Good news for people who like bad news:
- The Housing Bubble Blog (formerly housingbubble2)
- Bubble Track (blog)
- Bubble Meter (blog)
- Housing Bubble (blog) – Apparently Housing Bubble’s last entry in September was so exhausting that they gave up or they declared victory – you decide.
- Seattle bubble (blog) – a much longer list of bubble sites here
And a couple of articles:
- Speaking Truth or Crying Wolf? (article)
- The bubble bellwether index (article)
And if those aren’t enough, I suggest the tongue-in-cheek There is no Housing bubble!
It sure is easy to be a hater, isn’t it?
I think both sides are taking a foolish black-and-white approach to the bubble question; clearly there are some indicators that there is a real estate bubble, but the consensus seems to be that the risk of home prices plummeting is low. Home prices will probably be flat until inflation brings prices back to “normal” levels. My concern is that if house prices do pop precipitously, there are going to be serious consequences for home owners and non-homeowners alike.
A similar scenario, different context: A few years ago, the Fed found itself with a small risk of Very Bad Thing happening. That Very Bad Thing was deflation (remember that?). Few economists were convinced that actual Japan-style deflation would occur, but because of the potentially devastating effect of deflation on the economy, the Fed moved aggressively to combat it (giving us the cheap money we used to buy expensive homes) even though the solution could cause other problems. Why? Here is the economist (login required) in 2002 (slightly out of context):
… however small the risk of deflation, the economic cost would be so high that policymakers should respond as if it were a central risk.
Someone who is looking at a home today or who has a sizeable mortgage on their home today should look at all this bubble talk in the same way; the risk is low that your property value will decline 25% or even 10%, but the risk is certainly there. Specifically:
- Do you have enough savings or equity to stay above water if your house loses 10% in value?
- Is the risk of falling property values worth the potential upside?
- If it isn’t a bubble now, what metrics or signs will you use to tell you if or when it is a bubble? (A corollary: Will those metrics tell you when it is a bubble or when the bubble is popping?)
Perhaps house valuations have fundamentally changed over the last 5-10 years and we there is no risk of house price declines. The one argument I do not buy is that our land use laws are making property more expensive; builders are cranking out hundreds units and making loads of money on each unit, meaning they could continue profiting even at lower price levels.
Galen
We’ll, it’s raining hard so enough of yard work.
Galen- I just logged on to the ‘the housing bubble blog’ you mentioned…. and a John L.Scott Real Estate large banner ad showed up in the main blog title.
I found that kinda odd that they would be advertising on a very popular bubble blog. It must be a Google generated one, no?
We’ll, it’s raining hard so enough of yard work.
Galen- I just logged on to the ‘the housing bubble blog’ you mentioned…. and a John L.Scott Real Estate large banner ad showed up in the main blog title.
I found that kinda odd that they would be advertising on a very popular bubble blog. It must be a Google generated one, no?
First off, I definitely wouldn’t say that I “like bad news.” I think it’s bad news that right now in King County a family making the median household income has just 45% of the income necessary to afford the median-priced home. Of course, if prices do come back down to a sane level, then that’s bad news for everyone who is already in a home. It feels like we’re in a no-win situation right now, and I doubt greatly that things will continue “as-is.”
Home prices will probably be flat until inflation prices back to “normal
First off, I definitely wouldn’t say that I “like bad news.” I think it’s bad news that right now in King County a family making the median household income has just 45% of the income necessary to afford the median-priced home. Of course, if prices do come back down to a sane level, then that’s bad news for everyone who is already in a home. It feels like we’re in a no-win situation right now, and I doubt greatly that things will continue “as-is.”
Home prices will probably be flat until inflation prices back to “normal
The Tim, that is a perfectly possible scenario – 10 to 15 years of stagnation is not out of the question. It’s happened before. Futhremore, I don’t even know that the “bubble” is bursting: couldn’t it be going flat and then taking off for another 2 years? Couldn’t it have been 2 years ago? Predicting the timing of market shifts or the amplitude is a crap shot. What’s important is being ready for the possible outcomes.
Tim, that’s funny – Google has said that they try to place ads on “positive” pages, so they should not be placing real estate ads on a real estate-negative site. Computers still aren’t that smart I guess.
The Tim, that is a perfectly possible scenario – 10 to 15 years of stagnation is not out of the question. It’s happened before. Futhremore, I don’t even know that the “bubble” is bursting: couldn’t it be going flat and then taking off for another 2 years? Couldn’t it have been 2 years ago? Predicting the timing of market shifts or the amplitude is a crap shot. What’s important is being ready for the possible outcomes.
Tim, that’s funny – Google has said that they try to place ads on “positive” pages, so they should not be placing real estate ads on a real estate-negative site. Computers still aren’t that smart I guess.
The Tim,
I never understood the median income vs. median purchase price analogy. If, as you say, King County has increased by 70% since 2000, doesn’t the average family then have a large downpayment from the sale of their current home? A “family” is not usually a first time buyer scenario. Most “families” already own a home that they purchased for much less than its current sale price.
When someone factors the income needed to purchase a home, do they assume zero down or 20% down?
If a young couple purchased a home in 2000 for $250,000, that home would now be worth $425,000, using your 70% increase since 2000. Now that they need a larger home, they have a substantial downpayment. Even if their income stayed the same or only moderately increased, if they bought the first home with zero down, they now can afford more as they won’t need a second mortgage.
The Tim,
I never understood the median income vs. median purchase price analogy. If, as you say, King County has increased by 70% since 2000, doesn’t the average family then have a large downpayment from the sale of their current home? A “family” is not usually a first time buyer scenario. Most “families” already own a home that they purchased for much less than its current sale price.
When someone factors the income needed to purchase a home, do they assume zero down or 20% down?
If a young couple purchased a home in 2000 for $250,000, that home would now be worth $425,000, using your 70% increase since 2000. Now that they need a larger home, they have a substantial downpayment. Even if their income stayed the same or only moderately increased, if they bought the first home with zero down, they now can afford more as they won’t need a second mortgage.
Okay Ardell, let’s do some math.
First I’ll look at your hypothetical couple that cashed out a $425,000 home. So they make $175,000 on the sale (assuming they haven’t been cashing out on their equity with a HELOC or refinancing their credit card debt into the mortgage, which in my opinion is a pretty big assumption…), minus commission (assuming they use an agent), minus whatever other fees or taxes there are… Let’s say they walk away with $150,000, which I think is a pretty generous estimate.
Now, you said that they need a larger home, so you know they’re not going to find it at the same price they just sold for, so let’s say the new place they find is $475,000 – again a pretty modest estimate. So they put down $150,000, and get a mortgage for $325,000. At an interest rate of 6.25%, their monthly mortgage payment would be roughly $2,000. Not that is not even considering taxes, insurance, and other costs of owning.
If this family is making the median household income in King County ($55,114), their gross monthly income is ~$4,600. The historical definition of affordable is 30% of gross income. That would be $1,380 for the median family, which is incidentally almost exactly what the monthly payment would be on a $225,000 loan at 6.25% (their old house). However, the $2,000/month mortgage payment is 45% higher than what would be “affordable” for them. For this family to be able to afford $2,000 per month, they would have to be making $80,000 per year, meaning that their current income is just 69 percent of what is necessary to afford the upgrade.
All that said, I also take exception to the way you just totally write off first time buyers. Tell me, how can the market continue to grow if no new buyers are able to join the party? Are you saying that the market is totally sustainable by simply having existing homeowners trading houses back and forth? Who is being sold to when people leave the market (old folks moving into apartments/group homes, death, speculators cashing out, people moving away, switching to renting, etc…)?
For the first time buyer, the above numbers are even worse. Even if you assume they have $81,000 laying around for a 20% down payment on the median $405,000 house, the monthly payment comes out to $2,000, so they’re in the same boat as the family that is “upgrading” and cashing out on their appreciation.
I restate my position that the only way that many (most?) people can “afford” a house in today’s market is through “exotic” financing. Unless mommy buys a house for you, that is. I welcome you to provide actual numbers that show otherwise.
Okay Ardell, let’s do some math.
First I’ll look at your hypothetical couple that cashed out a $425,000 home. So they make $175,000 on the sale (assuming they haven’t been cashing out on their equity with a HELOC or refinancing their credit card debt into the mortgage, which in my opinion is a pretty big assumption…), minus commission (assuming they use an agent), minus whatever other fees or taxes there are… Let’s say they walk away with $150,000, which I think is a pretty generous estimate.
Now, you said that they need a larger home, so you know they’re not going to find it at the same price they just sold for, so let’s say the new place they find is $475,000 – again a pretty modest estimate. So they put down $150,000, and get a mortgage for $325,000. At an interest rate of 6.25%, their monthly mortgage payment would be roughly $2,000. Not that is not even considering taxes, insurance, and other costs of owning.
If this family is making the median household income in King County ($55,114), their gross monthly income is ~$4,600. The historical definition of affordable is 30% of gross income. That would be $1,380 for the median family, which is incidentally almost exactly what the monthly payment would be on a $225,000 loan at 6.25% (their old house). However, the $2,000/month mortgage payment is 45% higher than what would be “affordable” for them. For this family to be able to afford $2,000 per month, they would have to be making $80,000 per year, meaning that their current income is just 69 percent of what is necessary to afford the upgrade.
All that said, I also take exception to the way you just totally write off first time buyers. Tell me, how can the market continue to grow if no new buyers are able to join the party? Are you saying that the market is totally sustainable by simply having existing homeowners trading houses back and forth? Who is being sold to when people leave the market (old folks moving into apartments/group homes, death, speculators cashing out, people moving away, switching to renting, etc…)?
For the first time buyer, the above numbers are even worse. Even if you assume they have $81,000 laying around for a 20% down payment on the median $405,000 house, the monthly payment comes out to $2,000, so they’re in the same boat as the family that is “upgrading” and cashing out on their appreciation.
I restate my position that the only way that many (most?) people can “afford” a house in today’s market is through “exotic” financing. Unless mommy buys a house for you, that is. I welcome you to provide actual numbers that show otherwise.
“Most “families
T.S. When I was 29 I bought my first property, a three bedroom “attached” single family. Even a two bedroom attached single family or townhome would get you started and hold you through your first child. Then you can move up to a single family using the equity from that. That’s what I did many years ago.
I sold two of them recently, one for $276,000 including closing costs in Kirkland back in December and one for $300,000 in Bellevue near Lake Sammamish back in February.
When I said “families”, I meant with children. You have time for at least one “stepping stone” property, which is the normal progression. Just try to buy something with what I call “an insurance card” for a value boost. That’s what I did back in the early eighties. Nothing has changed much. Start with a condo or townhome for at least two years so you don’t have to pay any gain taxes.
Even at my age I wish I had started buying property in my twenties, but don’t feel like it is too late. Just set your sights a little lower and get into ownship of an attached home.
T.S. When I was 29 I bought my first property, a three bedroom “attached” single family. Even a two bedroom attached single family or townhome would get you started and hold you through your first child. Then you can move up to a single family using the equity from that. That’s what I did many years ago.
I sold two of them recently, one for $276,000 including closing costs in Kirkland back in December and one for $300,000 in Bellevue near Lake Sammamish back in February.
When I said “families”, I meant with children. You have time for at least one “stepping stone” property, which is the normal progression. Just try to buy something with what I call “an insurance card” for a value boost. That’s what I did back in the early eighties. Nothing has changed much. Start with a condo or townhome for at least two years so you don’t have to pay any gain taxes.
Even at my age I wish I had started buying property in my twenties, but don’t feel like it is too late. Just set your sights a little lower and get into ownship of an attached home.
First time visitor, I really like the blog. You guys provide a lot of really good info. The phone list on the side is cool too…
If a house declines in value by 10% how would that make someone unable to “stay afloat?” Wouldn’t they be paying the same mortgage payment whether it decreased by 10% or increased by 10%?
First time visitor, I really like the blog. You guys provide a lot of really good info. The phone list on the side is cool too…
If a house declines in value by 10% how would that make someone unable to “stay afloat?” Wouldn’t they be paying the same mortgage payment whether it decreased by 10% or increased by 10%?
Hello TS,
There are affordable homes in southwest Seattle (Burien, Tukwila, Des Moines etc.) for first time buyers. Most first time buyers have to make compromises to get into that first house. That compromise can be size, type of home (condo vs single family home) condition of the home (fixer vs move in ready) and location (longer commute vs closer in or less desirable areas that are undiscovered vs “perfect” desirable areas). Once in the home and settling in for a few years or so and making some improvments, then being able to leverage that house into a home closer to what you would like, and later still selling that and buying a home much closer to the dream home. Most people have to take the longer route to owning the home they want. What is harder now is that many people want to skip the steps in between. If most of us think back to the homes we lived in with our parents, they became progressively “nicer” as our parents’ incomes rose and they could leverage their current home to buy the next step up in homeownership. Homeownership is a process and you have to start somewhere to get your foot in the door.
I recently helped some friends look for and buy a house. They have good incomes, wanted their son to go to an Issaquah school, and they did not want to reduce their discretionary income too much (they enjoy many family activities), their compromise was to buy a fixer, on a busy street (not the cul-de-sac they wanted) and with a long commute for her (Renton Highlands to Lynnwood). They are working hard on the house (I helped rip out the disgusting carpet and remove “popcorn” ceilings) and remodeling the nasty master bath is the current big job that they are learnig to do. In a few years they will sell that home for a home in a better area, that will require less work.
You may want to expand your search areas and/or compromise a little on what you are willing to consider. Remember… for most people it takes a “stater” house to get into homeownership! Best wishes on your search for a home!
Hello TS,
There are affordable homes in southwest Seattle (Burien, Tukwila, Des Moines etc.) for first time buyers. Most first time buyers have to make compromises to get into that first house. That compromise can be size, type of home (condo vs single family home) condition of the home (fixer vs move in ready) and location (longer commute vs closer in or less desirable areas that are undiscovered vs “perfect” desirable areas). Once in the home and settling in for a few years or so and making some improvments, then being able to leverage that house into a home closer to what you would like, and later still selling that and buying a home much closer to the dream home. Most people have to take the longer route to owning the home they want. What is harder now is that many people want to skip the steps in between. If most of us think back to the homes we lived in with our parents, they became progressively “nicer” as our parents’ incomes rose and they could leverage their current home to buy the next step up in homeownership. Homeownership is a process and you have to start somewhere to get your foot in the door.
I recently helped some friends look for and buy a house. They have good incomes, wanted their son to go to an Issaquah school, and they did not want to reduce their discretionary income too much (they enjoy many family activities), their compromise was to buy a fixer, on a busy street (not the cul-de-sac they wanted) and with a long commute for her (Renton Highlands to Lynnwood). They are working hard on the house (I helped rip out the disgusting carpet and remove “popcorn” ceilings) and remodeling the nasty master bath is the current big job that they are learnig to do. In a few years they will sell that home for a home in a better area, that will require less work.
You may want to expand your search areas and/or compromise a little on what you are willing to consider. Remember… for most people it takes a “stater” house to get into homeownership! Best wishes on your search for a home!
Hi Ardell & Deborah –
I appreciate your advice, but your scenarios only make sense if you have faith that the market will continue to operate the way it has in the recent past–in other words, you are offering more of an investment scheme than a plan for setting down roots. We would only be comfortable buying something we could live in for at least 10 years to weather any kind of weirdness in the market now, and we just can’t afford that kind of house now. So that’s our personal catch-22. Obviously everyone has their own tolerance for risk.
Until we figure out where to move, we will continue to rent and sock away money in the bank, where we’re guaranteed at least 4% growth (for now).
Ardell, you say nothing has changed much, but that doesn’t strike me as true. Prices as compared to income and mortgage lending practices are both wildly different than they were even 10 years ago. While I’m not absolutely certain that prices will go down–no one can predict the future–but I am certain that there is a highly significant chance for them to do so. I do appreciate your optimism though, and I wish you and your clients the best of luck.
Deborah, you say that most people want to skip the steps in between. I think that’s a little uncharitable. The houses that we would like to get into are not grand estates but what were considered starter homes until only very recently. Home ownership was not “a process” for my granparents or my parents, who were farmers and school teachers. They saved up their money and bought decent, affordable houses that they lived in for pretty much their whole lives. It is a function of the unreality of the current situation that you think that model is pie-in-the-sky thinking.
Hi Ardell & Deborah –
I appreciate your advice, but your scenarios only make sense if you have faith that the market will continue to operate the way it has in the recent past–in other words, you are offering more of an investment scheme than a plan for setting down roots. We would only be comfortable buying something we could live in for at least 10 years to weather any kind of weirdness in the market now, and we just can’t afford that kind of house now. So that’s our personal catch-22. Obviously everyone has their own tolerance for risk.
Until we figure out where to move, we will continue to rent and sock away money in the bank, where we’re guaranteed at least 4% growth (for now).
Ardell, you say nothing has changed much, but that doesn’t strike me as true. Prices as compared to income and mortgage lending practices are both wildly different than they were even 10 years ago. While I’m not absolutely certain that prices will go down–no one can predict the future–but I am certain that there is a highly significant chance for them to do so. I do appreciate your optimism though, and I wish you and your clients the best of luck.
Deborah, you say that most people want to skip the steps in between. I think that’s a little uncharitable. The houses that we would like to get into are not grand estates but what were considered starter homes until only very recently. Home ownership was not “a process” for my granparents or my parents, who were farmers and school teachers. They saved up their money and bought decent, affordable houses that they lived in for pretty much their whole lives. It is a function of the unreality of the current situation that you think that model is pie-in-the-sky thinking.
Good point Tim MMF, I should have made that clearer. What I mean is if something were to happen to you, like you need to move for your job or you are injured and can no longer make your payments, would you be able to get out of your current home without paying a bunch fo money? The average American moves every 4 to 7 years, depending on who you ask on the internet. Some families may have to pay for this privelege.
I have friends who work at Microsoft and Boeing who are making well over the median income (MORE THAN 80k/year) and having saved roughly 50k for downpayments. Even with these numbers the only places they can afford are $hitboxes.
But then again income has NOTHING to do with it so long as you don’t mind taking out ARM’s and other types of exotic financing which will inevitably mean that you really can’t afford your mortgage when they readjust.
Further, I’m moving to Seattle from NY upon graduating from lawschool. I have a job that pays much more then both of the guys I referenced above. I don’t like the prospect of buying a house in a market where I will be paying vast sums towards a mortgage thus limiting my ability to diversify my investments so I won’t.
The housing scenario could play out like the tech boom of the 90’s and if it does many many people will lose thier retirements.
The housing market cannot be viewed in a vacuum. Rising costs of oil, interest rates rising, a recession, the war, inflation- the failing dollar, readjusting ARM’s, the bond market? I don’t say any talk about other market variables when dicussing housing prices; that is a mistake.
Good Luck.
I have friends who work at Microsoft and Boeing who are making well over the median income (MORE THAN 80k/year) and having saved roughly 50k for downpayments. Even with these numbers the only places they can afford are $hitboxes.
But then again income has NOTHING to do with it so long as you don’t mind taking out ARM’s and other types of exotic financing which will inevitably mean that you really can’t afford your mortgage when they readjust.
Further, I’m moving to Seattle from NY upon graduating from lawschool. I have a job that pays much more then both of the guys I referenced above. I don’t like the prospect of buying a house in a market where I will be paying vast sums towards a mortgage thus limiting my ability to diversify my investments so I won’t.
The housing scenario could play out like the tech boom of the 90’s and if it does many many people will lose thier retirements.
The housing market cannot be viewed in a vacuum. Rising costs of oil, interest rates rising, a recession, the war, inflation- the failing dollar, readjusting ARM’s, the bond market? I don’t say any talk about other market variables when dicussing housing prices; that is a mistake.
Good Luck.
PS. Ardell can you point me to some stats (with a link) that show that a “family” is not a first time home buyer?
Thanks.
PS. Ardell can you point me to some stats (with a link) that show that a “family” is not a first time home buyer?
Thanks.
Galen – this is a double post so if you want to erase it, feel free (I feel it is an important post). I posted it under the comments on Chuck’s main post.
————–
Today I was talking with my wife about the type of loans we’ve closed over the last 16 mos. or so. A couple items that she brought to my attention that I forgot about were two VERY LARGE ASTERISKS on these homes purchased with 100% financed ARM loans (1st & 2nd mortgage):
1. Many of these loans have 24 to 36 month pre-payment penalties. Meaning that if you pay any more than 20% off in that 24 mos period, the prepayment penalty kicks in (typically interest accrued in the previous 6mos period). The pre-payment penalty, when you calculate, approaches several thousand dollars in interest accrued, depending upon the loan amount. This wipes out any potential equity and/or severely pinches those who need to refinance, unless home prices CONTINUE to go up by a good margin. I distinctly remember a couple times where this suprise nearly derailed a couple refinance transactions and made a seller irate when I let them know that they were “short
Galen and TS
Galen you are correct that the some families may have to pay for the privilege of having to sell early due to unforseen circumstances before their home has appreciated enough to off set the loss. That has always been a risk, no one ever knows when a major illness can strike or predict a change or loss of employment, those things can happen 6 months after buying a home or …..never. There is an interesting article in todays SEATTLE TIMES Real Estate section that addresses the length of home ownership and risk: “Owning Home Longer Increases Likelihood Of Making A Profit” by Kenneth R. Harney.
There is another article rather alarming article that discusses TS’s concerns: “Act Fast” by Elizabeth Rhodes. The article points out those areas where there is a lot of pressure on the market causing buyers to act fast and prices to continue to rise. What the article does not mention are the areas of King county where that is not as big a problem, southwest Seattle (Burien, Tukwila, Des Moines and Federal Way) and southeast (Renton, Kent, and Auburn). Those areas are still very affordable, I just did a quick search in the Burien area for; 3+ bedrooms, 1.75+ baths, 2000+ SF and under $350,000 and found 19 listings. Some of those areas have great commutes to downtown Seattle.
“Those areas are still very affordable, I just did a quick search in the Burien area for; 3+ bedrooms, 1.75+ baths, 2000+ SF and under $350,000 and found 19 listings.”
If “under $350,000” is what you all consider to be “very affordable” then I doubt greatly that we will ever see eye to eye on this topic.
“Those areas are still very affordable, I just did a quick search in the Burien area for; 3+ bedrooms, 1.75+ baths, 2000+ SF and under $350,000 and found 19 listings.”
If “under $350,000” is what you all consider to be “very affordable” then I doubt greatly that we will ever see eye to eye on this topic.
Deborah, good call. As I understand it, the concern in the past has been that you would not lose some of your down payment if you sold too early. The scary scenario is owing money if you sell too soon. A 100% loan on a $400,000 house is already a recipe for owing money if you sell quickly, but in a flat to slightly dropping market, all of that leveraging that makes homebuying a great thing in up markets is a huge liability: you can lose much more than you invested (or have in the bank!).
I should point out that long-term ownership (over 10 years) is almost always a good deal. However, many people do not own homes for very long.
Tim, I think we’re going to see more sophisticated homebuyers in a few years after a few get burned by the punitive loans you’re describing. Thanks for the insight!
Although, Seattle is more expensive than many areas of the country, I still think the area isn’t going to experience a decline in property values in the near future.
Perhaps, I’m naive and spent too many years in California, but if a bubble was coming to Seattle, I’d think we’d see a decrease in property values in the SF bay area first (which still has prices that make Seattle & the Eastside, seem affordable). The fact that it doesn’t appear to have happened down there yet, leaves me to believe we are bubble safe for now.
Of course, I’m assuming that was a “tongue in cheek” question 🙂 My stats over 16 years. About half of my clients have been first time buyers and only one of those was a family with children and they were only in this country a short time. Since I’ve sold in five states since 1990 I can’t “point to the stats”. I have had first time buyers who were not young, in their 40’s, but they were single. Just my personal experience.
In my experience, I have had families with two children move from a two bedroom condo to a townhome. Oops, forgot my friend Lori. She rented with her husband and three children until her husband passed away. Then she bought a home, cash, with his insurance money.
T.S. It’s not optimism. It’s my experience. There are always values to be had in every market at all times. The more you think prices have topped out, the more careful you have to be in your home purchase. The high end falls further than the low end. Here’s my experiene over 26 years…never lost a dime.
12/1982 bought my first home for $40,000 with $500 total cash to close. Sold it in 6/85 for $65,000 and bought a house for $115,000 with 5% down. Sold it for $175,000 in 6/91 and bought a house for $145,000 Sold it in 6/92 for $165,000 and bought a house for $180,000 with 20% down. Sold it in 6/96 for $200,000 and bought a house for $205,000 in 97 sold it in 98 for $215,000 and bought a house in 98 for $313,000 sold it in 2001 for $365,000 bought a house in 2001 for $545,000 and sold it in 2002 for $685,000 Bought a house in 2005 for $850,000.
26 years of buying and selling from PA/NJ to FL to CA to WA all kinds of up and down markets across the country. No losses.
You have to have a keen eye for the right house at a time when you don’t trust housing prices to continue to rise. In other words, the more worried you are, the more you should buy an “ugly” house that you can improve to insure a profit, or at least not a loss. People who have to have the newest, prettiest houses with no room for improvement, are those most subject to the risk of loss.
T.S. It’s not optimism. It’s my experience. There are always values to be had in every market at all times. The more you think prices have topped out, the more careful you have to be in your home purchase. The high end falls further than the low end. Here’s my experiene over 26 years…never lost a dime.
12/1982 bought my first home for $40,000 with $500 total cash to close. Sold it in 6/85 for $65,000 and bought a house for $115,000 with 5% down. Sold it for $175,000 in 6/91 and bought a house for $145,000 Sold it in 6/92 for $165,000 and bought a house for $180,000 with 20% down. Sold it in 6/96 for $200,000 and bought a house for $205,000 in 97 sold it in 98 for $215,000 and bought a house in 98 for $313,000 sold it in 2001 for $365,000 bought a house in 2001 for $545,000 and sold it in 2002 for $685,000 Bought a house in 2005 for $850,000.
26 years of buying and selling from PA/NJ to FL to CA to WA all kinds of up and down markets across the country. No losses.
You have to have a keen eye for the right house at a time when you don’t trust housing prices to continue to rise. In other words, the more worried you are, the more you should buy an “ugly” house that you can improve to insure a profit, or at least not a loss. People who have to have the newest, prettiest houses with no room for improvement, are those most subject to the risk of loss.
Galen, great post, and great discussion. Thanks. Tim, in your Saturday reply, you made a comment that “For wages to catch up with prices, we would need a median income in King County of $77,000”. The data series I referred to in my first article comes from the Wells Fargo/NAHB Housing Opportunity Index reports – here’s the main link for any data junkies in the crowd – http://www.nahb.org/page.aspx/category/sectionID=135. It shows median family income for the Seattle area up 10% from 4Q2000 through 4Q2005, to $73,000. The series also shows median family home prices up 50% over the same period. Our affordability has certainly taken a big hit, as we already knew, but there is a lot of variety in the ‘official’ numbers.
Ardell, I’m glad that worked out for you. If real estate was my life, I’d follow your lead. But like many people, I am not interested in buying run-down places and fixing them up, then selling them for a profit in a few years. The passion, effort, and hard work that you have put into real estate goes somewhere else for my wife and I — namely, our careers. We want to buy a home, not an investment opportunity. That doesn’t mean a palace, or even granite counters. Just a house that we can settle into and grow with.
I might also add that I know other people, such as my in-laws, who have moved around as much as you and famously lost money each time. They are pretty sharp deal-getters, but were victims of bad market timing–their moves were driven by job changes, not real estate trends.
You and I have different opinions about what might happen to the market over the next 5-10 years. I don’t believe merely finding a good value will protect against the very real risk of a correction, which may be significant. As they say, past performance does not guarantee future results.
Chuck,
“Median family income” is not the same thing as “median household income,” which is what I was referring to. Here’s a good page that explains the difference. Basically “median family income” completely excludes anyone that’s not a “family” i.e. – singles. So basically what is shown by the numbers you provided is that median 2-income families can afford a home, and even then not quite ($73,000 < $77,000), and if you’re single or your wife wants to be a stay-at-home mom, too bad for you.
Chuck,
“Median family income” is not the same thing as “median household income,” which is what I was referring to. Here’s a good page that explains the difference. Basically “median family income” completely excludes anyone that’s not a “family” i.e. – singles. So basically what is shown by the numbers you provided is that median 2-income families can afford a home, and even then not quite ($73,000 < $77,000), and if you’re single or your wife wants to be a stay-at-home mom, too bad for you.
T.S. Just buy a home you like and live there and stop worrying so much about “value”. All of my moves were about my family and NOT about investment opportunities. I just purchased wisely, not for investement EVER.
I think what this long comment discussion says most, is that young people should not wait until they are ready to have children to buy something. Don’t be a renter for ten to 15 years. Buy at least a one bedroom condo, so that you will not be crying the blues like the 30 something’s who can’t buy a home now that they are in their 30’s with no equity from a previous purchase. They also should not buy the MOST attractively STAGED property! Don’t get sucked into that!! hmm…sounds like a new post. I should write.
Ardell–this is T.S.’s wife. The system you advocate above, wherein you buy an attached home as a “stepping stone” property, is predicated on value increasing. T.S. and I cannot afford to buy a home we like and could live in. We necessarily have to consider value when we realize we could only stay in something we could afford today for less than five years (we’ve got a baby due in the fall so we may be closer to your definition of family than you realize). “Exotic financing” is the only thing that could get us into a home in this area, period, and were value to decrease or even level off we could be in real trouble. We rent what surely was considered a starter home when our landlord bought it 8 years ago, and we couldn’t begin to afford to buy it now. It seems like Galen’s the only contributor on this board who feels any sympathy for the stretch and potential risk that young homeowners are dealing with today.
Ardell–many 20-somethings move around for their educations, for which they take out substantial student loans and during which they wouldn’t qualify for today’s gigantic mortgages. Suggesting that someone should buy a place somewhere they’ll live for a couple of years seems absurd, and is certainly predicated on increasing value. The ONLY people we know who bought houses in their 20s did so with very substantial family help. Because we lacked trust-funds we’re now “crying the blues” in our 30s after the greatest period of real estate appreciation in history.
T.S. et al, this thread is getting pretty long and I’m not sure we’re increasing understanding of the subject at hand. I have a few final points:
1. Many of the 20 somethings I know who bought homes do have family support – it’s really tough to save that much money unless you have a great job or are an incredible cheapskate.
2. We are arguing about different things. Houses are not affordable for some people right now – this is definitely true. No argument. If you spent your 20s moving around a lot, buying and selling might have made you some money or it might not have – you made the best choice for you.
3. T.S., if you genuinely believe there is a bubble now, you are fortunate to not own or to have the capacity to own a house.
4. If you absolutely positively want to OWN something right now, Ardell has pointed out many ways to make that possible. Like many people, you have determined that owning is nice, but not necessary.
5. T.S., you sound like the perfect renter. Someone else fixes things for you and, right now, you pay significantly less per month than you would in an owned home. Renting is not significantly more expensive than it was in the past, so you should be saving a lot of money. Yes, renting is sometimes a pain and owning just feels nicer, but you sure can save money renting right now.
6. If you’re planning on staying in a home for over 10 years, buying a home is probably worth it, bubble or no. So keep saving!
So, we can start a new thread about whether or not housing is affordable, but I’ll summarize the answer for you right now: it is for some people and it is not for others.
Cheers,
Galen
I have been hearing so much about this housing boom bubble and how it will burst. I will tell you one thing that I have sure noticed. A lot of people are getting thier real estate licenses. Our website The Real Estate License Professor helps future realtors realize thier career goals and I tell you we have helped a lot of these people lately. I am not sure if this will affect supply or demand having so many “middle men” selling but it sure is a sign that real estate is hot. I hope it stays that way.
Hi.
Nice site design. Okay, I need your help.
So, I wanna make online-shop, and I am looking for site template.
Can you suggest some online catalog or other resource where I can find many site templates?
It would be better if it will be free:)
I think many of us have personal sites, do you design it yourself?
Thx, Bill.
Hi.
Nice site design. Okay, I need your help.
So, I wanna make online-shop, and I am looking for site template.
Can you suggest some online catalog or other resource where I can find many site templates?
It would be better if it will be free:)
I think many of us have personal sites, do you design it yourself?
Thx, Bill.
Bill,
If it is a relatively simple site, they’d you’d likely be okay running WordPress… A ton of WordPress templates are available here: http://themes.wordpress.net/.
Bill,
If it is a relatively simple site, they’d you’d likely be okay running WordPress… A ton of WordPress templates are available here: http://themes.wordpress.net/.
Nice Post.
That was well said. Always appreciate your indepth views. Keep up the great work!
John
Nice Post.
That was well said. Always appreciate your indepth views. Keep up the great work!
John
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