Seattle Bubble

Here’s the latest update on months of supply, or “absorption rates” for the 30 NWMLS areas in King County. For an explanation of what months of supply means, please refer to the original neighborhood MOS breakdown post.

Remember: Over 6 MOS is a buyer’s market, which gives buyers more negotiating power, but doesn’t mean homes are priced attractively for buyers or that it’s a good time to buy. Before this year, the longest that King County as a whole has sustained a MOS above 6 was 4-5 months in the winter of 1994-1995. April MOS for King County came in at 6.21 (up slightly from March), bringing the current run to eight months. In seven of the last eight years, March has been the low point for MOS (2003 was the exception, when MOS bottomed in July). It seems unlikely that the county-wide MOS will drop back below six this year.

In the graphs below, you’re looking at the MOS for the “Res Only” data from the NWMLS King County Breakout pdfs for the nine-month period of July 2007 through March 2008. The bar graph is centered vertically on 6.0 MOS, so that it is easier to visually tell the difference between a seller’s and buyer’s market (i.e. - shorter bars mean a more balanced market). Each graph again has the same scale on the vertical axis and has the King County aggregate figure plotted in red, so they can be easily compared.

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My favorite personal finance blog Get Rich Slowly gave me a heads up earlier this week about an excellent radio piece that you should make the time to listen to.

It’s titled The Giant Pool of Money, and you can download the mp3 for free through the 18th of this month. They interview a handful of people from up and down the chain of mortgage lending over the last few years, and lay out the nature and source of today’s mess in plain language.

You’ll hear from a borrower that took on far more mortgage than they could afford, a lender that wrote and immediately sold the loans (while making obscene amounts of money), and a CDO manager that owns pieces of millions of loans that he literally looks at as lines in a spreadsheet.

It’s an excellent piece, and although many of you may have already seen mention of it elsewhere, I felt I should link to it here as well.

The latest quarterly housing market snapshot from the Washington Center for Real Estate Research (WCRER) was released yesterday, and as expected, the news continues to get better for home buyers. Since we’re talking about January through March, there are no surprises here for anyone that has been following the NWMLS data and the Case-Shiller index.

The only actual “news” in the report is the latest update to the WCRER’s affordability index, which now stands at 76.6 in King County, up from 72.4 in the fourth quarter of 2007, and up over 10 points from the third quarter trough of 64.7. Of course that’s still far short of the 100+ average of 1994-2004.

The Times and P-I both printed stories on the report today. Here are a few quotes.

Seattle Times
“During softer markets, those households purchasing homes are finding bargains in the marketplace, which allows them to buy more home for the money,” said Glenn Crellin, research-center director.

“The total amount spent may be increasing, but the quality is also increasing, and the median masks some potential price weakness.”

Affordability is still a problem. The average King County buyer had just 76.6 percent of the income necessary to buy the average house, the center found. First-time buyers had just 42.7 percent.

Seattle P-I
“Despite national reports which suggest that no homes are being sold, a sales rate of nearly 98,000 units (statewide) is similar to the number of sales that prevailed 10 years ago,” a statement accompanying the report said. Although Washington’s year-to-year sales drop was a bit bigger than the nationwide decline, “the state’s markets remained more robust than many areas in the West.”

Let me reiterate a point we’ve tried to make here in the past: falling home prices is a good thing. When the reports have data that show dropping prices and a slowing market, that is the exact opposite of “doom and gloom.”

(Housing Market Snapshot, WCRER, 05.2008)
(Elizabeth Rhodes, Seattle Times, 05.14.2008)
(Aubrey Cohen, Seattle P-I, 05.13.2008)

Couched in woeful tales of local residents that have been priced out of living in Seattle (buying or renting), a story in yesterday’s Seattle Times explored the question of whether an expensive Seattle is a desirable Seattle.

Can Seattle really claim to be a livable city when the median home value is half a million dollars and so many who live here feel they may not be able to anymore?
…
When asked about affordability in Seattle, the first thing Georgetown Records saleswoman Tina Forbes says is the story of so many who are disoriented and frustrated by the fast pace of change here: “I’m getting ready to leave — Portland, man!”

“We just keep getting pushed farther and farther south,” Forbes says of people like her who’ve dealt with rising rents and apartments going condo, which has happened to her twice already.
…
But many of Seattle’s most die-hard devotees say they aren’t riding the prosperity trolley so much as adapting to it, holding on for dear life. That’s no way to live in a “livable” city.

Here’s a sobering thought: While Seattle and King County’s technology companies continued to infuse the area with high-paid workers last year, the majority of job vacancies overall were for positions paying less than $25 an hour, barely enough for an adult with two children to achieve economic “self-sufficiency,” according to a study by the nonprofit Workforce Development Council of Seattle-King County.

Unfortunately, if you think you can escape to affordability by heading to the surrounding rural areas, a piece in Saturday’s Times might disappoint you.

“We’ve seen farmland values rise dramatically, particularly over the last couple of years,” said Mike Shelby, executive director of the Western Washington Agricultural Association, which represents local farmers.

Shelby estimates that cropland prices have jumped 30 to 50 percent over the past three years in Skagit, Snohomish and Lewis counties, a result both of a drift of people from the cities and of other social and economic changes.

You may notice that neither of these two articles talk about what’s been happening with home and land prices in the outlying areas in the last nine months. I guess prices falling back down to earth didn’t fit into the bleak picture they wanted to paint. I’m not saying Seattle is going to become as cheap as Eastern Washington, but we’re definitely on a trend back to affordability, and that’s good news worth reporting in my book.

(Tyrone Beason, Seattle Times, 05.12.2008)
(Shirley Skeel, Seattle Times, 05.10.2008)

The following is adapted from a recent forum post by user Hyperbola.

After a year of occasionally posting comments on this blog, it’s only fair to disclose that my wife and I just bought a house in Woodinville! My rationale about the overall market hasn’t changed — I still think we would have gotten a better deal by waiting. There were many factors that influenced our decision:

• The house is only a few years old and in good condition.
• The price was good for the neighborhood and recent comps.
• The commute to Redmond/Bellevue is about the same as our current apartment.
• Our (downtown Seattle) apartment is too small.
• We find significant sentimental value in owning our home. We wanted to be able to redecorate, make improvements, and not have to worry about being forced to move if our unit goes condo.
• We were only willing to look at houses we could reasonably stay in for 10 years or more.
• We were only willing to consider arrangements where my wife could stop working once we start a family.
• Our plan is to pay off all loans except a $417k 1st mortgage within 3 years. For the first 3 years, our net expenses will be quite a bit more than our apartment. After that, it’ll be less than our apartment by several hundred. Of course, our house costs much less than our apartment would sell for, so this is apples to oranges. In any case, our expenses are well within our means, but we won’t be saving as much for stocks/bonds as before.
• We were not willing to move to rent somewhere in the burbs with enough space, and then move again when the dust settles from the bust.
• Our loan package is as follows: $417k 1st mortgage, with a note rate of 6.25%. 10% and change for a HELOC at PRIME+1.5, with a teaser rate. 10% down.

The RedFin experience was perfect for us — we did the research that we would be doing anyway and got 2% back. The field agent that actually accompanied us to the property did a good job looking out for us, but it wasn’t the same person as the agent in their office that helped us negotiate the paperwork. It really didn’t matter; they stayed in touch. Our loan agent got very confused when we wanted the rebate to be applied to our closing costs. She kept trying to bully us into using the rest on points instead of taking a check after closing, saying we weren’t allowed to take a credit more than closing costs, etc.

The biggest problem by far was the seller and their agent being completely dishonest with us (and each other) about the repairs and their (in)ability to move out on time. Ended up closing one day late after a standoff between us, the seller, and our loan agent. Yuck!

But the deal is done as of yesterday and we are officially homeowners!

Some people seem to be under the impression that Seattle Bubble is a site for people that think buying a home is never a good idea. On the contrary, the purpose of Seattle Bubble is to educate people about the realities of the housing market, and equip them with the facts so they can make a decision based on reality instead of some real estate agent’s slick sales pitch.

Hyperbola and his wife went into the home buying process with both eyes open, weighed the risks and benefits, and decided to buy. He got a loan he could afford, and bought a house he will be happy staying in for at least 10 years. This is exactly what Seattle Bubble has been promoting here since day one (here’s an example post from April 2006).

Congratulations to Hyperbola. He and his wife get that you buy a home as a place to live, not as some sort of can’t lose investment account. I agree with what Hyperbola said in his post, that they most likely could have gotten a better deal by waiting, but they were comfortable with the price and the risk, and they bought smart. Good for them.

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