What Are You Waiting For?

I promised I wouldn’t write about the market anymore and as promised, I will refrain from doing the traditional market review. Yes, prices are up again. Yes, the inventory is a bit better but still extremely low, and the median days on market tend to hover under a week at least for anything even half way decent in a price range that most people are looking in. Market review done. Any questions? 

However, my concern lies within all those people waiting. Waiting to save more money for a down payment. Waiting for the prices to come down. Waiting for the inventory to get better. Waiting, waiting, waiting… I once heard a broker say: I guess you’ll always be a renter and never an owner. My concern is that all these people waiting, are waiting for something that is not going to happen.

Let’s look at the saving money part. My imaginary people are looking for a $600K home in King County. Right now, their down payment would be 10%, meaning $60K. Instead of buying now, they want to save until they have a 20% down payment. According to NWMLS the average sales price for single family homes in King County had gone up by +14.7% YTD. In some areas the increase is above the King County average and in some areas it's lower.

Let’s do some math. The home that cost a year ago $600K is valued at $689K today. This means the 10% down payment went from $60K to $69K and the 20% down went from $120K to $138K. You thought you would need to save $60K but actually the number was $78K. Let’s assume the price climb stays the same and the home that was originally $600K will most likely in 2 years be $790K and the amount of money you needed to save has turned into $98K.

Now let’s imagine there is a 10% dip in our market 5 years from now. The home that started at $600K will have first climbed up to $1.038 millions before the price comes down. The new price after the dip is going to be $935K. You have been saving for all these years to have 20% to put down. Your 20% down payment is going to be $187K, only $127K more than the money you already had 5 years ago. Even if the market went down 20% or 25% we would still be above the original $600K and the savings plan where we started from. A market crash of that magnitude would likely also affect the job market. Would you still have a job?

During these years, instead of buying a home you have been renting. The current median rent for a 2 bedroom apartment In King County is $2,550. Times 12 equals $30,600, and with the super nice landlord you have your rate won't increase but in 5 years you have still paid $153,000 in rent. I'm sure you have done this math, but it is quite shocking in the end, isn't it.

I don’t know about you, but you would have to have quite a bit of loose money in order to keep up with the market. And it’s not just about the price of the home as this comes with rising interest rates, closing costs and all the money that you hand over to someone else when you’re renting. I know, you’re thinking listen to the realtor speak… but maybe, just maybe there’s some truth in these words. You don't have to have a 20% down payment. Consider starting with a more affordable home. Maybe instead of staying where you are currently renting, consider venturing a bit further out and then in a few years, once you have gained some equity, upgrading to a home that is closer to that dream of yours.