Test case: We live and work in metro Honolulu, one of the priciest real-estate markets in the country. Last year we bought a 850 square foot, 3 bedroom 2 bath condo in a safe, clean, but unsexy neighborhood with a reasonable commute (6 miles) for me and an awesome commute (1 mile) for my husband. Price: 364K with $608 HOA fees. We put a 10% down payment on it and our goal is to have it paid off in 13 years.
Buying our own place always seemed bat-shit insane to us, because we are very frugal and the median price for a condo in Honolulu is $380k. (The median price for a house is somewhere in the 700ks, totally out of the question.) But renting has become more and more expensive. To rent the equivalent of our condo would cost approximately the same/month as our mortgage/HOA fee, and rent inflation has been going at a pace of around 8%/year. Last year, we finally decided it was a better idea to buy. Our combined income is $140k, we have a pretty good savings cushion, and we continue to try to save around 20% of our income (we also give away about 20% of our income, and have two kids in daycare to account for).
Here's the thing: the condo we bought was a REASONABLE price for what it is, but it wasn't a GREAT price. Getting a bargain in metro Honolulu just didn't seem like something that was ever going to happen in such a crazy tight market, where most condos go for the asking price or even up to 10% over asking. We don't have a lot of renovating skills/tools, so buying something dysfunctional on the cheap and then fixing it up didn't seem like a great idea.
My question is...it's a very bubbly market, in my opinion. We could already probably sell the place we bought for $15k more than we bought it for (covering closing costs). Would it be smarter to continue doing what we did for ten years out here--rent crappy, crappy cheap apartments and save the difference? Or should we just stick with what we've got?