Seattle Bubble

A comment from reader seattle price drop in yesterday’s post got me thinking. In discussing what kind of research to do for an impending real estate purchase, spd suggested:

Step 2) Interview several realtors. Do this with an eye to finding out who will be truthful and represent your interests well when the time comes to buy.

I just got back from a talk with a realtor. I walked in off the street, no appointment.

I asked questions like:

• how’s the market between this year and last?
• Where do you think this market is going?
• How many people took out ARM’s in this area?
• Do you think we’re heading for a lot of foreclosures?

Many of us would like to eventually purchase a home, once the market settles down, so the subject of how to select a real estate agent (or whether to go through an agent at all) is definitely a relevant one.

Personally, I’ve got a black list of people I’ll definitely never work with, consisting of the various agents that have emailed me or left comments on here basically telling me how stupid I am not to jump into real estate NOW.

So are you using this interesting time in the market to screen agents for the future when you are ready to buy? What kinds of questions would you suggest asking to separate the wheat from the chaff?

Most readers of this blog know that renting versus owning right now is almost a no-brainer, and buying real estate in order to rent it out right now is just plain foolish. Now, I haven’t been following the commercial real estate market as closely as residential, but I would have a hard time believing that things are drastically different there. But leave it to a company from California to try to convince businesses otherwise:

A California developer of an office complex that will break ground next month in Snoqualmie aims to convince small business owners here that it’s better to own their space than to rent one.
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While the company prefers to call its units “individual business properties,” as opposed to condos, the concept behind its Venture Commerce Centers is “almost identical to the residential model,” said Berryhill.

“Most people have discovered it’s more advantageous to own your own home than to rent,” said Berryhill. His company believes the same holds true for business owners.

“If you know you’re going to do the same thing for the next five, 10 or 30 years, rather than pay a landlord for 30 years, it makes a heck of a lot more sense to own your own property,” Berryhill said.

I’ll give them that if you’re talking about 20-30 years, then owning is probably better. But buying 5 years from now after prices either drop or “stagnate” would be even better, don’t you think?

(Clayton Park, King County Journal, 05.23.2006)

Is the Seattle real estate market “cyclic,” “linear,” or “hybrid”? According to the analyst of the day, Seattle is a “hybrid market.”

Could the real estate action be shifting to the heartland, the vast swath of middle America that wasn’t really touched by the hyperinflationary housing boom?

That’s what a new statistical analysis of housing price cycles in 100 major metropolitan areas suggests could be over the horizon. Its author, Christopher L. Cagan, director of research and analytics for First American Real Estate Solutions, examined historical housing price movements and concluded that metropolitan real estate markets can be classified into three behavioral categories
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Hybrid markets, which have linear, slow-growth characteristics for periods, followed by periods of moderate cyclic-style appreciation. They never boom quite like Florida or California, but they also never need to correct like the more volatile markets either. Cagan includes Chicago, Seattle, Minneapolis-St. Paul, Detroit and Phoenix in this category.
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Most of the cyclic markets “are at, or have already passed, the peak” of their cycles, he says. Absent unseen economic shocks, the shooting-star markets aren’t likely to crash or burn. They’re just not likely to see anywhere near the price growth they have gotten used to in the recent past.
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…if you’re in a linear or hybrid market where the local economy is adding jobs and population, who knows? If Cagan is correct, you just might be poised for higher-than-average price gains over the coming few years. Make the most of it.

The unbridled optimism of some of these “analysts” is almost enviable. None of the “shooting-star markets” are “likely to crash or burn”? Nice. I also love how this analyst had to perform a complex “statistical analysis” to place cities into three categories that basically equate to mild, hot, and hot HOT HOT—a task most of us could probably have done just by sitting down with a paper and pencil. Seattle isn’t as hot as South Florida or the San Francisco Bay? You don’t say.

(Kenneth R. Harney, Washington Post, 05.27.2006)

Here’s a delightful story for everyone out there that’s cheering on huge “price gains” in real estate and rooting for rents to climb.

The King County Housing Authority, which recently reopened its waiting list for rental assistance for poor residents, received 11,778 applications in a two-week period — an all-time high for the agency.

That is a 74 percent increase over the number of applications received when the waiting list was last reopened in June 2002, housing authority officials said.
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Housing officials say the high demand reflects a countywide shortage of affordable housing.
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A recent Seattle P-I analysis revealed that in King and Snohomish counties — the state’s most prosperous region — nearly 300,000 people live in poverty even though at least one family member works full time.

“This reflects the hard reality that housing costs continue to significantly surpass incomes, including wages,” Norman said.

As long as home prices keep going up and up, everything’s dandy, right? I mean, who cares about working class people being able to afford a roof over their heads? Yes, I’ve talked about this at length in the past, and apparently the problem has only gotten worse since then. Shocking!

(Debera Carlton Harrell, Seattle P-I, 05.25.2006)

Update: Speaking of people rooting for rents to climb… Just after I posted this I stumbled upon a relevant post over at the P-I’s Seattle Real Estate Professionals blog. Here are some choice quotes:

It’s true, Zag11, that rents have not kept up with purchase prices for homes and condos, so rentals represent a better bargain right now — IF you don’t count appreciation. And since appreciation isn’t guaranteed, it shouldn’t be counted when calculating one’s monthly expenses.
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Since the housing market is cyclical and rents are extremely low compared to mortgage payments, that part of the cycle is due for what we laughingly call a “correction.” I’m sure you’re feeling that your rent needs to be “corrected.”
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Say you jump right in and snag that 2k a month condo. As rents begin to rise, your payment starts to seem not-so-out-of-line. Before you know it, your payment starts to seem downright cheap when you see what your friends’ newly inflated rent payments are and note that their money goes to line their landlord’s pocket, while you’ve been raising your net worth with every payment.
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All of this makes now a good time to buy — before rents go up — because housing prices will likely be higher then too. This assumes that it is not excessively burdensome for you to make the seemingly-large-at-the-moment payment. Stretching your budget to buy a home = good. Breaking the bank, putting yourself in financial peril, risking bankruptcy with the slightest decrease in your income = very very not good.

You heard it folks, straight from the real estate professional. Rents are going to experience a 200-300% upward correction “before you know it.”

(Susan Ryan, Seattle Real Estate Professionals, 05.24.2006)