Should I buy a house now or is Seattle just a bubble?

As a millennial, my formative experience with housing was the 2008 financial crisis.  I didn’t know much, but I learned not to buy in the middle of a bubble! With rapidly rising housing prices in Seattle (and many other cities), you may be wondering – is it the right time to buy?

While no one knows the future of the housing market, I can share my personal story and why I started Loftium to help homebuyers with the down payment.  

My husband and I moved to Seattle last year.  After seeing the sky-high home prices in San Francisco, Seattle’s housing market seems like a great deal.  We looked at the appreciation trends at the time (15% from June 2015-May 2016) and King county’s population growth (52,300 net new residents per year) vs. number of new homes being built (25,516 permits in 2016).  We kicked ourselves for not moving to Seattle sooner, then got to work.

We decided to purchase a <$500k 3-bedroom new townhouse in North Beacon Hill, sacrificing a little on lifestyle (we missed being able to walk to a ton of restaurants) in order to bet on the light rail and an up-and-coming neighborhood. As an entrepreneur, I wanted a home that was well within my monthly housing budget, and I went with a townhouse vs. condo because being able to Airbnb a spare bedroom was a security net in my otherwise volatile profession.

A year later, I can say without a doubt that buying this home was the smartest financial decision I’ve made.  Here’s a rough breakdown of our first 12 months in our home:

  • Appreciation: $148,000 (according to Zillow)
  • Equity built: $10,000
  • Airbnb income: $18,000
  • Down payment spent: $96,000 (don’t have this in savings? Loftium can give you $50k)
  • Total housing cost: $2100/month or $25,200 (no maintenance because we bought a new townhouse)
  • In total, we netted about $150,000 (down payment not included since it’s equity we own)

The surprising thing is that during our homebuying, many housing “experts” tried to dissuade us from buying.  We were asked “why would you ever buy in this housing bubble?” by multiple real estate agents and told to “wait until the winter when the market cools down” by a family friend.  As first-time homebuyers, this advice can be unsettling, but we stuck to our guns and relied on the data we were seeing.

If we had not purchased this townhouse, and decided to rent and invest our down payment funds instead, this would’ve been the breakdown:

  • Returns from investing down payment funds: $12,500 (based on S&P 500)
  • Appreciation: $0
  • Equity built: $0
  • Airbnb income earned: $0 (most landlords don’t allow Airbnb)
  • Rent for 1-bed apartment: $1969/month or $23,628, which would’ve increased to $2063/month by June 2017
  • In total, we would’ve netted -$11,119 over the last year from renting a 1-bedroom apartment rather than living in our own 3-bedroom townhouse.

And now for the biggest kicker.  Between July 2016-June 2017, the average North Beacon Hill home went from $436,000 to $603,000.  Our $95k saved for the down payment would’ve dwindled from 20% down to a mere 15% down, which means adding PMI payments and paying monthly payments of ~$3000 (vs $2100 now).  

The good thing is that there are still gems to be found, even in neighborhoods like Beacon Hill and Capitol Hill.  But waiting would have made our home search harder, not easier.

I was worried I was late to the game when buying my home, and I can’t promise that your situation will be similar to mine, but I’m glad I didn’t let my disappointment/fear in trying to time the housing market keep me from becoming a homeowner.  Especially since buying a home takes longer than you think.

My personal experience also inspired me to start Loftium, so that if you’re on the fence of being able to afford a home, you don’t have to wait on the sidelines for months or years saving, while your peers tap into parental gifts for their down payment.  Loftium enables you to take action today.

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