I’d like to introduce a new statistic to Seattle Bubble: the Distressed Sellers Index (DSI). This is a metric I have been recording since May, and while I don’t have enough data to do year-over-year comparisons yet, given the recent action, I thought it was a good time to bring it in.
The DSI uses an original proprietary algorithm to measure the ratio of listings using distressed language compared to the total number of listings in the Seattle area. It is most definitely not scientific by any means, but rather is provided as a point of general interest.
When I started taking data in May, the DSI sat in the upper 20s. In mid-July, it broke through the 50 mark, and the most recent measure places it at 61. What does a value of 60 mean? Who knows! What is interesting when looking at the DSI is the trend. Increasing values mean a market in greater distress, and vice versa. I would also point out that the seasonal effect that you generally see in most housing market measures is automatically accounted for in the DSI since it is derived from a ratio of total homes for sale.
Here is a graph of the DSI action since I began taking measurements:
I’ll probably pop in with an update to the DSI every month or two. It will be interesting to see how this correlates with other available measures and indices out there.
Update: An excellent idea was posted in the comments by reader “on topic”, who asked: “could you track the same index for markets in other stages of their bubbles?” Here is the current DSI for select additional cities as of today:
- Boston: 86
- Las Vegas: 111
- Sacramento: 121
- Miami: 136
- San Diego: 168
- Phoenix: 170
Jump to the bottom to add your comment. ↓
37 responses so far ↓
1
softwarengineer
// Sep 17, 2007 at 12:11 pm
MORTGAGE MONEY TOTALLY DRYING UP FOR SEATTLE
See the proof:
http://www.topix.net/content/kri/2007/09/many-buyers-suddenly-find-mortgage-cash-drying-up
The article states in part:
“…Lenders say there is still plenty of money available for homebuyers with strong credit scores, sizable down payments and healthy incomes…”
Hey, sizable down payments on $200K homes were totally out-of-reach, how in Hades to Seattle buyers swing the $500K home down payments, let alone the more stringent credit checks to qualify you.
2
synthetik
// Sep 17, 2007 at 12:27 pm
I haz a subprime, says Ardell:
http://www.raincityguide.com/2007/09/17/the-flip-side-of-the-sub-prime-story/
3
AndySeattle
// Sep 17, 2007 at 12:28 pm
From the article that SOFTWARENGINEER linked:
“Similarly, Ivana Crecco of Camelot Realty in Hackensack, N.J., said she is not working with any buyers who don’t have a down payment and a decent credit score.
‘I won’t waste my time, because I know the deal won’t go through,’ she said.”
This is the trend that is so telling of the impact that the Sub Prime mess has created. Good times!
4
Bellingham REnter
// Sep 17, 2007 at 12:41 pm
So I found OUR realtor. My wife and I went home “shopping” (if you can call it that) for a house knowing full well we are going to wait for a while but wanted to get a relationship with someone who could get us a screaming deal if someone is desparate enough.
I know the market is bad and way overpriced. I asked this guy how the market has been and he was more bearish than I was!!! Says sales have completely fallen off the cliff. This guy has been doing this since 1977 so he knows what is going on. He let us know he’s in it for the long haul and not going anywhere whether we bought now or 3 years from now it doesn’t matter and actually advised us to wait until at least next summer or longer if we could. He “walked” us through the MLS showing how long these homes were on the market & most of them are going to chase the bottom if they don’t get on the ball with some reductions. Many have been listed for like 1-2 YEARS! Anyway, he says right now we can easily find/close on a house that is 10-20% off listing price but would be better off waiting even longer. Sounds like things are getting pretty bad up north and will continue to get better but will take time. Also says there is about 8-10 months of supply to work through.
5
on topic
// Sep 17, 2007 at 1:03 pm
new index is interesting, but would be a lot more helpful if we could compare it to something
could you track the same index for markets in other stages of their bubbles?
another measure of distress appears to be increasing consumer credit. hopeful owners start relying more on their credit cards when their mortgage becomes a problem, so an increase in local consumer credit indicates increased mortgage distress.
i don’t know how high of resolution data is available for that, though. possibly none.
6
The Tim
// Sep 17, 2007 at 1:26 pm
Capital idea, On Topic.
DSI for select other cities as of September 17, 2007:
7
redmondjp
// Sep 17, 2007 at 1:37 pm
B’ham Renter:
Sounds like you found a gem of a realtor there–congratulations! It reminds me of some store clerks who will volunteer the dates of future sales so you can save 20-50% by waiting a few days.
8
Dave0
// Sep 17, 2007 at 1:47 pm
A funny quote from the Ardell sub-prime article:
“Every day my girls get a year older”
Wow! I’m suprised they’re still alive, I would expect them to have a lifespan of what… 80 days?
9
wreckingbull
// Sep 17, 2007 at 2:20 pm
A good agent will put you before their 6%. I once had an agent who kept me from doing something stupid by asking a very simple rhetorical question:
“How easy will it be to sell this place if you must sell in a soft market”?
Even if you are crazy enough to be buying today, ask yourself this question. That $500K little Ballard crap-box with 1/2 of its square footage underground, Asbestos siding, and no usable garage may have been hot in the last few years, but when it is a real buyers market, you will be sorry.
The same goes for choosing neighborhoods. Be careful about ‘transitional’ neighborhoods as they are the first to get hit in a declining market.
10
on topic
// Sep 17, 2007 at 4:10 pm
so, we’re tending in the direction of increasing distress, distress is clearly correlated with deflating bubbles, and we’re in far less distress than areas with acknowledged deflating bubbles
so, it looks like another metric showing that we tending in the direction of a deflating bubble.
it may be worthwhile to only look at new listings each month to avoid the averaging impact of old listings.
also, since there is anecdotal evidence that distressed people are going to craigslist more instead of MLS to avoid realtor costs that they would have to pay out of pocket, we might want to consider try to account for that somehow. either by looking at just the relative number of craigslist postings and assume they are distressed or look for explicitely distressed craigslistings
i still prefer the consumer credit metric, but understand that that sort of info is probably closely guarded. average regional credit rating trends would give the same info, delayed 2-3 months. as would changes in voluntary consumer spending or confidence. new car sales would also be a good metric. people struggling to pay their mortgage probably won’t go out and buy a new car, so decreasing sales would indicate increasing distress
anybody know of any publicly available debt/creditworthiness/consumption/consumer confidence/car sales data broken down to the city scale?
i’m sure these things are all closely tracked and have been for decades, so we’d have a solid history and comparability across markets
the DSI is cool and all, but if we don’t know what it looked like before the bubble in
11
TJ_98370
// Sep 17, 2007 at 4:36 pm
Off topic -
From Ben Jones HBB on 17 Sept 07
Nervous Sellers Missed the Boom
The Olympian and the Columbian newspapers are quoted.
12
Angie
// Sep 17, 2007 at 4:58 pm
Mmm, smells a little fishy to me.
The DSI uses an original proprietary algorithm to measure the ratio of listings using distressed language compared to the total number of listings in the Seattle area.
Essentially the value of this “index” is a percentage, right? How do you get values over 100?
13
deejayoh
// Sep 17, 2007 at 5:24 pm
Interesting concept Tim. I’d love to hear a bit more on how it is calculated. If it is an index, why didn’t you start it at 100?
14
deejayoh
// Sep 17, 2007 at 5:33 pm
On what I am sure is a related concept, I just perused SFH listings for KingCo on ZipRealty. There are 10,444 listings. Of these:
- 4283 (41%) show as price reduced. Comparable figure 6 months ago was about 20-25%.
- Only 34 were listed as short sales
- 1,913 (18%) are new construction
15
Jillayne Schlicke
// Sep 17, 2007 at 5:36 pm
All I have to offer today is, once again, a view from the trenches. I had a Realtor continuing ed class this past Friday that was packed. Topic: “Foreclosure; Losing the American dream.”
They don’t teach the dark side (foreclosure) of real estate and lending in real estate school. The students were aching for as much information as possible on how to ward off the trustees sale and how to help distressed sellers.
Tim, I used one of your charts during my opening comments and gave you full credit.
16
Mike
// Sep 17, 2007 at 5:55 pm
Bellingham REnter: Any chance you could post the name of this realtor, either here or in the forums? It would be great if we started a thread with references to realtors who are known to be honest about the future of housing prices.
17
George
// Sep 17, 2007 at 6:37 pm
Any chance you can figure the DSI for Austin?
Thanks!
18
Bellingham REnter
// Sep 17, 2007 at 6:51 pm
Sure, Mike Morrow. He’s with Remax based in Sudden Valley.
19
Bellingham REnter
// Sep 17, 2007 at 7:00 pm
You’re not him are you…mike…
20
The Tim
// Sep 17, 2007 at 7:51 pm
George said,
Sure, no problem. Austin, TX DSI: 67
21
George
// Sep 17, 2007 at 7:57 pm
Thanks! I think we’ll be an interesting case since we had about eighteen months of price increases (CA equity locusts) before the bubble popped.
22
jaspans
// Sep 17, 2007 at 8:17 pm
this is the most interesting buy vs rent calculator I’ve found yet…http://www.cepr.net/calculators/calc_housing.html
Punch in the seattle area, it actually “predicts” an appreciation drop. What do others think?
23
Mike
// Sep 17, 2007 at 8:57 pm
Thanks Bellingham REnter. Unfortunately I was looking for someone closer to Seattle.
24
crashcadia
// Sep 17, 2007 at 9:53 pm
synthetik
That is one funny article you found. Thanks for posting it.
What are these dolts going to do when interest rates hit double digets.
What will the flip side of sub prime look like then?
25
EconE
// Sep 17, 2007 at 10:03 pm
Tim…
I’m surprised that you don’t have Los Angeles listed…They should be holding their own right up there with the best of them!
26
Markor
// Sep 17, 2007 at 10:53 pm
Jaspans, great calculator, thanks!
I played around with it. It seems to have a flaw. Putting in numbers for a typical Seattle house, it shows that the house would appreciate at just 0.5% annually starting from 10 years ago (the supposed start of the housing bubble) and ending 10 years hence; the help info claims that this is the annualized rate of inflation. Seems to me that inflation has been far higher than that during the last 10 years and is likely to be even higher in the future. This flaw favors renting but is mitigated by the fact that you can rent an equivalent Seattle house cheaper than the calculator estimates.
If you put 20% down and don’t sell for 20 years, buying beats renting for any locale I tried. The house price doesn’t affect that result much, since most factors are percentages. Really the holding time is how many years longer you expect to live (unless you plan to be homeless after you sell), and when you switch houses you incur a significant cost (5% to 10%, say). So according to the calculator, renters who want to eventually buy and expect to live another 20+ years and plan to seldom move should buy a house now, unless they think they can time the market (i.e. buy near the bottom)—which is historically tough to do *but* may well be easier this time around—or unless they think they can make a significantly better return than the calculator assumes, which is “bonds which accumulate interest at the Congressional Budget Office’s projected rate for that year”.
27
what goes up comes down
// Sep 17, 2007 at 11:39 pm
Angie,
Like I said before go to Craigslist and type in Reduced in the RE section, repeat that every couple of weeks and see if the list gets bigger or smaller. You must have your head buried in the sand if you think that RE is not prime for a downward correction. If you bought many years ago and don’t plan on selling for many years than why even pay attention to this blog, unless you are one of the people who psychologically ties their good feelings to the supposed value of their house. In the latter case the bubble deflating will make you anxious and make you steadfastly deny that there is a bubble.
28
Markor
// Sep 17, 2007 at 11:57 pm
Jaspans,
On that rent vs. own calculator notice that the House Appreciation % doesn’t change regardless of the number of years you hold the house. That’s too bad; it’s a crippling flaw of an otherwise great calculator. Another crippling flaw is that increases in rent are not considered; rent stays constant, even for 30 years. I think if the calculator properly accounted for inflation, and assuming there’s a bubble now, the breakeven time for Seattle, after which buying becomes better than renting, would be closer to 10 years.
29
softwarengineer
// Sep 18, 2007 at 8:21 am
DID YOU NOTICE, ON SYNTHETIK’S SUBPRIME ARTICLE
They call educated technicals, like most of us here on Tim’s blog, “Bubbleheads”.
I take offense at that ludicrous title [especially since we have at least three time their intelligence per capita], so here’s what I call them: “The Soft-landing Morons”.
30
The Tim
// Sep 18, 2007 at 8:25 am
EconE,
Los Angeles: 125
Angie,
It’s not just a straight percentage. I didn’t make it totally clear, but, it’s based on the ratio, but it’s not just a straight ratio.
31
TJ_98370
// Sep 18, 2007 at 8:35 am
The negative connatation associated with the word “bubblehead” is dependent on context. Being called a “bubblehead” because of your beliefs about the real estate market should be considered a compliment.
32
A
// Sep 18, 2007 at 8:55 am
Many of the “reduced” ones are just coming to their senses. Some of them try to sell for unrealistic values.
33
anna
// Sep 18, 2007 at 9:18 am
When Alt-a hit the fan early august, I did a search on Craigslist for “reduced” or “reduction”. Prior to that date, I eyeballed average of 4-6 “reduc*” a day. Near that day, the average spiked up to 10. then a week after, the average came down to 7-8.
Today I did a search for “reduc*”, it’s 10+.
Oh also I searched eastside instead of the entire area.
34
Matt
// Sep 18, 2007 at 9:36 am
It looks like you’ve done a lot of work. Having done it on other fields, developing a useful metric or index is a lot of work. You are to be complemented on you effort. Not only that, but the values look quite interesting.
Perhaps you might explain what you mean by having an algorithm measuring “distressed language”? Do you mean this is a measurement of semantics?
You have been at the forefront of delving into the nonsense going on behind the sunshine being spewed by the RE industry. This entire RE market needs more full disclosure and objective measurement, and you’ve certainly helped with that. Why is your algorithm proprietary? Why not share the algorithm with us so we can understand it ourselves?
35
Toz
// Sep 20, 2007 at 11:19 am
Hi Tim,
I really like this overview. It has real promise.
What words did you isolate to measure as distressed or distressful?
Thanks
36
Seattle Bubble » Blog Archive » Distressed Sellers Index: October Update
// Oct 25, 2007 at 11:22 am
[...] been about a month since I introduced the Distressed Sellers Index, so I thought it would be a good time to check in with another [...]
37
Revisiting the Distressed Sellers Index | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.
// May 21, 2008 at 11:00 am
[...] have now been tracking the Distressed Sellers Index for a full year, and since I haven’t mentioned it on here since way back in October, I [...]
Jump to the top of the comments. ↑
Leave a Comment