Please note it is most important to consider the effect of news media headlines on the rising median price in King, Snohomish, and Pierce Counties. (I’ve heard comments on KCTS specific programs stating that an increase in the number of listings is a sign of a healthy local housing market – there are too many very similar examples from our local newspapers, radio and television stations to quote here…it’s bewildering how many ridiculous assertions about our local real estate market get past editorial desks). In other words, the principal reason median house prices are continuing to follow a positive trajectory, is the psychology factor. Almost all of the houses we’ve been looking at, have been on the market 75-125+ days, furthermore, the recent nearby sales of these houses (transactions in months April and May, often no sales in June or July) support only 75% – 85% of asking price. People still think King County market is as hot as ever despite rapidly declining sales and even more rapidly increasing inventories.

I commend you for your analysis. There are far to many people yelling about the housing market – for and against. We need more data to support a fact based discussion.

P.S. I dont post on the Craigs List HousingForums so it was probably someone else.

LOLOLOLOLOLOL

In spite of that, my own tracking of Snohomish and King County foreclosures posted at foreclosure.com shows that the number of properties listed is up 4x in the last six months.

There seems to be no accurate time series for foreclosures – but as I recall, I have read that MBA only reflects about 50% of mortgage issuers by volume – and these are the bigger ones, so they are likely to under report some of the really questionable loans that have been made.

Apparently you didn’t get the memo that anyone who can borrow several hundred thousand dollars is now considered “rich”. Debt is wealth.

Apparently they didn’t get the memo. Seattle is supposed to be a playground for the rich. We have no more room for “working class families” Pshaw.

Yeah, I guess that could be the problem, but I am pretty sure that the percentage of foreclosures in the state of WA has increased more than 0.01% over the last year. I would bet dollars to donuts that Cohen is flat out wrong, but I can’t find the data. Anyone else know where to look, especially using a nonRealtyTrac service, given that they have the problems Finance cited?

I was amazed at how many homes were on the market (resales that were new construction via 2004-05) in this development. In one stretch of a block there were 4 out of 9 homes on that one street for sale. Did some research: All were financed with sub-prime lenders, all increased their base loan amounts from either a re-finance or added straight second mortgage/HELOC’s to their first mortgages. All primary loans were ARM’s. One with a wicked pre-payment penalty. All increased their emcumbrances on the homes on average over 100K over the original purchase price.

The old school refinancers: get a better rate and drop my monthly payments.

Today’s refinancers: add tens of thousands to the bottom line, pay off some credit cards, take a chunk of change for a downpayment on a $40K car/truck, and keep my payments the same via a 10 yr. I/O loan.

Side note: I was at Church yesterday and the Pastor indicated to the congregation how much he learns from other people’s mistakes. I couldn’t help but think to myself, ‘yeah, I agree from being in the escrow business.’ It’s an eye opener.

A lot of folks compare the current Seattle Bubble to the 1986-1993 anomaly.

See the proof:

Current Housing Slump Mirrors 1991 Housing Slump

I remember when prices went through the roof (like now) in the late 1980s and nothing was affordable, as the new homes saw the best price declines then and the used houses [mostly fixed rates?] just stayed on the market longer, unless the seller got desparate.

That may likely account for that 14 month lag in the chart presented in this article. I think Seattle home sellers are “pig-headed” and don’t like price declines [who does]; so don’t sell the first year or so if they can’t get their original higher price.

I was looking for data on subprime %s in Seattle and remember seeing they were quite high compared to the national market. The average American (see 6/17 Roubini blog) home recently is about 55% equity, which makes things look rosey….bear in mind, there are a lot of 100% equity homes averaged in with 30%-50% of the homeowners with little or no equity; so a 55% average is skewed, especially for the Seattle area or other high priced regions requiring more subprime [and hence far less equity].

I find myself hoping these good folks didn’t stretch to get into the house, and will have to struggle to figure out how stay in it in the next few years.

Makes me sad and angry, and a bit conflicted as I hope for a return for sane fundementals.

So I just looked at the house at Zillow and yep, just as I had suspected…The house sold in June 2006 for 360K.

So now I am thinking this family might have taken out a 1 year arm and the yardsale is a sign of distress…

Such a perfect looking life on the outside, but once you dig deeper its not as great as it looks…

Now i know why the guy had that sour look on his face.

I never said I hated economics.

I said I hated “econometrics” as it was extremely hard…it was hard for most of the class.

Economics isn’t only about math…and my name never said EconGuru nor have I purported to be an expert.

Did you take econometrics?

Why don’t you amend your name on the CL HousingForums as you are FinanceGuru there also?

And no…I don’t post there but have read it from time to time.

2) Are there any cyclical impacts you considered? I know looking at inventory it tends to be cyclical, which is why I ask.
Implicitly, I was considering the whole Greenspan/easy-credit-era as a single cycle – especially since it has been a period of low and relatively stable interest rates. To my point above – if I wanted to use a longer data series, I’d need to include more variables to explain market behavior.

3) Are you at all concerned that your data starts during an up-cycle and doesn’t contain any down-cycle data (i.e. previous crashes)? I am concerned that it may slope different in down years.
Yes, the further you get outside the range of historical data in any model, the worse the predictive value is.

And one for anyone:
4) Do you know if we have a longer lag time than other markets or if their inventories just went up and down before Seattle’s did?
When I ran the data for seattle, the predictive model was almost the same for 12, 13 and 14 months. I went with 14 months as the default because it had the best r^2. But not by much. As for other markets, see the post that Tim linked re: San Diego market a couple days ago. It appears the 12 month lag worked there. Also, I ran the same analysis on data for Phx and a twelve month lag worked there as well.

Why does your name have the works Econ in it if you hate economics (which means you probably dont know as much about economic indicators). The guys on this blog busted my chops when I was using FinanceGuru (thus amended my name).

I had some follow-on questions if you don’t mind:

1) Did the analysis indicate a linear relationship or is there possibly a non-linear curve that is a better fit (R^2)?

2) Are there any cyclical impacts you considered? I know looking at inventory it tends to be cyclical, which is why I ask.

3) Are you at all concerned that your data starts during an up-cycle and doesn’t contain any down-cycle data (i.e. previous crashes)? I am concerned that it may slope different in down years.

And one for anyone:
4) Do you know if we have a longer lag time than other markets or if their inventories just went up and down before Seattle’s did?

Seems to me that the beauty of this model is that it should be able to predict a bottom (and a 14 month rise prediction after we reach that bottom). A powerful tool for anyone wanting to buy after the inevitable fall.

You are right, there is a pretty strong relationship between that ratio and M2M price changes. I ran a quick and dirty analysis. The r^2 was 0.7.

Unfortunately, as a predictive tool, it’s a pretty useless relationship – unless you have a way of predicting where the sales:inventory ratio is going, you have two random variables that happen to be correlated. And believe me, that ratio is all over the place.

That sounds like a good question to ask on the forums.

Where may I find a map depicting the boundaries of those MLS areas?

You may find it here.

I’m just so ticked by the crocodile tears “people get hurt by all this”. People gambled when they took on ARM or I/O loans. Do we say that people who lost their money on gambling at casino “get hurt”?

If anything, the ARM or I/O people get hurt by their LO or real estate agents.

http://seattlepi.nwsource.com/business/319870_mortgage15.html

It says percent in foreclosure has increased from 0.46% to 0.47% in from Q1 2006 to Q1 2007. I don’t know where Cohen is getting those data, but when I look at the foreclosure page on Yahoo, which gets its data from RealtyTrac, it looks like foreclosures have increased 33% over the last six months for the state of Washington. I don’t know where I can find the data for Mar 06, but I can’t imagine it was very high then. What gives?

Your analysis provides an explanation for the seemingly accepted conventional wisdom of housing prices being “sticky”.

In my neighborhood, they are putting up stacked duplex townhouses (that is, two duplex townhouses on a lot, with one behind the other). Anyone have an idea how much it costs to build one of these?
According to my buddy who builds these in Seattle – its about $125k per door for construction costs. Plus land, teardown, permits, etc. Profit margins are well north of 25% at today’s pricing.

I have been seeing comments about the increasing inventory for many months now, and it hasn’t led to the decline in prices that one might reasonably expcect based on Econ 101 assumptions.

No… but I had a house built in Tampa in Y2K. It was a well-built three bedroom, two bath, one car garage home — 1350 square feet, cement block construction [stucco finish]. Price, excluding land, was $76,000.

Here in the Bay Area, our local MSM is finally including that little inconvenient fact in their RE coverage, perhaps in the hope that sellers will let go of their 2005 wishing prices. Just because the median is going up doesn’t mean that an individual house is going up as well.

In my neighborhood, they are putting up stacked duplex townhouses (that is, two duplex townhouses on a lot, with one behind the other). Anyone have an idea how much it costs to build one of these?

the dam will hold untill we see inventory hit about 20,000. Right now we’re at 8,700.

of course, he was massively confused about inventory numbers. His 20k comparison was pulled from the history for the 3 county area. That number sits at 22k today (SFH only)

dontcha miss the little guy?

Great work Deejayoh.