Ask Christy – Am I Paying Too Much in this Market?

It’s a tough market to be buying a house in.  Most houses are selling for more than they are listed for and buyers are facing lots of competition.  As I was sitting with a client after our pre-inspection yesterday, he asked me this question:

“Are we paying too much for this house?”

My answer is:

  1. You are going to feel like you did.  Psychologically, it is difficult to feel like you are getting a good deal when you are paying more than the “list price”.  No amount of data I will give you can make you feel better.
  2. As long as you meet this criteria, you are NOT paying too much:
    1. You love the house
    2. You can comfortably afford the monthly payments
    3. You plan to live in the house for at least 5 years.

Let’s look at this from a logical point of view:

Houses in Shoreline over the last 10 years:

Av Price 710

The average sold price has been quite a roller coaster over the last decade:

sold graph

So 10 years ago, the average sold price was $370,698, and this year it is $462,103.   That is a 24% total increase.

Even during the biggest drop in housing values we have seen in my lifetime, the only time you would have NOT made a profit in 5 years was if you bought in 2006, 2007 or 2008.  If you bought during those 3 years, it would take you 7 – 8 years of owning the house to make a profit.  So, even in a worse case scenario (assuming we are at the peak of a bubble and the market is about to crash), you will still make a PROFIT if you own your house for 8 years.  And that doesn’t factor in all the money you are paying towards a mortgage and the tax benefits you get when you own instead of rent.

Just for fun:

Assume you bought a house in Shoreline today for the average price of $460,000 and put 20% down payment, and had an interest rate of 4.25%.  What do you think your equity would look like in you assumed a 4% annual increase in value?

equity

In just 5 years, you would have $227,486 in equity.

Do you feel like you are paying too much now???

Leave a Reply

You must be logged in to post a comment.