Seattle Bubble

There was a good discussion of housing market schadenfreude (or lack thereof) over the holiday weekend in the comments to a recent post. I thought would be worth posting the highlights of the conversation, and chiming in with a few thoughts of my own.

rose-colored-ghoulaid:

I for one don’t want misfortune to shine on others. At least not indiscriminately. But I do think a return to rationality will mean some particularly vocal cheerleaders will receive their comeupance. But in my mind, this is more akin to hoping the heads of Enron become felons, or that history books correctly cite Greenspan as the source of more economic problems than he ’solved’.When a single mother is foreclosed out of a house (she had no business buying), I still feel sorry for her. But when a serial flipper loses his home due to gambling on the market, I feel no pity. Nor am I happy he lost the house, it is just how markets work, and that person played a game they didn’t understand. At that point I remember I’m in the catbird seat, and I might derive some joy out of that.

Jonny:

My main feeling about hoping for a market decline is simply that I will be happy to see affordable housing again. In the unlikely event that a decline doesn’t happen, it is extremely remote that I will ever own a home in this lifetime. I am, BTW, over 40 and well-employed. Think about that.
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However, if you must insist on seeing things this way, it seems to me that the logic works in reverse: people who currently own overpriced homes have been enjoying a feeling of schadenfreude with respect to those without them for years. So, when we return to a normal market and those with overpriced assets are forced to sell them, just don’t forget all those years that these unfortunate sellers enjoyed those assets while the rest of us have been forced to rent and endure this idiotic bubble. There will be casualties on all sides of this before it is over. Just don’t forget that the real villain is Greenspan.

disbelief:

I want to chime in and say that “schadenfreude” is not a fair term based on what I feel, and what the majority here have written. This seems to also be the main accusation of the RE cheerleaders who visit this blog. The only motive I have is to be able to own a house again without sacrificing virtually everything else.

Angie:

Schadenfreude is enjoyment of the misery of others. Despite the protestations today, there is a wide streak of that running through this blog.
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I think that if housing prices in this area get to the point that they’d be affordable by traditional standards, the economy in general will be in the toilet. So, be careful what you wish for.
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About being 40, well-employed, and never able to buy a house—there’s a lot more there to think about. My first thought is, unless there’s more going on in the background ($100K in law school debt, four kids and a disabled wife, whatever), there is no reason why you couldn’t sock away a big down payment and buy a modest place.I’m going to presume that you’re single and without those major encumbrances, and that “well-employed” means “over median income”, which is ~$54K for a single head of household in Seattle. (If it’s not true for you, Jonny, I gather that it applies to not a few other people who frequent this site.) People in this situation should easily be able to put together a substantial down payment (say $30-40K) in two to three years, even while shoveling away 10-15% for retirement. Just grow a backbone, show a little restraint, and start being fiscally responsible.

notabull:

Angie, there are not just two choices:a) Buy a house immediately.
b) Never buy a house, and continue to rent forever

You seem to think that most on this board are choosing (b), hence your stupid comment about being fiscally responsible. Ultimately, it *would* be fiscally irresponsible for most people to never buy a house.

However, and please try to understand, there is a THIRD choice:

c) Save a down-payment, wait for prices to return to fundamental levels (whatever you deem them to be), and then buy a house.

Sure, I could go out and buy a house right NOW. I have a ton of money in the bank earning decent interest, but I’m not going to. Why? Because I’m being fiscally responsible, am saving $6000 in CASH a month (after tax) by TEMPORARILY renting, and then I will buy once the market softens some more, which I fully expect it to.

If it doesn’t soften more, I’ll just shrug my shoulders and buy a house anyway. But I’m not about to do so when all indications are that prices are heading down and about to head down some more. I didn’t get my big bank balance by being stupid.

Notabull accurately summarizes most of my sentiments quite succinctly. When prices are higher than any logical and sane measure indicates they should be (as they are now), and all signs point to an extended period of price declines (as they do now), the best way to “show a little restraint, and start being fiscally responsible” is by not buying, rent for a massive discount, and save the difference. That’s what I’m doing, and what many others who frequent this blog are doing as well.

I would also like to address Angie’s comment that prolonged and/or large home price declines will result in an economy that is “in the toilet.” In my opinion, the source of the problem is that the prosperous economic times that we have enjoyed for the last 5-10 years have been largely (not entirely, but largely) funded by a massive, unprecedented accumulation of debt. A large portion of that debt was the result of the housing bubble, which allowed people to “extract equity” from their homes (i.e. - take on more debt) to fund spending on vacations, plasma TVs, cars, and other non-necessary purchases. This was great for the “economy,” but the problem is that you can’t just keep borrowing your way to prosperity forever. Unfortunately, we (as a nation) borrowed prosperity from the future so we could enjoy ourselves in the here and now.

Eventually the bill will come due, and it will indeed be painful; even for those that did not participate in the irresponsible run-up in any way. That sucks. But when everything does shake out, and eventually homes are priced reasonably* again, is it “schadenfreude” to be grateful that insanity no longer reigns?

Is it schadenfreude to point out that while others were accumulating more and more debt, I was eliminating debt and accumulating liquid assets? Is it schadenfreude to point out the inevitable result of our nation’s debt-fueled spending spree? Is it schadenfreude to look forward to a time when people who have been and continue to be financially responsible—who didn’t buy things they couldn’t afford and actually regularly saved money—will receive the economic rewards they deserve?

If that is schadenfreude, then I guess the bubble blogs are schadenfreude central. To me, schadenfreude is what I felt when I watched the Yankees blow a three game lead and get beat in New York by the Red Sox in Game 7 of the 2004 ALCS (also when they blew a 9th-inning lead in Game 7 of the 2001 World Series). I derive no such pleasure from seeing poor people that should never have bought a house in the first place being foreclosed on and forced to go back to renting again. Watching people that bought at an inflated price who are now unable to sell because they are upside-down on their loan does not make me happy. I feel that these are the unfortunate, inevitable, and expected results of the mess we have gotten ourselves into.

* By “priced reasonably,” I of course mean relative to their location. I don’t think anyone ever expects homes in Seattle to sell for the same price as homes in Fargo.

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Happy Thanksgiving everybody. It’s time to relax and think about what you’re thankful for, so no real estate post today. Also, there probably won’t be a post tomorrow either, because while I won’t be out consuming, I will still be down here in Vancouver (Washington), chilling with the family.

Aubrey Cohen comes at us today with a frank and sometimes amusing look at real estate agents’ habit of massaging the English language to attempt to make their listings stand out in an increasingly larger sea of properties for sale. Of special note in today’s article is the copious quoting of local agent Ira Sacharoff, a regular commenter here on Seattle Bubble. Congrats, Ira!

It’s harder to lure buyers these days thanks to an increasing number of listings and a smaller pool of buyers — five homes listed for every pending sale last month in Seattle, up from three listings per sale a year earlier.

So in addition to lowering prices, throwing in TVs and cars, and doing their best to spiff up homes before putting them on the market, sellers and their agents are reaching new levels of creativity with the first thing agents and potential buyers usually see — the listing blurb.

…agents tend to emphasize the positive. Another Central District listing, for instance, leads with its location, proclaiming: “Here’s the opportunity to live in one of the most sought-after neighborhoods in the Seattle area.”

Then, a spin on the less-than-stunning interior: “Seller has left you to your own imagination!”

Another listing promises an “excellent location” close to shopping, schools, a bus line and Interstate 5. They’re not kidding: I-5 is 50 yards away.

Skyline Properties agent Ira Sacharoff is blunt in his assessment of listing descriptions: “They’re mostly lies.”

Less-than-truthful assertions can include a “Ballard” neighborhood home that’s really in Crown Hill, a basement “bedroom” that’s just big enough for a cot and has no exit window, and “gleaming hardwood floors” that are actually fir (a softwood) or laminate.

You know what they say, though. You can put lipstick on a pig, but it’s still a crappy little dump on a tiny plot in a bland neighborhood with a half-million-dollar asking price. Er, well, the saying is something like that, anyway.

If the subject of this article, and the “listing language decoder” at the end of the piece sound familiar, it may be because we’ve discussed this subject before, almost exactly one year ago. Be sure to check out Eleua’s Real Estate Agent Rosetta Stone.

(Aubrey Cohen, Seattle P-I, 11.21.2007)

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.

While I was enjoying a relaxing weekend with my visiting brother-in-law, playing a copious amount of Xbox 360 and Wii games, the local press was going into overdrive with the real estate booster articles. It’s not worth my time or yours to have separate posts for each of them, so here is a link roundup. (Danger: Sarcasm ahead.)

The first three reports in today’s roundup were spawned by an upbeat report on the local condo market that was released by none other than our hero, Glen Crellin.

Elizabeth Rhodes, Condos a bright spot in housing market:

Overlooked for years as a significant housing source, condominiums are now a rapidly growing presence providing a ray of sunshine in an otherwise gray local housing-sales scene.

The condo market is healthier than the detached-house market, and prices are holding their own. Those are the key findings from an analysis released Friday of the Seattle-area condominium market by Glenn Crellin, director of Washington State University’s Center for Real Estate Research.

It was pointed out to me by a reader that the online edition of the Times article was peppered by as many as six ads for local home sellers (I never see ads, thanks to Firefox + Adblock Plus). See a screenshot to the right (click to enlarge). The ads are clearly determined by scanning the text for keywords, but it was still amusing that ads for Prudential Realty, Polygon (houses), John F. Buchan (houses), Olive8 (condos), Brix (condos), Bellevue Towers (condos), The Burnsteads (houses), and ZipRealty were covering the page as people viewed the upbeat report about how great our market really really is. Really.

Aubrey Cohen, Seattle’s housing holding up in market:

The Seattle area’s housing market is stronger than the nation’s, and condominiums have held up better than houses. Still, the market is slowing, economists said at a forum Friday.

Thank the economy for the area’s vigor, Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said at the annual forecast breakfast sponsored by Williams Marketing, a Seattle firm that works with housing developers.

Hmm, Williams Marketing… now where have we heard that name before… Oh yeah, only in about every P-I real estate article, that’s where. So, the Washington Center for Real Estate “Research” is teaming up with a condo marketer to tout our area’s great market? How terribly surprising.

Debra Smith, Condo prices in county up 65 percent in 7 years:

Buyers balking at buying a condominium take note: It’s a better investment than people often think, according to a report released Friday.

The price of condos in Snohomish County rose nearly as fast as single-family homes, and in King and Pierce counties, condos performed better, according to the report by director Glenn Crellin of the Washington Center for Real Estate Research at Washington State University.

Psst… here’s an investing secret: Past performance does not guarantee future results. Pass it on.

Elizabeth Rhodes, Rebound talk is big at Realtors annual gig:

Lennox Scott has worked through many market cycles in the decades he’s been in real estate and predicted many months ago that the Seattle market would slow.

So he’s not surprised that it has. Nor is he particularly worried about, calling it no more than “an adjustment phase.”
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Florida’s Palm Beach County, north of Miami, currently has a 50-month supply of homes for sale.

Las Vegas is also in dire straits for sellers with a two-year supply.

Both had market forces Seattle never had: runaway homebuilding plus thousands of investors who flooded those markets hoping to get rich quick by buying and flipping houses.

Ahh, the old reliable “compared to the absolute worst markets in the country, we’re not half bad” argument. Is it just me, or does it seem like Lennox Scott has turned the volume up a few notches on the “don’t call it a real estate bust” album? He’s being quoted all over the place lately.

Mike Benbow, Housing glut less severe in the Northwest:

Under normal circumstances, Conerly said, first-time buying candidates save for a down payment, work on clearing up their credit and eventually jump into the market. “In 2002, there were cheap mortgages and people were able to buy a year or two ahead of time,” Conerly said. “We weren’t creating additional demand, we were just borrowing from the future.”

Speculators were increasingly investing in houses, with many people entering the market to quickly resell the house for more money, a technique called flipping.
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After overbuilding in 2003 and 2004, building eased up. In 2005, the number of new homes dropped to about 58 for every 100 new people, which is a number pretty close to normal demand. Last year and this year, the number has dropped even further, to about 42 per 100, which is well below normal demand, Conerly said.

Nationally, there are about 1.5 million houses too many, Conerly said, adding he doesn’t expect a turnaround in the national housing market until 2009. “We’re not working off the overhang very fast,” he said.

But he said things are different here, mostly because we’ve been under-building relative to our population growth for two years.

“We’ve not fully worked off the number of houses we built, but we will work it off faster than the national average,” Conerly said. “This area is going to have continued growth for quite some time.”

This article has the least amount of cheerleading of the bunch, and at least offers some actual statistics and doesn’t just parrot the usual real estate mantras. However, we’re still being fed the “better than the national average” and “continued growth” type of lines, apparently intended to ease any fears that we will experience a downturn at all. Given the figures they gave about the rate of building 2003-2007, and assuming that the present rate of building and population growth keeps up (a big assumption), we’re still looking at 3-years’ worth of new construction oversupply. But don’t worry, we’ll work it off “faster than the national average,” so everything will be okay.

(Elizabeth Rhodes, Seattle Times, 11.17.2007)
(Elizabeth Rhodes, Seattle Times, 11.17.2007)
(Aubrey Cohen, Seattle P-I, 11.16.2007)
(Debra Smith, Everett Herald, 11.17.2007)
(Mike Benbow, Everett Herald, 11.19.2007)