Thanks for the clarification regarding #s 10, 76, and 79.

From what I read it does sound to me that not wanting to “settle” for an affordable house vs being not being able to afford what is preferable or “wanted” is true, although perhaps not in your particular case. I would have prefered to buy a home closer in to Seattle, and yes I could have afforded to rent in Seattle (Queen Anne, or one of my other favorite places) although not a house, it would have been a condo or apt., but my rent would have increased over the years and my mortgage did not, or would not have except I did refinace 3 1/2 years ago. But Queen Anne was not in my price range even then, unless I bought a studio or 1 bedroom condo, and space was important to me so I settled and bought a house in South Seattle.

We all make our financial choices, you choose how you allocate your income in the way that best suits both your short and long term needs/goals as does everyone else. Others will allocate their income in different ratios than yours as it suits them and their needs/goals. If your choices in allocation prevent you from buying a house where you would prefer to live, then that is your choice and not necessarily a function of the market. Very few people can afford to buy what they really want, everyone makes concessions and choices, your choice seems to have been to rent.

That of course does not mean that the market has not appreciated too much and too quickly with all the low cost money, and looser lending standards available to buy homes to live in or rent out. But the situation is what it is, and perhaps (underlined) there will be enough of a market correction for you to afford what you want and where you want, then again perhaps not. No one knows.

You are correct. I should have mentioned that this 33% figure included interest-only loans. Still, I don’t think this changes my interpretation of this statistic. First, NEITHER of these loan types were widely used until recent years, which indicates that something has changed in our market.

Second, the primary purpose of both these loan types is to allow people to purchase homes they really can’t afford, and may not have the ability to actually pay off the mortgage. Sure, there are a few people who get interest-only loans who are quite wealthy and just view it as a way to manage their cash-flow better. But from what I’ve heard, this is a minority of negative amortization or 100% interest only mortgage holders. I have read numerous articles stating that these types of loans have higher default rates than other loan categories for people with similar credit ratings.

If nothing else, people with these loan types have less skin in the game if there is any kind of depreciation (an extremely small percentage of these loan-holders have much of a down-payment).

Thank you both for responding. While I certainly understand your perspectives, I think that for most of us earning around the median income in the Seattle area, the notion that we should ignore the “investment” side of the equation is a bit naive. As I mentioned in an earlier post, the purchase of a condo equivalent to what I have now as a renter would require me to contribute far less to my 401k (or in my case 403b) than is currently the case. Hence, in response to Bob’s observation that I should “disengage the investment mentality,” I can do so only by ignoring the financial reality that even a modest home purchase will have a serious impact on my ability to save for retirement. There is, in other words, a huge economic oportunity cost to buying over renting for those of us with incomes around the median and limited cash reserves. Furthermore, I think you would agree that few people would buy a house if it were a “depreciating” asset, like a car, given that a house purchase generally involves tremendous leveraging of your initial downpayment, and the consequent risks that such leveraging entails.

Deborah, with all due respect, I think your post glosses over the serious affordablity issues that are currently affecting the marketplace. My original post (#68) was responding to the claim–which I think you originally made–that some people just aren’t willing to settle for what they can afford. That argument seems highly condescending and moreover completely disregards the reality of market distortion. There is no rational value-added argument that can be offered to justify the recent run-up in prices. Or as one economist recently put it, real wealth is not created selling houses back and forth to each other. The NY Times had an article about a year ago showing how the current inflation in house prices is the biggest in the history of this country. That seems like a big deal to me, indeed, perhaps the biggest factor that anyone who isn’t rolling in money should take into consideration.

Of all the times to buy a house, this seems to me to be the least auspicious in recent memory–unless, of course, you’re so flush with cash that you can afford not to care. Call me a pesismist, or perhaps it’s just that I know way too many people in California. . .

Many believe a buying a home is the largest ‘purchase’ they will ever make while a 401K or IRA started early in life is more likely to be the biggest ‘investment’ one will ever make.

We bought a home at the top of the market in Whatcom County, spring 05. Because of the timing and the money we spent remodeling it is not a ‘good’ investment. It may appreciate significantly (or not) in the future but we are enjoying living here more than I could have imagined.

If you visit the link you provided on #10, it’s including interest only loans with the neg. am. loans. A fixed period interest only ARM without neg. am. is quite different than a true neg. am. loan (such as the Option ARMs and pick-a-payment programs).

Sorry I’ve been away RCG…I’m just returning home from a week long vacation with the kids before school starts. I’m still catching up so I’ll see ya later. I just wanted to clarify Sniglet’s comment.

Your individual situation IS how you make an educated decision based on the information: news, blogs, market conditions, your housing needs, financial picture, questions you ask, and so on that allow you to make to make the best decision that works for you.

Your situation is unique to you, and others will have different situations and make different decisions or even similar ones to yours. Everyone is free to choose; some will make great decisions, some will make bad decisions, and most will make moderate decisions.

Renting does have it’s advantages, you can usually rent for much less than it costs to buy (as in your particular situation) you have the flexibility to move when you want (unless you are asked to move because your landlord has decided to sell, then you move into another rental) and you don’t have the expense of maintaining the house. Those are great advantages.

Buying has its’ own advantages that work better for others, and the great thing is that everyone gets to choose what works best for them. Renters need homeowners to rent from and some homeowners/investors need renters.

I suspect that a lot of the tension in blogs like this has more to do with the situation among real estate professionals. If a lot of people make the same calculations that I’m making, it’s going to be a tough couple of years. And I do have a lot of sympathy for people trying to make an honest living who are now finding themselves in difficult straits because the industry overexpanded.

In the end, though, as everyone is fond of saying, buying a house–or condo–is the biggest investment most of us will ever make. Given that truism, it seems ludicrous not to take market factor into account. For that reason, I can’t help but feel some skepticism when I’m told that I should ignore the news and buy based on “my individual situation.” Isn’t my individual situation also effected by what’s happening in the marketplace at large?