I’m not one to monopolize the conversation on home prices. In the interest of fairness, I present to you the following counterpoint, which I received in an email today.
Can we please stop all of the doom and gloom?
As you have probably have seen in the news, the real estate market has been going through some big changes, good and bad. Our local market had years of double digit growth that became unsustainable. At the same time as the slow down, lenders were getting hit hard with record foreclosure rates. The driving force behind the problem was a meltdown of the sub prime mortgage market that had been making risky loans.
While many other areas of the country are reeling from all of this, Washington State has held strong with low unemployment and economic growth. Although, the pool of real estate buyers in our area has dried up, buyers from California with all cash offers and high risk loans for buyers with questionable credit scores have gone away the home values are NOT in a free fall as has been reported in some of our local papers. The high inventory is a direct result of the scarcity of buyers due to the stricter lender guidelines, seller’s high expectations and public opinion. Recently a story was printed that the average sales price in Pierce County had slipped twelve thousand dollars yet, in reality, last summer and fall, it was difficult to find a jumbo loan. A jumbo loan is a purchase price over $417,000. The average reported on did not include many of the upper end properties we normally see selling in the late summer, thus greatly pushing down the average. I believe that the average prices on homes under $417,000. have been steady increasing, though not at the double digit rate that sellers have come to expect.
On a positive note, this situation has created new opportunities for investors looking to purchase rental properties that can cash flow now. The rental market is hotter than it’s been in years and the reality is people are working and everyone needs somewhere to live.
Buyers looking to move up from a starter home to a jumbo type property have lots of good properties out there to choose from. Mortgage interest rates have remained low and available for those with good credit and the jumbo programs have started to make a comeback. Analysts are saying that the market is poised to come storming back this spring.
Remember when the high tech stocks crashed, I still scratch my head and wonder why I didn’t buy, buy, buy!
Gregory Loe
Better Properties North Proctor
Tacoma, WA
I think Mr. Loe’s letter speaks for itself.
Eleua » Nov 20, 2007 at 12:00 pm
Buying on the crash is a good strategy, but you first need to determine where the bottom is. Those that bought the NAZ when it sailed through 4000, thinking they were being very savvy, went on to see 80% of their portfolio evaporate. It rests at a 50% loss today.
Those that bought at 2500 still lost 67%, and still are not whole.
Be careful about jumping in too early. Later is better in a falling market. If the problem is with lending, then wait until lending sorts itself out before you buy. Lending will eventually right itself, but it will do it in a fashion that takes about 2/3 of the home price with it. After that, you still have a spooked market, unemployment and a huge oversupply of homes.
20 cents on the dollar…you heard it here first. In your heart, you know I’m right.
Ben » Nov 20, 2007 at 12:03 pm
If somebody could show me a link to a property for sale right now that can show positive cash flow with current rental prices, I would very much appreciate it. For a bonus, I would like to see it on the Eastside.
What I am still seeing is that mortgages are about double comparable rents, and I am basing this on what rents were 4 years ago when I was doing it. 4 years ago the difference between renting and buying was small enough that I made the leap. AFAIK rents have basically been stagnant, but I have not looked closely. But prices have almost doubled in Redmond.
Gregory – if you are reading this, I really would love to know what drove you to write this letter. Do you not believe in freedom of speech? Should you not be allowed to express your opinion about the market? I am confused why you want people with opinions contrary to yours to be silent.
Note that last year the bubble did not pop, despite many people (including myself) claiming that it was imminent. A few people on blogs does not affect the market.
SunTzu » Nov 20, 2007 at 12:04 pm
If Mr. Loe is so confident about the outlook of local market why is he worried about “gloom and doom”? If there is a firm reality that everything is okay then it doesn’t matter what other people are saying; the reality should not be affected by a few blog posts.
If he believes the drying up of demand is purely lack of available loans and not people just can’t pay the kind of money greedy sellers believe they are entitled to, then he should have nothing to worry about since the FED is cutting rates every month and Countrywide still wants your business.
If he lacks faith in his own analysis then he should perform some introspection and not fault a few blog posts.
BTW, I’m a firm believer that WaMu will be laying-off a substantial number of people very soon, the only question is when, before Christmas or after, so much for low employment in WA
eastside Benz » Nov 20, 2007 at 12:15 pm
“20 cents on the dollar…you heard it here first. In your heart, you know I’m right.”
Absolutely right. Virtually no houses in Seattle feature the lasting quality of a german engineered vehicle.
patient » Nov 20, 2007 at 12:24 pm
He must be talking multi family homes for rentals since buying an SFH in today’s market to rent it out is a crazy thing. I’m paying $1700/month for a home that is zestimated to $800k. If you buy with cash you have 2.5% gross return before taxes and maintenance. If you borrow money it’s a sure loss.
WestSideBilly » Nov 20, 2007 at 12:33 pm
Good talking point e-mail. The only things he forgot to mention were Boeing, Microsoft, and Canadians/Asians/Europeans.
I do find a bit of irony in his e-mail. He draws an analogy to the stock market crash in 2001 (Click for reference), which is probably valid. The problem is that we’re still in September of 2000 (Nasdaq at 4000+) in terms of housing prices. The time to buy tech stocks was in ‘98 and ‘03, not 2000. If this bubble plays out the same way, people are going to be looking in the mirror in 2010 wondering what they were thinking.
That doesn’t change the equation for buying houses – if you’re solely looking at a place to live, it’s never a bad investment. Just not the best. The same is generally true of stocks; even if you buy at the worst time, you generally beat inflation over the long run.
Eleua » Nov 20, 2007 at 12:38 pm
That is my EXACT rental situation here in Kitsap County. Nothing purchased in the past few years cashflows or has a ROI anywhere near US Treasurys. The risk is enormous.
Someone tell me how this is an investment?
Jeff » Nov 20, 2007 at 12:39 pm
Seems like there’s a lot of doom and gloom – for sure. Here’s some more:
http://seekingalpha.com/article/54763-housing-is-no-different-in-portland-and-seattle
Grvetti » Nov 20, 2007 at 12:39 pm
Can we please stop all of the doom and gloom?
er… I don’t believe it was bubble bloggers that started the downward slide, was it Mr. Loe? Nope, I think it was a bunch of folks like yourselves, selling to folks who had no business buying property in the first place.
As Shiller said, this ‘housing boom’ is a psychological phenomena, there’s no “fundamentals” at work, only the perception of wealth. When folks realize its no longer in their best interest to over-leverage into questionable assets, there’s no amount of PR you or your trade groups can cobble together to stem the tide.
Kime » Nov 20, 2007 at 12:41 pm
“this situation has created new opportunities for investors looking to purchase rental properties that can cash flow now.”
I would like to see you name one property that could give a true positive cash flow now. I don’t believe it is possible to buy a property in King or Snohomish county and have a positive cash flow renting it out. I don’t think people who bought in 2006 and probably most from ‘05 and rented out have a positive cash flow, either. I have seen people trying to show various properties for sale as having the potential for positive cash flow but the person always leaves out some costs such as lost interest on down payment or maintanance costs. For many, many years, at least back to the ’70’s, people who bought properties for rentals have depended on appreciation and increasing rents to bring them into a positive cash flow. With the current situation things have changed because incomes are not keeping up with inflation as they did in the ’70’s, and because we have already had the appreciation that should have taken 10-15 years in the space of 5 years so that situation needs to be corrected before the old method will work again.
Brian » Nov 20, 2007 at 12:43 pm
Ben – I agree with you. If someone can show me a property that will be cash flow positive right away please let me know. I’m always willing to put money into an investment that offers returns and a decent cap rate with respect to real estate.
softwarengineer » Nov 20, 2007 at 12:50 pm
TO REGAIN YOUR LOSSES LAST 2000 DURING THE HORRIBLE CORRECTION, YA NEED YOUR MONEY BACK PLUS AT LEAST 30-50% CPI ADJUSTMENT
That means we need the DOW around 15,000-18,000 to recoop from 2000’s crash.
We all know on this blog there’s the phony low CPI MAM likes to use and then there’s the real one that includes our massive housing, energy and food increases.
art docent » Nov 20, 2007 at 12:52 pm
“Someone tell me how this is an investment?”
Someone should introduce you fellers to the concept of luxury goods. Paintings, sculpture, jewels, professional sports teams, castles, and even the odd two acres of waterfront will operate consistently at a loss. But for those who can afford them, they bring pleasure and sometimes profits.
patient » Nov 20, 2007 at 12:58 pm
“But for those who can afford them, they bring pleasure and sometimes profits.”
The pleasure of owning and operating rental homes at a loss is something for people with different views of pleasure and luxuary than mine, that’s for sure.
T. Luper » Nov 20, 2007 at 1:00 pm
Sorry Mr. Loe, but current house prices are unaffordable. The past increase in prices were due to speculation (which you claim is waning) and the unfettered availability of credit (whose repercussions we’re now witnessing). The increase in prices were NOT due to an increase in wages, which in the end run is what counts.
Unless and until wages increase in the same dramatic levels that housing prices did, the prices will need to come dramatically down…
Mike2 » Nov 20, 2007 at 1:04 pm
Unfortunately, I did buy back into the NASDAQ after the crash. Way too soon. The shares I was holding the most of were bought at $35 they quickly recovered to $46 within a month. …and I ended up closing the trade in January at $8/share before they fell to $3 and change. Current price in 2007? $6. Better hurry, no telling when it’ll be back at $46.
John » Nov 20, 2007 at 1:05 pm
art docent, if people wake up and start seeing home ownership as a luxury, not a necessity, then home prices have a long way to fall.
TJ_98370 » Nov 20, 2007 at 1:05 pm
Sam Zell
Draw your own conclusions about this guy. It’s relevant to this thread.
art docent » Nov 20, 2007 at 1:05 pm
“The pleasure of owning and operating rental homes at a loss is something for people with different views of pleasure and luxuary than mine, that’s for sure.”
That is as it should be. Of course, not all rental homes are created equal. eh, Eluea?
TJ_98370 » Nov 20, 2007 at 1:15 pm
Affordability continues to be the “elephant in the living room” that real estate professionals continue to ignore. The era of easy credit is over. There will be a downward correction in real estate prices.
art docent » Nov 20, 2007 at 1:21 pm
John, Two thirds of households already own their homes. They are not going to run away tomorrow. That’s why this trope of median affordability is nonsense. The 3% (undeserved?) ownership increase due to aggressive lending will cause a little discomfort as it corrects, but is hardly a reason to hyperventilate.
deejayoh » Nov 20, 2007 at 1:24 pm
It is quite clear that the WA Realtors are rolling out a big time PR campaign to “save” the market, and I think this site is probably public enemy number one. This is more than the ads you are hearing on the radio and seeing on TV.
Evidence point A: the simultaneous placement of cheery stories in media on a day with ZERO real housing news
Evidence point B: the “doom and gloom” language is pulled right of of the agent mailer here.
They are very scared… At least they are doing something with the money they get.
Eleua » Nov 20, 2007 at 1:32 pm
Like I said, this is not an investment. If you want to buy an art piece, and believe 2 acres of waterfront is that artpiece, feel free. Losing $3K/mo on cash flow and getting an ROI that is 200bp below US Treasurys, while being exposed to a 2/3 -3/4 price collapse isn’t an investment.
You make my point. Thanks.
deejayoh » Nov 20, 2007 at 1:33 pm
Home ownership in Seattle proper increased from 48.4% to 51.9% between 2000 and 2006. That’s 3.5% on a base of 48.4% – or a 7.2% increase in new owners. In the same time frame, population actually dropped by 0.2% overall – but grew by 1.4% for >25 years.
So you can convince yourself it’s population and jobs, and rest easy. The rest of us took the red pill.
DrShort » Nov 20, 2007 at 1:36 pm
2/3 – 3/4 price collapse? Never gonna happen in the Seattle area.
Chris » Nov 20, 2007 at 1:40 pm
Why should the Realtors care to adverstise like this?
I know the conventional response but shouldn’t they want prices to fall quickly, and establish a new more affordable, price equilibrium so that sales can get moving again? Isn’t a drawn out, lingering expectation of price declines among the worst outcomes for them??
In addition, by keeping prices high, they almost assure themselves of more pain and fewer sales in the near term. If anything, the experienced agents who run NAR should want to flush out all the johnny come lately agents, which is what a short-term price decline would do.
SunTzu » Nov 20, 2007 at 1:41 pm
If there is a concerted PR effort, I do wonder if these RE agents and companies are not deliberately holding off or delaying putting houses on the market by playing some bureaucratic tricks…..
Beer n pain pills » Nov 20, 2007 at 1:42 pm
“So you can convince yourself it’s population and jobs, and rest easy. The rest of us took the red pill.”
If you can convince yourself that Seattle’s political boundaries are the same as its economic boundaries, you will need to borrow some of my pills.
Faster » Nov 20, 2007 at 1:45 pm
“Remember when the high tech stocks crashed, I still scratch my head and wonder why I didn’t buy, buy, buy!”
I graduated from college at a very good time. I got out of school and two years later found myself with a good job and one of the hottest stock markets in history. It was hard not to make money. Pick a random tech stock, rationalize why it would be successful, buy their stock and watch it go up. This went on for a good 3 years or so, it was crazy. I don’t know how many times I thought about buying a stock, didn’t, and then watched it fly through the roof. So I admit when the stock market pulled back a little, I “bought, bought, bought”. Know what? It kept pulling back. Eventually it just started to flat out fall and I “lost, lost, lost”. Buying at a small “discount” made perfect sense because in my experience at that time, stocks always went up; you couldn’t lose money. Price dropped a little? Just wait it out, it’s going to come back and make you money, but eventually it became obvious that the stock market had changed. In retrospect, all it did was go back to the way it had always been.
So, you’ll have to excuse me if I don’t “buy, buy, buy” because after years and years of running up, the price of houses has fallen a few percent. I’ve read this story before, I think we’re still in the middle of it, and I have an idea of how it might end.
That said, the positive side of this story, is that even with the dot com burst, I still made money. I lost a lot of paper wealth, but in the end I still came out ahead of where I started. If I had been a less greedy, I’d probably have pocketed twice what I did, but live and learn. So I think those sellers sitting on years of profit need to start asking themselves if it’s better to sell now and pocket a tidy profit, or take a chance and wait for it all to turn around. Maybe unlike the stock market of the late 90s, the real estate market of the early 2000s really is the new norm…but I’m not betting on it.
art docent » Nov 20, 2007 at 1:51 pm
“Losing $3K/mo on cash flow and getting an ROI that is 200bp below US Treasurys, while being exposed to a 2/3 -3/4 price collapse isn’t an investment.”
Applying fantasy risk parameters is no more useful in determining the investment status of real estate that it is to art. I do get that you don’t get it.
You are smart to stay in your league.
Shawn » Nov 20, 2007 at 1:55 pm
Mr. Loe is correct, we should buy re when its prices are at the bottom. What he is incorrect about is where the bottom is and when it has occured.
rentfornow » Nov 20, 2007 at 2:00 pm
In a couple of years, these words will be taboo –
“s/he bought in 07″
FredE » Nov 20, 2007 at 2:28 pm
So wait, above-jumbo homes are becoming (relatively) affordable while sub-jumbo homes are raising in price? Is that really possible in the long term? If current owners take his advice to upgrade now, won’t that then lead to a surplus (and then price drop) in entry-level homes?
FredE » Nov 20, 2007 at 2:31 pm
“There are still loans for people with good credit…”
What is good credit anyway? And wouldn’t those people already have bought long before now if they were going to?
ThomVer » Nov 20, 2007 at 2:33 pm
Question- if house prices don’t collapse, how many present here are going to be upset?
Tom » Nov 20, 2007 at 2:41 pm
“What is good credit anyway? And wouldn’t those people already have bought long before now if they were going to?”
Not necessarily, my wife and I moved up here (Seattle / Everett area) several months ago. We’ve got good credit and a down payment, annnnnd we’re waiting till we feel like we can buy a house and not kick our selfs for it. We’re not looking at it as a “investment”, but we also don’t want to loose a huge amount and be in the uncomfortable position of owing more then you can sell the place for…
Plymster » Nov 20, 2007 at 2:47 pm
If housing prices don’t collapse, that means that wages will have increased dramatically and 20% per year inflation will be the norm over the next few years. I’d be upset about the inflation, but thrilled with the wages and investment returns.
However, since we’re poised for a credit-based, national (possibly global) recession (based on recent earnings statements from retailers, financial firms, and tech companies), I wouldn’t put a lot of merit on that hypothetical.
Erik » Nov 20, 2007 at 2:55 pm
“Question- if house prices don’t collapse, how many present here are going to be upset?”
Upset probably isn’t quite the right word for me. Frustrated is probably more accurate. I could buy a house now, however I am unwilling to accept the risk. As there was no good reason for price appreciation to be as high as it was over the past several years, the market is going to have to sort itself out and correct the error one way or the other. I don’t want to be left holding the bag. And this is not because I view a house as an investment, but rather because I’d hate to be upside down and chained to a house that I can’t sell without losing money.
I don’t require the 66% – 75% drop that, say, Eleua might to consider a new purchase, but without a real (double-digit) change I won’t be buying.
So…again, frustrated is the word. I do wish the correction would happen more quickly so that we could get to a nice, healthy market with slow, relatively stable appreciation. That way houses can go back to being about housing.
disbelief » Nov 20, 2007 at 3:02 pm
As far as I’m concerned, there is one overriding factor in the housing market that Mr. Loe, and others like him don’t appreciate. If they did, they couldn’t possibly believe in a quick recovery of the local housing market.
Simply: prices would not have escalated nearly as much (even here) as they did, if it where not for buyers ability to make insane lending arrangements. Thats the bottom line- prices are in effect well beyond what the market will now bear, and what it would have supported if these reckless lending practices hadn’t come about. Read carefully Mr. Loe: 1.HOUSES ARE NOW WELL BEYOND WHAT THE MARKET WILL BEAR 2. BECAUSE OF THE NOW EXTINCT EXOTIC FINANCING (WHICH DEPENDED ON EVER INCREASING HOME VALUES).
It was really only a matter of time. Just like the tech bubble, was really only a matter of time. Like housing, the tech bubble was driven by a frenzy of speculation with the belief that values could only continue to rise. Of course banks were complicit also. They believed in the same illusion (which was a long term impossibility), and created the illusion of profitability with reckless investment in pretty much any company having anything to do with computer technology.
They are one in the same thing as far as I’m concerned. Btw, the only way a newly purchased property would cash-flow given the relation of rental rates to current prices, would be for said property to continue to appreciate similarly to the past five years, and I’m pretty sure that isn’t going to happen.
wreckingbull » Nov 20, 2007 at 3:04 pm
I too have sensed a change in the wind.
The REIC posters now have a distinct odor of fear. (Exhibit A: Larry Cragun) The REIC posters of the Meshugy era were far more docile. They apparently mean business now. Perhaps we should all keep an eye in our rear-view mirrors for suspicious, leased, 3-series BMW’s.
dg » Nov 20, 2007 at 3:10 pm
I’m ok with housing prices not collapsing…I just don’t want to risk them collapsing in the near future when the fundamentals don’t support the prices. It’s freakin Seattle not someplace actually really nice.
also, is anybody else confused by art’s dream luxury rental by the water that loses money but he seems to think is different? I keep getting the picture of a craigslist ad “beautiful rental by the water to share. desire attractive coed who would like to do “odd jobs” for partial rent payment” ….creepy.
The Bruce » Nov 20, 2007 at 3:15 pm
I find it comical that people can basically say with a straight face that, “if you’re making a horrific investment on paper, but you intend to live there, its not a bad investment.”
And I thought there was a Writer’s Guild strike? That’s Comedy Central material right there.
Running on the wheel » Nov 20, 2007 at 3:16 pm
In response to:
“BTW, I’m a firm believer that WaMu will be laying-off a substantial number of people very soon, the only question is when, before Christmas or after..”
WaMu have been laying off employees for the past 2 months and will continue to announce every 3 weeks or so until the end of the year…maybe beyond. The number of layoffs have been in the hundreds but the impending announcements from their Home Loans division should be a doozy.
Everyone one talks about the mtg crisis but they don’t mention that WaMu is one of the areas large employers. That’s a lot of people being laid off…I guess they’ll have to cash in some of their stock…oh right, it’s only worth $17.
NAR black ops guy » Nov 20, 2007 at 3:18 pm
“I too have sensed a change in the wind.”
Very clever, Mr. Bond. But that is not fear you smell. Larry, quick. The beano.
The Bruce » Nov 20, 2007 at 3:23 pm
Honestly, Seattle is just starting to leave ‘denial’ for ‘anger’, which means it is progressing along the Kubler-Ross 5 stages of grief. We’ve still got bargaining and depression to go before finally – acceptance sets in… which probably won’t be for another 7-10 years.. ;)
patient » Nov 20, 2007 at 3:24 pm
Doom and gloom scenario:
————————————————
Continued home appreciation.
Required enabler: either sharp salary inflation leading to loss of competetiveness of local employeers ( Microsoft, Boeing etc ) leading to an area depression or by new exotic loan types leading to future generations living in relative cash strapped poverty without a chance to retirement savings or college funds and increased depressions, divorces etc.
Promotor of continued appreciation: Re-industry
Bright future scenario:
——————————————
Sharp decline in home prices.
Likely effect: re-enabling the middle-class to comfortably enjoy the american dream while incressing US competetivness by providing low stress homes for kids and sending them to good colleges. Easy to attract skilled workers at reasonable cost for local employeers. Increased savings rates including retirement savings.
Promotor: Seattle Bubble
So, in all practicality who is the real promotor of a future in doom & gloom? I think most bubble readers are pretty optimistic at this point and are not really feeling or expressing doom and gloom.
Scotsman » Nov 20, 2007 at 3:32 pm
It’s going to be a cold, quiet Spring. No rebound, no more delusions, no more discussion. There’s only one long term reality- median income times 3 equals median price. Unless wages double over the next few years, home prices are coming down. What’s so hard to understand?
Tom » Nov 20, 2007 at 3:40 pm
”
I find it comical that people can basically say with a straight face that, “if you’re making a horrific investment on paper, but you intend to live there, its not a bad investment.”
”
Maybe. I guess the way I see it is that if you want to make money, and get rich.. go start a business, buy CDs, play the market, buy Euros..whatever.
My wife likes to garden, and both of us like pets. Neither of which is really acceptable in most renting setups, or even some condo setups. What we’d like is something that we can own that at least holds it’s value for the 10+ years we’re planning on living there. As far as investments go.. terrible.. but it allows us to enjoy the quality of life we’re looking for.
Plissken » Nov 20, 2007 at 3:42 pm
If housing prices don’t collapse, that means that wages will have increased dramatically and 20% per year inflation will be the norm over the next few years.
It is a massive oversimplification to tie housing prices to wages.
The median salary is roughly a third less in NYC compared to Seattle yet housing there is more expensive than it is here.
Wage earners are not the only ones buying real estate (even residential real estate).
Running on the wheel » Nov 20, 2007 at 3:49 pm
Please don’t compare Seattle to New York City or San Fransico. It’s a sad stretch to even try.
Running on the wheel » Nov 20, 2007 at 3:51 pm
so I can’t spell…San Francisco
art docent » Nov 20, 2007 at 3:53 pm
Dg, I’ll agree. Your flights of fancy are definitely creepy. Eleua rents a two acre waterfront place in Kitsap Co. He is unwilling or unable to contrast the utility of such a place with that of a stock rental sfr in, say, Magnolia. I can’t speak to your capabilities in this arena. I’ll hope they are better than your fantasies.
Sandy » Nov 20, 2007 at 4:03 pm
Here’s my perspective, and yes, this is coming from a real estate agent…
What you see with emails like this one is basically denial. PR campaigns are not what is needed right now. What is needed is a willingness to tell it like it is, and help people position themselves for what could be a rocky next couple of years.
I’ve always said that the appreciation we saw in the last few years was not normal. I may disagree with some/all of you guys as to the extent of the correction, but that is only because I think that the Fed is not going to allow housing to drag the rest of the economy down. They will take us to double digit inflation if they have to, to keep that from happening. That’s assuming we are not already there–it is hard to know when the most inflationary aspects of our economy don’t even show up in the CPI.
[troll] » Nov 20, 2007 at 4:25 pm
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Mama » Nov 20, 2007 at 4:25 pm
Sandy, thanks for your view — i speak to quite a few agents these days as we want to buy (he he, I know, i might get barred from this blog but I’ve enjoyed it). I think I’m actually more scared not of a correction (it’s coming if not here already) but of the fact that nobody wants to admit to this fact — how am I supposed to take their advice seriously if they’re misstating the obvious? I totally agree with you — tell it as it is, even if you’re a tad more optimistic than the average poster here, and let’s work from there…I don’t know about the Fed…if you’re right I’m glad for euro I have :)
BTW, does anyone have an idea how “soft” the market is right now? If you’ve bought/sold within the last two months I’d be curious at what % of asking price you bought/sold
B&W Nikes » Nov 20, 2007 at 4:33 pm
Stopping the doom and gloom is like trying to prevent winter from arriving. We are “special” indeed.
Denny Retrograde » Nov 20, 2007 at 4:46 pm
NAR black ops guy – you rock!
The Bruce » Nov 20, 2007 at 4:49 pm
My wife likes to garden, and both of us like pets. Neither of which is really acceptable in most renting setups, or even some condo setups. ”
I have found Seattle to be extremely pet-friendly so far (small deposit for our pets), especially when more and more properties hit the market as sales lag. In my search, I found most rental situations allowed pets. Perhaps we ran into different landlords during rental searches.
Who wouldn’t buy when it makes financial sense? Buying a home isn’t an investment, in this climate – its a liability that you are handcuffing yourself to for a long, long time if you expect to realize any sort of ‘return’ in this climate. Paying 50-100% premium for a depreciating asset vs rent is a tough to find palatable.. If it is, you are likely not living on a middle-class budget. Nothing wrong with that of course, that would be a good thing. ;)
softwarengineer » Nov 20, 2007 at 4:49 pm
Hi MAMA
Let’s put it this way, I own a house in Seattle and want the price to go down. Just like I want gas and eggs to go down.
Now, I’ve also said that a $40-45K average Seattle household income can qualify for a $200K home. True. The payments would be about $150/mo property tax with about a $1000/mo mortgage payment (assuming 20% down). That’s about 50% of the household’s net pay.
Would I pay that much? Hades no. 30% of my net tops ($140K home), but more realistically lower, like 20-25%. I know, you’ll say, but what about the income tax benefits? Not much on this loan, by the time you deduct the short form standard deduction from the possible long form housing deduction.
Good gosh, ya also need money for gas and food and home maintenance too. What about dental bills too???? How about a Jack ‘n the Box burger once in while? etc, etc, etc…..
Matthew » Nov 20, 2007 at 5:03 pm
Yawn!
Are the perma RE bulls ever going to bring a new argument to the table? This is getting tiresome disputing the same worn own talking points.
patient » Nov 20, 2007 at 5:05 pm
I wonder how likely a hike of the conforming limit is now when Freddie Mac today reported a risk of having to scale back on purchasing loans due to lack of available funds. This at the current limit of $417k.
Tom » Nov 20, 2007 at 5:11 pm
”
Who wouldn’t buy when it makes financial sense? Buying a home isn’t an investment, in this climate – its a liability that you are handcuffing yourself to for a long, long time if you expect to realize any sort of ‘return’ in this climate. Paying 50-100% premium for a depreciating asset vs rent is a tough to find palatable..
”
couldn’t agree more.. hence, no buying right now…
”
I have found Seattle to be extremely pet-friendly so far
”
I should clarify.. we finally “downsized” from 6 cats to 4 cats, the rabbit has passed on… and I’ve been able to keep my wife from getting a dog…. so far.
while we had no trouble finding a place that would let us take up to two pets, more then that became… difficult. The other two are staying with family until we buy.
”
If it is, you are likely not living on a middle-class budget
”
Man don’t I wish.. but at this point we are on a middle-class budget. :)
[troll] » Nov 20, 2007 at 5:11 pm
Th Brc – cld y pnt t sm hms tht r 50-100% vrprcd pls?< hrf="#" clss="rplyt" nclck="rplyt('30775','∓#91;trll∓#93;','63'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('30775','∓#91;trll∓#93;','Th Brc - cld y pnt t sm hms tht r 50-100% vrprcd pls?','63'); rtrn fls;">Qt
Matthew » Nov 20, 2007 at 5:21 pm
Freddie and Fanny are in a world of hurt. The odds of the cap getting raised on jumbo loans are the same as the odds of winning the Lotto.
The subprime boondoggle that is going on right now is going to feel like a Swedish massage compared to the ARM resets coming up in the spring of 08. This party is just getting started. Foreclosures are going to skyrocket next year.
Tom » Nov 20, 2007 at 5:24 pm
On Bruce’s Behalf:
(i.e. as part of the learning process we’ve been looking at home.. I’ve visted more then 60 homes with an agent over the last few months.. before I found this site among others)
Look at http://www.johnlscott.com/propertydetail.aspx?GroupID=54726883&ListingID=31068120&Sort=0
(MLS# 27196733 , 15022 OLD MANOR WAY
Lynnwood, WA 98087 )
price:$394,900
Smelled moldy, had siding issues. compared to recent sales of nearby homes.. should have been about $330,000..if it was in good condition. with it’s issues probably closer to $290,000 .
That’s the last one we saw that was REALLY off.
Or this one
http://www.skylineproperties.com/property_detail.php?ln=27143136&PHPSESSID=8f5b3e2f0fbdba0cab0c54039c415d10
which started off at $439,950 back in August. (now it’s probably closer to a price where it’ll sell)
There’s a few others, Most start out too high, and come down.
Though I’m not sure I’d agree that ALL of them are that far off though…
Alan » Nov 20, 2007 at 5:26 pm
Not necessarily, my wife and I moved up here (Seattle / Everett area) several months ago. We’ve got good credit and a down payment, annnnnd we’re waiting till we feel like we can buy a house and not kick our selfs for it. We’re not looking at it as a “investment”, but we also don’t want to loose a huge amount and be in the uncomfortable position of owing more then you can sell the place for…
I’m in the same situation plus several months.
Question- if house prices don’t collapse, how many present here are going to be upset?
Not me. I’ve set a deadline. If I can’t afford a house wtthin a few years then I will accept that I am wrong about the market here, that my skills do not make me competetive in this market, and I will move somewhere less expensive.
I do not feel like I am earning a premium here compared to what I could earn in a less expensive place.
MacAttack » Nov 20, 2007 at 5:28 pm
“Question- if house prices don’t collapse, how many present here are going to be upset?”
Not me. I’m a homedebtor. I don’t think things will collapse, they’ll just revert to the mean, as always. I’ll lose some paper equity. But frankly, inflation (as long as my income goes up with it) is fine with me; I’ll be paying the balance of my mortgage with cheaper dollars.
I’m just here watching the slow-motion train wreck, cautioning my younger first-time-buyer friends to just hang on a while. And it’s fun to toss a theory out and get others’ opinions on it.
I personally figure a 40% haircut in Seattle and Portland is about right. And it will take 2-3 years to get there… why heck, there may be the occasional dead-cat bounce.
MacAttack » Nov 20, 2007 at 5:30 pm
http://www.skylineproperties.com/property_detail.php?ln=27143136&PHPSESSID=8f5b3e2f0fbdba0cab0c54039c415d10
Does that tile backsplash come in some sort of spray can? These ’80s tract houses crack me up… all tarted up with granite and tile…
Tom » Nov 20, 2007 at 5:37 pm
”
Does that tile backsplash come in some sort of spray can? These ’80s tract houses crack me up… all tarted up with granite and tile…
”
We got to meet the owners at that one.. he was a granite contractor.. so it was everywhere. Nicely done thought, he was doing it for himself when he put it in..
Ken Mott » Nov 20, 2007 at 5:50 pm
“BTW, I’m a firm believer that WaMu will be laying-off a substantial number of people very soon, the only question is when, before Christmas or after, so much for low employment in WA”
I am wondering this as well.
Also could we make some stickers with the website on them so i can put them on my car. :)
Alan » Nov 20, 2007 at 5:55 pm
Cash flow? What, buy a property with a $3000 mortgage and collect $1500 per month in rent? That’s not exactly cash flow.
[troll] » Nov 20, 2007 at 5:57 pm
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Bond » Nov 20, 2007 at 6:43 pm
Seems like most of the responses on this site are griping about how Seattle is overpriced. Im guessing the majority of the people are renters waiting for a big price drop. Why so many haters and so much negativity? Seattle is a great place to live. Ive owned homes in the Seattle area since 1992. Granted, the appreciation has been greater than usual in the last 4-5 years due to easy credit and low interest rates. But guess what, interest rates are still low, employment is strong, and there are still good loan programs out there for all levels of buyer. Also, for every subprime borrower out there who got in over their head, there are 5 more responsible borrowers who got a loan they could afford and put down a large down payment. My prediction: Seattle will see minimal depreciation
WestSideBilly » Nov 20, 2007 at 7:07 pm
Tom – the second guy – I like that home (fairly big lot, and decent square footage, on the verge of medium to large home)- he’s getting weary selling it – and my guess is – he/she wants to sell.
If you lowball at like 355k, and see how he feels about that with his counter (which he probably will), I think you’ll get yourself a good deal.
$87k down, $1700/month P&I, another $200-300/month for T&I, so PITI in the $1900 range…
Bigger house, bigger yard – rent for $1650
Looks like 3&2s on 1/4 acre lots go for around $1300-1400 in Everett.
WestSideBilly » Nov 20, 2007 at 7:10 pm
But guess what, interest rates are still low, employment is strong, and there are still good loan programs out there for all levels of buyer.
While that’s true, the loan programs available to the 95% of Seattle households who aren’t making mid 6 figure incomes won’t even get them into start homes… $300k for a 1000 sq ft condo or 1100 sq ft townhouse doesn’t mesh with a $50k household income.
Shake The Ground » Nov 20, 2007 at 7:27 pm
DrShort said, on November 20th, 2007 at 1:36 pm
2/3 – 3/4 price collapse? Never gonna happen in the Seattle area.
LOMA PRIETA…check your deductable lately? It can certainly happpen here, and with folks over extended as is, well….
A hurricane was never going to hit New Orleans either and there was no danger being behind levies and below sea level ;-)
M Long » Nov 20, 2007 at 7:31 pm
Someone please show me the math that can allow someone with a $55,000 a year income buy a $450,000 dollar house on a 30yr fixed mortgage.
My Queen Anne Apartment cost me $1400 a month but is worth $500,000 to $600,000 because of the amazing ocean view. I an a little confused about how I am supposed to find a 30yr fixed mortgage that would allow me to buy my place.
uptown » Nov 20, 2007 at 7:41 pm
Can we please stop all of the doom and gloom?
One man’s doom & gloom is another’s golden opportunity. BTW: I don’t see a major downturn in the economy happening in the near future; a slow down – yes.
Question- if house prices don’t collapse, how many present here are going to be upset?
Don’t you just love hypothetical questions?
disbelief » Nov 20, 2007 at 7:48 pm
“Why so many haters and so much negativity?”
“negativity”, “positivity”, it just depends on what you stand to gain or lose. I for one am feeling very positive about the prospect of significant depreciation. And it’s not glee at the prospect that some people may loose significant paper profits, just like I wasn’t unhappy about the escalation because some people benefited (and others only thought they did since they arrived late).
I think I can speak for quite a few others here when I say that it’s not about the gains or loses of some individual homeowners, it’s about a hope that we’ll get back to a rational market that will allow for future buyers as well without people needing to take on 40-50year year loans, and sacrificing their retirement to boot. I will accept what the market brings. You do the same. Your use of the term “haters” suggests that you think people here are jealous. I’m confident that for the most part their not. I’m also confident that those who bought near the peak of the market will, in a year or two, not have any of those “paper profits” for the few to be jealous of anyway.
disbelief » Nov 20, 2007 at 7:52 pm
Oops, I meant “they’re not”
Kime » Nov 20, 2007 at 7:58 pm
“I think that the Fed is not going to allow housing to drag the rest of the economy down. They will take us to double digit inflation if they have to, to keep that from happening. That’s assuming we are not already there”
We are there, and have been there for a year or two, you’re right about the CPI, I don’t think anyone really believes the new and improved CPI. They have already taken us to double digit inflation – the direct result of the housing bubble. They have shot their wad and if they find a way to carry THAT game any farther, then we will probably see triple digit inflation. You give the Fed powers that they don’t actually have when you think they can keep housing from dragging down the economy. I don’t think they have a card left up their sleeve that will keep us out of both recession and hyperinflation, so say hello to recession, and after such a large credit bubble, it will probably turn out to be more than they bargained for.
jesse » Nov 20, 2007 at 8:10 pm
You put way too much weight on “doom and gloom” in the blogosphere — the vast majority of potential buyers will never read this blog. If fundamentals can really support prices you have absolutely nothing to worry about.
disbelief » Nov 20, 2007 at 8:27 pm
Which is why they’re worried!
T. Luper » Nov 20, 2007 at 8:29 pm
It is a massive oversimplification to tie housing prices to wages.
The median salary is roughly a third less in NYC compared to Seattle yet housing there is more expensive than it is here.
Where are you getting your stats?? The US Census doesn’t even come near the figures you’re giving -
Median House Price/Median Household Income:
NYC = 5.25
SEA = 5.78
eastside Benz » Nov 20, 2007 at 8:30 pm
Greedy Seattle homeowners. Sell me your townhouse. And do not be so foolish as to think I will pay over $150,000. Your homes do not have fine German engineering. They do not get even 1 mile per gallon. And the leather seats are aftermarket.
takenroad » Nov 20, 2007 at 8:41 pm
There’s lots of good, hard, quantitative data on this site. Here’s my anecdotal observation from walking and bicycling around the Greenwood neighborhood and shopping for a house. In October it seemed to me that unsold houses were everywhere. In November, it looks to me like every house I’d consider living in is pending or sold. The ones I have sale price information on have regularly gone 10% over Zillow estimates.
There are lots of houses in this area that have been sitting on the market for 50 to 100 days. Looks to me like most of them are unattractive for one reason or another (remuddled). Also, there are several where big new construction replaced dilapidated old house, and these have price tags $800k to $1.2M. These have been victims of really bad timing.
In general, though, looks to me like good houses, moderately priced, are selling in 30 days or less.
(I wish it weren’t so. I’ve been in a 900 sq ft. Greenwood “starter” house, 2 bed/1 bath, for 14 years. I’d like to trade up to a 3/2 house, all above grade, but I’m balking at $200k for 2 more rooms.)
All for now.
Bitterrenter » Nov 20, 2007 at 9:31 pm
At least he didn’t blame “the media” like most RE people do. Or like anyone who can’t stand the truth does.
Eleua » Nov 20, 2007 at 10:35 pm
From a renter’s perspective, it cashflows like a dream.
To all the REIC bulls:
We are going to get a massive credit crunch (caused by home lending) so the price of homes is going to come crashing down. Look for mid-90s era pricing.
If this is a baseball game, people may want to know what inning we are playing. I think we are singing the National Anthem.
In a defationary environment, who is better off: someone who is debt free and cash rich, or someone who is asset rich and debt laden?
For the past 12 years, money has been chasing homes. Now, we have more homes chasing fewer bucks. D-E-F-L-A-T-I-O-N.
Think about that and get back to me.
johnnybigspenda » Nov 20, 2007 at 10:40 pm
I’d be interested to know the age demographics of people reading SeattleBubble. I bet they are mostly late 20’s to 30’s looking to buy a house. (probably renters).
There is a big marketing trend right now where consumers look for ‘user reviews’ or alike to find ‘real’ info on products they are considering. (mostly through the internet) The idea is that real people give real information as opposed to polished marketing info. (so somehow, you are gettting the real deal when you hear an actual consumer write about how great his ipod docking station is vs. going to the griffin website and reading the specs) Companies actually employ people to post on these boards (video games is a big one) to hype their products so you know it must work.
I bet that the blogs and chat boards out there are having a BIG effect on the opion of potential buyers because of this. The 20-30 somethings do MOST of their research on the net… these are first time home buyers…
When considering an investment, you don’t pay for what it is worth now… you pay for what you think it will be worth in the future. If everyone thinks the market is going to be crap for 1,2 or 9 years, the price of houses will be impacted negatively. You DO have to consider all the cashflows and after looking at the cost of money and opportunity cost, the only way a house makes sense as an investment is with some kind of appreciation. (thankyou captain obvious). On top of this, most people probably move every 5-7 years. That means if you put 20% down today, and you go negative for a few years, you may end up in a truly underwater position. Not many people are willing to take that risk.
Markus » Nov 20, 2007 at 11:22 pm
Mr. Loe said: “A jumbo loan is a purchase price over $417,000.”
I’m fairly certain a Jumbo mortgage is greater than $417K financed amount. So $417K is the largest mortgage Fannie Mae or Freddie Mac will purchase; anything larger is considered a Jumbo mortgage. For example, if I wanted to purchase a $600K home and have a conventional mortgage (non-Jumbo), I would need to have a $200K down payment and finance $400K. The FED is currently considering allowing Freddie and Fannie to buy loan amounts up to $1M each. Fannie Mae said today they may have to slow-down buying loans temporarily until they figure out how much exposure they have to Alt-A mortgages. This will have an impact on home prices as it’s the banks that set the price for homes.
Markus » Nov 20, 2007 at 11:33 pm
Hey “johnnybigspenda”,
Actually I’m a LL and investor, I bought/sold/rent a few homes and land on the east-side and I’m just keeping tabs on what’s going on —- I like reading this blog while the wife watches TV…!
Eleua » Nov 20, 2007 at 11:52 pm
Why not? If the median asking price on Bainbridge Island is 14X median household income, what multiplier would you need to bring it back to 2-4X income?
Uhhh….
Ira Sacharoff » Nov 20, 2007 at 11:59 pm
johnnybigspenda,
I guess I don’t fit the Seattle bubble demographic. I’m 50.
Ira Sacharoff » Nov 21, 2007 at 12:13 am
“Question- if house prices don’t collapse, how many present here are going to be upset?”
I won’t be upset if prices don’t collapse. I do expect a larger than expected decline, and even though I’m a real estate agent I see a decline as a good thing. Seattle prices are insane. I’d rather see a larger pool of buyers of less expensive houses than a smaller pool of buyers of more expensive houses. A whole lot of people in the Seattle area just can’t afford to buy a house, and I’d like to be able to look people in the eye and say ” This house is affordable and not more expensive than renting. It’s a good deal.”
Right now I can’t say that. I don’t forcefully stop people from making offers, but I strongly stress the risk people are taking by buying right now.
bitterowner » Nov 21, 2007 at 12:15 am
“BTW, does anyone have an idea how “soft” the market is right now? If you’ve bought/sold within the last two months I’d be curious at what % of asking price you bought/sold”
Not my place, but a good example of how the market has turned. I’ll bet this is just the start:
http://tinyurl.com/34z7t8
Bought March 2006 for 755K. Put on market 18 mos later for 730K. Not dramatic, but unimaginable to most as recently as a year ago.
Scotsman » Nov 21, 2007 at 12:44 am
RE: The link above- I think that’s called a loss, not “instant equity!” But I’m not a realtor, so I may not have a complete understanding of all the current code words….
geon » Nov 21, 2007 at 12:46 am
Johnnybig,
47 married male, renting, 350K in bank, no debt, 150K annual income…..looking..
geon » Nov 21, 2007 at 12:47 am
Hey, I’m only 46. :)
randomxy » Nov 21, 2007 at 12:56 am
“I’ll bet this is just the start: http://tinyurl.com/34z7t8
Bought March 2006 for 755K. Put on market 18 mos later for 730K.”
yet still STI amidst all this talk of a stalling market. Seems like Seattle will level out, maybe even drop a little but I have a hard time belieiving it will become affordable. I make twice the median for KC, no debt and good credit but in 2 years of looking I’ve never seen a home I’d feel happy about paying $400K to live in. I want to buy but I can’t see it happening here. The choice has come down to staying in Seattle or owning a house.
Jon » Nov 21, 2007 at 12:57 am
“20 cents on the dollar…you heard it here first. In your heart, you know I’m right.”
nah. 60-70 cents worst case. but that’s actually quite bad.
Jon » Nov 21, 2007 at 1:11 am
Or I should say good depending on whether you own an irrationally priced asset or not.
Eleua » Nov 21, 2007 at 1:13 am
Jon,
So, after the biggest financial bubble in world history, we roll prices back to early 2006?
Jackson Wallace » Nov 21, 2007 at 2:17 am
The day this conundrum ends will be grounds for a major celebration. I missed the RE boat of the 90s, and inherited enough money to get myself in trouble recently, but wisely held off the last couple of years. In Shoreline, where my picky gf wont move, houses used to average 200k in 2000, and now average closer to 300k. So, to me, to get back to normalcy, I would say a 33% drop would make things reasonable. Seattle is only truly expensive in the near-city pedestrian neighborhoods, and on the eastside (not worth it). Look at prices in LA or SF or NYC to see what expensive is, and does anyone want to be robbed at gunpoint in LA?
I agree that Seattle is not the culturehub that LA or NYC is, but its not bad for events and clubs, if not fine art. There are so many wildcards, from entering Great Depression II to retiring baby-boomers, to the NW’s water advantage to illegal immigration. Who knows where we’re going?
bitterowner » Nov 21, 2007 at 3:38 am
Hey Ira – You’re famous:
“Skyline Properties agent Ira Sacharoff is blunt in his assessment of listing descriptions: “They’re mostly lies.”
http://seattlepi.nwsource.com/local/340482_listing20.html
george » Nov 21, 2007 at 8:03 am
My vote for funniest quote of the thread:
‘Why so many haters and so much negativity?’
So remember bubble blog friends: if you expect a price correction in a bloated housing market, you’re not just wrong. You’re EVIL????
Mike2 » Nov 21, 2007 at 8:49 am
randomxy said,
yet still STI amidst all this talk of a stalling market.
It’s so cute that people in Seattle still think $25K off 2006 prices is a screaming deal. Within a year, I’ll wager that 25% of the homes on the market will have asking prices below what the owner paid in the previous 18 months. In good areas the % will be less. In marginal/bad areas the only homes on the market will be the ones people are desperate to sell at any price, and short sales will abound.
I won’t be at all surprised if areas like Puyallup and Arlington start to look like Sacramento within the next 12 months.
The Bruce » Nov 21, 2007 at 10:44 am
Nostradamus – I’m referring to monthly payments. PITI for a median price home purchased today with 10-20% down vs rent. As others have pointed out, 50-100% is pretty conservative, as some are paying as little as $1600 / mo for a home appraising in today’s bubble at 800k.
Thanks Tom for the cover in my absence. ;) Homes are way overpriced, but I was referring to monthly’s.. If you live somewhere forever, you might not worry about paying 5-6% realtor commission, but most buyers still aren’t taking that into account when they say “i plan on livin there 10 years, so I’ll be fine). I just don’t think it makes any sense to buy now unless you can really afford to lose a lot of money. I know with three growing kids and barely enough in savings for 10-15% down, I would cry watching that down payment dissolve, as many of my neighbors have already seen (builder cut prices by 5%, more if you count all the added incentives in specs now).
Bond » Nov 21, 2007 at 10:48 am
If you cant afford Seattle, MOVE!
Homes in North Dakota are priced well, something like $160,000 median price, just be sure to pack a big down jacket
enthralled student » Nov 21, 2007 at 10:51 am
“So, after the biggest financial bubble in world history, we roll prices back to early 2006?”
For those of us who missed the biggest financial bubble in history. What was it? Also, what is the appropriate price rollback year for oil, food, education and healthcare?
Mike2 » Nov 21, 2007 at 11:03 am
enthralled, education is the only item on your list where we may see price declines since it is the only one that is largely financed, or in many cases paid for using home equity.
MacAttack » Nov 21, 2007 at 11:08 am
“Cash flow? What, buy a property with a $3000 mortgage and collect $1500 per month in rent? That’s not exactly cash flow.”
Sure it is! Just not in the desired direction!
MacAttack » Nov 21, 2007 at 11:09 am
“If you cant afford Seattle, MOVE!
Homes in North Dakota are priced well, something like $160,000 median price, just be sure to pack a big down jacket”
No problem… I’ll just sell my Gore-Tex.
patient » Nov 21, 2007 at 11:11 am
“For those of us who missed the biggest financial bubble in history. What was it? Also, what is the appropriate price rollback year for oil, food, education and healthcare?”
Supply & Demand factors controls these prices as it does the housing prices. We know housing supply is sharply up and demand is sharply down due to unaffordability with current lending standards. Housing demand is also more volatile since there is really no need to own a house. There is however a need for energy, food and healthcare. I.e you are comparing apples and oranges.
art docent » Nov 21, 2007 at 11:11 am
“If the median asking price on Bainbridge Island is 14X median household income, what multiplier would you need to bring it back to 2-4X income?
Uhhh….”
A demographic rich in retired professionals with a free and clear house and a couple of $mm in the bank does not buy in relation to household income, particularly if they have a good tax accountant.
Your need to establish a homogeonous income price ratio is not shared by the market, and never has been.
Now wipe the slobber off your chin, and entertain us again.
enthralled student » Nov 21, 2007 at 11:26 am
“We know housing supply is sharply up and demand is sharply down ”
Housing is a shelter need, whether you own or rent. Housing demand is affected by natural household formation and by inmigration. These factors are up, not down. Supply is a little high right now, but how much? Maybe 5,000 extra units on a market of 2,000,000 units? Hardly Armageddon.
Some people choose to say gas and healthcare are “unaffordable”.
patient » Nov 21, 2007 at 11:34 am
“Housing demand is affected by natural household formation and by inmigration.”
True for housing as in any housing. We are discussing a bubble in housing purchase prices here not a bubble in rent. The demand for purchase is controlled mostly by affordability and psychology. Both are down.
enthralled student » Nov 21, 2007 at 11:38 am
“education is the only item on your list where we may see price declines”
How can this be? We just had the biggest financial bubble in history. We will have “D-E-F-L-A-T-I-O-N”. Prices come down. Value of $ goes up.
(note: Oil at $97, Euro at $1.45+, Pound at $2.06. Deflation math is hard)
B&W Nikes » Nov 21, 2007 at 11:39 am
M Long – am in a similar situation on the other hill. The feedback I’ve received from RE pros is that people don’t ‘deserve’ to live where we do unless we are willing to pony up (more than half our salary in a high risk loan) for that 5-600k price tag. It’s not a ‘right’ to live anywhere. I think it’s a pretty sick feudal argument since being able to see out of your windows shouldn’t be viewed as a luxury in a place with our topography.
enthralled student » Nov 21, 2007 at 11:49 am
“The demand for purchase is controlled mostly by affordability and psychology. Both are down.”
True, as far as it goes. We are in the down cycle of a cyclical market. No news there. I am just seeing no facts to remotely support the draconian market predictions made hereabouts.
Thank you for your patience.
The Tim » Nov 21, 2007 at 11:52 am
“enthralled student” aka “art docent” aka “eastside Benz” aka “your landlord” aka [a bunch of other names],
Please choose one name and stick to it. I get that you’re trying to be funny with all the alternate names, but it is dishonest to post comments so frequently but change your identity on nearly every post.
Jon » Nov 21, 2007 at 11:54 am
“So, after the biggest financial bubble in world history, we roll prices back to early 2006?”
A 40% drop in prices would put us well before that time. Housing prices have about doubled since the late 90s. And although a 50% drop would make sense, bankers have actually inflated away (stolen) a lot of this money. That part will not be coming back, thus the 30-40% range I consider more reasonable. As far as what is POSSIBLE, there is no lower bound. We COULD have a depression now that would make the Great Depression look like a tea party. However, I think that is highly improbable. What’s very likely, I think, is that we’ll find ourselves very soon in some version of the 1970’s. Possibly a little worse, but possibly a little better. Bottom line is: who really knows?
Jonny » Nov 21, 2007 at 11:55 am
“So, after the biggest financial bubble in world history, we roll prices back to early 2006?”
A 40% drop in prices would put us well before that time. Housing prices have about doubled since the late 90s. And although a 50% drop would make sense, bankers have actually inflated away (stolen) a lot of this money. That part will not be coming back, thus the 30-40% range I consider more reasonable. As far as what is POSSIBLE, there is no lower bound. We COULD have a depression now that would make the Great Depression look like a tea party. However, I think that is highly improbable. What’s very likely, I think, is that we’ll find ourselves very soon in some version of the 1970’s. Possibly a little worse, but possibly a little better. Bottom line is: who really knows?
John » Nov 21, 2007 at 12:00 pm
Thanks to The Tim for exposing that guy for posting under multiple screen names.
b » Nov 21, 2007 at 12:05 pm
enthralled student -
wouldn’t a cyclical market revert back to its mean? when that downcycle begins at the start of a recession, isn’t it likely it will go below its mean before resetting? if our up cycle began around 1998ish, where do you think prices will go in the next 3-5 years?
Eleua » Nov 21, 2007 at 12:06 pm
enthralled student said:
It was the credit bubble that found its way to mortgage lending. Several trillion dollars were created in credit that we are finding are beyond our ability to effectively service. You saw it as the “Housing Bubble.”
Oil and food (and for the most part medicine) are not purchased on credit, like homes, cars, and educations are. Those prices will likely inflate. As for education, I believe that prices will come down as interest rates rise and credit is destroyed. That decline will be offset if the gooberment attempts to subsidize education even more.
Bond » Nov 21, 2007 at 12:16 pm
Lot of book smart people on this blog with im guessing very little real world experience who are articulating some crazy scenarios relating to housing here. News flash: not gonna happen, prices will level off for the next six months(like they have for the last year), and in the Spring of 08 you will see us return to moderate appreciation 5% like the good old days
Eleua » Nov 21, 2007 at 12:27 pm
enthralled/docent/landlord/Son of Meshugy…,
First off, I like your style. It’s infinitely more fun to "female dog"-slap a cheeky troll than a docile lump. You and I are going to get along just fine.
Are you of the opinion that Bainbridge, with the 24th highest income in the Puget Sound and a median household income in the $75-$80K range is just replete with a bunch of Thurston Howell III types? It isn’t.
What Bainbridge had going for it was a bunch of equity rich Californians that could buy down their mortgage and continue to live in a $700K house. Guess what? California equity locusts have slowed to a trickle.
A buddy of mine is a longtime Bainbrige RE agent, and she has a million dollar brain that is being wasted in real estate. I talk with her on a regular basis and everything that I have predicted is coming true. The Californians are almost yesterday’s news. Right now, people have not yet come under pressure to sell, which is understandable since the property market in the PNW just went negative. It takes a year or so to blow through savings and for panic to set in.
Median ask on BI is now in excess of 1,000,000 Yankee Lira, which is well above the median income’s ability to service.
Yes, Thurston Howell might be buying his “Bainbridge Island dream home” and pay cash. There are not enough of them to float the real estate for a 20K person city, otherwise BI would look like Dubai or Rancho Santa Fe. Bainbridge income is 33% lower than where I lived in suburban Dallas where home prices are in the $200-250K range on the median and in the $450K range for a 6000sf lakefront spread.
If someone has a phalanx of high-priced accountants and investment sharks working their portfolio, they probably aren’t looking for real estate as an investment. If they want a trophy, they will be the primary resident.
What smart, rich people AVOID is renting out a bunch of homes at 40% of their monthly expenses, while tying up their capital at 200bp below US debt. That’s how you get rich in the first place.
What we are seeing is a bunch of new, dumb money thinking they can be the next Donald Trump. Many are school teachers and RE agents, which doesn’t say much for their educational and intellectual background.
If I get a piece of Port Madison waterfront, I’m going to live there. I’m not going to pay some loser over $3K/mo to sit there and make fun of me for 4 years while I watch my investment go up in smoke.
Eleua » Nov 21, 2007 at 12:29 pm
Bond,
Just what do you base this upon? Wishful thinking?
patient » Nov 21, 2007 at 12:31 pm
“Lot of book smart people on this blog”
I’m sure it is a very irritating inconvinience for the realtor community that there are people who actually takes a logical look at the situation instead of just buying the appreciation propaganda. Tough luck, it’s part of the internet era and it ain’t going away.
whats my name » Nov 21, 2007 at 1:05 pm
Tim, since the medium is often the message, this greatly reduces the entertainment value I find here. It is also difficult for me to see where the name of an anonymous poster is is an honesty issue. However, it is your blog, and I will comply. Call me “whats my name”.
John, Don’t be such a toady.
b, we had a short downturn with actual depopulation in 01, 02. I think our 7 year compounded return on sfrs is under 8%. If I ignore the CPI, and look at my real cost of living (food, energy, housing -as experienced by the 2/3rd’s who own), I don’t see an imbalance dramatic enough to call a bubble- at least in Seattle) I don’t like to predict, but it is a fair question since I mock the preditions of others. While this winter will seem rugged, I expect modestly higher prices within 12 months, except for condo’s which will be overbuilt. This prediction is worth exactly what you paid for it, of course.
eleua, do you mean the RE bubble in Dallas?, Detroit? The trillions in created credit financed the war in Iraq, a vast trade deficit and a huge amount of private equity placement (what used to be called LBO’s) -not just RE. A credit based deflation would bleed through the entire economy as businesses are significant and constant users of credit. China is dumping $ by the T. The banks can’t move much of their $ today, because they don’t understand the assets behind them, but eventually they will. The flood of $ is already out there. USG could choose the 30,s route, but that’s not good for a superpower. The 70’s solution seems more likely.
johnnybigspenda » Nov 21, 2007 at 1:07 pm
Some nerve that guy has… showing up on the Bubble Blog and making a claim that things won’t turn out half as bad as the Bubbleheads hope they will. I can’t believe that guy.
The Tim » Nov 21, 2007 at 1:18 pm
Cut Bond some slack people. He’s in banking. (But not one of the banks that have been making headlines lately.)
TJ_98370 » Nov 21, 2007 at 1:22 pm
art docent said
…A demographic rich in retired professionals with a free and clear house and a couple of $mm in the bank does not buy in relation to household income, particularly if they have a good tax accountant….
I would agree, but your mistake is assuming your affluent demographic is large enough to significantly influence the market. Statistically, they are an anomaly in relation to overall population.
Mr. Docent, what’s your story? You’re coming across like you live in some elitist bubble and have something to lose with the downturn of the market.
Eleua » Nov 21, 2007 at 1:22 pm
Son Of Meshugy,
No RE bubble in Big D or Detroitistan. The bubble was in the Boston-NYC-DC corridor, Florida, California and the California echo bubble. If you can’t see it, I can’t help you. Even CNBC can plainly see it, and if those idiots can see it, anyone can.
Yes, cheap credit debased the notion of a sound currency, so the LBO craze was expected. Why grow when you can lever-up.
If credit destruction blows through the entire economy, how is that going to leave RE untouched?
I agree with your assessment on China and the US Peso. That bolsters my point.
The government doesn’t get to “choose” between the economic ill that will befall the nation; the economy does. For a 70s style of inflation to get a foothold, salaries and wages need to inflate, and they are not. They are capped by Brazil, Russia, India, China and Mexico. Taxes are going to go up to service the Mouseketeer retirements, so that’s even less money for those that will shift demand out to cause inflation.
Your idea that the government can sidestep economic woes is what caused this problem in the first place.
I always wonder why people in Seattle believe that they are immune to economic forces that are befalling the rest of the nation (and Europe). I just don’t get it. We are not that special.
Erik » Nov 21, 2007 at 1:23 pm
Anybody know the story behind this one? MLS # 27184350 is a little 2BR job on the east slope of Magnolia, a couple of blocks from my childhood home. Definitely not the fancy part of the hill. According to Redfin it was last sold for $450K in January of 2006. Previous to that it sold for $347K in October of 2002. The Zillow farcestimate is $567K.
Current asking price? $320K. And it has been on the market for 41 days. Maybe it was used to cook meth all last year, but, even so….
Clearly the market is in state of transition. A few houses are still selling for stupid prices to irrational/ignorant nesting-types, but it’s clearly getting harder for the greedy/indebted to make the sale.
I’m looking forward to seeing more listings like this in the coming months.
Erik » Nov 21, 2007 at 1:30 pm
I should note that I don’t believe that the above listing is representative of the general state of the market…yet. I’m seeing a lot of ~10% price reductions on stale listings and failed sales but not many have dropped below 2002 sale prices at this point. I expect that will take some time.
Mike2 » Nov 21, 2007 at 1:36 pm
Bond said,
News flash: not gonna happen, prices will level off for the next six months(like they have for the last year), and in the Spring of 08 you will see us return to moderate appreciation 5% like the good old days
You mean like between 1991 and 1997? Very few local neighborhoods saw 40% price growth during that time and many saw less than 10%, yet you’re predicting that after the bubble, we’re going to see unusually high price growth?
I’ll have what he’s smoking.
patient » Nov 21, 2007 at 1:51 pm
137 comments, is this close to an all time high?
Ira Sacharoff » Nov 21, 2007 at 1:56 pm
“Anybody know the story behind this one? MLS # 27184350″
The place was short platted and subdivided, so that evidently there is a new structure on what used to be the yard of this house. It now has one assigned parking space and no yard of any kind, zero square foot lot. It was originally listed 41 days ago for 339,000.
So I’m guessing that when it sold for 450 it was with the land, and the land was probably worth 175k+., so it doesn’t indicate a bad market.It more indicates the trend toward increased density and greed.
The Tim » Nov 21, 2007 at 1:57 pm
The high so far (not counting open threads):
Homebuying Platitudes vs. Reality: 145 comments.
TJ_98370 » Nov 21, 2007 at 2:19 pm
Wow! Is the enthralled/docent/landlord/Son of Meshugy thing like a blogosphere multiple personality disorder?
Matthew » Nov 21, 2007 at 2:27 pm
Professor Eleua at the helm. I think I hear the school bell ringing!
Erik » Nov 21, 2007 at 2:38 pm
Ahh…thanks, Ira. While I do expect to see prices retreat to 2002 levels (or possibly more) I did not expect that happen this soon. While I wouldn’t necessarily say we’re still singing the Star-Spangled Banner, I’d guess we’ve only made it to the first pitch.
Tom » Nov 21, 2007 at 3:15 pm
The Bruce,
‘Homes are way overpriced, but I was referring to monthly’s’
Oops! sorry about that.
johnnybigspenda ,
29, married, renting… sold our first home in CA a few months ago that we’d owned for 4 years. My perception of home values falling was due to seeing asking prices reduced over and over again while we were looking up here, not based on these blog post.
M Long » Nov 21, 2007 at 3:15 pm
Someone on Wall Street is starting to get scared the Real Estate Ultrashort ETF I owned is going through the roof and so is my Ultrashort Financial. I can’t wait to find a security that is selling short residential. I’m sure one is in the offering.
DrShort » Nov 21, 2007 at 3:28 pm
I don’t find the often cited “median income to home value” relationship to be all that meaningful in a major cities. Median incomes have been pretty flat, but the incomes of the upper 20 – 30% have been increasing at a nice rate — the rich are getting richer.
And these young well to do families are moving to big urban cities like Seattle and displacing lower earning people. I don’t ever expect to see the day where a single teacher in his/her early 30s can afford a home in Seattle.
With that said, I do expect to see a decline in housing of 10 to 20% over the next 12 months. But, I don’t expect Seattle will see anything that resembles the mass panic going on in the central valley of California. Some of those cities are already down 30%.
Mike2 » Nov 21, 2007 at 3:41 pm
I don’t expect Seattle will see anything that resembles the mass panic going on in the central valley of California. Some of those cities are already down 30%.
The outlying areas are the ones you should be comparing to the central valley, and yes, they’re probably going to fall just like in Cali. Check out the Bleeding Edge sales in Puyallup – new homes purchased since 2005 are already being sold at a loss, and we’re just getting started.
DrShort » Nov 21, 2007 at 3:50 pm
Yes, I think they will fall but I think the magnitude of the fall will be less. Places like Puyallup never saw the appreciation rates that areas of CA did. There were parts of CA that were up 30 – 40% in one year.
NolaGuy » Nov 21, 2007 at 3:55 pm
I think this is a perfect time to take a look at Shiller’s inflation-adjusted History of Home Values chart again.
http://tinyurl.com/zptel
Not sure how anyone can deny a significant bubble after looking at this chart.
NolaGuy » Nov 21, 2007 at 4:01 pm
This thread is like a year of SeattleBubble topics all in one thread!
Great to see lots of new people here learning about the issues.
The Bruce » Nov 21, 2007 at 4:05 pm
If we see interest rates hit the levels they did in the 70’s, you better believe that Eleua’s 20% # won’t be sounding far-fetched.
The Bruce » Nov 21, 2007 at 4:11 pm
Bond said,
“News flash: not gonna happen, prices will level off for the next six months(like they have for the last year), and in the Spring of 08 you will see us return to moderate appreciation 5% like the good old days”
Yeap, and most people walk into a Las Vegas casino thinking they’re going to win, too. You might as well put your down payment on a hand of blackjack, cuz you’ve got better odds of keeping it over the next few years than you do putting it down on a moldy, 1500 sq’ 450k crackerbox in Kirkland.
Andi » Nov 21, 2007 at 5:02 pm
“And it’s not glee at the prospect that some people may loose significant paper profits, just like I wasn’t unhappy about the escalation because some people benefited (and others only thought they did since they arrived late).
I think I can speak for quite a few others here when I say that it’s not about the gains or loses of some individual homeowners, it’s about a hope that we’ll get back to a rational market that will allow for future buyers as well without people needing to take on 40-50 year loans, and sacrificing their retirement to boot.”
I second that. I’m not happy about people losing their houses or about the financial state of our country in any way. However, it would be nice to know that I could afford a house without overextending my finances to buy a dumpy two-bedroom.
whats my name » Nov 21, 2007 at 7:11 pm
“No RE bubble in Big D or Detroitistan. The bubble was in the Boston-NYC-DC corridor, Florida, California and the California echo bubble.”
You mean to say that this was not a universal asset class bubble in RE? I thought that’s what I was saying.
“Yes, cheap credit debased the notion of a sound currency, so the LBO craze was expected. Why grow when you can lever-up.” You mean to say that this was not a strictly RE phenomenon? I thought that’s what I was saying.
If credit destruction blows through the entire economy, how is that going to leave RE untouched? It wouldn’t. Damage to the economy would be so bad that affordable houses would be the least of our worries… which leads to..
“The government doesn’t get to “choose” between the economic ill that will befall the nation; the economy does. For a 70s style of inflation to get a foothold, salaries and wages need to inflate, and they are not. They are capped by Brazil, Russia, India, China and Mexico. Taxes are going to go up to service the Mouseketeer retirements, so that’s even less money for those that will shift demand out to cause inflation.” Inflation is happening whether your wages spiral or not. The government can choose easy money or hard money- recession with inflation or depression. The government has a lot of debt to finance. Sure, in the long run, inflation is harmful. Then again, it beats insolvency in the short run. And you get to arbitrage cheap dollars for a while. Which way is the smart move? Which way is the Fed going? Which way are treasuries going?
“We are not that special.” That’s why we won’t pay a California price after not having a California bubble.
Eleua » Nov 21, 2007 at 8:58 pm
Translation: It’s different this time.
Translation: Seattle is special because of the Pink Pony phenomenon.
Translation: What happens elsewhere cannot happen here. Why? I have no idea.
Chris » Nov 22, 2007 at 12:18 pm
Alan said, “I do not feel like I am earning a premium here compared to what I could earn in a less expensive place.”
Exactly. The truth is, I don’t know what will happen. Maybe Seattle will return to a more affordable housing market. Or, maybe there are enough millionaires running around to keep prices high for even moderately desirable neighborhoods.
If the latter is true, then I am just in the wrong market. I will give it a few more years. During that time, prices will definitely be dropping elsewhere even if they aren’t dropping in Seattle. If the market here stays high, I will just move somewhere more reasonable. Its a big country.
In the meantime, its fun to watch the whole thing unfold.
David McManus » Nov 24, 2007 at 10:00 am
There’s more pain left for Wall Street: “We’re nowhere close to the end of the collapse,” said Mark Patterson, chairman and co-founder of MatlinPatterson Global Advisors, a hedge fund that specializes in distressed funds.
Link
I guess Nostra was wrong.
BUY, BUY, BUY!
willamina c. » Nov 24, 2007 at 8:35 pm
you know, it’s not like the all-cash offers coming from california going away were a bad thing.
however, the fact that seattle is filling up with beautiful people with inflated resumes and imaginary experience really sucks. i’m sorry that you have concluded this is such a fantastically great place to live, but driving off those of us who grew up here is really not cool no matter how ironic you might believe it to be.
economist » Nov 25, 2007 at 2:33 am
If he believes the drying up of demand is purely lack of available loans and not people just can’t pay the kind of money greedy sellers believe they are entitled to
What’s with this “greedy sellers” stuff? Sellers can’t dictate prices – they can only sell for what the buyers are willing to pay. And don’t ever forget, somebody always has to sell (including the builders), but nobody has to buy.
In fact it has been greedy buyers, expecting continued appreciation – something for nothing, who have been responsible for this bubble, just like every other bubble.
And just why are people who predict declines in the price of housing being “negative”?
If someone predicted that laptops and DVD players would be 20% cheaper next year, everyone would regard this as being positive.
If a politician predicted gas and food would be 20% cheaper next year, people would accuse him of being unjustifiably positive!
Isn’t it a good thing if people can buy more stuff with the same amount of money – i.e. their standard of living is increasing?
So why is predicting a decline in house prices being “negative”?
Lake Hills Renter » Nov 25, 2007 at 9:19 am
“BUY, BUY, BUY!”
I am so un-American. I quit giving or accepting Christmas presents many years ago. It’s not about consumerism, and my family/friends have no idea what I want anyway. Plus, if I really want it I’ve already bought it for myself. I’m not going to wait up to a year for someone to figure out what I might want and buy it fo me. But to be honest, I don’t want things anyway for the most part. I couldn’t care less about the latest or trendiest gadget. I’d rather just save my money, thanks.
Ian » Nov 26, 2007 at 12:17 pm
Has anyone analyzed how far prices are going to fall using income and inflation as a measure? I just bought a home in Seattle in July, and want to know when to expect the correction to be over and how badly I’m going to be upside down.
I’m guessing it’s when the prices fall to where they should have been, assuming 3% YOY growth starting from a point where prices were considered reasonable. For instance, a $100k house in 1998 should reasonably cost $100k * 1.03 ^ 10 = 134K? Boy, things are going to correct badly if that’s the case. Do homes in coastal states average 3% YOY, though? Or is that for the country as a whole? California in particular has to be doing better than 3%, albeit it’s very volatile.
FWIW, I have a 30-year fixed, 3% down, and didn’t overbuy on the home. I can make extra principle payments and still put some into savings. Nevertheless, this is not a good feeling.