Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries from May 31st, 2007

Messed Up Homebuyer Logic

By The Tim on May 31st, 2007 at 10:41 AM · 24 Comments

The following quote from yet another boring article about condos caught my attention due to its absurdity:

Prices range from about $219,000 for a studio up to just over $400,000 for a two-bedroom condo. Gamel touted Sapphire’s finishes and amenities, proximity to Green Lake and downtown, and Greenwood itself.
…
Sapphire’s price, the fact that it’s new, rather than an apartment conversion, and its proximity to Green Lake attracted Steve Anderes, a 32-year-old scheduled to close on his condo in June.

“I moved over to Bellevue about six months ago just because it was closer to where I’m working,” he said. “But now, having the opportunity to get into a place to own, I can justify the commute.”

Wait, so you gave up a short commute so you could pay big bucks (plus HOA dues) for a space only marginally nicer than what you were renting?

That makes sense.

(Aubrey Cohen, Seattle P-I, 05.28.2007)

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Genuine but Misguided: Parade of Affordable Homes

By The Tim on May 30th, 2007 at 11:00 AM · 7 Comments

I caught a press release this morning in my inbox for something called the Parade of Affordable Homes:

The Parade of Affordable Homes(SM) event is designed to be both fun and educational for those contemplating homeownership for the first time. This event is free and open to the public and organizers encourage you to visit http://www.affordablehomeparade.org/ to browse Parade Showcase Homes and plan your personalized tour.The Parade of Affordable Homes will initially take place in King, Snohomish, and Pierce counties and will last over two weekends, June 16 -17 and June 23 – 24. Almost thirty traditional and non-profit builders have joined the Tacoma-to-Everett Parade to showcase a variety of homes priced from $160,000 to $350,000.

So far, their website showcases a grand total of 29 homes, with all but 5 of them clocking in at the top of the range, with sticker prices of $350,000. By my calculations, a $350,000 house is “affordable” (as in, the mortgage principal + interest payment on a 30-year fixed is no more than 30% of gross income) to families with incomes of $69,000 or more, assuming they are somehow able to pony up the $70,000 down payment, that is. That sounds like the average King County family. Most people I know have an entire year’s salary sitting in the bank… not.

“With the high cost of housing in the Puget Sound, many working families are essentially locked out of homeownership,” states Jeff Caden, the Executive Director of WHC. “The goal of the Parade of Affordable Homes is to provide information to prospective, lower-income, first-time homebuyers about the available gap financing programs that may allow them to achieve home ownership. Most eligible people aren’t aware of these programs, and the Parade of Affordable Homes event can be critical in spreading the word while linking them with more affordable housing inventory.”

Although I am aware of many such programs, I haven’t looked extensively at the details of the kinds of “gap financing” programs Mr. Caden is referring to. They must be some pretty amazing programs though, if they’re targeting “lower-income” (i.e. – below median, likely with little to no savings) families with homes that are barely even in reach of a median household with a far-greater-than-median down payment saved up.

It is hoped that as a result of this event, buyers’ perceptions about their first home will begin to return to that of a modest, yet comfortable, “starter home”. According to research done by WHC, one of the greatest barriers to homeownership for first-time buyers is “not finding a home that they like.” Caden adds, “We hope that our clients can reset their expectations so they can return to living within 1100 square feet as well as within their means.”

Okay first off, the “starter home” concept makes no sense at all when you actually run the numbers. I’ll save the details of that for a later post. Secondly, as long as we’re “reseting expectations” here, how about we figure out that home “ownership,” while certainly desirable, is not the be-all, end-all of existence. When it makes far more financial sense to rent, why are we encouraging lower-income families to buy?

Their heart seems to be in the right place, but their heads… not so much.

(Washington Homeownership Center, Press Release, 05.30.2007)

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Case-Shiller: Seattle Not Really Special

By The Tim on May 29th, 2007 at 1:37 PM · 22 Comments

Much has been made of Seattle’s continued resilience in the face of the national downturn in housing prices. However, the bear comeback to this type of cheerleading is the argument that Seattle is simply late to the party and will eventually see declines of its own as well.

In order to test how well the “late to the party” hypothesis holds up, let’s do a little comparison shopping using the latest data from the S&P/Case-Shiller Home Price Index (March 2007).

Following is a graph of YOY appreciation for each of the cities tracked by the Case-Shiller index in which YOY appreciation reached at least 15%, with the peak appreciation for each city lined up at “Month 0″:

I have highlighted Seattle’s data with the thick green line. As you can see from this graph, Seattle is actually following right along the middle of the road since its peak YOY appreciation, when compared to other cities that experienced a similar real estate boom. Here’s a summary of how long each city took to go from maximum YOY to YOY negative:

City – months from cliff to negative YOY
Cities in italic have not gone YOY negative yet.
Portland, OR – 12 (6.98%)
Tampa, FL – 14
Los Angeles, CA – 14
Seattle, WA – 15 (10.02%)
Phoenix, AZ – 16
Miami, FL – 17 (1.05%)
Washington, DC – 18
San Francisco, CA – 19
New York, NY – 22
San Diego, CA – 25
Las Vegas, NV – 29
Average – 19.6

To review, Seattle:

  • Peaked at 18.5% YOY appreciation in December 2005.
  • Has since been consistently declining.
  • Is approximately 6-12 months away from where the Case-Shiller data suggests it will enter negative YOY territory.

FYI, “all real estate is local,” is not a valid retort to data that suggests a conclusion that makes you uncomfortable. If “all real estate is local” then why is it that since March of last year, every single city tracked by the Case-Shiller index has had steadily decreasing YOY appreciation?

In my opinion, the writing is on the wall.

For even more brainy number-crunching of the Case-Shiller data, check out Deejayoh’s analysis in the forum. Great work!

(MacroMarkets, S&P/Case-Shiller HPI, 05.2007)

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“We don’t want to panic. We need to be brave.”

By The Tim on May 25th, 2007 at 10:16 AM · 24 Comments

Maybe I’m just in a “mood” this morning, but this story in today’s Tacoma News Tribune really cracked me up.

A morning of housing pep talks greeted builders, real estate agents and government folks Thursday: Build green. Be brave. If Coeur d’Alene, Idaho, can go urban, so can you.Economist Glenn Crellin, director of the Washington Center for Real Estate Research, kicked things off at the 2007 Housing Forum at the Rhodes Center in Tacoma with a slew of statistics to illustrate a healthy Puget Sound-area market, especially compared with some states.

“My bottom line is we don’t want to panic. We need to be brave. Real estate markets will see some softness, but they’re not going to disintegrate,” he said.

If we just close our eyes and wish hard enough, we can keep our housing market strong! Be strong, everybody! Wish hard!

Crellin, who last year bought a second home in North Carolina, did acknowledge the shrinking number of South Sound residents who can afford to buy. Crellin’s Charlotte town home cost less than $210,000, with upgrades.” It would be nice if we could import that kind of market” here, he said.

Funny you should say that, Mr. Crellin… I wonder how we could possibly end up with cheaper houses in the Puget Sound… Hmm… That’s a tough one.

(Devona Wells, Tacoma News Tribune, 05.25.2007)

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Seattle Condo Expo: Meta Report

By The Tim on May 24th, 2007 at 8:40 AM · 7 Comments

Since I am not willing to fork over $10 just to have a bunch of condo hucksters throw advertising pamphlets at me, and because I can think of much better ways to spend my time (especially on my birthday), I did not attend the Seattle Condo Expo over the weekend. However, from the sound of things in the reports I’ve read from those that did attend, I didn’t miss much.

The ever-vigilant Matt Goyer of Urbnlivn reports his impressions (and shares a good collection of links to other reports):

Overall the Expo was a bust but the talks were good. To get a sense of who was all there I uploaded the map of the showroom floor. As you can see there were a lot of downtown condo projects not represented there and for the ones that were there the representation was lacking. Ben summed it up pretty accurately in his blog post about the event:

The expo was billed as the “ultimate urban open house”. If you were a prospective buyer, it was anything but. …

Personally, I didn’t get much value out of the expo other than to get an update on sales numbers and to catch up with a few sales folks on the latest news.

What I did get a lot of value out of was the three talks I attended (click through for my full notes on the talks.) However the talks really did seem all about making us customers feel like the market was still strong and that everyone wants to live downtown.

Economist Matthew Gardner from Gardner Johnson on Seattle area economics and forecast – Matthew’s was the best talk. Not only is he a good public speaker but his PowerPoint deck was full of charts and numbers. He was also very adamant that we were not in a bubble situation, that Seattle could absorb the inventory and that we developments were handling investors much differently than other cities.

Charles Mudede of The Stranger had a more… colorful take (the typical Stranger style):

The excitement is building,” states the website for the second-annual Condo Expo on May 19 and 20 at the downtown Westin Hotel. It’s all about excitement and joy: the joy of growth, of big investments, of exerting architectural power, and of making what may very well prove to be the final step in Seattle’s journey to the big city. Who in the world would miss the opportunity to be in the middle of this madness? Nine thousand units are waiting to move from the planning stages to the streets of the city. Condo towers that are not even built have already sold out. Billions of dollars are doing what billions of dollars love to do: circulate—moving in quick steps from buyers, to realtors, to banks, and back again to buyers, to realtors, to banks. Don’t stop the dance.Granted, as a Marxist (or a Maker’s Marxist), I’m opposed to the way the present economic system distributes wealth, but even I love to see the spectacle of capital, its disco-ball whirls of shimmering desires, its magic dust intoxicating the air and loosening the morals of beautifully made-up women and men. But, sadly, none of this sorcery was at this year’s Condo Expo. It might have been at the inaugural one in 2006, but not in 2007. Did the organizers somehow sober up already and return to the basics, the disenchanted bottom line? Lots of curious people (interested hipsters, married homeowners, ambitious immigrants) came to the expo, but none seemed to stay for long. The event itself didn’t make the effort to stun us into submission. All of the cash being pumped into the Seattle downtown area did not explode into what we wanted to see and feel: an orgy of 21st-century wealth.
…
“[W]e’re celebrating the year of the condo,” says Melissa Vail Coffman in Seattle Business Monthly. The magazine has a table outside of the main hall; it is operated by a man who is halfheartedly handing out free copies. By the bored look on his face and the heaviness of his gestures, I’m certain he has no clue that we are celebrating the year of the condo.

At the end of the day, why was this expo so lifeless? The boom is for real; billions of dollars are going in and out of it. So why would an event that’s supposed to reflect this high energy be so flat?

Sounds like the Condo Expo didn’t really accomplish its goal, which was presumably to get people fired up about blowing huge sums of money to live in a downtown with relatively few amenities and nearly zero nightlife. Go figure.

(Matt Goyer, Urbnlivn, 05.20.2007)
(Charles Mudede, The Stranger, 05.23.2007)

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A Conversation With Steve Tytler

By The Tim on May 23rd, 2007 at 10:35 AM · 30 Comments

A few days ago I received an email from Steve Tytler, a name you may recognize as the occasional real estate columnist for the Everett Herald. Despite the fact that Mr. Tytler owns a local mortgage company, he has been the only voice in the local media to predict that for-sale inventory would increase and prices will “possibly decline slightly.” We have covered those predictions as well as a few other of Mr. Tytler’s columns in previous posts on Seattle Bubble.

A lengthy and interesting discussion with Mr. Tytler followed over the next few days. Read on for some highlights of our discussion, posted with Steve’s permission…

(Click “Continue reading” below.)
[Read more →]

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