Seattle Eastside Housing – Buy or Wait? is a Google Query that directed someone from Bellevue over to my blog about ten minutes ago, looking for an answer to that question.
Often people get confused by the big price tags and unfamiliarity of housing, so let’s use a simple every day analogy to explore “buy or wait”. The other day I decided I had nothing to wear. I don’t know how that happens all of a sudden…usually it’s because I gained weight. First the answer to “Should I buy now or wait?” in that scenario is you wait thinking you can lose that extra weight. Then one day you just say…this isn’t working…I need to go buy some bigger clothes.
Often people need to buy a house because they have “outgrown” their current home the same way that I outgrow my clothes. Every day that you live with something substandard to your needs, is really a day wasted, isn’t it? If you are having another child, and you are uncomfortable with the size of where you live without that new person…well, you can’t wait until the child is born and moves out really. So it’s time to go look for that bigger place. Not necessarily buy it…but yes, time to go looking for something you may buy.
I use having a child as an analogy, and it is very common for people to need a bigger place because the woman is with child, or because a couple decides it’s time to start having children. But the need for a bigger place can be because of other every day needs that just don’t fit where you are.
If you already own a home, waiting is almost never the answer. The value of what you have will often move to the same degree as what you are going to buy. If prices go down 5% in the interim and you own a $450,000 home and plan to buy a $600,000 home, you will lose $22,500 while waiting to save $30,000. For the move up buyer, waiting is almost never the answer unless the family is willing to sell…rent…wait…then buy, which is not the usual scenario. Happens…but not often. Usually because what is available to rent is substandard to what they already have…so they might as well bite the bullet…or wait. The extra move in between is rarely worth it. Sometimes…yes. Often…no.
The decision for the First Time Buyer is not as difficult as people may think. One of my favorite lines from my son-in-law Mike is “Mom, if THIS is what I can afford to buy…I’d rather rent for the rest of my life.” Gotta love that Mike. Straight forward, common sense decision.
The first stage of “Buy or Wait?” is to go find out what you CAN buy for what you can afford…THEN…take a step back and say “should I buy or wait?”
I’m revisiting a decision of one of my clients from 18 months ago. I know there are many news stories saying prices have changed a lot since my bottom call of February 2009…but really, that’s not the case. Not for good homes in prime neighborhoods on The Eastside. Maybe not at all, given Aubrey Cohen’s most recent article, the title of which is pretty much a direct quote from his article on me in early 2009. So it apparently still applies today.
Back to my clients who first approached me…sorting back through 260 emails to find the first one…here it is:
3/18/2010″ “My wife and I are looking at purchasing our first house, and we’d like you to be our agent…do you think now would be a reasonable time for us to buy? I saw in your latest post that you expect the prices to drop. How much do you expect them to drop? ”
Given I don’t think this year is really any different than last year, let’s check that against reality.
1) We looked at houses priced at around $450,000. There were a few that “would do”…but based on those particular houses, I saw no reason to buy now vs wait, unless they were willing to consider as far out as Issaquah vs Kirkland, Redmond or Bellevue near Microsoft.
We looked at homes for as long as it took to gather enough information to answer the question “Buy or Wait?” That takes shorter or longer for different people…and is largely dependent on the available inventory during the period of time.
2) On 4/23/2010 We had a breakfast meeting at the Brown Bag. Basically we looked at all of the options for about 30 days and then had a “Buy or Wait” meeting. One thing about real estate that people often miss as to Why You May Need An Agent is the perspective of my TWO clients was not the same. I remember the wife…due to have her baby in July…saying ideally she would like to be in a home by June. The husband finished her sentence with “…or July, or August…or next year…”
3) Given the husband and wife were not necessarily in total agreement there, not arguing…but not necessarily “on the same page” either, I asked to visit them where they were currently living. I don’t often do that when someone is in a rental…but I needed to test “by June” against “…or July, or August…or next year…”.
When I visited them in their small apartment and they showed me the dresser drawer where the baby would go IF they Waited…vs Buying now…the answer to “Buy or Wait” became CRYSTAL CLEAR!
So with renewed motivation and a price of $550,000 vs $450,000 we found “the home” for them to buy and made the offer on 4/26…only THREE DAYS from our “Buy or Wait” meeting. They closed on 6/10 as it was a somewhat difficult Bank Owned property.
Now…let’s revisit my client’s Buy or Wait decision and second guess it based on what has happened since.
They paid $550,000, 1.1 X Assessed Value (a green price in a blue area). They paid $215 per square foot. Now let’s look at what has sold there since they purchased a little over a year ago.
First, the other one on market at the time they purchased: Closed 5/29/2010 – just before their closing – sold for $587,000 – just over their max of $550,000. Multiple offers…they couldn’t make an offer on it due to price. It was assessed for slightly less (only $4,000) was smaller at 2,460 sf vs 2,550 sf. So even though the bank owned sale was troublesome…worth the effort. Not a huge savings…no “deep” discount for the bank owned home they purchased…but enough of a discount to make it a good “Buy Now vs Wait” option for them.
Recent Sale in Same Neighborhood: Sold in 9 days for $602,000 on June 8,2011 – assessed for $8,000 less than the one my clients bought last year – Sold for $244 per square foot vs the $215 per square foot my clients paid last year. It didn’t have anything better than the one my clients bought. It needs a new roof, does not have granite counters, needs the carpet replaced with hardwood floors in the living room and dining room…nothing more for that $244 per square foot vs the $215 per square foot my clients paid in June of 2010.
One house did recently sell for $540,000…but it backed up to Avondale Road…so…the relationship to assessed value and price per square foot is a non-issue, given backing up to Avondale Road is not “a comp”. Given they paid only $10,000 more for a house last year that is NOT backing up to Avondale Road…I’d say the Buy vs Wait decision has withstood the test of time.
One might say they could have waited 3 years or 5 years…well, we’ll look back on that in 3 years or 5 years…but the reality for most people is “Buy vs Wait” is usually a question with a max timeframe of a year to 18 months…not wait for 3 to 5 years.
Buy now or wait until next year…in Jan of 2008 = wait until next year. But since Feb of 2009…wait is not likely the answer…but buy WHAT is a huge question? Follow the process I have outlined in my 1), 2) & 3) up there…and you will find your best answer to that question for your family.