Today I spoke with the young lady at our optometrist’s office about the real estate market. She asked how the market is, and then wanted to know if prices are going down. I’m sorry, but the answer is no. I haven’t really seen a bursting bubble. Prices will increase over time in the Seattle area at a rate of at least 7% a year. That means that homes will be twice as valuable (or more), and yes, twice as expensive (or more) in ten years. So that begs the question, when should you buy? You should buy as soon as you are ready.
Think about this, though: if all you are looking at is home prices, you are looking at only part of the picture, unless you have cash for the whole purchase price. The other part of the picture is the rate/terms of your loan, or how much your money costs.
See, you qualify for a payment amount when you are applying for a loan. When the interest rate is higher, more of your payment goes to pay your interest, less to cover the house price, so you get less house. The inverse occurs when the rates are lower. We like lower. So when you are ready to buy, the thing to watch is interest rates. You also want a loan officer that will quote a reasonable rate (not the teaser that can’t possibly be honored) and keep you informed about rates until you are ready to lock it in, once you are under contract.
Our friend mentioned that she might want to get a place with more bedrooms than she needed in order to rent to roommates. I told her that there are loans that will use the rental amounts as income to help qualify the borrower. Not all lenders allow that income to be used, but if you can afford a place then you use the rent income to give you a financial cushion, well that can be a good conservative move.
Though it might start out a bit more expensive, the larger (3 bedroom) property appreciates at the same rate as others around it. I would rather have the equity growth on a $300,000 house than a $200,000 house, yes? And if you own a three bedroom instead of a two bedroom, and the next step in your strategy is to move up into a nicer place, it will be easier to sell. Or rent. Hmmmm…. another avenue to take.
Another young future client is working with me on building her credit and job history right now, and plans to own a building that houses not only a dance studio, but apartments to rent. These are ambitious plans, and what a great idea!