Frustrated by the low end of the SF home market
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
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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.
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.
Comments
I plan to rent for a while. If prices don't drop then I'll move to a less expensive part of the country.
It might be a while longer. I would say anywhere between 2 and 6 years.
No. Another reasonable alternative is to rent a house. I find I'm much happier renting a house than I would be owning a condo.
I think it is quite a stretch to go to $325k from my limit of $300k. I mean, to "stretch" out another $100k we are talking an additional ~$750/mo. That is quite a stretch! What about a cushion for saving every month? What about losing a job or getting sick or in an accident longer term? People must not be thinking about this stuff at all, or they have a cushion in the form of rich parents (something I have found a lot of around here).
That is exactly what we are going to do when our apartment lease is up soon. It is hard to argue with renting for $1500 what it would cost $2500 easy to buy (monthly).
And Alan it is good to know there are actually other people out there like us!
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.
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.
No, I don't think they were even affordable then. Affordability has been out of whack since the early '90s at least. Just look at how much faster Puget Sound home prices have risen than incomes.
I will stake out the super-bear position and predict that Seattle area housing prices are going to drop to early to mid-90s levels (in nominal terms) within the next 4 years. This is not so much because I am negative about Seattle (I love this region, actually), but rather because I believe this credit crisis is going to evolve into something much uglier than the vast majority of people comprehend. A contracting global economy will have HUGE implications for all Seattle area employers. I can't imagine a single of our major firms that won't be having lay-offs in the next few years as business contracts.
By the way, I am NOT gloomy. Large price drops in real-estate are far more common than commonly realized. In the early '90s we had saw areas in the US where commercial property was trading for 80% off of peak (Florida, for example), and residential prices were down 40% (Manhattan in early '90s). Asia has plenty of examples where prices dropped 50% to 90% during the '90s, and still hasn't fully recovered (Hong Kong and Japan are still below peak prices, with many home-owners still upside down).
We will be very lucky if we only see a 50% drop from nominal peak prices in Seattle when we hit the bottom of this current cycle.
No way...you could still buy a decent new home on Issaquah plateau and older house in most of Bellevue at less than 250k by as late as 1999-2000.
2003, the prices started rapidly accelerating away from salaries.
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.
I'm with Ubersalad on this. I bought a home in Issaquah in 2003 for $350K. 2000 sq feet, huge back yard, and in a good location. Sure, it had gone up from 250K just a few years earlier, but even when I bought it I figured I was getting a good price and it was very affordable (even though my wife was out of work). Looking back at the mortgage payment, I'm guessing that when you include it all (tax deduction, maintenance) the cost was about the same as it would take to rent the place today, just five year later. If you finance appropriately, you locked in a great payment there!
There is no way that affordability has been out of whack "since the early 90s" in Seattle. This sucks to have to say, but there has always been, and always will be a segment of society that can't afford to buy a house. That's just the reality, and I'm not trying to defend it. I think houses in Seattle during the 90s were very affordable for most people at the time, and so looking back at that and using it as the starting point for a trend line of price vs income is highly misleading. If you couldn't afford a house in Seattle in mid-90s and you were in the buying demographic, and your salary level hasn't really changed except for inflationary increases, then I don't think you'll ever afford to be able to live in Seattle. Not pointing that statement at anyone in particular, just stating what I consider to be the unfortunate reality for some.
It might not be good to call those houses "total crap" though. The 2nd MLS# you gave, which is now sold subject to inspection, is the kind I like to see. All that junk repels the competition and saves the buyer tens of thousands of dollars, a small fraction of which can be used to hire professionals to make the property pristine before moving in. Now if the house is structurally unsound, or isn't priced at a discount compared to clean comps, then it's probably crap.
Also keep in mind that most of the value may be in the land.
This last part is what worries me, which probably didn't come across very clearly in my longish rambling post. It seems that there must be a lot of people in my situation that have been waiting it out, wanting exactly what we want. Is it possible that $300-325k has become the permanent entry point for SF homes fitting my requirements following the bubble? Have a number of factors shifted the demand curve far enough to the right to where it may be difficult for those homes to drop much? It is possible, and if I knew that the answer to this question were 'yes', or 'yes' for the next few years, then I would probably pick up and move out of state as soon as it were practical for my family.....
Point taken Markor. The bottom line is that with those houses (the first one used to have more interior pics before a relist) simply don't fit my -- what I think is reasonable -- requirement that a house I am going to pay that kind of $$ for be move in ready without having to do major work. I don't expect granite counter tops or anything, just that it is clean and functional. That's all.
I appreciate the recommendations. Perhaps my wife and I will drive around and take another look. Part of my concern about going south is schools. It is my (perhaps uninformed) impression that the Highline, Tukwila, and Renton school districts are just not as good as the districts in S. Snohomish county.
My other concern about going south is the commute on 405 to the Eastside. This has to be one of the worst commutes around!
Further more, there are a lot of homes right now in the 1700 square foot range brand new in Lynnwood that builders are dying to get rid of for low $300's. All you need to do is look.
You are not going to like this answer, but if previous bubbles around the country are any indication then you won't see the bottom in Seattle until something like 2011. Its a long way out there, so you are going to have to hold tight if you don't want your savings evaporated in a down payment. This is the very beginning, so I wouldn't even look for a house until at least next year if you don't want to be really frustrated.
Plenty of people all over the US "drove till they could afford" in outlying areas like Lynnwood, Kent, etc. Sure, it's more affordable, but it's also more at risk in a downturn.
I hope that prices come down significantly. There's a chance they won't. I think the Seattle area will fare a lot better than many other areas, for homeowners that is. But all the math & logic points to a continued erosion in prices. Most sellers around here (unlike, say, Modesto, CA) seem to be able to wait a long time before reducing their price, so it will take a lot of patience.
I have my eye on one house in particular that roughly fits the description in your original post. It's languishing on the market; if the price gets down to $325K, I'd probably try to buy it, even though that would be a significantly higher price than it would have sold for in 2004. It's closer to Bellevue than you say you want though.
The house I have my eye on has a junky yard. It would probably take $20K to bring the yard and the exterior of the house up to my minimum standards. But I'd expect a far higher discount (compared to comps with good exteriors), so I would save thousands without lifting a shovel or paintbrush myself. You can pay for major work. If I were young and didn't have the money, I'd do the work myself.
One house I looked at was priced at a steep discount compared to comps, but its glaring deficiency was that the back deck looked out upon the neighbor's personal landfill. If I had wanted to buy it, I would have first talked to the neighbor and offered him $500 cash plus a free clean-up of his yard.
Am I remembering correctly that you used to be a pretty strong housing bull a few months ago?
If the nation can avoid insolvency (i.e. if the voters finally pull their heads out in November), I think Bellevue/Redmond in particular could do well. Room for 10,000 employees is being built, by or on behalf of Microsoft, which can easily afford to fill all those spots with new staff. I'm very concerned about that, being a renter now. Right now houses are sitting on the market, but if I see a big uptick I'll be buying even before my lease is up.
Yesterday I visited the Klondike Gold Rush National Historical Park, run by the National Park Service right in Pioneer Square. Great place. Signs there tell the story about the 1893 nationwide financial panic, which led to bank runs and a depression. Seattle land values dropped 90%! Locally famous Denny went from riches to rags. Of course that was a different era, but I think the possibility of collapse is still strong now.
Ah, I love Coasian bargaining, a great theory. In practice though social barriers usually prevent it from happening. People often lobby for someone else to take care of their problems for them, usually via government intervention.
I wouldn't worry about massive new hiring driving up housing costs even more in the Bellevue/Redmond area. There is a long history of companies building massive new campuses just before they crashed. The joke in Silicon Valley used to be that you could tell which companies were good to short based on who was building a shiny new headquarters. And just look at all the skyscrapers in New York with names of companies that are long past their prime (GM, Chrysler, Citigroup).
I am not so sure about the "insolvency" bit though. I am in agreement about the very real likelihood of huge real-estate price drops in the 80% range, but I don't know that the nation will have to go bust for that to happen. Property prices in Japan fell more than 80% within national insolvency. Hong Kong saw a similar decline in the late '90s. Heck, even the US has seen massive price drops in particular regions. There were Manhattan appartments selling for 40% off of peak prices in the early '90s.
I don't think most people have gotten their heads wrapped around the fact that it is actually normal for there to be periodic MASSIVE price declines in real-estate.
Yeah I'm a big fan of creative bargaining. I offered my new landlord a deal: I buy & pay for the installation of a garage door opener that he picks out & gets to keep. He agreed, and it works for both of us in the long run.
I am not entirely sure what you are trying to imply here, but for the record, I don't have "bigger problems ahead" of me. I am trying to avoid problems by not stretching too much.
Pencil it out. Take a $90k/yr income, subtract taxes at ~25%, netting ~$5600/mo. A simple PITI calculation on $280k, 30yr, 6.5% fixed, $2800 taxes, and $600 insurance yields ~$2050/mo in mortgage payments. That is ~36.5% of our income, above the typical figure considered affordable.
Subtract out other monthly expenses and things start to get tight. We don't have any credit card debt, but we do have things that many other couples like us have: a single car payment (some have 2), part-time childcare (some have full-time), student loans (some have more or less than us). Nor do we do anything extravagant like huge vacations or whatever. I feel fairly average for a young couple. Hell, we make more than the median family income, and if you believe the media others have all sorts of debt and expenses that we don't have.
Mostly I am just venting my frustration publicly here for discussion. I don't think there are magic solutions or anything. I appreciate everyone's suggestions. The whole thing just seems crazy because I feel like we are doing pretty well overall and that my expectations aren't too far out of line.
Hopefully things will calm down significantly in the next few years as I rent. If not I will be "voting with my feet" to another more affordable location. Probably to one of those nice mountain states with lots of sun....:)