Seattle Bubble

Here’s the local press’ take on yesterday’s Case-Shiller data. For the most part, the reports come across as suprisingly even-handed. The biggest exception to that was the P-I’s original headline for Mr. Cohen’s piece: Seattle-area home-price appreciation leads nation again. It has since been changed to the less misleading: Mixed news on home prices.

Home-price appreciation in the Seattle area led the nation for the 12th month in a row in August, but indications were not entirely positive, according to a national index report released Tuesday.

Prices in the Seattle area were up 5.7 percent from August 2006, according to the S&P/Case-Shiller Home Price Indices. That put the area just ahead of Charlotte, N.C., which had a 5.6 percent jump, making it one of just five areas where values did not decline.

But the Seattle area’s annual increase was the lowest in four years and August was the 18th consecutive month of declining annual appreciation. Also, prices decreased nearly one-tenth of a percent from July — the first month-to-month drop since January of this year and only the second since January 2003. The index defines the Seattle area as King, Pierce and Snohomish counties.

Aubrey also goes on to quote the same portion of the press release that I included in yesterday’s post where Robert Shiller says “There is really no positive news in today’s report.”

The Times piece was much shorter, and slightly more positive:

Seattle’s home prices have begun to decline, although on an annual basis they’re still outperforming major metropolitan areas, according to the monthly S&P/Case-Shiller home price indexes released today.

I wasn’t following the real estate market back in 2002-2003, but I wonder if the local press at that time put such a strong emphasis on Seattle home prices underperforming compared to most every other major metropolitan area? I have my doubts.

(Aubrey Cohen, Seattle P-I, 10.30.2007)
(“business staff,” Seattle Times, 10.30.2007)

If you’re reading this, lucky you! It means that the DNS change went through, and you are now viewing Seattle Bubble on its brand new host, Host Gator.

Yesterday our old host Dreamhost decided to move the site to a different internal server with no warning, consequently taking it entirely offline and resulting in “bad_httpd_conf” errors for hours. This was just the delicious frosting on the multi-layered cake of downtime and outages that they have so lovingly baked over the last few months. Luckily, I already had a new host lined up. All I had to do was copy over the database and the files, update the DNS, and bam, we’re back in business.

…well, almost. The forum is still down at the moment. I’m working on that and hope to have it back up and running as soon as possible. Please let me know if you discover anything else that isn’t operating as expected.

We now return you to your regularly scheduled housing bubble deflation. Have a nice day.

Update: Forums are now back up as well.

The latest data from Case-Shiller has been released. Here’s a blurb from the press release:

“At both the national and metro area levels, the fall in home prices is showing no real signs of a slowdown or turnaround,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “Year-over-year and monthly price returns are continuing to either move deeper into negative territory or are experiencing persistent diminishing returns. There is really no positive news in today’s report, as most of the metro areas are showing declining or vanishing returns on both an annual and monthly basis. Only two metro areas – Denver and Detroit – showed improvement in their annual returns and even those were reports of slightly less negative numbers.”

Notice that Mr. Shiller did not make any exceptions for the specialness of Seattle or Portland. Go figure. Here’s the summary for Seattle’s latest data:

Case-Shiller Home Price Index fractionally down July to August. Up 5.66% YOY.

Although it is only a fraction of a point, this marks only the second month-to-month decline since 2003. One year prior, the YOY change was +16.11%.  We will see where this trend leads…

For comparison, the NWMLS King County SFH Median for August was up 9.73%. This continues the trend of diverging data that began in earnest last month. Also keep in mind that since Case-Shiller tracks only same-house sales, the seasonal trends of declining sales in the late summer and winter have less of an effect on the numbers.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months.

Click to enlarge

Is this graph predictive? Obviously not necessarily. I consider it more of a warning. However, the downward slope of Seattle’s line has so far been following pretty closely with where San Diego’s line went a year and a half ago (and still falling faster than L.A.). I’m still waiting for it to break off and “level out” like the real estate professionals have been promising it would.

Just for good measure, here’s an update of the graph with all 20 Case-Shiller-tracked cities, with no time-shifting.

Click to enlarge

(MacroMarkets, Standard & Poors, 10.30.2007)

Elizabeth Rhodes hits us this morning with a fun little morsel: Developers dangle discounts, toys to lure home buyers. (I wonder why this article wasn’t in the big weekend real estate section? Hmm… Edit: It would appear that the answer to that question is that they were saving it for the front page [pdf].)

Puget Sound-area new-home developers, motivated by an increasingly soft real-estate market, are resorting to something they haven’t done in years. They’re enticing buyers, like Matt Orlando, with big TVs, motorcycles and other inducements.

The deal sweetener that eased Orlando into his first home was a $3,000 credit toward closing costs on a one-bedroom condominium in Veridian Cove, an extensively refurbished new conversion in North Seattle.

The first year’s homeowners dues, at $197 a month, also were waived.

“I feel like I won the lottery,” says the Shoreline Community College instructor. “They were basically giving me $5,000 to move into a beautiful place I could afford.”

Incentives started appearing in late summer and are the best they’ve been in more than a decade. Indeed, until this year, builders could count on selling many new homes before they were even built.

Now there’s a four- to 13-month inventory in King and Snohomish counties of new houses, town houses and condominiums available, according to New Home Trends, a Bothell data-research firm. That’s spawned a goody-laden battle for buyers.

In other words, they’re dropping prices without actually “dropping prices.”

If this story sounds familiar, it’s because the exact same thing has unfolded in other markets all across the country over the last few years. It’s one of the surest signs that a housing market is transitioning from “boom” to “bust.” The builders are no dummies, they know that it is time to get out. The only problem for them is that they’re all trying to get out at the same time.

This will be interesting to watch unfold.

(Elizabeth Rhodes, Seattle Times, 10.29.2007)

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Mark Trahant is definitely my favorite writer for any of the local papers. If we ever get around to having a Seattle Bubble meet-up, he’s definitely invited, and his drink is on me.

His latest piece continues to hammer home the reality of the world we live in today: mortgage / housing market is a mess and not likely to get better and no, we’re not immune in Seattle.

“Unfortunately,” says the Congressional Joint Economic Committee, “conditions in the housing market indicate that house price appreciation will no longer be able to disguise the financial precariousness of millions of borrowers whose subprime adjustable rate mortgages are about to be reset.”

The report released Thursday said the mortgage mess is going to get a lot worse — and will last for at least the next two years. “We estimate that subprime foreclosures alone will total approximately 2 million,” the report said.

But in bold typeface the committee points out: “However, it is quite possible that the house price declines will be substantially larger.”

The reason for that is simple: Many of the people trying to negotiate with their lenders for a better deal owe more than the house is worth.

Washington state has 156,810 outstanding subprime loans — and the committee estimates that 21,282 of those homes will go into foreclosure proceedings between now and 2009.

That is bad news across the board. “A glut of foreclosed homes for sale depresses home market values for other owners,” the report said. Most homes will be worth less — especially in neighborhoods where there is a concentration of foreclosures. “Moreover, the homes left vacant by foreclosure lower the desirability of the neighborhood since there is often an increase in crime associated with a vacant house.”

Washington’s mantra for a long time is that the state is protected by its strong job market. But a crashing housing market means less construction activity, fewer jobs and generally less consumer wealth.

Local and state governments already are starting to see the impact on revenues — and that, too, will get worse to the tune of nearly $1 billion between now and 2009. The report estimates Washington counties will lose at least $15.4 million in property taxes.

But all of this assumes we know what we know. And that’s precisely the problem: We don’t.

I rarely have much to add to Mark’s pieces, since he puts it so well himself. I just wanted to make sure this wasn’t missed by any of the readers here. Keep up the good work, Mark!

(Mark Trahant, Seattle P-I, 10.26.2007)