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:
- 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.
- As long as you meet this criteria, you are NOT paying too much:
- You love the house
- You can comfortably afford the monthly payments
- 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:
The average sold price has been quite a roller coaster over the last decade:
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?
In just 5 years, you would have $227,486 in equity.
Do you feel like you are paying too much now???