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 June 28th, 2007

Venting Against Seattle Bubble

By The Tim on June 28th, 2007 at 10:34 AM · 46 Comments

Here are a couple of comments that have been posted recently to Seattle Bubble.

Brian on June 26:

Hey Tim, I’m a fairly new reader, and enjoying your blog, but I have 2 comments:

1. It’s going to sound lame, but I’m sometimes a bit thrown off by your use of sarcasm. If you can make it a bit more clear or tone it down a bit I think it’d be easier to read, and probably more professional.

2. I don’t know if you can do anything about it, but Google Reader doesn’t handle your quotes properly, so you can’t tell what’s a quote.

VictoryHeights on June 27:

I’ve only been reading Seattle Bubble for a few days but I’ve quickly come to the conclusion that most of the people here suffer frame the same problem that they accuse the media of having. Just as they seem to be cheerleading the real estate market, you people seem to be [censored] on it. All news is good news for them; all news is bad news for you.

Furthermore, the “analysis” you present cracks me up. It is called a cycle. Real estate prices tend to rise and fall in cycles. Just because you can over lay price data to show the cycles in several markets, doesn’t mean you’ve provided any insight into a possible “bubble.” Time to stop reading Seattle Bubble.

Maybe I’ll check back next year… or the year after…. or the year after. Eventually you may be right. Don’t worry; I’ll just adjust the horizontal axis to demonstrate you were right all along.

To be perfectly honest, I actually quite enjoyed both of these comments, although each for different reasons. Constructive criticism such as Brian’s comment is a useful way for me to find out ways I can improve the blog, while name-calling rants like VictoryHeights’ are a simply an entertaining source of amusement.

Therefore, for the enrichment and amusement of both the readers and writers of Seattle Bubble, I offer this post as a clearinghouse for your complaints. What would you like to see improved? Exactly what kind of idiot am I for even running this blog? Just let it all out.

Before we get started, I’d like to comment briefly on some previous complaints. First off, I think I have figured out the Google Reader problem Brian refers to above, and it should be fixed in new posts made from here on out (plus I went back and fixed yesterday’s post as well). Let me know if it still gives you problems. Secondly, I haven’t forgotten about our discussion regarding open threads, I just haven’t made the time to come up with a good compromise yet.

If you have nothing but love for Seattle Bubble, I’d like to request that you sit this post out. No ragging on the drive-by commenters, or ripping apart other people’s criticisms. If you want to say something nice about Seattle Bubble, how about making a small donation instead? This thread is for complaints and constructive criticisms only.

Thanks, and have at it!

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Seattle Just Maybe “Behind the Cycle”

By The Tim on June 27th, 2007 at 9:20 AM · 61 Comments

The latest Case-Shiller Home Price Indices data came out yesterday. The data runs a few months behind, so this release covers April. Here’s Aubrey Cohen’s take on the numbers in the P-I:

Seattle continues to defy a national trend of declining home values, but city house price increases are slowing, according to a Tuesday report.

Seattle-area prices for existing houses in April were up 1.3 percent from February and 9.6 percent from April 2006, according to Standard & Poor’s S&P/Case-Shiller Home Price Indices.

Both were the largest increases among the indices’ 20 major metropolitan areas, with Dallas equaling the monthly boost.

Pretty much the standard, rah-rah fluff. Aren’t we special, yadda-yadda.

But wait, there’s more! (Emphasis mine.)

But Robert Shiller, chief economist at MacroMarkets LLC, noted in a statement that Seattle’s year-to-year price increase was down from 17.8 percent in April 2006.“No region is immune to the weakening price returns,” he said.

The Seattle area’s year-to-year price increases have declined for 14 months, and April’s 9.6 percent rise was the lowest since May 2004.

“That is still a marvelous growth rate,” said Maureen Maitland, vice president of index analysis for S&P, in an interview Tuesday. “(Seattle) has held out quite a lot compared with others.”

…

Seattle also may be behind the cycle because the previous tech bust in 2001 delayed its entry into the latest housing boom, she said.

Seattle’s appreciation peaked in November 2005 — 14 months after the 20-city index. Hard-hit cities such as Detroit and Boston peaked in late 2003 and early 2004.

What’s that you say? Seattle may just be “behind the cycle”? Now where have I heard that before? Oh yeah, right here. Over and over.

Here’s another graph that attempts to visualize this theory. This one plots Seattle & Portland vs. Los Angeles & San Diego year-over-year price appreciation according to Case-Shiller. I’ve shifted San Diego and Los Angeles to the right by 18 months in order to roughly line up the period of peak appreciation.

Those curves sure look similar to me (note: “similar” not “identical”). If Seattle & Portland’s respective housing bubbles play out similarly to San Diego and Los Angeles, next Spring and Summer could be very interesting in the Pacific Northwest.

(MacroMarkets LLC, S&P/Case-Shiller HPI, 06.2007)
(Aubrey Cohen, Seattle P-I, 06.26.2007)

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“Positive Fundamentals” with “Hints of Weakness”

By The Tim on June 26th, 2007 at 9:02 AM · 10 Comments

Ahh, Les Christie of CNN Money—the perfect national companion to our local captain of the real estate cheerleading squad, Elizabeth Rhodes. Where would we be without your frequent reports reminding everyone across the country just how special Seattle is?

In the middle of a nationwide housing slump, a few markets have held their ground – and then some.

In Seattle, for example, the median home sale price was $380,200 during the first three months of 2007, according to the latest stats from the National Association of Realtors (NAR). That’s a 12.3 percent year-over-year increase.

Ten other metro areas among the 156 markets covered by NAR also recorded double-digit, year-over-year price increases.

So what have they get that other markets don’t?

The main ingredient is a set of positive fundamentals, including strong job and population growth, which then fuel demand for houses.

Ah yes, the fundamentals. Gotta love those positive fundamentals. Our strong job growth that is so directly tied to home buying demand. Our surging population growth that so clearly exceeds the rate of homebuilding. Yup. Ya just gotta love those fundamentals.

Other factors also got the double-digit markets percolating. In nearly all of the areas, prices never overheated, remaining relatively low through the boom years. It’s easier to show outsized growth when you’re starting from a low base.

70% increase in five years? Perfectly normal. Definitely not “overheated,” no sir.

But wait, what’s this? Did I actually see a nugget of truth in this latest puff piece?

But even the strongest areas around the nation show hints of weakness that aren’t covered by NAR statistics.

According to Lennox Scott, of the John L. Scott Realty Company, one of the largest home sellers in the Pacific Northwest, the hottest Seattle neighborhoods are those closest to job centers.

“We see double the demand close in,” he said. “People don’t want the commute.”

Since the most expensive housing markets are the ones closest to the downtown core, that can make home prices appear higher when really it’s just the mix of sold houses that has changed.

The recent subprime mortgage crisis has also significantly changed the types of homes being sold. Demand has fallen among credit-damaged and low-income buyers, who typically buy lower-priced houses.

And tougher lending standards also make it more difficult for marginal borrowers to purchase. In Seattle, Erik Hand, president of Response Mortgage Services, Scott’s lending arm, said, “We’re having a harder time getting first-time home buyers approved.”

The result is that stats can still show double-digit price increases when, in reality, the market may have slowed substantially. It certainly seems that way to Lennox Scott.

“The market may have slowed substantially.” You don’t say. Well maybe there’s a glimmer of hope for our friend Les Christie after all.

(Les Christie, CNN Money, 06.26.2007)

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Rent Vs. Purchase Comparisons

By The Tim on June 25th, 2007 at 3:37 PM · 42 Comments

I’m working on a post that I’d like to make this week where some real-world examples of renting versus purchasing would be really handy. There’s a thread on the forums on the subject, but I’d like to pose the question here as well.

Basically what I’m looking for are some concrete examples (with links and addresses) of homes available for rent vs. comparable homes (i.e. – similar bed / bath, square footage, lot size, neighborhood, etc.) available for sale. Ideally I’d like to throw some condos vs. apartments into the mix as well.

Here’s an example of my own to kick things off. (I did this research a few weeks ago, and since then both have gone off the market, so I don’t have links anymore.)

For Rent:
1,840 square foot house
3 bedroom, 2.5 bath
2-car garage
8,282 square foot lot
Near 74th Pl NE & NE 148th Ln, 98028
Price: $1,495 / month

For Purchase:
1,850 square foot house
3 bedroom, 2.5 bath
2-car garage
9,660 square foot lot
Near 87th Ave NE & NE 132nd Pl, 98034
Price: $424,950
PITI*: $2,750 / month
* (Assumes 20% down, 30-year fixed @ 6.625%, Insurance @ 0.46%, property taxes at 1.15%)

So what are your best rent vs. purchase examples in the Seattle area?

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Seattle’s “Seller’s Market” Status Rapidly Eroding

By The Tim on June 22nd, 2007 at 11:31 AM · 69 Comments

Forbes has come out with yet another real estate “Top 10″ list, this time gabbing on about the “Top Home Sellers’ Markets.” Interestingly, Seattle is conspicuously absent from the list. They explain:

The Methodology
To measure inventory glut, we used Moody’s Economy.com and National Association of Realtors data that tracked a market’s current sales rate by projecting the amount of time it would take to sell off the excess housing stock at the current rate of sales.

We also looked at the change in sales rate over the last year to measure the relative tightening or loosening of the market. Finally, a measure of price stability was applied so as to prevent the list from being a rundown of upstart markets.

The measurements left out a few cities that lacked comprehensive data. Seattle, for example, has incredibly strong market fundamentals—the lowest vacancy rate of major metros at 0.9% and is a small geographic area not conducive to overproduction. It is a good seller’s market, but for tracking what we were after, Seattle data was incomplete for our analysis.

I’m not sure why their data was “incomplete” for Seattle, and I imagine that if they had access to everything they were looking for, it probably would have been on their list. However, while Seattle might be a better sellers’ market than most of the country, all indications are that we have been granted only a temporary reprieve.

While the language in the article makes their calculations sound fancy and complicated, it would appear that their primary measure of whether a city has a good “sellers’ market” comes by dividing the total monthly sales by the current number of homes for sale. This is commonly referred to as “months of supply” (MOS), but they are referring to it as the “rate of sales.” Here’s a graph of King County’s SFH from 2005 to the present:

Forbes mentions that they “also looked at the change in sales rate over the last year to measure the relative tightening or loosening of the market.” As you can see, the Seattle market can only be described as “loosening.” At the end of May, MOS stood at 3.02, up 59% from last May’s value of 1.89, which was itself up 18% from the May 2005 value of 1.61.

Sales have been declining at an average rate of 10% year-to-year for the past 19 months:

While inventory has been increasing by over 24% year-to-year for over a year:

Is Seattle presently a seller’s market? Probably. Will it still be a seller’s market by the end of the year?

“Outlook not so good.”

(Matt Woolsey, Forbes.com, 06.22.2007)

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Local Foreclosure Quotes

By The Tim on June 21st, 2007 at 10:01 AM · 32 Comments

King 5 News comes at us with some quotes from real people in King County that are part of the ever-increasing group undergoing foreclosure:

Sofia DeLeon says she went for an adjustable rate mortgage, but when rates were adjusted, she couldn’t keep up.

“It was scary, you know, and I felt really, really ashamed. I looked at myself as a failure,” she said. “I’m not really astute at these things, so I was just anxious to get a house… to get my own house, so I probably didn’t look.”

I wouldn’t say that people going through foreclosure are a failure, just that they let themselves get swept up in the mania. They didn’t take the time to learn about the repercussions of the dangerous loans they were peddled, but rather just took the real estate and mortgage “professionals’” word that they should do whatever it takes to get into a home.

Homeowner Nancy Wagner says the fear of foreclosure is incredibly stressful.

“You wonder what’s going to happen. Are we going to be out on the street… looking for a homeless shelter or something?” she asked.

“When those loans are what’s called re-cast, and their payments go up 10 to 50 percent, those folks have no hope of being able to pay them,” said Jane Withers, ACORN Housing.

An advocacy group called ACORN Housing says predatory lending three to four years ago is largely to blame.

I’ve never heard of a renter’s payments suddenly jumping up by 50 percent, leaving them wondering if they’ll be “looking for a homeless shelter.” And while “predatory lending” certainly has a good share of the blame, the willing consumers should not be given a free pass. I do feel bad for anyone that loses “their” house in foreclosure, but that doesn’t mean that people who dove head first into suicide loans get a free pass to escape the consequences of their hasty decision.

(Lori Matsukawa, King 5 News, 06.20.2007)

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