I'd like to use some space to tell you a little bit about myself so you can best understand where I'm coming from, what my purpose is in writing this blog, and what I personally believe with respect to a real estate / housing bubble.
I'm 25 26 years old, living in the Seattle area (North King County), and have been working as an electrical engineer (no, not an electrician) in South Snohomish County (now in the Redmond area) since I earned a Bachelor's degree in EE from Seattle Pacific University in 2002. I do not currently own any property, though I would of course love to. I currently live in a small house (actually a converted garage) with my wife, dog, four ferrets, and an aquarium full of water critters.
Throughout early 2005, my wife and I spent some time "window shopping" for houses, and became increasingly discouraged as we watched prices become more and more unreasonable. In addition, as we window-shopped I did a lot of reading and research. The more I read about housing and real estate in general, the more stories I noticed speculating that there was a bubble. I decided to start this blog as a way to collect these stories for my own future reference as well as to generate discussion among other interested parties. I figured that in a region with over two million people, a decent number of them might be just as interested as I am in the subject.
Given all that I have read as well as what I have observed, I do believe there is a speculative bubble in real estate right now. I don't know it for sure and I could be convinced otherwise, but that's where I stand right now. I believe that the present real estate bubble is due to a combination of factors, among which are:
- lowest interest rates in history persisting for years
- lenders falling over themselves to hand out home loans to anyone and everyone
- people burned by the stock market moving to real estate as an investment
Therefore, since the only way my wife and I could afford a home that is even halfway decent right now would be to make use of "creative financing," and there is at least a chance that real estate is due for a "price correction" soon, we have decided that it is not in our best interests to "invest" in a home at this time. Consider these scenarios:
If we buy a decent house right now through "creative financing" and interest rates go up, we'll be unable to afford to keep making payments, and forced to sell the house. No big deal if prices just level off, but we would be in a really bad way if prices drop.Given the options and the uncertainty of the current market, not buying right now seems to be the best choice for us. So that's where I'm coming from. What about you? Do you currently own property, are you holding out, or just not interested? Have you recently bought a home, or are you buying properties as investments? What do you think about the possible risks?
If we buy a house with 20% down and a fixed-rate mortgage, and interest rates go up and prices drop, we're not in danger of not making payments, but we could end up essentially stuck holding onto a mediocre house until prices go back up.
If we hold off buying and prices just level off, we've still saved a bunch of money and are able to afford a lot nicer place than we can right now.
If we hold off buying during this real estate frenzy, and prices dramatically drop in a few years, then we'll be able to take the money we've saved in the mean time and buy a nice house.