Ask Seattle Bubble: Just Bought A Condo

Here's a question I recently received from a reader that I will call "Jack":

I'm 26. From L.A., recently moved here. Saved for a year, and moved with about 30k, (made 110k in '06) I was on disability for a year before after I almost died in an accident, so my previous savings were depleted. We are renting and working in Bellevue. Our rent for a 2 bed / 2 bath is $1,175. It's a pretty nice place outside of downtown Bellevue

I just closed on a 2/2 in Issaquah off of W. Lake Samm. Blvd. and I-90, for $219,950. Got good rates (I deal with loans of a different kind, so I did my homework). Anyway, my payment all in is $1,600, including approx. $140 in tax and $218 in HOA dues. Looking at the comps over the last 6 mos. I didn't steal the place, may have overpaid a couple of grand. I plan on living there for 4-5 years.

I've been well versed in med. emergencies, and work on commision, and am very worst case scenario oriented. My all in, PITI, and everything else is around 30% on the worst month i've had in a year, and around 12-15% on a good month, with plenty in reserves...

What is your HONEST opinion on this one?

Here's what I said to Jack:

My opinions on buying real estate right now are pretty simple. In general, I don't think that now is the best time to buy. However, those that do choose to buy will come out all right as long as their payment is affordable and they would be able to and wouldn't mind staying put if the price dropped to less than what they paid. Be aware that if price drops do come, it could take 5 to 10 years before prices come back up to their previous highs. By "affordable," I mean no more than 30% of gross income is going to mortgage, insurance, taxes, and HOA. Certainly there are exceptions to every rule, but it's always best not to start off with something that you can barely afford (approaching 50% of gross or more), because if a job loss or medical emergency crops up you could be in a tight spot very quickly.

So generally, I would say that if you're happy with your home, you're not stretching to make the payments, and you have a reasonable plan in case of financial problems, then more power to you. Enjoy your place.

What advice do you have for Jack, now that he has bought the condo in Issaquah?

Reader Question: Redmond New Construction

Here's a series of questions from a reader that was posted in a recent thread. (The questions were originally posted under the name "Sash," but due to a strange bug in the transition to the new Blogger the comments now show as "anonymous".)

Folks, you seem to have a lot of data on the housing prospects in 2007 and forward. I would like to request your advice for/against considering buying a new home (new construction) in the Redmond area.

Over the past year I have seen prices climb to astronomical levels in properties being built on 116th St in Redmond (Education Hill area). In your expert opinion are those prices going to "stay" the same in the years to come?

I see that the real estate marked is 'slowing'. Prices for 30 year old homes are now showing signs of reduced price. But in my opinion even after price reduction, some these homes are so over priced. What's your take here?

Last but not least what would you price a new construction of 2500 sqft in the Education Hill area at today?

First off, I want to make it clear that I am not particularly an "expert." I'm just a guy that has been following the market closely, digging up some data, and making some graphs. I know more (possibly a lot more?) about the local real estate scene than your average stranger on the street, but I don't call myself an expert.

Although I don't have much personal knowledge about the specific neighborhoods Sash is asking about, I will address the questions in a more general sense. First and foremost, if you don't feel comfortable buying a house, then just don't. Purchasing a house is the single largest financial decision most people will ever make, and it's not something you should enter into lightly or out of emotion (especially fear of being "priced out forever").

As far as prices staying the same on new construction, I will just point out that what has been happening around the country is that builders are offering greater and greater "incentives" on new construction such as cash back, paying closing costs, subsidized super-low-interest loans, free upgrades, etc. So even if the purchase price is technically the same, you're getting more for your money. That being said, even the purchase prices have been dropping (in real dollars) across the country. And although most media reports claim that the Seattle-area housing market is still super-strong, builders are beginning to feel the squeeze here. I wouldn't be surprised to see increasing incentives and a softening of prices here soon.

My general advice is that if you don't have to buy a house right now (and who really "needs" to?) I recommend holding off, and saving/investing the difference between what you would be paying on a mortgage and what you are presently paying on rent.

If you feel that you must buy now, you'll be fine if you plan on staying put at least five years, stick to 20% down, get a fixed-rate loan, and keep your total monthly housing costs at or below 30% of your income. If you leave out any of those, you're essentially gambling that continued appreciation will bail you out of any potential financial crunch in the near future. Personally, that's not a bet that I'm ever willing to take, but especially not right now.

So what's your advice for Sash? Does anyone out there have any specific thoughts about the Redmond area?

Reader Question: TV News Interview Advice

Here's a question from Doug, a reader our almost-neighboring state of Montana:

Hi Tim (and friends). I've been really enjoying this blog lately. I'm a RE market watcher in Montana, so it's good to see news and real analysis from the Northwest.

I made a little video about my market and, amazingly, a local TV station found it and e-mailed me. They want to do an interview and show parts of the video on their evening news later this month.

Just wondering if you or your readers have any advice on how to come across. The reporter already said she was interested in knowing my motivations for making the video.

Presumably, I'm going to be viewed as a sort of doom-and-gloomer who wants to ruin the party, put developers out of business, and flush our economy (largely based on construction) down the toilet. I think we have some real problems, and I want to point them out without coming across as a jealous renter.

Any ideas, besides wearing kevlar after it airs? Thanks.

(For the record, I am a renter. But honestly, the more I rent the more I enjoy it. Even if I thought it was wise to buy today, I'm not sure I'd give up the flexibility of renting).

Congratulations Doug on being recognized for your work. The video to which Doug is referring can be viewed here. I highly recommend you check it out if you haven't seen it already. Doug lays out the basic facts of his local housing market in a simple, easy-to-follow, and compelling way.

My advice is to be as friendly and positive as possible. It's hard for people to dislike someone who is smiling and comes across as wanting the best for everyone. Also, as you're talking, be aware that most of what you say will be destined for the editing room floor. News programs air soundbites, so you want to be careful about getting into any kind of lengthy explanations of your position, because they almost certainly will take something that you say completely out of context. If something takes more than two sentences to explain, either drop it or think of a shorter way to say it.

So what about all you readers? What advice would you give to Doug? Be constructive please. Insults or off-topic rants will be deleted from this thread.

Reader Email: Sale/Lease Own Home?

Here's an email I received from a reader:

I actually like my home a lot, can afford it and don't want to move. But I also don't want to ride 30% down if I don't have to. I've come upon the idea of trying to get a "sale/lease agreement" on my home. Are you aware of anyone else doing this or attempting to do it?

Basically, I want to sell my house as an "investment" to a buyer while simultaneously signing a 36-48 month lease with him to continue living in that house. That way, he's guaranteed a renter from day one, I get to stay in my house while taking my money off the table.

Any help would be appreciated.

I don't hide the fact that I have zero training in real estate matters, so as an individual I'm not really qualified to help. But I know that some of you readers out there are well-versed in real estate and can offer some insight.

So what's your take on this idea? Great plan or fatally flawed?