Waiting to buy may not be wise

Published 9:00 pm Saturday, October 22, 2005

Is there significant merit in waiting for the local housing market to cool before jumping in to buy a home? While that question may be on the minds of many consumers, the reality of a significant drop in home prices and a rise in inventory is rather remote.

I have given considerable thought to both the price and inventory factors recently for two reasons: I was intrigued by comments from consumers resulting from the latest Northwest Multiple Listing Association monthly figures plus I followed the three-day story of a young woman’s pursuit of a University District home two weeks ago.

The idea of “saving my money until home prices come down” has probably become a contradiction in terms – at least for the foreseeable future. Yes, housing is cyclical but it usually does not go backward for very long, if at all. The additional money you save now probably will not offset the appreciation (albeit slower than today’s torrid pace) you would have accrued had you found a way to purchase a local home sooner rather than later.

For example, if a $250,000 home appreciated 5 percent in the next year, could you sock away an extra $12,500 in after-tax savings to counter that gain? This also does not take into account additional tax savings from the mortgage interest deduction.

While interest rates are expected to rise, they will not rise to a point that creates a situation where there are fewer buyers but more homes on the market. And there is no huge indicator on the horizon that is anticipated to cause rates to rise dramatically. The inflation and energy fears that we’ve been reading so much about are only expected to push 30-year, fixed rates up to 6.1 percent by the end of the year, according to Freddie Mac. Most analysts predict a rather calm, not-much-different-than-now rate environment.

Another reason that home sales will remain more than brisk in King, Snohomish, Kitsap, Pierce, Skagit and Thurston counties is the lack of high-profile property flipping by real estate investors. The Puget Sound simply does not have “nonowners” buying bulk units and lots with the idea of never occupying the properties or even renting them out. Families are buying second homes (some of them close-in condos) and investors are buying rentals but not with the goal of turning them over in the next 18 months. It may be happening, but not much.

Keep in mind a previous discussion on boom and bust markets. Boom markets, where real price growth increases at least 30 percent over three years, have been heavily concentrated in California (21), the Northeast (18), and Florida (11). And, according to the Federal Deposit Insurance Corporation, boom does not necessarily lead to bust – only 17 percent of all housing booms ended in busts. Most busts were preceded by a significant stress in local economies, such as loss of jobs. A bust is defined as a nominal drop of 15 percent over five years. Having that type of decline – for that long – in this area would require a dramatic event.

While hearing about how the market “might have peaked” nationally, a young woman shared her story about trying to purchase a two-bedroom, one-bath home not far from University Village. The 1,080 square-foot house is on one floor and sits on a 5,500 square-foot lot. It has a brick exterior, nice back yard with a small vegetable garden, deck and work shed and a slight view of Husky Stadium from the front yard.

The house was listed on a recent Wednesday night for $337,950 and the young woman, who recently accepted a new job in Bothell, visited the home for the first time on the following Sunday afternoon. The open house was well attended. Visitors commented how they would be able to walk to the grocery store, local cafes and even to athletic events at the University of Washington. Some cherished the idea of riding bicycles on the Burke-Gilman Trail.

The listing agent indicated that the seller would be reviewing offers the following Tuesday night, approximately six days after the home was listed for sale. A total of nine offers were submitted, several with “accelerator” clauses that upped the dollar amount higher (to a pre-set ceiling) if there were other competitive offers. The winning offer was $385,000 – $47,050 greater than the listing price. The young woman could only shake her head in disbelief, wondering what possibly strategy would work for her in the future.

This story is not unique. Recently, there have been $600,000 one-day sales in Ballard and multi-offer deals in Des Moines, Greenlake, Edmonds, Bainbridge Island, Poulsbo and University Place.

A housing slow down? Not yet in the greater Puget Sound.

Tom Kelly’s new book “The New Reverse Mortgage Formula” (John Wiley &Sons) is now available in local libraries and bookstores.