The question "are we in a bubble" has been an unsettling gremlin that’s been following Staci and I around during the last 3 months while we house hunted (notice past tense there!). Both Cafe Hayek and Tyler Cowen tries to explain what other market forces may be at work besides a bubble.
Housing can be lived in, most buyers have only one home, transaction
costs are relatively high, and rarely are homes sold and resold in a
matter of days. All those features militate against a housing bubble.
When we were putting contracts on houses, it was scary to see them go off the market in a day, putting in escalation clauses, and having sellers and their agents hint to us that we should waive the appraisal clause of the contract. The appraisal clause basically says that if the house isn’t worth what you are offering, you will make up the difference between what the lender will loan you and what you said you wil pay. We got lucky in that the sellers for the home we purchased didn’t set a deadline for contracts to come in and accepted ours at the asking price on the night that we submitted. I hope more people are as lucky, but it is getting insanely expensive to get a home anywhere near the city even if you make a pretty good salary.
While the economists debate, the tight market is changing lives. Sharon
McKee just bought a one-bedroom, one-bath condominium, without parking,
in the Logan Circle neighborhood of the District. It was listed at
$375,000, but McKee raised her offer to $412,000 to beat out several
Here are some of the things I learned about house hunting : a good agent really helps (more on that soon!), Falls Church is over priced, as are parts of Vienna. We ended up looking more towards Annandale to find a house halfway between both of our jobs that we really liked.