Except that it generally only rises by about the same rate as inflation annually, and has been doing much more than that recently. It's also worth noting that people generally need to be able to afford the mortgages for the houses that they are buying, and that is becoming increasingly difficult/impossible in some areas. I'm not familiar with Seattle, but I do think that right now would generally speaking be a very poor time to buy a home. Better to see what happens over the next 2-3+ years
With rare exceptions, like the depths of a recession or a depression, it is foolish to try to time a real estate market. The tax advantages alone will usually overcome any slight loss in value in the short term, in the unlikely event that happens. The key is to buy value. A good home at a good price. And that is easier now then it was 6 months ago. Sellers in general are open to more negotiation, and those that have been on the market for a while are entertaining offers they would have never considered last year. Someone buying their first home should NEVER wait once they have financing in place, so long as the buying is done intelligently. Pick up a place at 5% below market value, which can easily be done in this market with an anxious seller, and you are well protected against any short term weakness.
Two things. First, I should mention that there isn't any tax benefit to carrying a mortgage in Canada, there is no tax deduction for mortgage interest paid except for rental properties. Second (and more importantly), I have to say that I'm somewhat suprised that you feel that right now is a wonderful time to buy, and that houses aren't ever going to drop significantly in price. Two words: mean reversion.
any impulsive emotions to buy REAL ESTATE right now should be quickly followed with a punch in the face When you do buy now, You'll be flowing in ectacsy in the underwater mortgage that you will be paying and bearing for the next 8-10 years (time for a real estate cycle). Good luck!
If one has a modest income, interest deductions provide negligible tax savings. In most cases, particularly with home prices at these levels, it's cheaper to rent then own. Dramatically cheaper. P/E's are stretched in most coastal markets to the highest levels in history. I always suggest to friends who are "cash rich" that investing in a home is proper. If nothing else it gives one portfolio diversification if in worst case a million dollars suddenly buys nothing more than a bag of groceries. However for most people the opposite is true. Many who have little in cash savings run the risk of depreciating home values leaving them "upside down" in mortgages and if loss of income forces them to sell then they may become debtors beyond their wildest dreams.
One should never buy real estate, or stocks, based on impulsive emotions. But when either is bought with patience and intelligence, there is money to be made in ANY market, especially for a primary residence. For many years I've watched friends and associates put off a home buying decision because "prices were too high." They were supposedly too high in the 70,s, 80s and 90s. And in every single case they've been sorry they waited. Equity growth in this country is TAX FREE so long as attention is paid to IRS regs. There has not been an extended period of depreciating values in my lifetime. Right now, interest rates are still at historically good levels, the economy continues strong, and population growth and housing demand is not going to drop off the cliff.
Please tell me how exactly housing demand is going to continue to increase as rapidly as it has over the past few years, when most people need to obtain mortgages in order to purchase their properties. We are going to soon reach a point where borrowers just simply cannot afford to pay for the ever larger mortgages needed to buy homes at their current inflated values.
It won't continue as it has. It doesn't have to. Never said it would. But failing to buy a first home because prices are "high" overall is not a wise decision. There are always good deals to be had for those who will bother to look. There are ALWAYS sellers who are distressed, for many reasons, and who will give a good deal. And interest rates will continue to rise. So the alternative is what? Pay higher monthly costs down the road for many years while waiting for a correction that may well never happen, and isn't really needed? And in the meantime you're writing checks to someone who owns the roof over your head? No thanks. Better to lock in an interest rate now on a good buy. When buying an investment property, timing is everything. But NOT with a primary residence. It's a lifetime road, and the sooner one starts, the better. Without question.
...Right now however is a time to be especially careful to not overpay or to buy in areas that might have more of a correction - the eastside in seattle comes to mind ... places like redmond, bellevue, etc ..... The runup there has been big. Further south and east/southeast things are more reasonable or closer in to downtown. I highly favor doing REO,s or slightly distressed properties where they are not perfect but may be in a good location . Find a broker who can find you a deal and at this time in the real estate cycle be much more careful .... There are still good deals to be had ... make sure you get one that is right for your circumstances ....
Let me put it to you this way. Yes, you are correct that at some point you generally speaking need to buy a property if you plan on owning your own home. Yes, it is likely very, very difficult to time the market. But the thing you need to remember is that the number of potentially distressed sellers is a negative, not a positive, and believe me, it's growing. I work for a mortgage company, and I see people paying huge mortgages in some parts of Canada, and have no idea how they make ends meet. Granted, I'm still finishing up University, so my earnings aren't there yet, but it seems difficult to imagine budgeting $2000-$3000+ per month for just the mortgage payment and property taxes. Add things like a vehicle, food, child expenses, etc., and you have to be making pretty darn good money to support that kind of lifestyle. Average wage in Canada is something like $35,000 to $40,000 per year if I remember correctly, I doubt it's much higher in the US. Another interesting point is that subprime lending appears to be on the upswing in Canada. There are now a few companies that specialize in high risk, high interest rate mortgages. Interest only products for at least a portion of the term are becoming more common. We still don't have some of the crazy products that you do in the US (such as option ARMs, negatively amortizing mortgages, etc.), but "alternative" lending is definately becoming more popular. Why do you think that is? Because the more conservative lending institutions will not give you a mortgage unless you have a very clear ability to pay your mortgage (or a very sizeable down payment at the time of purchase). What exactly do you think is going to happen to the housing market when large numbers of consumers start defaulting on their mortgages? Buying right now is equivalent to buying stock indexes during the late 1990s - there is still some potential upside room, but the downside could be very significant.