Buying wisely in any market

[photopress:seg.gif,thumb,alignright]I find that most people who track countywide stats, looking for bubbles and market trends, are not people who are buying and selling property. Anyone who is actually buying or selling property knows, that countywide stats tell you both everything and nothing. It is in the small subsections of any given market that you will find the information you need to make wiser choices.

For instance, can you really compare ramblers built in the 60s to newer housing choices? Can you compare “too small for anyone” condos of 400 square feet, to the saleability of 2 bedroom 2 bath condos? Lumping everything together tells you nothing. Houses on busy roads, for example, will not sell as well, and will sell worse at times like this when buyers are being more cautious. I think of houses on busy roads when I hear comments like, “The market is getting weak! I see more and more for sale signs every day while driving to work!” Well let’s assume that most people do not drive on quiet 25 mi. per hour residential streets when driving to work. So what they are seeing is the weakness of properties situated on busy roads, not the market in general.

A good example is tracking newer townhomes, in the $300,000 to $500,000 range, within 3 miles of Microsoft. This is a market segment that is driven by its own forces and outperforms the market in general. In the last six months there were only 21 townhomes sold, built since 1990 and within 3 miles of Microsoft, between $300,000 and $500,000. Of these 21, 16 sold AT or better than full price in less than 30 days. Several in less than 10 days and most in less than 20 days. At the moment there are only 3 available, all on market less than 15 days and two at less than 5 days on market and there are 3 in escrow.

So of the total six month inventory, you can expect four to sell per month and there are only 3 on market, two of which have only been on for two days and three days, respectively. Those are some pretty strong market stats. What are the odds that these will start dwindling on market for excessive periods of time or go down in price? Slim to none. Making offers on this product, based on what you are reading about the King County market in general, would make no sense whatsoever.

So Chicken Little, maybe the sky IS falling for older ramblers built on busy roads with only one bathroom. But conversely the sky is still the limit in newer townhomes for sale within close proximity to Microsoft. There’s a whole lot of varied stats in between. Make sure you are making your choices based on the product and market segment that YOU are considering buying. Buying the biggest “bargain” on market, could lead you into buying in that segment of the market that will not appreciate, and will be difficult to sell later for at or more than what you paid.

110 thoughts on “Buying wisely in any market

  1. Ardell,

    I could certainly be mistaken, but your post appears to be directed at me & my blog. However, you seem to be arguing with a straw man here. I don’t know of anyone that recommends that someone intending to buy a house base their bidding or selling decisions on county-wide data. (If you believe I have advised that, I welcome you to provide a link to the post where I did.) Obviously if you are intent on buying or selling a home, the best comparison would be with a focused data set such as what you described in your example.

    The purpose of looking at county-wide data is to analyze general trends. Some people (myself included of course) are interested in knowing what the local housing market looks like as a whole. Knowing that newer townhomes $300k-$500k are being snatched up like candy is of little use when looking for an overall picture of market health. The beauty of county-wide data is that it does include 60’s ramblers as well as new construction. You can try to explain away signs of weakness by pointing out specific market segments that are always historically weak, but if the county-wide data is trending negative, there’s still something going on that just isn’t normal.

    I can understand where you are coming from. As a real estate agent, the only numbers you are interested in are those that directly relate to buying or selling specific kinds of homes (those that your clients are buying or selling). That’s fine, but there are many people that are interested in the bigger picture, and I don’t think it’s fair to totally discount the value of such data.

  2. Tim,

    Clearly you and your blog are not the only ones drawing conclusions from county wide data. Almost all newspaper articles do for sure. NWMLS posts data on a county wide basis. My clients bring up radio and newspaper county wide “findings”, and not your blog at all. It’s more like “if the shoe fits” with many pairs of feet in the mix and the shoe fits more than you and your blog.

    We all meet people who want to offer much less than asking price on ANY home based on something they read. As for you and your blog, no, I don’t see that there. What I do see there are people saying SELL, DUMP, DON’T BUY…and all polarized advice is of course wrong. Whether it’s a Bubble Blog person (not you) saying Don’t Buy; SELL or an agent saying “It’s ALWAYS a good time to buy!” Both are wrong and bad advice as polarized points of view. Maybe not you personally, but certainly some of your writers and commenters have a polarized unbending view of the world. Some even seem gleeful in the await of some downfall of those who do not heed their warnings, so they can say “I told you so!” Not a very balanced perspective, from what I have seen.

    As to “there’s still something going on that just isn’t normal”, actually you are incorrect. What is going on IS normal. What WAS going on, anything selling regardless, was NOT normal. This is normal. What we have right now IS normal. It’s the last quarter, great stuff sells fast at asking price or better, some stuff sits on market…just a normal last quarter from what I can see. Comparing month to month is pure nonesense, as if October ever compares well against June or 4th quarter ever compares well against the 2nd or 3rd quarter.

    I never write about you personally, Tim. In fact when I mentioned something about 20 year olds, I wasn’t talking about you at all. I thought you were 35ish. If you are 20, honestly, it was pure coincidence. Don’t take everything so personal.

    I just don’t believe in “big pictures”, that fuel meaningless conversations. Whether its your blog or the PI, I have the same criticism of articles that lump everything together. How can someone in Redmond or Kirkland base anything on what is happening in the CD or Columbia City. At least keep it a little apples to apples. It’s a big County. Some stats county wide…great. ALL stats countywide…nonsense.

  3. Ardell, I can’t tell if you mean that the regional market doesn’t affect local home prices (“lumping everything together tells you nothing”) or if you mean that it’s overemphasized by the local media. I’d say it’s pretty reasonable to compare what’s gong on in Kirkland with what’s going on in a neighboring area, at least in a general sense. I don’t think it tells the whole story, but local trends are definitely influenced by area trends.

    Trends don’t happen in a vacuum – if the price of real estate in a greater area is rising at 20% a year, the odds of any given segment or area having increasing prices are higher. If the whole market is tanking, odds are any given area / segment will have trouble sustaining growth year over year. By way of comparison: There were stocks that went up after our last stock market bubble, but not many. The same may be true for real estate – there will be areas of growth, but they’ll be much harder to find than they were over the last few years.

  4. Galen,

    I do think it is time to stop thinking one can “ride a wave” up. I think we are in a market where people have to make wiser choices and “pick the right stocks” as opposed to buying an indexed fund, to use your stock analogy.

    But as Donald Trump might say, it is ALWAYS a good time to make wise choices. Why look for up trends to support a bad choice? Anyone can make money in an up trend. But the person who makes a wise choice can make more money in an up trend and some money without an up trend.

    Speaking of stocks…the Dow went over 12,000 when I wasn’t looking! I remember when people said it wouldn’t get over 3,000 🙂

    Question: If 20% of people lose their homes in Auburn Federal Way this year, because they bought things with loosey goosey financing that they couldn’t afford…does that mean prices will go down in Bellevue?

  5. If someone rides a wave up, wouldn’t they also ride it down? Logically, it would seem so, unless something comes in to support them at their new elevation. Loose lending standards don’t make for a good support…

    When affordability decreases county-wide, fewer “wise choices” are available to be made. If the median income for a county is 50k and average price for a home is 350k, things just don’t add up. Where do these people go to make a “wise choice”.

    Sure, some market segments will continue to be attractive even at higher valuations because the buyers are less price sensitive. Higher income earners have the ability to make more “wise choices”.

    If what we are currently seeing a return to normalcy and normalcy means that a certain percentage of people should be able to afford a home, then prices within that county will need to readjust in order for normalcy to be established. Whether that happens by prices going down in some areas but up in others OR wages increasing OR prices going down everywhere OR anything else that would return the market to fundamentals is anyone’s guess.

    This is what the county numbers are useful for…

    ….
    Also, that CNN Money article about Bubble Proof markets is a real laugh. It also listed Boston and San Fran, which are deflating as we speak. Amazon and Ebay are still here after the tech bust,. Does that mean they were bubble proof? They certainly aren’t trading for prices anywhere near those achieved at the peak of the boom.

  6. By Ebay, I meant Yahoo.

    Also “If what we are currently seeing a return to normalcy” should read “If what we are currently seeing IS a return to normalcy”

  7. Ardell, I totally agree with the premise – there is always money to be made. And like you, it really bugs me when people say “real estate is always a good investment” or “buying real estate is absolutely not a good investment.”

    If 20% (!) of people in Federal Way lose their homes next year, you better bet that Bellevue will feel it! But! If home prices slip some in Federal Way, I doubt you could assume Bellevue will move one way or the other.

    You pointed out a good spot – buying near Microsoft might be the biggest investment bang for your buck right now.

    PS: Did you know the The Trump inflates the value of his portfolio in order to get a higher rank in money magazine each year? Totally awesome. I’m worth $10 million, you know.

  8. Galen,

    Sorry, I meant 20% of the people who bought there in the last two years, not 20% of the the people who live there. I could see that happen. I believe there was more abuse and subprime lending in that area in the last two years.

    To both Flopfolder and Galen. Trends are very important, like the trend for people to pay way too much for homes that “look” good. The trend for people to pay many thousands more for a house where someone painted the dark wood light. A little paint and time and you have improved the value. Too many people pass by the values until they find that one that looks SO good that they will only lose money unless they can “ride the wave”. The trend to be distracted by staging and buy the well staged house for more than it’s really worth.

    So you buy the “ugly” home in the best location near Microsoft that needs updating. Built in equity. Best looking outside, worst looking inside. I don’t think anyone should rely on the chance that the market will go up. You buy something you know you can improve the value of. Then if the market goes up you have double and if the market stays flat you make money and if the market goes down you can get out whole. Find the very best house with the cheapest to correct cosmetic issues.

    Normalcy, Flopfolder, is that crap doesn’t sell and good stuff does. The good stuff doesn’t lose value and in fact still bids out. The hard to sell properties on busy roads etc. have been selling for way more than they would in a normal market. Properties with noise factors have also been selling for way more than they should have. Many things will go down in price, but some people bought wisely.

    Just go out and look at the flip projects that arent’ selling. Every one has an incorrectable negative. Every one is someone who put too much money into the wrong location or wrong exterior “look” or improved it too much for the neighborhood. Bad choices, not bad market.

    I’d like to say ALL of my clients bought wisely this year, but not so. Mr. “Jack” As Good As It Gets, bought very wisely. My first blog client bought very wisely. Neither of those has to be sitting home biting their nails watching the county stats. Two of my clients bought houses with no garage that were properties where a garage could be added. The house with garage goes up more in value than the cost of adding the garage. A little insurance against a bad market.

    Watching stats and hoping to ride the wave is like gambling. Buying your personal residence shouldn’t be a “gamble”, it should be the most important investement choice for most people.

    One last thing Flopfolder. Higher income earners have a harder time making wise choices, not an easier time. They can afford to make mistakes, and they do make them.

    Who made the best choice? The 19 year old kid who bought a condo across from Microsoft for $100,000 in the summer of 2005 with his summer intern wages. Student at U-Dub. He could put $3,000 into it and turn around and sell it overnight for $120,000 back then. Today it’s worth a lot more. Ugly in the better complex is better than pretty in the poorly managed complex.

    You don’t need to be rich to make wise choices. And you shouldn’t wait to be afraid of the market due to the stats, to make wise choices.

    I’ve never lost a dime on one of my personal residences in 22 years. And I’ve bought and sold and moved a lot. Wise choices, not market conditions. Maybe that’s how you pick an agent. Ask which of their homes that they have owned turned out to be bad investments…me…NONE.

    Now go out and buy the best smelly old people house you can find 🙂 There was a great one in Bellevue recently for $495,000. A real diamond in the rough. Not sure if it’s still there. My people couldn’t get past all the dark wood paneling.

  9. I think you might be on to something with this theory, Ardell. The theory that the stinkers rose in value disproportionately over the last few years is certainly true in my eyes. Good call.

    Are you ever right about the flips – the flipping market is much harder now that most of the easy cosmetic-only overhauls are gone and people are trying to make lemonade out of some nasty fruit.

    Smelly old people houses are the best. Especially if they have dark paneling and double if they have pink carpets!

  10. Galen,

    There are always good ones. Problem is people are impatient. Haven’t seen pink carpets though…the best ones have brown carpets. Cheap on a busy corner is not as good as old stinky house on a great lot in a great location. The cheapest house is not always the best flip.

    The toughest one I sold was on Mercer Island. The guy who bought it couldn’t afford to fix it and I had to go and just make it look better without money. That was fun. He bought it for $660,000 and I had to come back and turn it. Got $735,000 for it. That was a miracle. Knowing what to do with no money that will get the most bang for the sweat equity comes in handy. We all pitched in and painted, powerwashed, dressed it up. Only new thing we put in was a cheap stove.

    Taking out popcorn ceilings yourself after making sure it’s not asbestos is a great value booster. That’s why I asked about it. Selling a house that my client will likely flip, not for investment, but because he likely will want a different house in a year or less. It’s a temporary house. When I have a client who will likely move soon, I have to look at it the same way as one would a flip project. Then if he stays, great. But if he calls me to sell it soon, we already have the value added plan in place.

    He wouldn’t go for the really ugly brown rug and paneling smelly house though 🙂 I found something he could move into right away that we could fix up on the way out.

  11. Ardell,

    I agree that “polarized advice” is no good, assuming that by “polarized” you mean essentially “based on personal opinion rather than appropriate facts and data.” I also don’t “get” the mindset of people that are seemingly gleeful about the demise of others.

    As far as whether or not the present market is “normal,” I guess we’re going to have to agree to disagree. Maybe you’re right, and the increasingly rapid YOY increase in inventory and decline of sales (see the table at the end of this post) is just a very speedy return to a “normal” market. It just doesn’t look that way to me, though.

    I’m not here to get into an argument, but I do want to respond to your claim that “I never write about you personally, Tim.” Perhaps it’s not how you meant it, but when you start a post with “The Tim over at Seattle Bubble posted… he abruptly ended it with ‘I think that sums it up'” and close it with “So ‘that sums it up’ may make a whole lot of sense to a 20 year old…but not to an adult” I think that most reasonable people would interpret that as an attempted dig on my age (for the record, I’m 26). As far as this post goes, I said at the very beginning of my comment that “I could certainly be mistaken,” so I wouldn’t at all say that I was “taking it personal.” I was just responding because the topic at hand is quite clearly one that is a primary focus of my blog.

    [posted thrice because it keeps getting eaten by the spam filter]

  12. The Tim,

    “Polarized advice” means never say always or never.

    “Normal” means not a seller’s market and not a buyer’s market.

    Linking to other people’s articles is not “personal”. I said “The Tim over at Seattle Bubble posted an excellent piece yesterday…” Funny you didn’t notice the word excellent.

    Your piece sums up at, since you can rent an apartment today, at pretty much the same price as I paid when I was a “20something” in 1978 – 1982, that home prices should also have remained as stagnant over that same period of time. Because they didn’t, prices are “out of whack”. I don’t come to the same conclusion.

    As I said before, my reference to 20 year olds had nothing to do with you. In fact, I thought you were at least ten years older than you are, so it couldn’t possibly have been personal.

    My point was simply that when it comes to renting vs. buying, a 20 year old, in my experience from when I was 20, or now with my children who are 18, 20 and 22, is most concerned with monthly payment. That is not a criticism of 20 year olds. My 20 year old is more concerned with what she wants to be, what courses to take this semester, should I share an apartment with a friend or live in my Mom’s basement? Should I switch schools to PA so I can be with Pop Pop until he dies?

    My 18 year old is just celebrating being “Free, Free, Free at last”. I figure she has a few more months in that mode.

    The fact that rents (that someone in their 20s is more focused on) have not increased to the degree that home prices have increased, does not “sum up” to housing prices being out of whack. I would expect a 20 year old to choose to rent or use a rent vs. buy scenario. I would not expect a 40 year old with two children and a dog, to make the same choices as a 20 year old. Nor would I expect them not to buy a home, until the cost of buying one equals the cost of renting one on a net basis.

    In my experience, people buying homes that NEED a home, are not sitting around with stats. They are trying to meet the needs of their family as best they can, at which point they burn the excel spread sheets and go out and do the best they can for their family. We don’t run rent vs. buy scenarios for those people, nor do they make their housing choices based in it being cheaper to rent than to buy.

  13. *Sigh*

    Again, I wasn’t trying to say that you meant it as a personal jab. If you say you didn’t, that’s fine, I take your word for it. There’s no need to rehash a detailed explanation behind your thought process.

    I was just making the simple point that to most reasonable people, the wording of your post comes across as an attempted knock on my age, regardless of whether you meant it that way or not.

    That’s all I have to say on the matter. The last word is yours.

  14. The Tim,

    Go the other way, Tim. Get out of personal mode. Whether it is the focus of your blog or your personal focus, you never seem to get to the reality of today’s housing choices.

    Is it ever appropriate for a Dad to say to his wife and kids, “OK everyone, the market has peaked! Let’s sell our house and go hole up in a rental until the market hits bottom! Switch schools, no you can’t decorate your rooms because it is a rental, let’s take the dog to the pound because the rental doesn’t allow pets.”

    It may in fact BE the wise financial choice to do that. But do you really think a family ever does that, because the stats say the market has peaked? Bottom line is, people buying houses are buying their home. People don’t stop buying shoes, because shoes get more expensive and people don’t stop buying houses when housing gets more expensive.

  15. Ardell,

    People do in fact, stop buying houses as houses get more expensive. That is the exact reason I have not yet bought a house in this market, I am waiting to see what the market does. I know plenty of people I work with in their 20’s that are waiting to buy their first home because of the downswing in the market. The market has basically priced me out, I believe that if it has priced me out, it has priced others out, and it will eventually come back. The last few years has seen an uprecendented rise in housing across America that is abnormal. Once normalcy returns, I will buy, as will many others my age.

  16. Ardell,

    Serious question here. Why does anyone NEED to buy a home?

    I am sure that there are many reasons why someone might WANT to buy a home, but need is a very strong word. The simple fact is that someone, whether they be 26 (as I am) or 46, only NEEDS a place to live. This place to live could either be a place they rent or a place they buy.

    Imagine two properties R and B. Property R is available for a monthly rent. Property B is available for purchase. Property R and property B are exactly the same, in fact they are located directly next to one another. The rent of property R is X dollars, a number that is determined by local supply and demand. The cost of owning property B (where cost to own is tax, utilities, maitenence and debt service) is greater than X.

    In this scenario, which is occuring in a large number of US markets, including some King Co markets, how does it make sense for anyone to buy? Buyers are priced out. NEED is not a factor. Needs are met by renting, which is the cheaper factor in this case.

    Now, I am not saying that the above scenario is occuring in all King Co markets. But, if it is occuring in a significant number of markets and thereby pricing out buyers, this is NOT normal. This is a bubble!

    The bottom line is that loose lending standards and easy credit have allowed rapid price appreciation to occur in many markets due to generation of substantial demand. In other words, people making 50k could all of the sudden qualify for 400k mortgages and the flood of cheap money drove prices up, up, up.

    The points you make about value are certainly valid. Good “investments” will always be found. But homes aren’t investments. They are a form of shelter and a depreciating assest. The only reason that they go up in value over time historically is inflation, maintence, population growth and its effect on underlying land value.

  17. My point was simply that when it comes to renting vs. buying, a 20 year old, in my experience from when I was 20, or now with my children who are 18, 20 and 22, is most concerned with monthly payment.

    Interesting. When I initially asked you about your decision to go with 100% financing on your primary residence, you replied “Well, if you can afford the payment…” – that comment was since replaced with a more thoughtful response.

    A 20 year old’s concern with monthly payment is reasonable, as they have probably another 30 to 40 years before retirement. Once you’re close to retirement age, buying things based on your future earnings capacity is a bit riskier.

  18. >Speaking of stocks…the Dow went over 12,000 when I wasn’t looking!

    Just as an FYI, inflation adjusted, the DOW would have to rise above 14,400 to reach a new “high”. Also, the DOW is only comprised of 30 stocks, and an antiquated way of looking at the market. Looking at the S&P500, it still has about 14% to go to return to it’s 2000 high.

    As far as rentals, I have found that, Seattle being a pet-friendly city, the majority of places do allow for dogs and cats. We looked at 15 properties before choosing our apartment, and all allowed pets with very small deposits.

  19. Actually, we’re still in a secular bear market since 2000 (the previous secular – or generational – bull market lasted is generally recognized as having lasted from 1982 to 2000), experiencing a cyclical bull market. The S&P (a better, broader and superior representation of the stock market) would have to exceed its high by 10% to move into a secular bull market again. These secular markets last 8 – 20 years, so we have a few more years until the S&P will surpass 1700.

  20. Flopflolder,

    I just did a scenario where someone I know would have been much better off three years ago, had she bought the house she is renting then. Her net gain without tax considerations would have been $47,200 all things considered. Should she buy that same house today? My calculations said, no. The house she rents meets all of her needs, she is single and is able to run her business out of that house. If she can ever again buy that house at the price she could have bought it for three years ago, she should jump at the chance. She missed the boat. That ship has sailed for now.

    So there. I agree with you with regard to that single person. She has a perfectly good housing choice in her current rental.

    Now, why do people NEED to buy a home. The person above would be much happier today if she owned her home. She does not like the idea that the landlady can knock on her door and say “you have to move”, which did happen during the last three years, but the owner decided she could stay. The tenant was leaving for a business trip…all hell broke lose…she was in a panic. She was too busy to deal with having to move. She was seriously freaking out. The more you depend on your home BEING your HOME, the less you want some third party coming to your door saying, “Sorry, you have to move.”

    One of my potential clients got a 20 day notice to leave because the owner decided to sell, just a week before their three year old son was going into the hospital for open heart surgery. Panic! Did they need that news on that day! All hell broke loose. Lots of anguish. Owners let them stay when they heard about the operation…but still…36 hours of sheer panic in the meantime.

    Over the years tenat #1 has wanted to change out the stove, which is a mess. She has wanted to reconfigure some things to meet her needs, but the landlady wouldn’t let her. She wanted to paint the walls a color, but the landlady wouldn’t let her. One day she went on a business trip and came home to find her home the color of baby poop…she was sad, but there was nothing she could do about it. One day she came home to find the landlady had pulled up all of her favorite orange flowered weeds in the garden LOL…she never knows what she is going to find when she comes “home”…cause it ain’t really HER home now…is it?

    Very few people buy their homes because of the financial aspects. They buy it for the emotional aspects of owning their home. And that’s the truth. Sure they are happy when they “make money” on the home. But that is rarely why they buy a home. So best I can do is find them a home that I feel they CAN make money on, or at least NOT lose money on…I really don’t tell people they should buy instead of rent. I just help them make good choices when THEY decide to buy because they want to be in control of their lives.

    They want to paint the living room or buy a new stove when they feel like it and they don’t want someone else telling them, with 20 to 60 day notice, that they have to move. Tenant #1 up there is 54 years old. She doesn’t want her life to be controlled by the landlady to the degree that it is.

  21. Mojonixon,

    I just like looking at the DOW, as it reminds me of the day we were all discussing whether or not it would ever get over 3,000. Just a trip down memory lane for me, not a comment regarding housing choices or the market generally.

    Talking about renting apartments vs. renting houses is a completely different topic, as there are many more choices in apartment rentals than there are in single family home rentals. Renting apartment vs. buying a condo is more likely to fall on the “better to rent” side, than renting single family house vs. buying singel family house.

  22. Ardell,

    Here is your summary with my emphasis added:

    “They WANT to paint the living room or buy a new stove when they feel like it and they don’t WANT someone else telling them, with 20 to 60 day notice, that they have to move. Tenant #1 up there is 54 years old. She doesn’t WANT her life to be controlled by the landlady to the degree that it is.”

    Certainly valid reasons for WANTing to buy a home. None of them are NEEDs. See my point?

    The more I think about this question, the only NEED I see with respect to a home purchase comes about during retirement. In many cases retirees incomes are reduced to the point that they NEED a cheap place to live and an owned home affords them that opportunity.

    There are ways to get around this while renting, but most people would not be disciplined enough to save and invest the necessary funds.

    Missing out on the equity train of the last few years and getting priced out of a market sucks. It sucks even more for those of us that are just getting to the point where we could realistically be first-time homebuyers. We have come into a market where we were never priced in.

    I do not mean to sound like a complainer. Just trying to make the point that when a market prices out 1/3 of its potential buyers, trouble is on the way. (Historically, first-time buyers have made up 1/3 of the market.) Now that dramatic price appreciation has stopped, the investors, who had been filling in the for the first-time buyers in terms of demand, will become scarce. Inventories have been increasing to meet the current demand pace and once we return to a more “normal” market, the fact that first-time buyers are often priced out will become a problem.

  23. Matthew,

    I don’t disagree with you. When my 22 year old comes with her daughter, I will help her find a place to buy. But we will take our time and find a good value. My 20 year old who is foot loose and fancy free, should stay in my basement where she pays nada 🙂 My 18 year old…anyone know where she can get a tatoo apprenticeship here? Is it hard?

  24. Does one who currently rents and forgoes entering the housing market face risks? Certainly. These people take on opportunity cost of not buying, which if price appreciation continues at a rapid rate can certainly be a large loss.

    At this moment in time, I am comfortable taking that risk.

    I can’t predict the future and certainly do not mean to imply that I can. I do believe that the current King Co market will eventually return to fundamentals in terms of affordability. If I am wrong, I will be poorer for making that choice. If I am right, I will have saved a bundle of cash and have one less financial stress in my life.

    I do not cheer a crash. I do not want anyone to lose their home in foreclosure. I do want to be able to afford a home without crazy financing and large downside risk of depreciation.

    So, I generally agree that there can be “wise” opportunities for purchasing in any market, but in the current market, those opportunities seem few and far between to me. I never want to be in a situation where I let emotion make a 400K decision for me.

    Hmm, well, maybe if I become a billionaire I will change my mind on that last statement. But until then…

  25. Ardell,

    I guess my point is that I am a 29 year old professional. I make approximately 85,000 a year gross. The people I graduated college with for the most part are making considerably less than that as are most professionals in Seattle if you look at their median income. If I am priced out of this market, what about my colleagues I graduated with back in 2000-2001? They are the new wave of home buyers and are essentially priced out of this market.

    Most of my friends have stated that they can’t afford a house and are renting. This does not make sense to me. I believe the market will be forced to correct to allow a new wave of first time buyers into the market. I think the increased inventory were are seeing over the last 6 months is proof of this, and I believe that it will become considerably worse before it gets better.

    What is a “good value” in this market? From the houses I see in the 300-350 market, which is what I believe I can afford, are mostly small ramblers and fixer uppers. I’d rather not stretch myself to the max to buy something like that.

  26. Flopfolder, while buying a home is out of the range of most first-time homeowners, homeownership is higher now than it has been for decades. I would wager that first-time buyers have made up more than 1/3 of the market in recent years as they were “bringing-forward” their purchases through creative (and dangerous) financing schemes. That isn’t refuting your point, just that bit of evidence.

    Most 40 year-olds with families probably won’t be renting soon, but there are a lot of people like you (Flopfolder) who are on the margin – if owning becomes cheaper or renting becomes more expensive, you’d be more inclined to buy, but you’re living pretty high on the hog as a renter right now. Renting ain’t bad, especially if you’re disciplined enough to put some of the money you would be spending on payments into a retirement fund.

    That said, I think there are a lot of people who are a little less conservative than you you who might prop up any slump – if prices drop a little they’ll jump in like it’s their last chance to buy a home and force prices up again. Do you think that’s possible?

    Ardell, my friend learned tattooing on the parts of his body that are covered by shorts and a tank top. The first couple really weren’t pretty. Unfortunately (or fortunately for you), he’s in Portland.

  27. To the twenty somethings,

    Forget that I am a real estate agent for a minute. Remember that I am the mother of three girls who are younger than you are. Now know that I moved here for them. I moved here so that they could have affordable housing choices. That is why it is so hard for me to agree with you sometimes. Because I KNOW for fact that there are no housing choices where I was…in L.A. for younger people. I moved here because there ARE housing choices beyond renting, here in the Seattle area.

    That said, I have to talk from an Eastside perspective, because there are clearly good choices here. I can easily find a starter place, likely a condo, for one of my girls, that I know they will be able to build equity in. That’s today. I could find it for them at a price that is not more, or not much more, than they would pay for rent, in fact probably less assuming they could buy a 2 bedroom condo and rent out one of the rooms to defray their cost.

    What I am seeing is everyone wanting to START with a single family home, instead of building equity in a condo or townhome first. That is not realistic. Everyone doesn’t get to start at the middle, as in median home price. Sometimes you have to start at the beginning to get to the middle.

    Clearly anyone can own vs. rent. The comparison I see the twenty somethings making, is “I’ll rent an APARTMENT because I can’t buy a HOUSE”. You buy an apartment/condo first, so that you CAN buy a house when the time comes. Going straight from an apartment to a three bedroom house is not the norm. You start at the condo and trade up. Again, easier to do on the Eastside than in Seattle, Kits if reasonably priced condos close to employment here. Moreso than in Seattle.

  28. Galen,

    She already has her own machine etc and is already an apprentice in L.A. With some experience, can she get a “job” here? Anyone know how to go about that? She received a few of her own Tatoos here. She’ll be here for Thanksgiving…and I’m trying to get her to stay 🙂 It’s this daughter.

  29. Send her over to Capitol Hill and have her ask the proprietors of the many tattoo shops about the best way to get your first job or internship. I can give her a list of a few places near my house.

  30. I am not talking about a 3 bedroom house. I’m talking about housing, in general.

    I talk about medians only because it is easier to do so. Most 20 somethings households don’t have the median household income and therefore wouldn’t be buying median priced homes.

    I guess my bottom line question is the following: Why should I buy a property (condo, home, cardboard box) when it costs me less to rent the same property?

    I will jump right into the market and snatch a dwelling up when I can pay similar $ for a purchase as I do for a rental. I will not stuff myself into a 700 sq ft condo when I can rent a 900 sq ft condo for 70% of the price.

    And I do not mean nominal monthly payment. I mean I will buy a dwelling when my rent for X sq. ft. is approximately equal to my property taxes, HOA fees, maintenance and debt service.

    Until then, I will pocket the difference, invest it and see what happens.

    Is this a mistake?

    ………

    Galen,

    What you posit could certainly happen. I am open to all possibilities. It would be foolish not to be. I think some things are more likely than others, but that could just be me.

  31. Ardell,

    So you are saying that myself, making 30,000 a year more than the median income, should start with a condo on the eastside to “build up equity”??? I’m not asking to buy a 450,000 dollar house. I am looking at the 300,000-350,000 range. And all I see is a bunch of crap. I’m not going to buy a tiny little condo pay HOA fees and turn around in a slumping market and sell it for what I bought it, or worse, lose money if the market starts to slip.

    Think about it for a second. Who is going to buy even the condos being built right now? Even most of them are going for 300,000 and up. The prices have gotten out of control and they will correct themselves eventually. Frankly I don’t care how many 50,000-60,000k a year starting MS employees flood the area. Unless something happens around here to drastically increase the median income of the Greater Seattle Metropolitan area, the housing around here will correct itself. Economics101.

  32. I agree with Flopfolder, I would rather pocket what I am saving by renting right now (which is approx 900 dollars a month) and sit on the sidelines and see how the housing market plays out. Even if the market stays flat for a number of years, I will have saved more than enough for a large downpayment so I lock in a fixed rate mortgage and not some crazy toxic loan.

  33. I think folks are used to thinking of Seattle as a small town – but it’s really not that way anymore. It’s an expensive city now, but still nothing like San Francisco or NY. It’s true, for $350K you can’t buy a nice house in Seattle anymore. I don’t believe you ever will be able to again. You can, however, buy a very nice one bedroom condo in downtown or other great neighborhoods for that much. Try doing that in San Francisco! If you wouldn’t under any circumstances consider living in a condo, you should think about relocating, I guess.

  34. We are currently looking for our first house, and after a few false starts (imagining that we could live in Bothell after Green Lake) we are discovering just how limited the choices are in our price range (max $380K). We found a great place and were even willing to put up with some road noise to get such a close- in location and enough space for years to come, only to find someone beat us to it. I do wonder if that’s the best we’ll see OR if prices will drop so that we can do even better. Ardell swears there’s better, so I bow to her experience, but man, it is depressing for sure when you search through 100 listings and find not one you’d even go see. Here’s hoping January brings more choices.

    P.S. Ardell – tell your daughter to bring her portfolio at Thanksgiving. We can give you the names of some of the better shops in town.

  35. Flopfolder and Matthew,

    I know that this year I sold a townhome ($350,000) of a couple who bought their first home. They had a $100,000 tax free gain from the townhome that they owned for 3 years to put down on their home. So the home was $465,000 and because they owned the townhome first, it only cost them $365,000. If they had rented for those three years, they wouldn’t have saved that $100,000. Even if they had earned and saved the $100,000, it wouldn’t have been tax free. If you live in your house for at least two years, the gain is tax free. To save the same amount, you have to earn that amount PLUS the taxes on it.

    Two years ago I sold a young fellow a condo for $136,000 including the closing costs. No cash outlay. He sold it for $207,500 two years and 2 months later. Tax free gain of almost $70,000 after costs.

    I also sold property to people who had high incomes who rented a cheap condo until they saved 20% down and then bought a $575,000 home when they were having their first baby.

    Saving $900 a month for two years vs. accumulating a tax free gain…what do you think based on the real life scenarios above?

    That said, I rented from the time I was 22 until I bought my first house when I got married at 29. Was it a mistake? I never looked back. I was a girl in the world having a world of fun. I moved to a new aparment when I felt like it. I didn’t consider tying myself down to the responsibility of owning something. Was that a mistake? I don’t think so. Would I have made money if I bought at age 22 and sold at age 29 when I bought my home? Yes. But money isn’t everything.

    I do think it seems to be easier for people to buy their first single family home, if they owned a condo or townhome before they needed to buy a single family home. If you buy a two bedroom condo, you can rent out one of the rooms. I know lots of people buy townhomes and rent out two of the rooms to defray the cost.

    Lots of options…renting is one of them. But if you rent until you get married and have a baby, your ability to buy a house at that time will likely be less, if you don’t own something else first. Today, picking that something else VERY wisely is key. Better to own nothing, than something that you may have to sell at a loss.

  36. Matthew,

    $300,000 to $350,000 is a tough price range. It’s like a missing link range. See Adrianna’s comment above. Seems like you have to get to $375,000 to $400,000 to get anything halfway decent.

    I sold a very nice three bedroom townhome in Ballard recently for $399,900. Better to go the extra and rent out the bedroom on the garage level that has its own bath to help compensate for the price difference. You can rent out two of the three rooms to defray the cost.

  37. Matthew,

    I think there is more value in the two bedroom condo market in Juanita than there is in anything in the $300,000 to $350,000 range. Except for some twin homes in Kirkland and in Bellevue near lake Sammamish. Sold a twin there for just under $300,000 earlier this year. The next door neighbor sold hers for $405,000 just 6 months later. You have to be careful. My guy is sitting pretty, but whoever bought the house next door for $405,000??

    I had a client who made $70,000 tax free on a two bedroom condo in Juanita. Another who made $100,000 tax free on a townhome in North Juanita. Bellevue and Juanita have some good values. Not crazy about Totem Lake/Kingsgate area. Kirkland proper is a bubble for the most part. Bothell is cheap enough, but not a safe bet…parts of Kenmore are better. I’d wait out Green Lake, it’s a real mixed bag right now. Some older condos in dowtown are good…while others are disasters.

    Rent? Sure. I’d say the close one gets to 30, the harder they should think about buying vs. renting. It’s really hard to buy a house ever without the equity from another property.

  38. Bean,

    The median income in both San Francisco and NYC is much higher than it is in Seattle. Those two housing markets are both overinflated. San Francisco is struggling to attract any new businesses because of the high cost of living. To compare Seattle to either of those cities is laughable.

    Secondly, I like to speak in data. I like numbers, they make sense to me more than catch phrases like “Seattle is a big city, etc”. Seattle is not a “big city”. I have lived in Houston, NYC, and LA. Those are big cities. Seattle is a medium sized city.

    The data that is important to me is the median income. The fact that most people can’t afford fixed rate loans and are purchasing with ARMs is troublesome to me. The numbers in the past say you should spend around 30 percent of your income on housing. So tell me, if that is the case, how is the median income around 50,000 but yet the median house price 400,000? The answer is lower interest rates, creative financing, looser lending standards, etc. To me that reeks of a market that is irrational. I could be wrong, but I don’t think so.

  39. Ardell,

    I agree that your advice is sound for the average real estate market. But the current market conditions worry me. Most people probably have trouble saving while renting because most Americans are spenders. I have been able to save a considerable amount over the last year and will continue to do so. I really want to see what happens in 2007, I think this will be a make or break year for RE in Seattle and I believe the picture will be a lot clearer to us locally as well nationally if this is a long term slump or a trend.

  40. Ardell: “It’s really hard to buy a house ever without the equity from another property.”

    Except for you of course. And 30-50% of the other buyers this year that put nothing down.

    “Would I have made money if I bought at age 22 and sold at age 29 when I bought my home? Yes.”

    Not if you were 3 years younger and had bought in Seattle.

  41. Matthew,

    I don’t trust the median income figures, because I think everything is more easily counted on the lower end and for salaried people, but a lot of the pricier homes are sold to people whose incomes do not as readily show, like business owners.

    Also, median income becomes irrelevant to home value when most people buying the higher priced homes are selling homes at a profit to buy those.

    Someone explain this to me please. If 80% of people buying the million plus homes are selling a house with $300,000 or more of equity transfer, why do people look for the “income” to support the million dollar purchase? Someone buying a house for $450,000, who never owned before, needs an income that supports a $450,000 purchase. But someone buying a million dollar home with $300,000 in tax free equity from their previous home, only needs income to support a purchase of $700,000 not a million.

    Comparing median incomes to median prices makes no sense to me at all. In fact when I test the high end, only 36% of the sale prices on average were financed in Seattle and just under 50% of sale price was financed on the Eastside. So the incomes at the high end do not need to support the purchase prices at all, and much less so than at the lower end.

  42. Will,

    I have to admit that buying this house with zero down was one of the whackiest things I’ve ever done. Should the lenders have let me do that? Absolutley not 🙂 So far I’m holding my own after the divorce, but I can tell you it is not easy. At times it has been very difficult maintaining my ethical standards to never rush someone or push someone to purchase, no matter how much I need the money.

    I remember telling my partner that I will lose the house before I twist someone’s arm to purchase. He looked at me like I was nuts. Maybe I am 😉

  43. Matthew
    That’s kind of what I mean about people have misperceptions about Seattle. I suppose you can say the median hhld income is “much higher” in San Francisco (34%), but what is the difference in median home price? And NYC? The median income for Manhattan is 6% higher. I would guess that both San Francisco city and Manhattan have median home prices about 80-100% higher than Seattle city. So when I say Seattle is inexpensive in comparison, that’s what I mean. I realize Seattle is not a “big city” in terms of population. What I meant was it is not some backwater where you can expect a bargain. It is a very desirable place to live with a well-paid & highly educated population.

    2006 median household income:

    Manhattan: $53K
    San Francisco (city): $67K
    Seattle (city): $50K

  44. Ardell,

    Who then is going to buy high end houses if people stop making such a huge profit on houses sold? If this market does plateau, and we stop seeing such a dramatic increase in equity, who is going to be buying 750,000 dollar houses?

    If the market takes a small dip, wouldn’t that lead to a larger dip, considering people might actually lose some equity? Like I said before, 2007 will be an interesting year to see how all of this plays out. I’d rather be on the sidelines than to buy right now.

  45. Bean,

    Like I said before, both San Fran and NYC are inflated in housing values. Comparing NYC to Seattle is like apples to oranges considering the population density of Manhattan. I’ve lived in NYC and trust me, Seattle is no NYC.

    San Fran is probably a little bit better comparison. I have a sister that lives there, and it is extremely overpriced. That just means their market has further to tumble than ours does, it does not mean that our market will not correct itself.

  46. Bean,

    If Seattle is such a “desirable” place to live, why has the population basically been stagnant since 2000-2005? A net migration of only 20,000 people.

    I think it is “desirable” for people who are from the PNW, but most of my office consists of people that were hired after 9/11/2001 and hired from outside of this area. Most of them are trying to get out of Seattle. The only people in my office that want to stay here, are people from the PNW. The transplants from the Mid-West don’t find Seattle “affordable” by any means, nor do the people in my office from the South and Southwest.

  47. It’s amusing to think that just 3 yrs ago, a school teacher (generally earning close to the median income w/masters in Ed) could afford a small SFH or a condo with just $50K down.

    Now? Not even close. I certainly hope anyone with kids is counseling them against going into a low paid profession like that.

  48. Matthew
    Sorry you don’t like it here, I hope you’re able to find a way out!

    But be careful with demographic figures. You might think an increase in population of “only” 20,000 in Seattle means it is undesirable to live here (I don’t get the logic there, by the way — that is a healthy increase in population!). But compare that with the net *drop* in population in San Francisco in the same time period of 50,000 people. I guess by your logic San Francisco must be a horrible place! Of course the reality is that people are leaving San Francisco because of the high cost of living — not because it’s undesirable. If the median home in Seattle cost $800K, I’m sure we’d be seeing a population drop here, too.
    The income figures come from Claritas.

  49. Bean,

    Never said I don’t like it in Seattle. I have spent the majority of my life in the PNW and likely will remain at least on the west coast if I can. The point is that there are many who don’t see Seattle as the best city in the world as many here like to think of it.

    20,000 in 5 years is actually for King County from the Census bureau. And its actually more like 18,000.

    Pop. 2000 – 1,737,034
    Pop. 2005 – 1,755,818

    Doesn’t seem like a significant increase to me. Not when you compare it to other cities faced with massive immigration such as Houston, Phoenix, San Diego, LA, etc.

    The logic is that people would have you believe that Seattle is running out of land, that there are only so many houses available for all these people moving into the area. When in reality, there aren’t really that many people moving into Seattle.

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