We just cashed in. My sweetie and I just became renters, selling our Central Area house (for a lucrative markup on our original investment) and becoming renters in a different neighborhood.
Why? A number of factors collided to push us away from the prevailing economic wisdom, some personal, some not. We wanted to be in a neighborhood that was both nicer and closer to my spouse's Ballard job. Even with an astonishing 50 percent profit in six years on our old house, prices are now too high in neighborhoods north of the Ship Canal for us to comfortably roll over our proceeds—unless we wanted a tiny condo or severe fixer-upper. We didn't.
In a sense, we got priced out of the market, yet those same pressures that all home buyers are now facing suggest that we sold at the right time. Essentially, we're banking on the fact that the insane increases in housing prices in Seattle's more desirable neighborhoods—anything north of Yesler, and quite a bit south and west of it—can't last. Our city continues to lag behind national job and wage indices; the people who do have good jobs aren't getting as much for them as they once did, adjusted for inflation. Meanwhile, desirable neighborhoods are seeing 10 percent to 15 percent increases in value every year.
This means two things. First, that many people are moving outward, to less expensive suburbs sprouting from North Bend to Monroe, in search of cheaper housing. And second, that people staying the course in central Seattle are paying a much higher percentage of their incomes in mortgages and property taxes each year.
Both trends have limits, and those limits are nearing. Only so many people are willing to commute so long each day, and only so many of us can absorb higher costs each year in the escalating neighborhoods. Eventually, even in those premium neighborhoods, the market will adjust. The bubble will deflate, if not burst.
When it does, we'll be shopping in Ballard—close to my partner's office. For the time being, why run the risk of kicking away the high profits we just made on our first house by investing in a deflating market? To us, it makes more sense for now to pull out of the market, rent, and wait a while to see what happens.
Here's an additional corollary to the argument: The rental market is flat, if not downright favorable to tenants, right now. We just moved in to a lovely rental house in Fremont, paying less than the last tenant did. It's nicer than anything we could have afforded to buy in this location. Thus ensconced, we're using the proceeds from the last house to retire debts and invest elsewhere. If the bubble holds, we'll stay where we are. If it bursts, we'll be out bargain-hunting in a buyers' market.