Ding Ding Ding... we have a winner
meshugy wrote:Those of you following this blog over the last several months will recall a number of readers made wagers with me regarding the housing market in Seattle. Let's review them:
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Synthetic: Synthetic bet that my house's zillow rating would drop by Dec. This wager was made in March, when my house Zillowed at $534K. Today it zillows at $550K. Dec is a long ways off and I suppose anything can happen. But it looks like Syn miscalculated this one...I'd be glad to give you the opportunity of back out of this. Do you accept?
Final answer, according to the gods of randomness over at zillow... $527K
and thus concludes the long running saga of Shug's multiple bets. He was riding on the edge for months, and it finally caught up with him.
Comments
A higher quality RE bull than the depressing conciliators and angry agents we are collecting these days.
Let's see... $2,033 drop in 16 days extrapolated throughout 2008...
If that rate of decline keeps up (and doesn't accelerate), Meshugy's house will be "zestimated" at $480,000 by the end of the year, a whopping 11% over what he bought it for in early 2005.
11% over 3+ years? Why that's fantastical. It's nearly 3.75%. I mean, official inflation is running something north of 3%, so that's real appreciation of maybe even 1% in 3 years. Wahoo!
You forget the Magic Of Leverage - since Shug probably put up little or no money to buy the house, the return on his investment is much better than that. Of course, if the value of his house now falls by more than 11%, the Magic Of Leverage will turn on him like a snarling beast.
But since I don't have a copy of the shugster's mortgage, I cannot make that calculation. Besides, to get that mortgage, you also have to pay 5% or more a year in interest. Add that in, and an 11% gain is actually a 4% loss with all the profits going to the bank.
That's a good point that doesn't get picked up in calculations of real estate "profit" - if you have to pay two or three times the cost of renting to own a house, that excess carrying cost should be deducted from your "profit". If you put 10% down, and RE is going up 20% a year, the excess carrying cost is noise - but once the annual return gets into the low single digits, that additional cost becomes significant, even with leverage.
- that's 21.9% appreciation, not 11%.
- in 2.66 yrs of ownership, that's almost 8% a year.
just to keep things on an even keel.
And further, I don't think Tim believed that number exactly either. But no matter how you cut it, average gains are going to continue dropping for years as prices fall/stagnate. I think people who bought in 2005 will see total average gains of around 4% by 2010. But of course, that's a guess.
That's down another $22,000 since January 3, and $24,033 since December 18 (100 days ago). Let's do another extrapolation...
$24,033 drop in 100 days, extrapolated through the end of 2008 would be another $67,052 drop, putting the value at $436,448 by the end of the year. Whoops, that's $43,552 lower than the extrapolation I did back in January, which means the drop is accelerating.
Who would have guessed? Oh yeah, Synthetik, for one.
So he bought it for about $432k huh? That means if your current extrapolation holds, he'll be just about back to square one by year's end.
Yea, but he also has all the benefits of home ownership over that time period. You know, things like taxes, insurance, maintenance, repairs, and being able to paint his walls.
That brings up a question I had today. How much appreciation do you need in Seattle at a minimum to come out even on a house. Let's set up some ground rules. Let it be a median priced house. Also, assume you'll live there for 5 years.
We already know 0 appreciation is a loser (you can rent cheaper). So can you come out even at 3% a year appreciation? 5% a year? I think this will be good to help people put into perspective just how bad a deal it is to buy while prices are actually falling, since you're losing even if they are flat.
That looks like a manic depressive going off the meds...
It's not hard to find. Zillow has a "most popular" feature. Let's just say that our interest in his house plus his zip code is all you need. Square footage and purchase price/time will give you confirmation. It's all in this thread.
I did an analysis on a $185k condo in Bellevue. You could rent a 3rd floor unit for $750 (per Craigslist). $37k down, remainder financed at 6.25% (30 year conforming loan at the time), and assumes you sell with conventional buyer & seller agent fees (6%). Rent increases at 3-4% per year, PITI increases 2-3% (property tax and insurance increase, size of tax deduction drops). The comparison I actually ran was investing the $37k and the monthly difference in rent vs buy in a 5% savings plan vs owning the home. The crossover point was late in the 9th year.
You can change your assumptions around and it has substantial impact obviously. Since getting 5% on savings is pretty tough now, changing it to 3% moves the crossover to the 7th year.
If you disregard the down payment savings factor, only saving the rent difference, it's about 2 years at 5% appreciation / 3% savings, 4 years at 3% appreciation / 3% savings.
In other words, if you plan to live there for 5 years and get 3% annual appreciation, buying isn't all bad. Then again, if your house loses 10% the first 2 years and is flat the next 3....
So in other words, when 'experts' say it's good to buy if you will be there at least 5 years, what they mean is if the market doesn't decline you might almost come out even in 5 years.
RCC, using pre-2001 norms, you would generally come out ahead after 5-7 years. And have the benefit of being free to use the property as you chose, which has a different value to different people (much more for smokers or pet owners, much less for people who like off-white walls and carpet). Buying today, I think that number might be more like 10-15 years.
I miss Meshugy. I drive through Ballard a few days a week now and I constantly have to fight the urge to drop by his house and leave a Seattle Bubble business card in his door with "We miss you!" written on the back...
When a dude spends so much time touting his home's "zestimate" and rubbing it in everyone's faces, I don't feel the slightest bit of remorse when I revel in its demise.
Wait a minute...
...
...nope, none.
His broiled crow is waiting anytime he chooses to chow down. :twisted:
I did like his "Baby Blue" icon (blue baby with sunglasses)....that was pretty cool.