It's that time of year again where I get to decide how much longer I'm going to rent versus buying a condo or something. Rather than just guess what's better, I decided to use math, so I can at least have a solid concrete answer despite the solid handwaving behind it. :)

There's a blog called Seattle Bubble that has made a very convincing case that Seattle's housing market is just running some number of months behind the rest of the country's. At first their estimate was

6 to 12 months behind, but more recently it's been

15-18 months behind. So, the question I have to ask myself is: "If this trend continues, is it worth waiting for prices to come down while interest rates might go up?". In other words, assuming that I could get a 6% 30-yr fixed mortgage today, what would the interest rate have to be to get the same monthly payment if the price goes down X% in (say) 18 months, counting in the extra rent I'd be paying and the extra down payment I'd have? With the help of Gnumeric, I made a nice little table:

Cost decrease |
Equivalent interest rate |

0.0% |
6.42% |

2.5% |
6.68% |

5.0% |
6.96% |

7.5% |
7.24% |

10.0% |
7.55% |

12.5% |
7.87% |

15.0% |
8.20% |

17.5% |
8.55% |

20.0% |
8.93% |

Now, this analysis ignores things like the future value of money (but considering it's only a 1.5yr difference, I feel safe ignoring that) and different tax deductions due to different interest rates, but I think that the odds of prices falling 10% or more in the next 18 months are significantly higher than the odds that interest rates will rise more than 1.5% in the same period. So, I guess I'm renting for that much longer. Yay math!

If I've missed something, or some financial whiz wants to critique this, I'd love to hear about it.