If people move here from Alaska, or Oregon, they don’t pay the premium that Californians do.

That’s a double-whammy.

Also, other markets are falling into an economy that can catch falling home prices. It is reasonable to think the last market to fall will fall into an economy that is in full retreat. Support levels will be falling hard.

Lastly, I don’t believe the local economy is exotic enough to justify anything close to current home prices.

The only thing that is remotely bullish for PNW home prices is massive exodus of nuclear families that don’t want to live in a community that is morphing into a Third-World balkanized mess. That’s as PC as I can put it.

Since housing prices did not escalate as much over the past 5 or 7 years, why would prices get hit harder..?

At least what I can see the stock prices of companies in the NW are increasing much more than the stock market, companies are still hiring at a greater rate in 2007 than the rest of the nation, and more people are moving here than in prior years (1.5% increase in Seattle in the past year, there was an article on it last week in the paper). Also with all the commercial buildings going up will increase the number of people working in the downtown Seattle/Bellevue areas…wouldnt that increase demand somewhat to live closer to work, thus increasing rents/prices.

“I think we will fall much harder than California. I know I am probably alone in this prediction.”

Actually, no, you’re not a lone. I’m right with you on this. I think that when it’s all said and done, the Puget Sound region will have received a throttling worse than that of CA.

As for local forces – while seattle job growth has been good, check Tim’s post on fundamentals. Seattle had one of the slowest wage growth rates in the country in 2004-05. bottom 10! That suggests to me that professional job growth hasnt’ been all that rosy

You misunderstand my point. I do not disagree at all that there are common nation-level facotrs, like interest rate changes, at work. Indeed, I think there should be some commonality in the patterns across local markets.

However, Tim’s hypothesis goes beyond that. Tim not only suggest that there are similarities, he also suggest that 1) the pattern in Seattle is simply delayed by 18 months and 2) that the amplitude of the cyclical swings in Seattle will be comparable to that of other local markets.

Yet, Tim has offered no theoretical justification for why there is an 18 month delay. He has simply laid empirical trend lines on top of each other. That is not theory. This is dust bowl empiricism.

On the other hand, Steve has finally offered some semblance of a theory that carpet-bagging Californians created an “echo” bubble in Seattle. However, that theory is highly questionable in many respects. For example, it is not at all clear that a significant portion of home purchases over the last few years were by Californians or any one else from “standard” cycle markets. Even if there have been a lot of out of state buyers, if those Californians stay in Seattle, then the demand curve has just permanently shifted. Indeed, reports have suggested that the proportion of real estate investment homes to primary residences in Seattle is significantly lower than in other markets. So there are a lot of unanswered questions, but give Steve credit for offering an actual theory that can be discussed.

The most likely explanation is that while Seattle is affected by many of the same national forces, local forces (e.g., a strong PROFESSIONAL job market, Seattle’s unique geography, Seattle’s less materialistic culture) have softened and will soften the fluctuations in the market created by the national forces.

I am guessing you don’t accept that theory – given you put forward a bunch of local drivers of real estate prices as justification. So it sounds like you have a different theory, for which you offer no justification or proof. I think if you read some of the old posts, you’ll see that Tim has covered every factor you talk about ad infinitum – and none of the factors you put forth (jobs, land, etc) explain the boom in housing prices.

If you have “strong theoretical justification” to add in that vein, bring it! I think a spirited case for why Seattle is special would be a great contribution. But criticism without proposing a better explanation is, well – just that.

mydquin said,

on June 3rd, 2007 at 10:13 am

Two major logical problems underlying this graph.

1) Graphs are built on numbers. However, without understanding the qualitative factors driving those numbers, the graph is largely meaningless. We’re probably going around in circles for the Nth time here, but many of the comparison cities in this graph are influenced by fundamentally different sets of economic (i.e. the PROFESSIONAL labor market) and geographic factors (i.e. water barriers, scenic views).

2) On a related note, differentially re-setting the peak of each city’s trend line graph to time 0 is a statistical slight of hand with no basis in theory. I keep hearing people here talk about how the Seattle market lags the rest of the nation, but I have yet to hear a reasonable explanation for why that is so.

I suppose you could claim that Seattle strong local economy and it’s unique geographic features delayed the onset of the downturn. However, if you are going to make that claim, then you basically need to quit acting like Seattle is NOT different from those other cities. Moreover, you also need to seriously consider the possibility that while Seattle has experienced the same nation-wide influences (e.g., changes in national interest rates, bank lending practices), the negative impact of each of those national forces just happens to be less severe due to positive local forces.

Bottom line: technical analyses, like this graph, are pretty weak and possibly misleading without stronger theoretical justification.

http://www.dol.wa.gov/about/driversreports.html

Guess was released on Wednesday! This year’s version.

oh look, what has happened to that California migration?!?!

I am going to see if I can get the data for that chart, there’s some analysis to be done there…

You are da Man! I was using gut instinct and anecdotal observation of the glut of X-Cals in our region, but you have the proof.

Just for fun, I will take my kids to Battle Point Park on Bainbridge and chat up the other dads. When I’m feeling a little snarky, I’ll slip in the question, “What part of California did you move from?”

I’m not kidding. Almost all don’t give it another thought and tell me. One occasion, I chatted up a guy from Virginia, but he chuckled and said, “No kidding. Everyone is from California.”

It is the 59th county of California.

Interesting to say the least. Surrenders of CA licenses peaked in 1990, just as CA was starting to tube, and Seattle kept going another 12 months. Fast-forward to 2005 – and guess what?!? Another surge in surrenders of California licenses…

What’s with the drops in Nov. & Dec.? I have to assume that most sellers don’t even bother to list then.

A lot of listings get pulled off the market during the holidays. My own experience last time I sold a house was that my realtor called me the end of december and said “we need to relist your house in the new year, come in and sign the paperwork”. I am not sure if that is is standard operating procedure, but she made it sound like it was. didn’t matter to me, since I figured that resetting DOM was a good thing – but I think it contributes to the dip.

Where can I get some of those stickers?

I live in the same area as you and my LL is an X-Cal RE agent that came up here and bought property hand-over-fist. She is now having cash flow problems. No wonder, she subsidizes me to the tune of $3K/mo – I only wonder what her other 8 properties are like.

The California model of “buy and hold” is going to burn her.

Once the equity locusts dry up, you won’t be seeing many $700K homes in NK.

E

You’re right. There was a strong anti-California mentality in the 80’s and 90’s. I remember the “Don’t Californicate Washington” bumper stickers.

When you look at it that way, SD and LA appreciation doubled, while Seattle and Portland appreciation quadrupled. I’m not saying that really means anything (otherwise I would have put it in the post), but it’s an interesting way of looking at things

think this was due to the steady trickle of Californians to Oregon and Washington in the 80s and 90s – it’s how my wife’s family got here. In Portland at least, “Californian” has long been a dirty word. In the 90’s, the Portland location of California Pizza Kitchen went out of business because Portlanders wouldn’t patronize something perceived as being from California.

I can’t argue against those numbers; but they blow me away. What’s with the drops in Nov. & Dec.? I have to assume that most sellers don’t even bother to list then. But the increase in January is not significant. What explains the drop in August? “School starts next week; let’s hurry and close”.
Thank you for the stats. Great numbers.

200-2007 Inventory Averages
January 6,049
February 6,213
March 6,525
April 6,999
May 7,442
June 7,481
July 7,545
August 7,344
September 7,576
October 7,410
November 6,926
December 5,804

I would be surprised if this pace is kept. Then again, spring/summer should be when inventory numbers show a decline, not severe increases.

It will be verrrrry interesting to see what happens to sales. I am guessing they are really dropping off, which is driving the inventory numbers. But maybe they are going up together?

June is typically the last “hot” month for sales:inventory. That ratio has averaged about 38% over the last 6 years. Same ratio falls to about 31% by Sept.

As vancouverdr mentions, I know for a fact that part of the reason Seattle / Portland lags the rest of the U.S. is because of the California transplants (equity locusts?). And I’ll even go as far to say that the California transplant phenomenon is occurring in eastern Washington and Idaho also. Example – I personally know a couple who sold their 1300 sq ft house near LA for around $750,000 about two years ago. They then moved to northern Idaho and bought a 3000 sq ft, lakefront home for around $400,000. They are living off of the difference as part of their retirement income. (I would imagine they took a hefty hit on capitol gains?) Anyone familiar with the Lake Pend Oreille area can tell you that there is a distinct lack of millionaire Microsoft software people in the area, so $400,000 is a hefty chunk of change to the local residents. Another example – a house in my neighborhood (Kitsap County), that was assessed by the county as being worth $430,000, was sold to an elderly California couple for $716,000 about a year and a half ago. Then, before they moved in, they proceeded to remodel the basement, which I am sure wasn’t cheap. None of the working stiffs that I know in my neighborhood can afford a $716,000 house.

I realize the above is anecdotal evidence, and a very small sample, but it is real experience.

I’ve noticed the same thing. Unless a bunch of homes go off the market in the next few days, this June is going to see the largest May-to-June inventory increase on record, almost by a factor of two.

Generally September is the peak inventory month in a given year, and at the current rate of increase, we could easily see 11,000 SFH in King County by then. It will be interesting to see if inventory continues to pile up this fast throughout the summer.

I wonder what would happen to PNW home prices when Californians are trapped in their homes due to being upsidedown? When 40% of your market dries up, you have to figure it will have a very binary and negative effect on what it is you are selling.

I think we will fall much harder than California. I know I am probably alone in this prediction.

“I am sure i could overlay some graphs to prove my point somehow”

No, you could not. At least not and have it be a valid analysis. One of the first rules in modeling is ‘parsimony’ of variables the second is ‘ make it no more complex than you must.’ Seattle has consistently lagged other parts of the country in other economic indicators, so a lagging model makes sense. If you can show a leading model and do without statistical trickery or bad assumptions I’d like to see it.

Tim and DJ follow the basic rules of good modeling consistently, and it gives them a good bit of credibility. In fact I am sure they are wrong on some of the details, simply because all models are wrong, but some models are useful. Theirs seem to be in the ‘useful’ category.

Jimmy, if you think you can come up with something that shows Seattle leading, please do so and show it to us, and explain your reasoning.

If you don’t know enough to explain why you think what you do, than you don’t know enough to evaluate the information presented here. If that is the case, your opinion is certainly yours to keep, but it is an uninformed one.

I hope you can do better for yourself in the future.

From what I understand, these kind of exotic mortgages didn’t even really exist until the current bubble.

Really? I’ve heard of 100% financing deals even back in the ’80s. But I guess that may not be the same thing as “interest only”. Even on that level I wonder if 100% finance deals were more prevalent in the Puget Sound during previous booms than they are today.

Was the percentage of negative amortization and interest only loans in the Seattle area greater during the boom prior to the ’90s real-estate downturn?

From what I understand, these kind of exotic mortgages didn’t even really exist until the current bubble. This is the biggest credit bubble in the history of the world.

I suspect that Boeing’s great success in recent years, and Microsoft’s to a lesser extent, have in fact helped Seattle’s housing market. I don’t know how successful they will be going forward.

I also think we won’t crash as hard as Cali in the end, but if you think we will escape a decline because our rise hasn’t been as great, check out the Case-Shiller chart for Detroit. It is butt-ugly, and Detroit never approached where we are now in terms of price gains.

I’m helping a friend prepare his house for sale and we’re possible looking for someone to stage it for him. Someone that has a few pieces of furniture, such as an unusually short full size bed, small couch, etc…

Anyone know someone that does this? Anyone that isn’t associated with RCG would be fantastic.

I also might need someone to help me build a white picket fence for him too! He’s in columbia city area.

Thanks!

email: industrialove [at] gmail.com

Here is a snapshot of the same markets from the early 90’s crash. The data for seattle only starts in 1990, so you can’t plot back as far as the other west coast markets

Was the percentage of negative amortization and interest only loans in the Seattle area greater during the boom prior to the ’90s real-estate downturn? If these kinds of “exotic” loans are less prominent today than in past booms then perhaps the current downturn won’t be as severe as historical precedents.

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.

The Seattle Times has never once quoted Shiller or anyone from S&P from what I’ve read. They always seem to go for Lawrence Yuan of the national real estate cheerleaders association, and then for “balance” talk to some local RE industry cheerleader.

Yearly Average
January 0.06%
Feburary 0.41%
March 1.09%
April 1.25%
May 1.28%
June 0.95%
July 0.61%
August 0.44%
September 0.30%
October 0.29%
November 0.09%
December 0.06%
Year 6.83%

2007
January -0.03%
Feburary 0.51%
March 0.86%
April 1.31%

As you can see we currently are slightly below avg which says we could still see an avg Y to Y price increase of6.5% by year end (compared to the 11% for 2006). However, I believe we will really struggle the 2nd half of the year and 5% or less Y to Y is believable.

I am sure i could overlay some graphs to prove my point somehow

Have at it Jimmy… I await your conclusions

From 2000 to 2003 (pre-NW-bubble), Seattle & Portland were averaging in the ballpark of ~5% per year appreciation, which then shot up to 15-20% in the peak bubble years of 2005 and 2006.

From 1999 to 2002 (pre-SoCal-bubble), San Diego and LA were averaging in the ballpark of ~15% per year appreciation, which then shot up to 25-30% in the peak bubble years of 2004 and 2005.

When you look at it that way, SD and LA appreciation doubled, while Seattle and Portland appreciation quadrupled. I’m not saying that really means anything (otherwise I would have put it in the post), but it’s an interesting way of looking at things.

What if instead of lagging the other parts of the country we are leading them..

Instead of 2 years behind we are 5 years ahead of the rest.

I am sure i could overlay some graphs to prove my point somehow

so any decline would most likely be lets just say ~40% less.

so if you are saying that if SD/LA see a 20% decline, then we’ll see a 12% decline (40% less) I probably agree. I think there is too much downward momentum to pull up before we hit negative territory though.

I’m sure a lot of you bubble bloggers get accused of being negative and not looking on the bright side. The MSM method is just immerse yourself in “stupor bowl” and American Idol and forget about the facts.

Well, most of us are bubble bloggers technical backgrounds and facts are what we thrive on; of course a steady paycheck with enough money for the dentist and our kids futures play on our “negative thinking” planning for their and our financial survival futures.

But what the heck, live in dream world like the Seattle Times/PI would have us do, read Mad magazine and smirk, “What me Worry?

Anyway, it just bugs me because if we can’t explain it, it means we don’t truly understand it.

Sorry for the confusion The Tim, my bad…I even looked at the chart twice. However, the LA & SD markets had ~40% higher % spike than Seattle, so any decline would most likely be lets just say ~40% less.

If the timelines arent consistant you cant compare the data (like apples to pick ponies).

So, in your world, I couldn’t compare say, MSFT since it IPO’d to GOOG since it IPO’d, since they didnt occur in the same time frame? Who makes those rules, again?

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.

did you happen to note the two different horizontal axes?

The x-axis on the bottom, whose dates range from June ‘02 to September ‘08, applies only to Seattle and Portland, as indicated by the label next to the axis, “Date (Seattle & Portland)”.

The x-axis on the top, whose dates range from January ‘01 to April ‘07, applies only to San Diego and Los Angeles, as indicated by the label next to the axis, “Date (LA & San Diego)”.

The y-axes for both (left and right) are the same, -10% to 40%.

So please inform me exactly what “scaling” is getting “way out of wack.”

Thanks!