Reat Estate future (Seattle, Bellevue, Kent: sales, real estate, 2014)

[AreWeThereYet??]

I am seriously considering buying a house on the eastside. We have not had very much luck in the past. We always seem to buy at the peak and then have trouble selling the house for what we paid. I am afraid we may be in the same boat once again. It seems like we are in another bubble. I do not want to buy at the peak and then have our house lose a ton of value. What are your thought of the current market and the future of the greater Seattle market? Do you think we are in another bubble? Do you think it is safe to bu now?

[Ira500]

In my opinion, home prices in sought after areas like the eastside and much of Seattle proper have risen too much and too quickly. I don't think it's all about to come tumbling down. But it's a definite risk that, unless you plan on holding on to any house you buy for 7 or 10 years or more, when it comes time to sell, you may have to bring money to the closing table rather than walking away with profit. My guess is that prices will continue to rise for another year or two, but after that, who knows?
Home prices are affected by both what happens on a local level( which is why Bellevue homes are so much more expensive than Kent homes) and what happens nationally and globally. There's nothing to suggest that the local Seattle area economy is about to crash. But people, especially in the real estate industry, seem to feel that we're the Kings of the World, and nothing bad can come our way. They also believed that in 2006. I don't think we're at the peak yet. But we could be close. If you think, when buying a house, that you probably only want to own it for 3 or 5 years, there's a very large chance that when you go to sell it that you will end up with less money than what you started with.

[ctr88]

Very well said by Ira. Real estate has very high transaction costs. Closing costs when you buy, realtor commission and other closing costs when you sell, any upgrades and repairs you sunk into the house. So because it has such high transaction costs, you can easily lose a TON of money if you have to sell even if prices do not go down and are just flat since you bought. Prices in many cases have to rise 10% just to break even on a home price sale because of the high transaction costs. I'm sure there are plenty of people who bought 10-11 years ago in the Seattle metro that would lose a big chunk of change selling even if their value has recovered to what they paid.
That said, I agree with Ira, I don't see a crash coming like we saw in 2008. The lending now is much more solid and I doubt we would see the flood of inventory we saw then. The Seattle metro has some tremendous employers and I see this area with a very bright future for many reasons. I think real estate will keep appreciating here over the long term. But I do think it will slow down from 2013 and 2014.

I do think a stock market crash has greater probability then a RE crash. If the stock market took a serious dive, it could affect place like Seattle, SF Bay, etc...where many tech workers rely on stock options to buy expensive houses

[CityWok]

I'm concerned about Microsoft since it seems to be pretty volatile right right now. As a buyer, this might work in your favor. They employ a lot of high paying jobs which have driven the market up there, in my opinion. There were some significant layoffs again recently and homes I was monitoring Eastside sold considerable lower than asking price, which is far different from the scene 6 months ago where people were bidding up and snatching up houses quickly. Of course this could also be the Winter setting in, but I do sense a slow down if Microsoft continues to lay people off, at least on the Eastside.

[shaylahc]

I hope it slows down. A lot of homes have appreciated $100K+ in just 1.5 years. And I'm talking about homes that were $400K to begin with.

I don't see it slowing down anytime soon. Every house that sold in Woodinville sold quickly and above asking price. Those that didn't sell as quickly seemed to be the ones that were older and needed a lot of updating.

I'd love to buy, but I don't see it happening for a long time

[RVD90277]

Like the stock market, it's very difficult to predict the housing market. I actually think that housing should be considered less of an investment and more as simply a place to live.

If you can afford it, buy a home that is within your means. Don't leverage and buy with interest only loans (or negative-amortization loans (if those even exist anymore)). If the housing market goes up or down, just make your mortgage payments and be in the game for the long haul. Unlike almost everything else in life, mortgage payments are not susceptible to inflation if you get a fixed rate mortgage. Don't wait on the sidelines because you think that prices will go down. No matter what the price you buy at now, your mortgage payment will likely be peanuts in 20+ years anyway.

If you can't afford a home now, don't try to time the market and put yourself in more debt than you can handle because you're afraid that the market will go up. Just keep saving and saving until you have enough to be comfortable in buying a home.

Timing the market whether in stock and real estate is a fool's game.

On that note, I do think that the market will go down too since the stock market tends to be cyclical. I do have a few friends who liquidated all of their stock earlier this year and have been sitting on the sidelines. In general, I don't recommend trying to time the stock market either...just buy a diversified combination of index funds and bond funds and rebalance 1-2x per year and be done with it. We may be at a peak now (well as of maybe 1+ weeks ago since this last week was so bad) but almost nobody thinks this is the peak for the next 20 years. That's another topic though.

And finally, most of the big companies in the area don't give stock options anymore...they give RSUs. This just means that unlike stock options, RSUs won't ever be worthless (unless the company declares bankruptcy). If the stock market goes down, sure everyone will feel it but I wouldn't expect a crash (which would happen if stock options became worthless). Even at MSFT, they are still hiring lot of tech people and Amazon is still on a hiring spree. Google is building their new building in Kirkland, etc. I don't see a real estate crash happening...a slight correction maybe but that's about it.

RVD.

[AreWeThereYet??]

Very insightful... Thanks RVD

[peequi]

Originally Posted by AreWeThereYet??

I am seriously considering buying a house on the eastside. We have not had very much luck in the past. We always seem to buy at the peak and then have trouble selling the house for what we paid. I am afraid we may be in the same boat once again. It seems like we are in another bubble. I do not want to buy at the peak and then have our house lose a ton of value. What are your thought of the current market and the future of the greater Seattle market? Do you think we are in another bubble? Do you think it is safe to bu now?

You are absolutely correct, we are in a bubble and will always be in the bubble cycle. Can't avoid it.

I personally would not buy now, but I understand why someone cannot wait, who knows when the market will drop. Tomorrow? Next Year? In 10 years?

Someone bump this thread after the next crash, it will be proof that all these bubbles are so obvious and that a bunch of guys on the internet(who probably are not extremely special no offense) can figure it out but yet most of the population is completely clueless.

[RVD90277]

we get a thread like this every 6 months...

[mkarch]

Originally Posted by peequi

I personally would not buy now, but I understand why someone cannot wait, who knows when the market will drop. Tomorrow? Next Year? In 10 years?

Someone bump this thread after the next crash, it will be proof that all these bubbles are so obvious and that a bunch of guys on the internet(who probably are not extremely special no offense) can figure it out but yet most of the population is completely clueless.

If they were obvious they'd never become bubbles. There's a couple of big differences between supply and demand fluctuations and an actual bubble. The current market really only looks like a bubble for 2 reasons: 1) Prices went up at a rate significantly above the long term average and 2) this happened while mortgage interest rates were well below the long term average.

Quick dirty definition of a bubble is that the supply demand relationship is reversed, IE: increasing prices lead to increased consumption, vs the normal situation where rising prices lead to reduced demand.

If we were in a bubble, you would expect sales volume to increase and supply to increase to meet demand at the higher prices. However when you look at actual home construction (housing starts) and sales, they're still really, really low. Housing construction is still near a 50 year low. Sales volume is below average as well, just not as far below average as construction. Construction has been low for 8 years, many of those years it was lower than the replacement rate- IE: the housing supply shrank, and the population grew. So some of what we're seeing is just an increase in demand that isn't being met by supply. At some point, supply could catch up or even be in excess again due to any number of causes (7% mortgage rates, a recession, whatever). When that happens prices could fall. This is a normal supply demand relationship.

What we have now is unusual and most people can probably see that it's temporary. That doesn't necessarily mean that when it ends we'll see another wide scale de-leveraging the way we did in 2007. Then we had a confluence of factors driving millions of 'forced' home sales. If and when this market unwinds, it's likely to be far more orderly than it was when millions of mortgages all stopped being paid at once.