except a $417k 1st mortgage within 3 years. For the first 3 years, our net expenses will be quite a bit more than our apartment. After that, it’ll be less than our apartment by several hundred. Of course, our house costs much less than our apartment would sell for, so this is apples to oranges. In any case, our expenses are well within our means, but we won’t be saving as much for stocks/bonds as before.
  • We were not willing to move to rent somewhere in the burbs with enough space, and then move again when the dust settles from the bust.
  • Our loan package is as follows: $417k 1st mortgage, with a note rate of 6.25%. 10% and change for a HELOC at PRIME+1.5, with a teaser rate. 10% down.

The RedFin experience was perfect for us — we did the research that we would be doing anyway and got 2% back. The field agent that actually accompanied us to the property did a good job looking out for us, but it wasn’t the same person as the agent in their office that helped us negotiate the paperwork. It really didn’t matter; they stayed in touch. Our loan agent got very confused when we wanted the rebate to be applied to our closing costs. She kept trying to bully us into using the rest on points instead of taking a check after closing, saying we weren’t allowed to take a credit more than closing costs, etc.

The biggest problem by far was the seller and their agent being completely dishonest with us (and each other) about the repairs and their (in)ability to move out on time. Ended up closing one day late after a standoff between us, the seller, and our loan agent. Yuck!

But the deal is done as of yesterday and we are officially homeowners!

Some people seem to be under the impression that Seattle Bubble is a site for people that think buying a home is never a good idea. On the contrary, the purpose of Seattle Bubble is to educate people about the realities of the housing market, and equip them with the facts so they can make a decision based on reality instead of some real estate agent’s slick sales pitch.

Hyperbola and his wife went into the home buying process with both eyes open, weighed the risks and benefits, and decided to buy. He got a loan he could afford, and bought a house he will be happy staying in for at least 10 years. This is exactly what Seattle Bubble has been promoting here since day one (here’s an example post from April 2006).

Congratulations to Hyperbola. He and his wife get that you buy a home as a place to live, not as some sort of can’t lose investment account. I agree with what Hyperbola said in his post, that they most likely could have gotten a better deal by waiting, but they were comfortable with the price and the risk, and they bought smart. Good for them.

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.


  1. 1
    Ray Pepper says:

    Yes, they could have gotten a better deal. I don’t mean by waiting either. I will email you the Seattle Bubble Head clients who are closing and have closed with 500 Realty. I did NOT know you post their stories.

    Either way I’m happy they chose Red Fin. At least they understood there is a better way to BUY! We feel Red FIn can give more $$ back to the consumer and the charging for tours is not a good practice. Many Red Finners migrate over because of this new policy. How can a Buyer be charged if they simply do NOT like the home interior or exhaust their free searches. Thats an avenue we do NOT want to travel.

    When we get asked who do you recommend if we do NOT use 500 Realty for selling? Its an easy choice. MLS 4 Owners. If you do NOT choose either of us (btw we have no affiliation) then I equate all the others the same. Just get that listing office commission down. Get it on the MLS and Craigslist and price it aggressively to your competitors and IT WILL SELL.

    Its all about Education and Execution. The companies coming in the next few years will benefit the consumer financially in every part of the transaction. I’m very proud to be a small part of it.

    Ray Pepper

  2. 2
    Pegasus says:

    That is what makes a market. Someone wins and someone loses. I bet there is one happy former homeowner that sold the house they just bought. I hope that seller posts his feelings here. After the sale closes.

    My guess is within two years the house they bought will be selling 25-30 percent less and at that time they won’t feel so chipper about their purchase. Also even with all of the best laid plans life is unpredictable what with divorces, health and job issues. What happens if they have to sell it in two years at 30 percent plus fees discount? Far fetched..not really when you know what the rest of our nation is going through and that Seattle lags historically. It sounds like they were stretching with several loans besides the first mortgage. Not a good start.

    With that said I wish them well with their new home and that they may live there blissfully for their own predicted ten years. Who knows…by then we maybe in the next banana real estate cycle.

  3. 3
    The Tim says:

    Seriously Ray, tone down the self-promotion.

    Your “comments” are becoming more and more like very thinly veiled advertisements. If you want to advertise on Seattle Bubble, you need to start paying us. If you’re going to comment, please keep the personal promotions to a minimum, and focus on actually contributing to the discussion.

  4. 4
    Hyperbola says:


    Yes, the seller is quite happy to get out of there. The seller has about 5 kids and is getting divorced and moving back to Mexico.

    We do currently have two loans in addition to the mortgage – the HELOC and a car loan (2005, used). We have almost enough in our liquid savings to pay off both of those right now, but we’re trying to balance liquid reserves/investments with loan pay-downs. If everything goes according to plan, they’ll both be paid off in 3 years.

    It is of course possible that we may be stuck significantly underwater in 2 years… but that’s a risk we decided we were willing to take.

  5. 5
    TJ_98370 says:

    Hyperbola and his wife went into the home buying process with both eyes open, weighed the risks and benefits, and decided to buy. He got a loan he could afford, and bought a house he will be happy staying in for at least 10 years…….

    Add the fact that he said that they only considered arrangements where his wife could stop working and you could say that Hyperbola and his wife made a decision that was responsible and right for them.

  6. 6
    TJ_98370 says:

    Congrats on your new home, Hyperbola.

  7. 7
    Ray Pepper says:

    I do promote but what I promote is EDUCATION. Be it 500 Realty, Red Fin, MLS 4 Owners, Iggy’s, or SHOP PROP. I love them all. We need more companies that get the CONSUMERS to understand THERE IS TRULY ONLY ONE CORRECT WAY TO BUY REAL ESTATE IN WASHINGTON. As for selling NEVER EVER pay more then 1000 to **LIST** YOUR HOME. GOOD GOD!!

    Blogging is an avenue to get the message out and I have been called a TROLL on Active Rain. After I looked up what it was, I still feel I’m not a Troll. Our message is just too important to not be heard and is consistently distorted.

    Please feel free to delete any of my posts at anytime. (even this one). I do NOT want to make this site “lesser”. As for advertising. I think we have already discussed that we have commitments to Comcast that are undercontract for the remainder of this year.
    500 realty does NOT pay for its advertising but once we are complete in December I will contact you for rates.

    May I conclude that I have personally recived from every Bubbler compliments on my blogging. Some people like what I have to say. But, your the boss.

    Ray Pepper

  8. 8
    Gill says:

    Congratulations on the recent home purchase —

    My wife and I also recently bought our first home in Ballard. We also decided to buy based on staying in the house for around 7-10 years and got a good deal (reduced overall price and the seller paid our closing costs.) We also bought in a great location and in a neighborhood we’ve wanted to live in for years.

    We have plans to pay down our other debt and in fact we will have no other debt besides a car payment as of November of this year —

    It is a risk, of course, to buy in this market but we’re comfortable with our decision and got a good interest rate to boot. As Tim said just educate yourself and make an educated decision!

  9. 9
    TheHulk says:


    Congrats on making the biggest purchase of your life until today!

    And that is the very reason I respectfully disagree with your assessment. You are banking heavily on the fact that you will at least break even by the time 10 odd years roll around. I hope you are right for your sake. I think you are wrong and these are the reasons why:

    Considering everything I think this credit crisis still has a long way to go. People are seriously stressed for money these days. Read some of the articles published recently about the next credit crisis wave that is going to hit the credit card companies. And by the way, that will officially be the bottom. After credit card defaults, there is nothing left to tap into. 4$ gas will help in hitting this sooner since the people most affected by this will be the poorest or the ones who are barely making ends meet (aka people with 1800$ mortgages that reset to 2500 soon).

    Also remember Seattle has lagged the rest of the nation by around 2 years. What hit LA and Miami in 2006 is going to happen here in 2008. You can easily see signs of this around the sound. I am slowly seeing Short sales creep up all the way into Bothell and Woodinville. And remember up until July last year people were in la-la land. The venerable east side prices are very much still in la-la land. I am following houses in this area quite closely since I know I want to buy and stay here. I dont follow up other areas too closely but I hear that Kent/Puyallup etc have completely tanked. Read up on the calculated risk blog, how some houses in Atlanta are selling for 20000$. Yes, that figure is right its 20,000$. People are not buying even at that price because they cannot afford taxes (the houses are “appraised” at 300K).

    Turn the clock a little back on redfin and just take a look at how many houses were sold in the eastside around 2006/2007 at the peak of the bubble. Those people must be scared out of their wits right now. Prices have already climbed down to 2006 levels. Nothing priced higher is selling right now. Majority of the houses that are being sold are by owners who bought in the mid-late 90s and are attempting to cash out.
    Most of the people who purchased a house anywhere from 2003 to 2007 are going to feel a huge pinch when those interest rates reset. And oh yes, the final nail in the coffin is that there are no investors and people like me who do want to own a house dont want to unless prices drop down by another 20-30%.

    Just think about that: 20%. People who buy in the next 5 years are (including me) are simply not going to see any return on their investment in housing. Considering how the average American is getting relentlessly squeezed on all fronts (no real wage appreciation, higher health insurance costs, tons of debt on credit cards, higher oil prices leading to inflation and higher food prices) I cannot see any way for ordinary people like you and me to pay for a house at these current levels.

    So you might ask: What is my strategy? Simple, I plan to wait this period out. I will rent simple apartments (not houses mind you) and spend around 1200$ per month and continue to see house prices decline by 30K per 6 months. And oh yes, the rest of the money that I save from paying that inflated mortage (whose asset value is declining every day) will go into purchasing stocks for the long haul. Its not that I dont have money. I already have enough for 20% down at current prices. Its just that I dont see any rationality in paying for the biggest purchase in my life knowing that the value of that asset is inevitably going to decline for at least the next 2-3 years.

    Best Regards,

  10. 10
    Michael says:

    Did anyone listen to the mortgage crisis story on This American Life? Click on the Big Pool of Money Story.

  11. 11
    NotaBull says:

    “What happens if they have to sell it in two years at 30 percent plus fees discount? Far fetched..not really when you know what the rest of our nation is going through and that Seattle lags historically.”

    Isn’t the nation down something like 10% right now, with Seattle catching up rapidly? You think prices will go down another 30% in nominal terms, meaning a potential total of 50% off peak in real terms? If you believe that, you’re certainly on the more extreme end of prognosticators, even on this site.

    “It sounds like they were stretching with several loans besides the first mortgage. Not a good start.”

    Actually, it sounds like they made the sensible decision to go for a conforming first mortgage at 417K (the limit) so they could get a good long term rate on that, and then get the extra needed in a HELOC at about 7%. The plan seems to be to pay back the HELOC and the car loan aggressively and then be left with a pretty low payment on the 417K loan. Given current rates (even for the new conforming Jumbos), this is a sensible practice regardless of how much your income is.

    In addition, the poster specifically stated that their expenses are well within their means. Getting the HELOC had nothing to do with affordability, but was a prudent financial decision.

    Why must some people immediately jump to the assumption that anyone buying a house these days just can’t afford it, will likely default, regret it, get divorced and then die lonely while wishing they had waited just one more year?

    Hyperbola, congratulations on your purchase. I wish you well.

  12. 12
    Jason says:

    I am not sure I like where this conversation is going.

    As an example: I could “afford” to buy a cardboard box for $100,000. In fact, I would pay cash for the box and use it to store various household items so that the box would have “value”.

    I could also “afford” to buy a wooden box on a mound of dirt for $500,000. I might not be able to pay cash for that box but that alone would not decrease or increase the “value” of the box because I could store myself in it.

    Only time will tell if either of the above purchases were actually intelligent from a financial perspective. It may be clearer in this situation that Hyperbola went into this decision with more knowledge but even he noted that there was an emotional factor to this.

    My problem with this pandering to the forthright masses is that the current market was driven by a similar psychology. We don’t tend to have high regard for previous purchasers. Should Hyperbola’s increasing knowledge of the risk and obvious disparities of price/fundamentals grant him praise from an outside observer? Without the comps/history of the item bought?

    I appreciate the honesty but I have to call a knife catcher a knife catcher. Regardless of how nice the knife catcher may be. I might even argue that Hyperbola should know better…but I obviously can’t.

  13. 13
    Nick says:

    Congrats on your home purchase; it sounds like it was well thought out, and you’re an educated buyer not spending more than you can afford. People can/will undoubtedly debate the wisdom of the timing and long-term investment worthiness, but as long as you want it and can afford it, I personally see nothing wrong with your decision, and wish you happiness in your new home. :)

    As I said on my personal blog, if you can deal with prices going down 25% and the prime rate going to 15%, and both staying there for 10 years, you are qualified to buy in this market. If someone is qualified to buy, they are welcome to do so as far as I’m concerned, regardless of my personal feelings about the market. Enjoy the home, ignore the haters, and fight the bailouts with the rest of the responsible Americans. :)

  14. 14
    Garth says:

    Bubblehead commenter’s are so fickle. I love how everybody who buys a house is now a “knife catcher” and things are going to drop more then then went up. It should be noted that a year ago most commenter’s here would post that your money would be much better off in the stock market. I Have not seen much of that lately :)

  15. 15
    Jason says:

    I don’t like the term knife catcher either…it just feels hostile. I googled it to find something more civil that implies the same definition but I can’t find a replacement.

    But I did find a cool video….

  16. 16
    Gill says:

    As much as people are arguing against now being a good time to buy it seems to me that for first-time home buyers it might be a very good time to buy. Especially if you’ve been sitting back for years saving money waiting for the market to come back into reasonable territory. Who can say how long good interest rates will be around? Right now you can get an FHA 30 yr fixed at around 6% — add in a good deal on the price of a house and that’s a very doable scenario for the first-time buyer.

    I would not like to be someone who had to sell a home in order to buy another one right now, but for someone like me who’s been renting for 15 + years and has no other debt and some cash saved up why not right now? Do you think interest rates will go up or come down as the market crashes further and the CC companies start feeling the squeeze?

  17. 17
    David McManus says:

    It kind of reminds me of the people who go to Vegas and spend 300 nt. at the Wynn when you can stay elsewhere on the strip for much less. When you turn out the lights, all the rooms look the same. At the end of the day, it’s just a place to sleep, much like a house. But as has been said over and over, if you want it, it makes you happy and can afford it, then go for it. Just remember that “afford it” doesn’t mean taking out cash advances on your cc just to buy it.

    Debt != wealth.

  18. 18
    The Tim says:

    Gill, in my opinion, the problem with that reasoning is that you can refinance to a lower interest rate down the road, but you can never refinance to a lower purchase price.

    Here’s a few possible scenarios assuming a constant down payment with declining prices and increasing interest rates.

    Home price: $500,000
    Down payment: $100,000
    Interest Rate: 6.0%
    Monthly Payment: ~$2,400

    Home price: $450,000
    Down payment: $100,000
    Interest Rate: 7.25%
    Monthly Payment: ~$2,400

    Home price: $400,000
    Down payment: $100,000
    Interest Rate: 9.0%
    Monthly Payment: ~$2,400

    With scenario C, you can refinance later if rates go back down, decreasing your monthly payment significantly. With scenario A though, there is no such option.

  19. 19
    waitingforseattletocool says:

    I too should disclose that my wife and I just bought a house on Mercer Island. I have a wife and two kids and for the better portion of my married life with and without children we have had a home.

    I have been renting for two years watching the market closely and can personally say this is the best buying opportunity that I have seen since I relocated from the East Coast in 2006.

    I believe we are in a portion of the market cycle that an even better opportunity to buy (in general) will occur over the next few years, but found a home that meets all of the functional requirements for myself, my wife, and my children, in a neighborhood that has done well over several 10 year market cycles, in a neighborhood that has never had a large standing inventory, close to schools, parks, and shopping.

    We were able to get both price and repair concessions from the seller.

    The price was good for the neighborhood and recent comps. California equity locusts purchased a home down the street without attention to the comps, IMHO.

    We purchased this home for many of the same reasons as Hyperbola (commute, our apartment is too small, sentimental, home improvement, long term horizon, affordability based on only 1 income).

    We have no debt outside of the first mortgage we are assuming, and our debt to income ratio is much less than 20%.

    I have enjoyed visiting Seattle Bubble, but I have to confess, I probably will not be visiting as often. With no disrespect intented, I have grown tired of thinking about real estate and would like to focus on providing a happy and prosperous environment for my family.

  20. 20
    The Tim says:

    No disrespect taken, waitingforseattletocool. Seattle Bubble is meant to be a resource for people that are in the market to buy or sell a home. When you’ve already bought and are enjoying your home, you shouldn’t really care what is going on in the housing market.

  21. 21
    Gill says:

    Hi Tim,

    I see your point. I guess it all depends on how much prices will drop or how much they flatten out or perhaps rise in the future.

    I guess I would be surprised to see a nice house price drop 100K in a great neighborhood in Seattle from this point — could happen, but?

    Pardon my ignorance of the history of the site, but have you ever done a graph or post about how much homes should cost in Seattle given normal and healthy conditions of growth?

  22. 22
    The Tim says:

    Gill, probably the closest thing I’ve done to a post like what you describe was this one: King County Affordability: 1950-2007.

  23. 23
    S-crow says:

    The key is horizon AND capacity to afford the property. We are seeing what can happen to the market locally and outside of Washington when you remove financing that allowed a buyer to largely ignore horizon and capacity to afford (sensible buying.)

  24. 24
    waitingforseattletocool says:

    The Tim,

    Take a look at MLS#: 28074628. The address is 5579 152nd Pl SE, Bellevue, WA 98006

    I am going mostly by memory on this, but the actual listing and sales history can be extracted from the mls and tax records.

    In 2006, the property sat on the market for over 6 months at around $1.05M. It is a large home with a western territorial and lake view in a very desirable Eastside community (The Summit).

    In early 2007, the home was listed and SOLD for approximately $1.225M (yes, almost $200K over the list price just 6 months earlier)

    Two months later, the home was re-listed and RE-SOLD for approximately $1.445M (yes, over $200K more than the home sold for just 2 months earlier).

    Today, it is listed as a short sale subject to lendor approval at $899K. This is about where it should have been listed in 2006 had the original seller been motivated to sell at that time.

  25. 25
    TJ_98370 says:

    As a long time reader of the Seattle Bubble, it has been my impression that The Tim’s “mission statement” is to provide accurate real estate market info and to counteract Realtor hype. This blog is not anti-buying as much as it is anti-bullsh*t. I consider Tim’s efforts a success when someone like Hyperbola makes a post on this blog indicating informed consideration of the risks involved before buying. To buy right now would not be my choice but it was Hyperbola’s and his wife’s decision to make and I truly hope they will be happy with their new home.

  26. 26
    b says:

    Gill –

    If prices can go up $100k in 1-2 years due to a credit bubble, they can also drop $100k in 1-2 years due to a credit deflation. Most people just can’t imagine the drop because the Seattle area has never experienced one, like many of this new bubbles towns it has not had the ups and downs of places like Texas and California previously.

  27. 27
    economist says:

    how much homes should cost in Seattle given normal and healthy conditions of growth?

    The same as anywhere else – no more than 150x monthly rent. That’s all there is to it really.

  28. 28
    george says:


    Money managers think it’s a good idea to own your own home, but as an investment the stock market does a lot better than housing. There’s no debate.

  29. 29
    Alan says:

    Owning at 150x monthly rent comes out to an 8% non-compunded rate of return. If the market is accepting 4% rate of returns then housing will cost 300x the rate of return. However, if 8% is a long term average, then you might be better off renting during the 4% years. But maybe 4% is the new standard.

  30. 30
    deepcgi says:

    People still seem to think that the market will turn soon and upward price movement will resume. Look at the Inventory numbers for Phoenix this month, for example:

    04/2007: 59,616
    04/2008: 62,965

    Despite the huge impact of the crash, the inventory numbers haven’t moved much in the past 12 months. That has to be due to optimism. People are under pressure, but just HAVE to believe that the market will turn around. That the losses CAN’T exceed 25 percent off median. All they have to do is hold on a bit more, and things will look brighter. Unfortunately for them, I just don’t see any economic force that will turn the tide. I think we are going to see much larger losses than most people predict over the next 18 months. Followed by steady double digit inflation. Simply because there is nothing stopping the ship. Having a warm fuzzy feeling about their home equity won’t do a damn thing.

  31. 31
    jon says:

    According to, the only other markets where inventory went up as fast this past week as Seattle are Baltimore, New Orleans, and Santa Cruz. There are more markets where inventory decreased than increased. Also, the markets where the median asking price increased this week outnumbered the markets where it decreased.

  32. 32
    [troll] says:

    Sttl s lwys bhnd th crv. Smthng t d wth th nmbr f tr hggng, lf lckng, ths s yr brn n drgs ppltn hr. Th hsng mrkt wll trn rnd ntnwd nd 6 mnths ltr (ys t wll tk 6 mnths fr ths n dnl) “Th Tm’s” wbst wll b thng f th pst.

    N mr grp hgs.

  33. 33
    vboring says:

    is it possible for Rentersareloser to be banned from commenting?

    he seems to bring only idiocy and aggression to the table.

  34. 34
    [troll] says:

    Why, y cn’t ccpt nthr pnt f vw?
    Hw bt bnnng y fr th prsnl ttck?

  35. 35

    I think I finally agree with you on something! Seattle is behind the curve. prices didn’t start dropping here for a year or so after other markets, and they might stay flat after other markets start to perk up.
    The economy and the housing market have cycles. Four or five years from now prices here may be climbing . But like Yogi Berra said ” Predictions are hard to make, especially about he future.”

  36. 36
    [troll] says:

    grg // My 12, 2008 t 7:06 pm


    Mny mngrs thnk t’s gd d t wn yr wn hm, bt s n nvstmnt th stck mrkt ds lt bttr thn hsng. Thr’s n dbt.

    Grg, fr mst ppl hmwnrshp prvds bttr pprtnty t ccmlt wlth thn th Stck Mrkt. Th stck mrkt s ll bt th trnsfr f wlth nd nlss y r vry stt, y wll lnd p n th wrng sctr t th wrng tm. Lk t th Nsdq bbbl f 1999/2000, stll hsn’t vn cm cls t rcvry.

  37. 37
    TJ_98370 says:

    ” Predictions are hard to make, especially about the future.”

    That’s really funny Ira. I never had heard that one before. Yogi Berra had a way with words.

  38. 38
    EconE says:

    I like having “Rentersarelosers” around.

    Not for offering a “differing opinion”…more for entertainments sake.

    He’s like our old pal Meshugy…but juiced up ad with an “edge”.

    I knew that this site would eventually attract a bunch of pissed off “wanna be” homesellers who are sitting on investment property. What else are they going to say when their potential buyers are here at SB, collectively laughing in their faces at their dream prices and paltry reductions, while smugly wishing them “Best of luck” on their sale. (Not you Biliruben)

    Biliruben was able to sell his house. What’s your excuse Mr. Rentersarelosers? Oh…yeah…you’re not just gonna *give* it away.

    These comments have been getting GREAT lately!

  39. 39
    Herman says:

    A couple notes:

    * A home I know in West Seattle just went STI. The couple is going to lose at least $150k on it. Bought for $1,150,000 two years ago, listed now at $998k. These days, you CAN pay too much in Seattle. (MLS #28062008)

    * I agree with Tim about his interest rate comment. If rates rise, prices will drop to compensate. If rates later drop, then you can refinance to the lower rate. In an environment where rates are rising, buyers should wait to let them have the price-dropping impact. (probably a few months) They will benefit.

  40. 40
    Herman says:

    I have to add, that people who are predicting a sudden 25% price drop in Seattle are nuts. Seattle didn’t have as big a runup in prices, coupled with overbuilding, as did Miami, Phoenix, and LV.

    The sharp drop won’t happen because the government won’t permit it. They’re pulling out all the stops to prop up the real estate prices and soften the landing:

    * Devaluing the dollar; allowing inflation to rise
    * Dropping interest rates to the floor
    * Federal bailouts for distressed owners, developers, and lenders
    * Providing loan guarantees for riskier buyers than ever

    Instead of a sharp correction, we will have a prolonged period of below-average performance in real estate prices. This means you can still lose money, and it will take a long, long time before your new home starts to look like a good investment. It’s a miserable time to be a buyer. I wish they’d just let it correct so we can buy at a fair market price.

  41. 41
    Kime says:

    There are powerful reasons for wanting to own your own home that have nothing to do with financial investment, and the value of these reasons can only be measured by the individual buying the home. Hyperbola has done his homework and made an informed decision based on how he believes the RE market will behave. No one else on this site can judge whether it was a good decision because they don’t know what the value of owning the home is to Hyperbola. Good luck with your new home!

  42. 42
    deejayoh says:

    To Herman in #39 –
    All I can say is wow! According to redfin, they actually paid $1.175m and now after having it on the market less than a month, have lowered the price by $150k? Gotta be more to this one, because tThat’s some serious desperation.

    I can only guess they had to get out for some reason. They may have seriously overpaid, but $1mm homes take on average 3-6 months to sell in almost any market so pulling the rip cord in 30 days makes no sense.

  43. 43
    Crashcadia says:

    The recession is just starting.
    $5.00 Gas and 10% unemployment is on the way.

    If we had these things now, would you buy now?
    You have 30 years to think about it.

  44. 44
    economist says:

    owning at 150x monthly rent comes out to an 8% non-compounded rate of return

    No it doesn’t, because rent is gross revenue, not earnings. You have to subtract expenses, i.e. taxes, insurance, maintenance, to get earnings.

    That takes you down to below 6% earnings yield or above 16 p/e which is the absolute rock bottom for any investment which consists of renting capital.

    but maybe 4% is the new standard

    Kind of like the new paradigm? How did that work out?


  45. 45
    deepcgi says:

    I disagree that the “fed won’t allow it.” They have no choice. They can postpone the pain and make the situation worse in the process, but they can’t stop it.

    First, they can’t continue to lower interest rates. Have you noticed the price of oil?
    Second, bailout legislation won’t change the risk to the banks.
    Third, because risk has increased for the banks, exotic lending on real estate loans is history.

    Nope, the most you can hope for is flat prices for five to ten years. What do you think will turn the tide for the worst hit areas? Speculation, again? Federal bailouts for people with no money? Banks taking risks again?

  46. 46
    Garth says:


    There is always room for debate.

    I am guessing the ten year returns on the dow jones are why bubble commenters have quit telling people there money is better off in stocks.

  47. 47
    jcricket says:

    This thread is really funny. Someone like Hyperbola makes a decision that doesn’t fit in with the “we’re all doomed” scenario and I think it throws a lot of people for a loop. He and his wife make decisions, like most of us, that aren’t couched on the idea that we’re all doomed because there’s a potential bubble in housing, credit, or impending high oil prices. Instead they weigh the information they have, their optimism for their own personal future and make decisions that allow them to move forward with their life plans. Sometimes plans don’t work out for internal reasons (divorce) or external reasons (job loss, house turns out to be money pit), but you can’t predict the future. More importantly, most smart or successful people don’t live lives of defensive fear or pessimism.

    I also find it funny how the people focusing on the coming home-pacalypse don’t want to talk about how bad the stock market would likely be in that scenario as well. Or how they’ll probably be out of a job too if all the Great Depression 2.0 scenarios turn out to be true. If it’s that bad everyone except the “perma-bears” who are almost always shorting the stock market (and have been wrong nearly all the time in the past) will be hosed. Who knows, maybe the bears will be hosed too because their stock market gains will be wiped out when they try and collect from bankrupt investment firms.

    The world of economy is clearly pretty complex, and from everything I’ve read and learned it appears the best strategy is to keep investing, especially during the down-turns, because that’s when you get to “buy on the cheap”. That’s where my money is. I keep maxing out my 401k and IRAs, following the same asset allocation strategy I have for the past 5 years or so. I have 6 months of liquid savings and a “empty” HELOC as a cushion. I own a house we bought in 2002 for below the asking price that is well within our means (mortgage is fixed rate, PITI is <25% of income). That’s about all I can do. We take vacations instead of stock-piling cash. We aren’t shifting our 401ks to funds that short the market. I’m not taking our cash savings and moving them into Euros. We didn’t sell our house in 2007 at the “height of the market” and start renting. There are a million things you can do if the economy’s gonna collapse, but I’ll bet you’re wrong (or wrong about how it will impact people, including yourself) and so you’ll make the wrong move. And then who’s hurting?

    Note that none of this means I think it’s a good or bad time to buy a house right now. As Hyperbola’s situation points out, the decision is a complex one that shouldn’t be boiled down into a “yes/no” decision from outsiders.

  48. 48
    NotaBull says:

    “Note that none of this means I think it’s a good or bad time to buy a house right now. As Hyperbola’s situation points out, the decision is a complex one that shouldn’t be boiled down into a “yes/no” decision from outsiders.”

    How else do you propose we classify people into the only two categories that exist:

    1) Idiots.
    2) People that makes the same decisions as me.

  49. 49
    matthew says:

    I’ve made plenty of money this year in the stock market. There are two sides to play: long and short, you don’t have to keep your money tied up going long. There are plenty of short and ultra short ETF’s for even the novice investor to play around with.

  50. 50
    Aaron Smothers says:

    > How else do you propose we classify people into the only two categories that
    > exist:

    > 1) Idiots.
    > 2) People that makes the same decisions as me

    There are only two kinds of people:
    1. those who divide people into two kinds
    2. those who don’t

  51. 51
    Sniglet says:

    Forget stocks. US treasuries have outdone stocks over the last decade. Someone investing continually in treasuries would have done better than stocks and (in most cases) real-estate.

  52. 52
    Happy Renter says:

    Congrats hyperbola. Sounds like you made a decision you’re happy with and you’re looking to the future rather than obsessing.

    At some point nearly all bubbleheads will take the plunge, and a different time will be the right time for each of us. It’s still too early for most of us, but the time will come.

  53. 53
    Buceri says:

    Congrats Hyperbola – it was your time, so cheers.

    Not to mention that if in 2 years you get transferred to Mobile, AL; no matter how much the value of your house goes down, it will still be 4 times the price of buying down South!!!!

    Don’t laugh, it happened to me!!

  54. 54
    Jason says:

    There were quite a few people back in sep, oct, nov warning about the risk of the subprime fallout and recommending bonds/gold. I know some perma-housing-bulls, stake in the game, all eggs in one basket people would like to ignore that fact. The only reason I remember is because I took the advice and moved 90% of my liquid assets into bonds.

    I can’t brag that I have a HELOC. And it would seem silly to even talk about the concept and freedom that no debt provides on this forum.

  55. 55
    jcricket says:

    The recommendation to buy gold is actually quite interesting. Recently (last 5 years or so) gold has had quite a run-up. But before that? 28 years of 0 growth. 28 years! 0! Those are some seriously bad returns. As reference, during that time of course, money invested in the stock market had doubled 4 times over.

    Or consider the stock market. As someone just pointed out, treasury bills have outshone the stock market if you merely compare the last 10-year period. But over the last 70 years the market has more than tripled the returns of bonds. Your money invested in bonds wouldn’t even keep up with inflation. Don’t forget that the comparison relies on you only investing all your money exactly at the beginning of the 10 year period, which was the height of the dot-com boom, not averaging your investments out over 10 years. But I suppose that’s too complex to make a point :-)

    I wish I could remember who it was, but some investment banking guy said something like “I’ve been around this game for 30+ years, and done really well. But if I had a crystal ball I would have invested all my money in TIPS back in the late 70s when they were returning 10-15% and just rode that out forever.” His point being no one has a crystal ball and moves that look brilliant are usually only so obvious in hindsight.

    Just like a full 75% of actively managed funds fail to beat the market consistently, most stock pickers, day traders and “I’ve shifted my funds to pork bellies) commentators will be wrong far more often than not when you look at their actual records, especially over any actual long-term period (10 years is the beginning of long-term, not the end of it) record. Not to mention trading costs and tax consequences.

    Yes, there are no guarantees, but usually hiding your money on the sidelines or being overly invested in anything (bonds, golds, real estate) is how you either get burned or simply miss out on the long-term gains the overall market has historically returned. There was a stat bandied about recently that missing the 5 or 10 best days of the market (b/c you had all your money out on the sidelines) you forfeited a huge portion of the potential long-term gains of an investor who simply stayed invested during that time.

    > How else do you propose we classify people into the only two categories that
    > exist:

    > 1) Idiots.
    > 2) People that makes the same decisions as me.

    That was hilarious :-)

  56. 56
    Keith says:

    > How else do you propose we classify people into the only two categories that
    > exist:
    > 1) Idiots.
    > 2) People that makes the same decisions as me

    Um, that’s only 1 category.

    FWIW, just like Hyperbola we closed on a house on Mercer Island a couple of weeks ago. The sale was through a re-lo company, and the price was very aggressive. And the property is truly unique, and perfect for us. And I’m quite familiar with the area – and local market – I grew up 4 blocks away.

    Some of the impassioned viewpoints on this blog appear similar to the “religions” in the stock market. You have “chartists” who examine minute changes in (admittedly poor) aggregate statistics. You have “fundamentals” folks who look at the historical price / rent relationship, and so on. And you have “sheep” who are basically looking for someone else to lead them (e.g. NAR or Housing Panic types). I find it ammusing that – while I think EVERYONE understands that “all real estate is local” – many folks on this blog like to correlate Atlanta, Las Vegas, Florida, or wherever to the Seattle area.

    I’m curious – has anyone else on this blog read Richard Florida’s books? In my view, we in “Cascadia” are clearly living in a “spike” that has quite a few factors going for it that NONE of those other areas do. Here’s a thought for you – perhaps the Seattle area HAS fallen dramatically compared to where it WOULD have been if the national economic picture hadn’t changed! Of course, since nobody knows what prices would have been under that scenario, you’re not going to see any snappy graphics. The only way we’re going to know if this situation occured is to look back at prices in – say – another 5 years.

  57. 57
    Keith says:

    Hah! I put “huge grin” in angle brackets after the “1 category” jest in my post immediately above, and the blog software deleted them. Seriously, I was just making a joke based on logic.

  58. 58
    Jason says:

    jcricket, you should send that little blurb to yahoo finance. They love that stuff. Ben Stein writes a similar blurb about diversify and sit every other week. He is still losing money but it never fails that at least 20% of people will still call his “new visionary idea” prudent in this market.

  59. 59
    Cynic says:

    Congrats on your purchase. All the angry hyperbole aside, if you’re happy with the house and plan to live there for many years, it’s a good deal for you. You don’t need to convince others.

  60. 60
    NotaBull says:

    “There are only two kinds of people:
    1. those who divide people into two kinds
    2. those who don’t”

    Further analysis has corrected my previously incorrect assertions, and leads me to conclude that there are in fact 10 types of people in the world.

    -Those that understand binary.
    -Those that don’t.

  61. 61
    Lake Hills Renter says:

    I believe the proper saying is: There are 10 types of people — those who understand binary and those who don’t.

  62. 62
    Lake Hills Renter says:

    Er, apparently there are 2 types of people — those who read the previous posts correctly and those who don’t. Guess which I am? =P

  63. 63
    Harley Lever says:

    The Tim,

    There is a slight problem with your interest rate assumptions. In 1980 and 1981 our interest rates went as high as 18.45% How does that work in your formulas?

    Here is a link to the historical data:

  64. 64
    The Tim says:

    Hi Harley,

    I could have gone higher to show the home price needed to bring the payment in line with interest rates up to 20%, but I decided to stop at a number near the upper end of what most people think is likely to be seen in the next few years.

    It’s certainly possible that interest rates could shoot up to 18% in the next couple years, but it seems awfully unlikely to me. Just for the sake of completeness though, here you go:

    Home price: $335,000
    Down payment: $100,000
    Interest Rate: 12.0%
    Monthly Payment: ~$2,400

    Home price: $290,000
    Down payment: $100,000
    Interest Rate: 15.0%
    Monthly Payment: ~$2,400

    Home price: $260,000
    Down payment: $100,000
    Interest Rate: 18.0%
    Monthly Payment: ~$2,400

    Is 48% off the peak price likely? Probably not. Is it totally inconceivable? Probably no less likely than 18% interest rates. Heck, some homes in the Seattle area are already listing at 38% off last year’s peak sale (see MLS #28074628 per waitingforseattletocool @ 24 above).

    Of course, if interest rates go up to 18% again, I think most people are going to have other concerns than how affordable home ownership is.

  65. 65
    Sniglet says:

    Keep in mind that you don’t need to have high mortgage interest rates to have a fall in housing prices. Conforming 30 year fixed rates haven’t risen all that much in the last few years yet Interest rates haven’t risen all that much in the last 4 years yet we are seeing plenty of regions with significant price declines.

    In fact, I predict that rates on 30 year fixed conforming loans will not rise all that much at all over the next 5 years, but we will still see a signficant drop (i.e. over 30%) in over-all Puget Sound real-estate prices. That said, rates might shoot up even higher for Alt-A, or any form of non-conforming loan. Increasing numbers of people just won’t be able to qualify for any loan whatsoever, which will further drain the pool of buyers.

  66. 66
    mike2 says:

    I’m curious – has anyone else on this blog read Richard Florida’s books? In my view, we in “Cascadia” are clearly living in a “spike” that has quite a few factors going for it that NONE of those other areas do. Here’s a thought for you – perhaps the Seattle area HAS fallen dramatically compared to where it WOULD have been if the national economic picture hadn’t changed!

    Yes, I’ve also considered that Seattle would have fallen much, much harder at the beginning of the decade if it hadn’t become so much easier to qualify for a home loan.

    I’ll admit I was in disbelief when in 2003-2004 friends of mine that had been laid off repeatedly during the dot com crash were buying homes after only a few months of stable employment. I had no idea that in a few short years, not only wouldn’t employment history matter, but neither would current employment status!

    And that, is the the foundation of today’s prices. I think if there was any time in Seattle’s history where it could have become a ultra expensive haven for the affluent, it would have been before 2001. Economically, the city has just been playing catch up since then. Income growth in the Puget Sound region has been among the worst of any major metro area since then. If your idea is that the area is so desirable that it is attracting more low paid workers willing to scrape by for their chance to live in a “special” area, I’m not sure what to say.

  67. 67
    TJ_98370 says:

    Harley, Tim –

    The reason interest rates were so high in 1980 and 1981 was that inflation was running at around 10% to 14%. I’m no economist, but if we ever see that kind of inflation again it’s a whole new ball game IMO. I am a firm believer of the old adage “inflation is a real estate owner’s friend”.

  68. 68
    Alan says:

    If interest rates go up to 18% then housing will sell for around 66x rent.

    That would be around an 80% drop from todays prices (adjusting for inflation).

  69. 69
    TJ_98370 says:


    My question is based on the fact that I just want to learn, okay?

    If I am understanding things correctly, it appears conventional wisdom indicates that house prices should be about 150X monthly rent, right? How do you come up with the sales prices being 66X monthly rent with an 18% interest rate? Run the numbers for us, please. I just want to understand your logic.

  70. 70
    Keith says:


    Just read “Who’s Your City?” or either of Florida’s “Creative Class” books. The low-skilled, low-paying jobs are here BECAUSE of the high-skilled, high-paying jobs in software and medical technology (to name 2 of our world class industries). And a substantial number of these jobs are going to immigrants with H1B visas – our fallen dollar makes real estate here comparatively cheap for them.

    Sorry – I don’t have an answer to “affordable housing”. But the lack of affordable housing hasn’t prevented growth – and rising property costs – in any major world city that I’m aware of. It’s just that the solution for workers in…say, New York, London, Singapore, wherever…is to put up with what you would consider “unacceptable” living conditions, or else commute from greater distances.

  71. 71
    Alan says:


    Pretend I offer you an investment that pays $12000/year. How much would you pay for this investment? The answer depends on what other investment opportunities are available to you. If the best alternative investment you can find only returns 4% then you would be willing to pay up to $300k. Any more than that and you are better off putting your money in something else. If the best alternative investment you can find returns 18% then you would only be willing to pay $67k for that investment. Any more than that and you are better off putting your money in the other investment.

    Let N by the rent multiplier to purchase. 12/N gives you the rate of return (for twelve months of rent). 12/150=8%. 12/67=18%. 12/300=4%

    Apply this to housing. Housing generates utility. For a landlord it generates rent. For a residence it generates ‘income’ in the form of rent that you don’t have to pay. You want to put your money in the place that generates the most return. If you borrow money at 18% you do not want to get an 8% return on that money. You would be much better off financially renting.

    But that assumes that rents don’t go up. Some people might claim that rents will rise with rates. I argue that rents rise with wages and asset prices change with rates.

    Of course in an 18% return environment we will likely be seeing 10% inflation and rents, wages, and housing prices will go up. But adjusted for inflation they will all remain mostly constant.

  72. 72
    Harley Lever says:

    With record fuel prices, the war debt, and our interest rates being slashed I would not be surprised if we experience inflations exceeding 5% very soon and flirting with 10% before we know it. Yeah, it might take two years to get to 10%, but you must consider that the department of energy predicted by 2030 oil will cost $100/barrel… today it is at $127.

    Currently we are at 3.5% – 4% inflation, but our economic data has a 2-month lag..

    Tim, I think assuming $100,000 down payment across the board makes the scenario unrealistic. I think it is realistic although perhaps generous to assume a 20% down payment in any given scenario and plug in the formula. Many people can only put up 10% these days… if they can even qualify for a loan.

    That would make your predictions look like this:
    Home price: $500,000
    Down payment: $100,000
    Interest Rate: 6.0%
    Monthly Payment: ~$2,400

    Home price: $450,000
    Down payment: $90,000
    Interest Rate: 7.25%
    Monthly Payment: ~$2455.83

    Home price: $400,000
    Down payment: $80,000
    Interest Rate: 9.0%
    Monthly Payment: ~$2574.79

    Home price: $335,000
    Down payment: $67,000
    Interest Rate: 12.0%
    Monthly Payment: ~$2756.68

    Home price: $290,000
    Down payment: $58,000
    Interest Rate: 15.0%
    Monthly Payment: ~$2933.51

    Home price: $260,000
    Down payment: $52,000
    Interest Rate: 18.0%
    Monthly Payment: ~$3134.74

    I agree that you can refinance into a lower rate, if and when that rate becomes available. I guess that many of the other speculators had the same sentiments when they got ARMs. You have to remember that refinancing does cost you on two fronts; the charges to refinance and also it extends the life of your loan and exponentially effects your total loan cost.

    I think we are all trying to find that perfect combination between cost and interest rate. In thirty years we will know who was right!

    Thanks Tim. I truly appreciate your insights and what you do here. Please do not take my critique as a cheap shot. I am just trying to plug in some scenarios that would “seem” to be more in line with scenarios the everyday public would encounter.

  73. 73
    The Dude Abides says:

    Enjoy making this house your home. You will fondly remember these times!

  74. 74
    The Tim says:

    Harvey, I used $100,000 across the board because I figure if you’ve got $100k to put down right now, that money isn’t going to mysteriously vanish if you wait 2 years to buy. If you’re responsible with it, it will most likely increase.

  75. 75
    TheHulk says:

    Agree with you on that one Tim. Unless you are getting a significantly better interest rate somewhere else why wouldnt a person plunk down as much as he could to lower his payments (especially if interest rates are in double digits!!)

    Also if you have that 100K now and even wait for a couple of years (while prices come down by say 50K), even at a measly 2% interest you should still have 104K waiting to be plunked down as a down payment.

    Interestingly enough I saw some foreclosed homes in kirkland and near houghton on redfin yesterday (dont see them today though, odd). Never thought that would happen.

  76. 76
    CrankyE says:

    Regarding the MLS #28074628 from above – here is the property report

  77. 77
    Sally says:

    Was my letter accepted?

    Thank you.


  78. 78
    Matt says:

    I’m not going to criticize Hyperbola’s choice to buy, but I’m moving to Seattle in a few months and am going to be making the opposite decision. This is how I thought about it:

    With a $120K downpayment, and 120K/yr. salary, I could afford a $520K home. Right now, in many areas on the Eastside, that’s not going to buy you much.

    Let’s say I buy a $520K home now, and sell it in 10 years, making back my $520K. In the meantime, I’ve been paying for a $400K mortgage over the 10 years and am required to live in a home worth $520K in 2008.

    Instead, say I wait 18 months and again, but a $520K home, but now it’s equivalent to a $720K home now. Again, after 8.5 years it will return to its 2008 value of $720K. So, again I pay a mortgage of $400K over 8.5 years and rent a reasonable place for the first 18 months. The benefits are:

    a) I get to live in a really nice home for 8.5 years vs. an OK home for 10 years.

    b) I am $200K ahead when I decide to sell or move up to a better place at the end of 10 years.

    The disadvantages are you have to rent for 18 months, and your property taxes will (eventually) be higher.

    Lots of people on here and on other sites seem to think that as long as you can sell a home for what you bought it for, then you’re doing great. So as long as you’re going to live there 10-15 years you should be safe. But there really is much more to consider than that.

    When you buy a home which will probably drop 25% in the short term, you’re literally throwing away the 25% no matter when you sell. Obviously, if the 25% drop is going to occur gradually over 15 years or more, then you have other considerations like cost of rent. But in our current state, I don’t think the drop is going to take very long at all.

    Anyhow, that’s my thought process. Not an expert in economics here, though.

  79. 79

    […] barn cats into $900,000 transactions and put unlimited escalation clauses into contracts. They blog about their experience when they’re happy and they do the same when they’re unhappy (see comments). They agonize over data about whether […]

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