Dec. 26, 2006 - Buying a home near Microsoft

I often receive questions like these, from people planning to purchase a property near Microsoft.

"1.  I would like to buy a house in Redmond.  In the past 2 years I have seen prices climb at almost record levels in Redmond. Since I am planning on buying soon, do you expect prices to fall in the next 2 years in the Redmond area? This would be key question I guess.

There were actually five questions raised by this person, four of which I answered  HERE  so as to isolate the value issues (except as to new vs. resale) in a separate article.  To a large extent, trying to explain property value and appreciation potential to a consumer is like a person speaking Greek trying to explain something to a person who only understands Russian.  Nodding yes and no being the only terms that seem to get through to the other side.

But let's begin with generalizing.  I clearly would not presume to argue with the data presented by Forbes and Moody's below.  However, if the prediction is that the market will go up 15% in the next two years, there is one house that will go up 3% while another goes up 25%.  The 15% increase being an average or mean.  Looking at the graph below to "feel good" about your decision to purchase, is not nearly as important as purchasing the house that will go up by 25% vs. the house that will only go up by 3%.  Or worse yet, buying one of the few that may in fact go down in value, during the same period of time.

A Zonie by definition pretty much wants it all.  They want to buy something that needs no work, looks like new, better yet IS new, is close to Microsoft and will have the most appreciation and, never go down in value.  That  my friends is "a bubble".  That bubble will stay inflated as long as there are enough people who continue to bid out properties that match the "Zonie" description, and it will burst when those SAME people say so in unison.  Zonies create the inflation and Zonies will in turn create the bubble's deflation.

According to the chart, that is not going to happen in 2007, but may happen in 2008, or more accurately AFTER the 2008 selling season.  The way I read the chart, Spring and Summer of both 2007 and 2008 will bring more appreciation and on October 15th of 2008 the market will have become saturated as to appreciation for the most part, until 3/1/2012.

I added the dates...and that is my call.  As with any "economic forecast", it's a prediction of what is to come.   I think older as in REALLY older and not remodeled, is the safer bet.  I think newer priced under $650,000 is the next safest bet.  I think REALLY older but remodeled, is the LEAST safest bet and new over $930,000, in fact almost anything over $930,000 is the weakest link.  I think anything less than $400,000 is a pretty safe bet, unless it is overpriced for what it is.

The question in the emails stated "I would like to buy a house in Redmond".  If you are 90% sure that you will only live there for 18 months or so, you have to pick better than if you are 90% sure that you will not move for ten years.  Every individuals risk factor varies on their unique circumstances and their TASTE in housing.  This is a huge problem for EAL persons whose taste in interior finishes renders them more vulnerable to market fluctuations and loss in value.  The best buys in any market are homes that are being past by for easy to correct reasons.  The trick is knowing which ones are being past by for easy to correct reasons, vs. ones with difficult or impossible to correct reasons.

One might say 2007 and 2008 is a bad time to get into a bidding war...and yet, the houses with the bidding wars are/were the ones that best fit the "Zonie Criteria", and so are the one ones that will most likely continue to increase in value.

Bottom line...show me three houses you like, and I can tell you which of the three is the best buy, and most likely to increase in value OF THOSE THREE.  Tell me you are only buying for appreciation reasons and are very likely to move out of the area in 12 months or less, and I'll probably tell you to rent unless you have 3 big dogs.  In any case, anyone who is new in the area or subject to relocation issues, should hire an agent who isn't afraid to tell you when you are wrong.  Being your own worst enemy is the danger when it comes to buying property, that is true for agents who buy, even more so than people in other fields of endeavor.