Seattle Bubble

• Error-Ridden Reporting
• March Sales Figures Roundup
• March Reporting Roundup
• Housing Bubble Time Warp
• South Sound Inventory Up, Prices Down

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121 responses so far ↓

• 1 notabull // Dec 7, 2007 at 8:59 am

  When YOY goes negative, which it WILL DO even if prices stay at the same level as they are today, all hell will break loose.

  YOY prices will go negative because we’re now 10% below July 2007 prices, so imagine if prices don’t change at all from now (unlikely) and fast forward to July 2008. We’ll have -10% YOY prices! And that’s assuming that current median goes nowhere!

  I honestly believe that most real estate types are just not prepared for this, or they have this unfounded hope that the 10% will come back in the “Spring Bounce”. You can sense the nervousness, and even the happy happy real-estate agent/bloggers are writing less than positive articles. Of course, they always end with something like “Seattle is still a nice place to live, and if you’re buying for the long term, you’ll be just fine”. That’s just another way of saying “prepare for a short term decline and buy anyway because I have to feed my family”.

  I have sympathy for the real estate agents that are caught up in this, but if they’re not prepared for this then they’re nuts. The intelligent agents are ready, have cash in the bank, and are going to do “ok” as the rest of the agents go back to their day jobs.

• 2 declinest // Dec 7, 2007 at 9:02 am

  the dumb comments in these articles are going to keep this blog going for awhile.

  San Francisco II? Falling prices aren’t a problem?

• 3 Pistol Pete // Dec 7, 2007 at 9:03 am

  When we see another 75 basis points cut by the fed, 50 probably next week, you’ll see people get out and start buying. I’d say we’re near the bottom for SFH. It will be a decent spring market and we should be able to hold 5-7% appreciation for 2008. Canada dollar strength will create more buyers. Here’s my call, I’ll check back in April 2008 to see how close we are.

• 4 Pistol Pete // Dec 7, 2007 at 9:05 am

  Full disclosure - I am not a real estate agent or investor to a large degree. SFH homeowner who bought 13 years ago.

• 5 notabull // Dec 7, 2007 at 9:23 am

  “the dumb comments in these articles are going to keep this blog going for awhile.”

  I remember how Piggington.com got kinda boring back in 2006 when the price declines were established and “real”. There are only so many ways to say “I told you so”, after all. :)

  Ultimately, I hope this site becomes a place that attempts to predict when prices are likely to go up, as much as it has been a place that predicted prices were likely to go down.

• 6 rose-colored-coolaid // Dec 7, 2007 at 9:46 am

  What I find galling is the massive attempts to blame falling prices on national news. We came to this party late right? Who out there was saying in 2003/2004 that prices were going up, but we shouldn’t be too concerned because it was really just the national media which was pushing people to buy?

• 7 notabull // Dec 7, 2007 at 9:48 am

  “What I find galling is the massive attempts to blame falling prices on national news.”

  I thought real estate was local? Isn’t that what we were told when prices were holding steady and/or going up and we were going against the national trend? But when prices go down, it’s the national trend that’s the issue?

• 8 softwarengineer // Dec 7, 2007 at 10:36 am

  NOT TO WORRY; LIKE ANDYMIAMI SAYS, ABOUT 10% OF HOUSEHOLD INCOMES IN PLACES LIKE SAN FRANCISCO, MAKE ABOUT $200K

  Yeah right.

  I’m sick of all this BS that we’re all rich in America and money grows on trees. Even President Clinton stated in the 90s that $200K incomes were Middle Class now. I assume “Middle Class incomes” means 1/2 of the populations’ households make less than you, not 95%. Where’s the written proof? Here’s a real estate website on alleged San Francisco household incomes that should have you all rolling on the ground in laughter. It states in part:

  “….August 29, 2007
  San Francisco Household Incomes Up In 2006
  According to the latest U.S. Census Bureau survey, household incomes in San Francisco are indeed up. In 2006 the median household income in San Francisco was $65,497 (up 13.9% over 2005) with an average of $92,477 (up 10.9% over 2005). And in 2006, 9.2% of San Francisco households made over $200,000 (the rough minimum required to qualify for a $600,000 mortgage based upon conventional standards)…”

  Let’s analyze the BS Bubble Brains. How can an average income of $92K equate to a mean household income of $65K? Magic, households are about 1.2 incomes, so instead of dividing $65K by 1.2 to get average incomes per person, we multiply it by 1.7 ($92K x 1.2= $110.4K). Its called fuzzy math. No wonder they don’t hire math teachers with science degrees in high school any more, they like us all stupid.

  The data I get fom the Census Bureau makes much more sense. The top 10% income is $100-120K per person. This means the top 10% household incomes in America is approximately $110K x 1.2= $132K. Remember Bubble Brains, double income households are a minority, not a majority.

  Now, attacking this article’s alleged assumption that 9.2% of San Francisco makes over $200K, remember this Bubble Brains, a 99% $132K average household income added in with a 1% millionaire/billionaire pool can fabricate any fuzzy math figure you want to back in to. Its all BS.

  Like Clinton’s comment back in 90s, that $200K is Middle Class now. The rich Elite Democrats [Republicans too] need to go visit the food banks and see how the other half of America really lives.

  Viva the Housing Crash!!!!

• 9 Lake Hills Renter // Dec 7, 2007 at 10:52 am

  “I thought real estate was local?”

  Real estate is local when the national median is down. Real estate is national when the national median is up. Or when there’s a bailout.

• 10 Joel // Dec 7, 2007 at 11:02 am

  He thinks potential buyers are delaying decisions because of sharply falling house prices in other parts of the country and the subprime-mortgage mess, which has caused concerns about the availability of loans.

  Do these people really believe that the slump in sales is due to masses of potential buyers saying, “Gee, I could buy a house, but I’m going to wait and see what happens.” You’d think a loan officer would have noticed that many of the mortgages used to put buyers into houses in the last few years have disappeared. Think that might have anything to do with it?

• 11 Joel // Dec 7, 2007 at 11:13 am

  The drop, however, was a little misleading because viewed separately, prices for both condos and single-family homes rose last month. The median for houses was $360,000, a 0.7 percent increase from November 2006. The median just for condos was $238,000, a nearly 14 percent hike from a year ago.

  Wait, median selling price can be affected by the mix of homes sold? Why hasn’t anybody mentioned this before??!?1!??ONE

• 12 Plissken // Dec 7, 2007 at 11:13 am

  This blog is getting better by the day. Some dude named “softwareengineer” is now saying

  “The rich Elite Democrats [Republicans too] need to go visit the food banks and see how the other half of America really lives.”

  Tell me “softwareengineer”, when was the last time you visited a food bank? I’m a software engineer too and I often donate to local food banks but so far I haven’t felt the need to visit one. God willing things will stay that way, but I usually have a very good laugh when somebody in a reasonably lucrative field where good talent is sought after starts ranting about the “elites” and the plight of “the other half of America”

  Why are you painting such a bleak picture of America? Are you trying to get a Dem elected next year? That’s been tried before in ‘92 with all the talk about the “worst recession since the 30’s”, and it worked. I can see how it could happen again. Don’t mess with a winning strategy. Good luck.

• 13 declinest // Dec 7, 2007 at 11:19 am

  all real estate is local, except that which is national.

• 14 MacAttack // Dec 7, 2007 at 11:22 am

  Like Clinton’s comment back in 90s, that $200K is Middle Class now. The rich Elite Democrats [Republicans too] need to go visit the food banks and see how the other half of America really lives.

  I agree. Heard Nancy Pelosi’s daughter on KPOJ (620 AM) promoting her new book about how to enter politics. She mentioned one should start by looking at their high school and college applications to see what really moves them.

  High school application? Eh?

• 15 deejayoh // Dec 7, 2007 at 11:27 am

  Tim, I pointed out this one yesterday too. I cannot believe it is not a typo

  Dipping prices aren’t a concern, she said, because they primarily hurt older homeowners who are selling for the last time or those who borrowed against their equity and owe more than they can sell for, she said.

  Don’t worry, dipping prices only hurt old people and those who are already underwater. Nothing to see here.

  Just maybe, do you think the person quoted said that dipping prices ARE a concern?

• 16 on topic // Dec 7, 2007 at 12:17 pm

  deejoyah, the claim is that dipping prices aren’t a concern for those looking to move from one house to another within the same market because the house they want to buy will also have a dipping price.

  theoretically, they could claim that people looking to upgrade houses will be helped by dipping prices, since a 10% dip off of $600k is a lot more than a 10% dip off of a $300k house. the “dip” only cost them $30k on their sell, but saved them $60k on their buy.

  if it were just a dip followed by a strong market, the author would have a reasonable claim.

  a dip followed by a crashing market may not as good for the buyer.

• 17 Ira Sacharoff // Dec 7, 2007 at 12:20 pm

  I’m with you, Deejayoh…I think it is a typo.
  I’ve taken a bunch of classes with Gene Smith, who currently teaches at Bellevue Community College. Gene loves to have his students engage in spirited discussions.
  When I first took a class with him a few years ago, he asked ” Are rising house prices good or bad?”, and when I took a class from him recently, he asked ” Are falling house prices good or bad?”
  The answer is not black and white. I argued a few years ago that rising home prices was mostly bad, that it made homes unaffordable and made housing too much of a speculative investment (most people disagreed with me), and I argued recently that dropping home prices was mostly a good thing, that home ownership is part of the American dream, and has more positives than negatives, and that making housing more affordable with lower prices is a good thing. But yes, rising home prices will benefit and hurt some people and dropping home prices will bebenfit and hurt some people.

• 18 jon // Dec 7, 2007 at 12:30 pm

  While we are pretty much guarenteed a 10% YOY drop in the spring, the only part of King County that is actually negative YOY for November is the Southwest. Everywhere else is still postive. That also happens to be the area, along with the Southeast, with the smallest drop in sales percentage wise. As noted above, the shift to condos is bringing down the median, but so too is a shift to less expensive areas of King County.

  The jumbo rate had started to close the gap with convential, but the recent drop in convential rates did not show up in jumbo, so the spread widened in the last few weeks. That suggests continuning pent up sales in the high end. When the turmoil in on Wall St. settles down, the gap should close and that will cause the median to swing back to the pricier areas of King County. Should be a fun ride when that happens.

• 19 mydquin // Dec 7, 2007 at 1:17 pm

  Unlike Jon, I don’t see any major upswings until the bulk of the irresponsible ARMs reset. Most of the subprime ARMs will have reset by the end of 2008. Many other kinds of ARMs will reset in the 2009-2011 range. With the fed rate falling and the national bailout plan, its hard to say what the influences of the other kinds of ARMs will be. So it could be 1 year or it could be 3-4 years before national inventory rates start declining.

  Jon still makes some good points. Most of the pain and agony is at the bottom end of the market where where subprime ARMs are most common. Therefore, you can’t judge the market based on the median because most of the growth in inventory will come from the bottom end. Homes at the higher end and closer to the business centers will hold their values better.

  Despite the dismissal of Seattle’s “special” status here, I think it would be foolish to underestimate the effect of the growing professional class here. Microsoft, Yahoo and Google all have plans to expand over the next few years. That equates to the creation of thousands of high-paying jobs and the “bloated” inventory in Seattle proper & the east side is less than 5,000.

  So the pink ponies are long gone, but the sky in Seattle isn’t falling either.

• 20 bubble 2.0 // Dec 7, 2007 at 1:27 pm

  ——————————————————————————————-
  “….In 2006 the median household income in San Francisco was $65,497 … with an average of $92,477 …”

  softwarengineer said,
  Let’s analyze the BS Bubble Brains. How can an average income of $92K equate to a mean household income of $65K? Magic, households are about 1.2 incomes, so instead of dividing $65K by 1.2 to get average incomes per person, we multiply it by 1.7 ($92K x 1.2= $110.4K). Its called fuzzy math. No wonder they don’t hire math teachers with science degrees in high school any more, they like us all stupid.
  ———————————————————————————————-
  Not to offend anyone, but the quote says clearly “median” and “average” (which is “mean” as I understand). Softwarengineer doesn’t need to understand statistics 101? And there’s no “per person” at all in the quote. So, it’s not even statistics, but English reading … :

• 21 S-Crow // Dec 7, 2007 at 1:27 pm

  Ira says,

  ” Are rising house prices good or bad?”, and when I took a class from him recently, he asked ” Are falling house prices good or bad?”

  That depends entirely on which side of the HUD-1 Settlement Statement you reside on. :)

• 22 on topic // Dec 7, 2007 at 1:49 pm

  both rising and falling are bad, if the population is unchanged.

  rising prices reduce affordability by, well, increasing the price.

  falling prices are bad because they reduce the affordability, because lenders are less willing to give loans with a high likelihood of default, so there is a higher risk premium.

  the caveat being that a half-acre plot in downtown Seattle today should obviously cost more than it did in 1900, since there is a major regional city here now. when the value of the area increases, prices should increase because the value has increased.

  if prices change without the value changing, that is speculation and can only lead to trouble.

• 23 goin' for it // Dec 7, 2007 at 1:58 pm

  mydquin,

  I like your post, it makes some good points.

  There is, however, one thing I want to point out to everyone here that not many people in the NW seem to realize. Microsoft pays CRAP these days to new hires. Its no longer the golden utopia of software jobs that it used to be. I think (and someone can correct me if they know better) that new hires get paid somewhere around 55-60k. Oh, and their beni’s suck now also. Thats a pretty good wage but nowhere near enough to buy these 500k+ houses. Especially since a good majority of them are Indian and their spouses and the family they bring with them don’t work,

• 24 b // Dec 7, 2007 at 2:16 pm

  mydquin,

  Please come to Silicon Valley, you might be shocked at what can happen to an inflated housing market despite huge growth in technology companies and the professional class. Seattle has no where near as robust as an economy here, so believing all will be well is a fantasy.

• 25 on topic // Dec 7, 2007 at 2:28 pm

  goin’ for it,

  at its peak, parts of California had a 12 to 1 price to income ratio.

  according to that standard, one $60k job would justify a $720k house.

  with tightened standards and freshly chastened lenders, it seems 3 to 1 with an LTV below 80% may be the new standard. which would justify a house more in the $220k range.

  not to worry, though. highly paid professional jobs will save us. it make just take 2 or 3 families in each house to make payments.

• 26 Buceri // Dec 7, 2007 at 2:35 pm

  b, please continue. And I am not being cynical (just ignorant). San Jose is the 10th largest city in the country, making it a bit larger than Seattle, and it’s one of the few areas of the country is that is comparable with Seattle economically and educ. level of its residents (I know, there are other areas; but Boston, for example, is loosing people).
  What are you seeing in San Jose’s real estate?

• 27 blue horse shoe // Dec 7, 2007 at 2:41 pm

  In repsonse to Software Engineer’s rant about average incomes and fuzzy math…

  As someone who manages software developers, please do NOT apply to any open positions… your understanding of basic math is frankly pathetic, probably a product of Seattle Public Schools.

  Let’s discuss: you claim it’s impossible “fuzzy math” to have an average income of 94,477 with a median household income of 65,497. Clearly you missed the lesson on how Average and Median are calculated. Especially in San Fran, ultra-high incomes (from a small percentage of the population) can skew the average salary much higher than the median, thus the disparity you see here. That’s why median is a much better metric than average: it removes the impact of outliers.

  As for you claim that ultra-high salaries skew the “9.2% make over 200k”claim you attempt to dispell. Again you are incorrect. If 9.2% make over 200k then each and everyone of them make over 200k, regardless of the amount over 200k they pull down. (whereas the average for those that make over 200k would be skewed by the ultra-rich.)

  Your closing says it all: viva the housing crash… what kind of person roots for economic demise? Apparently one who is not bright enough to pull themselves up and hopes to drag everyone down to their level.

• 28 b // Dec 7, 2007 at 3:07 pm

  Buceri,

  From my vantage point the bubble denial is long gone (was still around about a year ago) and now all people talk about how much prices will be declining over the next year and how stupid buying a house right now would be. Many condo projects are sitting with a huge amount of unsold inventory. One tower down the street from me in downtown San Jose has about 5 lights on at any given night out of about 15 stories of condos. It has been completed for nearly a year now but nothing is selling despite its 20′ high $50k off banner covering up the penthouse. They are still completing two more large condo buildings which are the joke of the town now, most of the people I know are wondering why they are even bothering! (This is what I think SLU will be in about a year). Many many houses in my neighborhood sat for sale all through the spring, and this is a close in and nice neighborhood with typical California $1m ramblers that would have been in bidding wars in 2005. The signs came down about 2 months ago. I would say that about 1/4 of them now have for rent signs in the front, I think the others are just waiting for spring or a miracle. It seems to me that the majority of sellers have just given up for now, probably cannot undercut the overbuilding coming through the pipeline still. If you think Seattle is running out of land, then we must not have any land at all. Yet drive 20 minutes south and its farms mixed with high density "chocolate"boxes (think issaquah highlands).

  Seattle should be very worried about its professional class in my opinion, they will not be propping up a bad market. I work in software and pretty much everyone flipped to “renting is good” once appreciation stopped. They can all do the basic math required and approach it from a cost comparative analysis, so I wouldn’t count on Amazon and Microsoft folks to keep buying $500k condos now that appreciation up there is done.

• 29 on topic // Dec 7, 2007 at 3:25 pm

  who wants to guess what they’ll say when price growth goes negative?

  my guess is that they’ll find small parts of the market that appear to be appreciating and highlight them. then they’ll talk about how Seattle is depreciating less quickly than other parts of the country, so it is effectively appreciating. and if you plan to stay for more than 7 years, it will still be a great buy.

  somehow, it will always be a great time to buy in Seattle.

• 30 mydquin // Dec 7, 2007 at 3:26 pm

  I am not sure why you think San Jose is comparable to Seattle. The unemployment rate in San Jose has increased 20+% over the last year while the unemployment rate in Seattle has declined 15+%. All indications suggest that Seattle will continue in that direction.

• 31 b // Dec 7, 2007 at 3:40 pm

  mydquin,

  Just wait until Seattle’s bubble burst finally sets in. Unemployment is skewed in San Jose proper due to construction/mortgage/realtors tanking hard. The areas tech market is what I would call “white hot”, it is extremely difficult to find good people and salaries are rising fast. Everyone I work with and know who has been in the area a lot longer than I have (10+ years) say that the engineering market right now is the best it has been since 1999. I assume Seattles tech market is doing similarly well, the difference being the amount of tech jobs here is probably 10x what it is there. If you dont believe me, here is an article from a little over a month ago about the valley: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/10/20/BUBRST3TJ.DTL In particular, read the last two paragraphs. I am sure Seattle will be fine, though, with its two technology companies and one manufacturing company. Its not like one of the countries biggest garbage loan originators is based there either, so it should be smooth sailing ahead!

• 32 deejayoh // Dec 7, 2007 at 3:54 pm

  I am not sure why you think San Jose is comparable to Seattle. The unemployment rate in San Jose has increased 20+% over the last year while the unemployment rate in Seattle has declined 15+%. All indications suggest that Seattle will continue in that direction.

  This has been covered in depth by Tim on this blog, job growth and/or unemployment have no correlation with housing prices. Unless someone is prepared to show how it is relevant, it seems like a meaningless argument. About as quantifiable as talking about weather differences.

• 33 nitsuj // Dec 7, 2007 at 4:02 pm

  “Consecutive local price drops can be attributed to homes listed competitively so that they attract buyers and sell, said Coldwell Banker agent Margo Hass Klein.

  Dipping prices aren’t a concern, she said, because they primarily hurt older homeowners who are selling for the last time or those who borrowed against their equity and owe more than they can sell for, she said.”

  Someone’s grasping at straws and talkin’ out their Hass

• 34 on topic // Dec 7, 2007 at 4:16 pm

  i wonder how the “motivated seller index” is doing

• 35 timallenh // Dec 7, 2007 at 4:20 pm

  Just a simple question: I’m a little confused about the numbers from MLS. November numbers show a 2.9% drop in overall prices a 0% drop in single family house prices and 4.9% increase in condos. What am I missing? How can a 0% and 4.9 % average out to -2.9% ??????

  see http://nwrealestate.com/nwrpub/common/mktg.cfm

• 36 softwarengineer // Dec 7, 2007 at 4:36 pm

  HI MYDQUIN

  I’ll mention three things:

  1.Vista
  2. $90/barrel oil
  3. 787 Outsourcing

  Manufacturing creates 4-5 jobs normally, for every job it employs. Have you been to Kent valley? Without housing Seattle is shafted. Where’s Boeing’s subcontractors in Seattle? Mor Furniture took over Flow, where’s Exotic Metals and what happenned to Auburn’s Boeing Plant?

  All outsourced and replaced with wharehouses suppling countertops, rugs, etc for a destroyed housing market. Where does the housing stuff come from? China?

  How can Seattle aircraft sales flourish abroad with record energy prices?

  We need our American industrial base back or were shafted!

• 37 TJ_98370 // Dec 7, 2007 at 4:44 pm

  .
  Articles from the News Tribune, the Seattle Times, the Seattle P.I., along with stories from Idaho, Oregon, and Alaska are mentioned in Ben Jones HBB today.

  The Return of Sanity Has Come at a Price
  .

• 38 mydquin // Dec 7, 2007 at 4:47 pm

  b,

  The sfgate link really doesn’t do anything other than confirm what I previously said. It does not offer any specific data on what kinds of jobs are being lost and gained. When you have some data other than water cooler talk, please post it.

  You clearly are uninformed about Seattle’s local economy. Microsoft, Google, Amazon & Yahoo are all currently adding jobs here… some of those have been shifted from Cali. Washington Mutual made most of its job cuts last year and the recent WaMu cuts have been elsewhere, including California. Seattle’s “one” manufacturer will not be shrinking any time soon given the # of orders it is taking for the 787. Finally, the port is also significantly increasing its capacity in anticipation of growing traffic.

  Also, I know Bay area prices tanked 6-8% in the fall of 2006, but aren’t prices in the Bay area back up about 2% YOY at this point?

• 39 mydquin // Dec 7, 2007 at 4:57 pm

  “How can Seattle aircraft sales flourish abroad with record energy prices?”

  I don’t have time or energy to respond to every point, but this is a perfect example of the “sky is falling” illogic. You do understand why the 787 is such a big deal, don’t you? It is significantly more fuel efficient than existing technologies. Airlines that want to lower fuel costs will be forced to retire older, less efficient fleets. The same thing happened in the 1970s when airlines were forced to upgrade to 2nd generation jet engine technologies.

• 40 B&W Nikes // Dec 7, 2007 at 5:09 pm

  mydquin remind me again what happened in Seattle in the 1970s?

• 41 Jonny // Dec 7, 2007 at 5:13 pm

  “We need our American industrial base back or were shafted!”

  you mean actually make things? that’s heresy. don’t you know we’re a “service economy” now?

• 42 deejayoh // Dec 7, 2007 at 5:14 pm

  You do understand why the 787 is such a big deal, don’t you?

  It does look like a great plane, but there is one small problem with your argument. Few of the 787 jobs are in Washington. Gross numbers: The assembly of the 787 employs ~1000 workers locally - compared to ~25,000 for the traditionally built planes - so by moving from the 777 to the 787, Boeing effectively eliminated 20,000 jobs in washington.

  Boeing 787 enters its final assembly
  Boeing won’t talk specifics about 787 employment, saying only that final assembly eventually will require 700 to 1,200 workers.

• 43 b // Dec 7, 2007 at 5:48 pm

  mydquin,

  Try reading the article next time, the numbers are out there if you want them. I am just tired of hearing about how Seattles economy is so much better than everywhere else in the entire nation, and therefore when the entire nations house prices declines it won’t happen in Seattle. The economy up there is much more fragile than many metropolitan areas, having a few large employers is something that is expected of a larger city and not something that makes it special. Seattle is in a precarious position specifically because a disproportionate amount of the economy is tied to a few companies only. You can continue to daydream that the rest of the nation is doing terribly but Seattle will show huge increases in high paying jobs, or you can face economic reality.

• 44 B&W Nikes // Dec 7, 2007 at 6:08 pm

  Between 1998 and 2004 Boeing permanently cut 51,000 jobs here. In 2005 their number stood at 56,500. Boeing currently employs 73,610 as of November 2007 in Washington State, which falls in line with their projections from years ago. Some might call it thriving, I say that it shows a net loss of 33,390 jobs from a decade ago. Please someone continue explaining how Boeing drives our housing market?

• 45 B&W Nikes // Dec 7, 2007 at 6:11 pm

  .. or my math might totally suck.

• 46 mydquin // Dec 7, 2007 at 7:05 pm

  Boeing has added 5000 Washington jobs in the last year. I don’t see that number decreasing in the next few years. http://www.boeing.com/employment/employment_table.html

  But don’t lose sight of the big picture. There are at least five other major employers adding jobs and inventory is really only around 5000 units.

  By the way, I applaud Tim for his efforts to do an employment analysis, but unfortunately, it doesn’t amount to much without proper methods (ie multiple regression).

• 47 deejayoh // Dec 7, 2007 at 9:54 pm

  at least he did analysis.

• 48 whats my name // Dec 7, 2007 at 9:59 pm

  I’m surprised, given the penchant here for detail and graphs, no one has commented on the small graphs in the Times article. When they break down the “flat since 2006″ SFH market by sub-region, it turns out prices were up everywhere but SW King County. The difference was in the proportionate share of sales in the cheaper vs more expensive markets. Kind of the same way condo sales skew the aggregate number. You might want to keep the cork in the sparkling cider for another month or two.

• 49 sarahd // Dec 7, 2007 at 11:30 pm

  @timallenh — if SFHs had 0% change, and condos went up 5%, it’s still possible for the November numbers to show a 2.9% drop in overall prices. But, there had to be more condos (cheaper) sold than SFH in November, compared to previous months.

  For example: in Oct, 5 houses sell at 400k and 5 condos sell at 200k. Avg price is 300k. In Nov, 2 houses sell at 400k, and 8 condos sell at 210k. Avg price is 248k. Avg price dropped (17% in this example) even though houses stayed flat and condos went up 5%. All numbers in this example were pulled out of thin air to make the math simple.

• 50 goldeneye977 // Dec 8, 2007 at 3:32 am

  Hi SarahD,
  So what you are saying is that when median prices were increasing 20% YOY here, prices were not actually increasing. Its just that more high end homes were being sold, is it?

  In the last 2 weeks I have seen 2 million-dollar homes right next to MSFT going up in foreclosures. I have heard that the famous builder Buccan reduced prices by 25% on some of his homes. In Bothell, Centex homes had knocked off 10% from their prices this June since they anticipated trouble ahead. Go to craigslist and you will find many price reduced signs. The townhown complex where I rent is 1 mile away from Microsoft’s Redwest campus. Four townhouses that came up on the market sometime in Sept have not sold yet. I am now seeing price wars at the seller’s end now - they seem to be undercutting each other to get out fast. The reduction if the townhouse price at my complex is only 5% as of today. But there are no takers so one of them is offering his home up for rent.

  The ominious signs are everywhere. So don’t kid yourself into believing that the median price is lower just because more condos are being sold and so people don’t need to worry.

  Now will Spring ‘08 bring Seattle back in the +10 YOY increase range? A couple of months ago I would given it some thought. But now, I think Seattle would be lucky to clock in 1-2% gains in Spring.

• 51 Matthew // Dec 8, 2007 at 6:14 am

  5,000 jobs?

  BFD

• 52 zzyzx // Dec 8, 2007 at 8:28 am

  There are not just 2-4 high tech companies in the Seattle metro region. There are 2-4 high tech companies that are famous. There are plenty of other companies in the area that are hiring. When I was on Microsoft contractor freeze, I had no problem finding places to interview.

• 53 george // Dec 8, 2007 at 8:43 am

  Of course job growth is a factor (whatever the bubble blog analysis claims), but is job growth enough to keep this bubble from going pfffffft for awhile? Most signs point to no…and what’s changed finally is market psychology.

  Who is jumping into the SFH or Condo market right now based on the idea that they expect to see an increase in price into 2008? Anybody?

  On the comparison to Silicon valley, that’s apples and oranges. Literally.

• 54 S-Crow // Dec 8, 2007 at 9:47 am

  George said,
  “Who is jumping into the SFH or Condo market right now based on the idea that they expect to see an increase in price into 2008? Anybody?”

  The first guy that comes to mind who might know is Lawrence Yun. He called for Seattle metro to have a 30-40% increase in median in 2007.

• 55 Ira Sacharoff // Dec 8, 2007 at 10:32 am

  30-40% increase? Is he on crack?

• 56 Jonny // Dec 8, 2007 at 10:53 am

  It’s the new economy, Ira.

• 57 george // Dec 8, 2007 at 10:54 am

  S-Crow: How many people in Seattle jumped into the market based on the sound reporting of the Seattle Times, which covered this prediction by Yun last year:

  http://seattletimes.nwsource.com/html/realestate/2002812615_appreciation19.html

  So let me get it straight, Seattle Times. It’s either Yun’s 30 to 40 percent increases? Or maybe just up and up and up say other experts, but not 40 percent in two years? Where do I write the check?

  Note that the reporter also openly mocks as “doomsayers” anyone who thinks the market is overvalued and poised to fall…

• 58 jon // Dec 8, 2007 at 12:16 pm

  “5,000 jobs? BFD”

  That’s one full year of all the new construction in King County. Everything else is just people moving from place to place.

• 59 deejayoh // Dec 8, 2007 at 12:35 pm

  All this talk of jobs also ignores the supply side of the equation: what building activity is going on? John Burns Consulting - a builder advisor - does an interesting analysis of markets across the country, comparing payroll growth to building permits, and normalizing vs. historic ratios. Per his analysis - Seattle is one of the markets most out of whack vs. it’s norm w/r/t supply vs demand. He has Seattle at a “barometer” of 8.7/10 - where 5 is typical affordability. Interestingly, that is higher than the score for any CA metro except San Jose, which also sits at 8.7, and #6 on his “most overpriced in comparison to history” list.

  John Burns Consulting housing barometer

• 60 S-Crow // Dec 8, 2007 at 1:25 pm

  Deejayoh-

  The John Burns Consulting analysis has Seattle at 57% housing cost/med.income if you look on the far right side of the table.

  In my best Voice of the Seattle Sonics, Mr. Kevin Calabro: “good Golly Miss Molly!”

  When I always see debt to income ratio’s of 40-50%, in the back of my mind I’m always thinking, gosh, these folks are really spending 50-60% or more of after tax take home on just the mortgage payment itself.

• 61 Tom // Dec 8, 2007 at 2:09 pm

  I just ran across an interesting chart over at redfin.com in the forum. It’s the raw number of SFH and condos sold per year starting in 2003.

  It appears that sales of homes, in absolute numbers, started droping off after 2005. What do you think that suggest?

  http://forums.redfin.com/rf/board/message?board.id=Seattle&thread.id=650

• 62 mydquin // Dec 8, 2007 at 3:17 pm

  S-Crow & Deej, John Burns’ analysis suffers from the same problem that many others do. He is relying on median income numbers instead of focusing on the home buying class.

• 63 rose-colored-coolaid // Dec 8, 2007 at 4:52 pm

  mydquin, you seem to have spent a lot of effort explaining how every analysis based on facts must be flawed.

  So how many homes did you buy this last summer? 2? 3?

• 64 Matthew // Dec 8, 2007 at 5:04 pm

  Sorry, but 5k 40-100k per year (I’m probably being generous here) Boeing jobs is going to do absolutely nothing to help the housing market. It’s a question of affordability, not jobs.

  In a major metro area of some 1 million people, 5k new jobs means jack diddly to the overall picture. How many of those 5k people are going to be able to afford new homes in King County right now? Here’s a better question of the 5k that can afford to buy a home, how many of them are stupid enough to buy one right now, now that the writing is on the wall?

  How many people lived in this area during the tech blowout? Everything right now seems like peaches and cream, how easily everyone forgets how quickly this area goes to hell in handbasket when the U.S. economy hits the crapper.

• 65 Matthew // Dec 8, 2007 at 5:06 pm

  It is refreshing that a few perma bulls have stayed around to argue while facing over whelming evidence that we are headed for a downturn. First it was, “there is no bubble”. Second, came “we may see a minor correction, but not as bad as other areas”.

  I have a feeling the third response will be dead silence.

• 66 whats my name // Dec 8, 2007 at 5:29 pm

  If 5,000 jobs is jack in a metro this size, what is 5,000 excess houses?

  Affordability (80 loan/20 equity) is a nice model for comparing across metros. It has little to do with how non-first time buyers buy homes.

  The limitation of Burns analysis is that it is a backward looking data comparison in a non-static system. It doesn’t explain the clear bubble cities which are spread through the top two sections. The “undervalued” markets include dying cities. A more useful interpretation may be as an indicator of relative improvement or decline in a given city’s desirability.

• 67 Buceri // Dec 8, 2007 at 5:43 pm

  b, thank you for the extensive analysis of San Jose.
  I have to agree with those that mentioned that Seattle has only a handful of “famous” employers. But quite a number of the old MSFT millionaires retired and open tech companies. Not to mention that the list of companies in Seattle is very impressive.
  Oh well, let’s see what happens. According to the gov. numbers, the economy is doing fantastic; but next Tuesday we’ll have another rate cut and the consensus is for 1/2 a point. And since Wall Street owns the fed, I doubt he’ll cut only 1/4.

• 68 deejayoh // Dec 8, 2007 at 5:53 pm

  He is relying on median income numbers instead of focusing on the home buying class.

  Not sure how the median is not relevant when homeownership is 70%. What are you bringing to this discussion, besides your opinion?

• 69 Eleua // Dec 8, 2007 at 9:43 pm

  With prices returning to 2006 levels, can Synthetik collect his $1000 from Meshugy?

  I wonder if Steve Tytler is still putting a $5000 bounty on lower home prices?

• 70 Eleua // Dec 8, 2007 at 9:50 pm

  You might want to keep the cork in the sparkling cider for another month or two.

  The longer I wait, the lower prices will be. Every perma-bull keeps rationalizing why prices are not going up.

  At first, every house was going up. Drive until you qualify…

  Now, the bulls limit the geography. Every time the geography shrinks. Pretty soon, they will be looking at one Queen Anne house and claiming that the market is still strong.

  I’ve got my bubbly chilled and ready to go. I already know the outcome. I’m just waiting for the bulls to figure it out.

  I predicted this in writing back in ‘05. I’d say that I hate to gloat, but I don’t. Gloating is going to be the icing on the cake of massively discounted homes and roasted bull for dinner.

  20 cents, people…20 cents…

• 71 economist // Dec 8, 2007 at 10:02 pm

  Affordability (80 loan/20 equity) is a nice model for comparing across metros. It has little to do with how non-first time buyers buy homes.

  Well yes it does, because non-first time buyers have to sell their existing house, too.

  Get it?

• 72 whats my name // Dec 8, 2007 at 10:26 pm

  “The longer I wait, the lower prices will be. Every perma-bull keeps rationalizing why prices are not going up. ”

  Prices in King County are up - everywhere but SW. (Did you really predict that in 2005?).

• 73 whats my name // Dec 8, 2007 at 10:37 pm

  “non-first time buyers have to sell their existing house, too.

  Get it?”

  And people at the bottom of the home buying chain aren’t looking for the median house (unless they haunt this blog)

  Get it?

• 74 Eleua // Dec 8, 2007 at 10:40 pm

  Next month, it will be ‘but the decline is only in Southern King County.

  By Valentines day…’but the decline is not hitting North Western King County’

  Then, ‘Queen Anne is still strong! You had to expect all the other areas to decline, but QA is what I was always talking about.’

  By Summer, “Choke on it, Eleua!”

• 75 whats my name // Dec 8, 2007 at 11:13 pm

  “Then, ‘Queen Anne is still strong! You had to expect all the other areas to decline, but QA is what I was always talking about.”

  No, no, I got it the first time. I’ve been through a few cycles, and I expect reasonably small declines of short duration from time to time. So the straw man is no good for me.

  It’s more a proportionality thing. Why would you be celebrating a small decline (which hasn’t yet arrived) when that is still closer to the “permabull” predictions than your 20 cents on the dollar proclamation?

  And more importantly, I couldn’t resist the cheap shot regarding your prediction.

• 76 bitterowner // Dec 9, 2007 at 3:30 am

  re: “Prices in King County are up - everywhere but SW”

  Then it is odd that a good friend of mine hasn’t been able to sell his house in the heart of Queen Anne (98109) for 10 months and counting despite about 70-80K (approx 15%) price drop. Nice smaller house in a prime location. At this point, if it ever sells it will be for less than what they paid in 2005. I now it’s just one example, but I have a hard time believing it’s that much of an anomaly.

• 77 bitterowner // Dec 9, 2007 at 3:31 am

  …’know’ it’s just one example…

• 78 zzyzx // Dec 9, 2007 at 6:30 am

  “And people at the bottom of the home buying chain aren’t looking for the median house (unless they haunt this blog)”

  Exactly. The home ownership rates I see in Seattle are in the low 50’s. That means that the median income isn’t looking for the median house; they’re looking for the low end.

  The trouble with fixating on median incomes is two fold. The first is that if the lower end is static while the upper end rises, the housing market can look more unaffordable while not really changing. For that matter the reverse is true; if the high end salaries collapse while the lower end does well, the housing market would be in more trouble than it appears to be.

  The other thing is that the further you move from the mean, the less important debt to income rules become. When you have more disposable income, you have more choices. The costs for day to day living (food, utilities, clothing, a car that would run) have a floor. Sure, many people like to eat out more and have nicer cars, but others have always wanted to have the perfect house. If I got a $20k a year raise, I probably would put a lot of it into my 401k and spend the rest on traveling more. Other people would think that they’d be able to put more money towards a mortgage. It’s not the choice that I would make - I’m VERY happy with our mortgage being 21% of our family income - and it does put more pressure on them to keep their job, but it’s not an invalid one either.

  Disposable income is just that. If people want to spend it on housing because they have some dream in their head, they’re going to do so. Again, I think we’ve gone past the point of sustainable pricing. I do expect a correction in prices. However, I also think that a 120% median income/median housing price (pre-run up) is far less sustainable than what we have now, so most of the gains will remain when prices stabilize.

• 79 bitterowner // Dec 9, 2007 at 9:43 am

  zzyzx,
  If I understand correctly, you are theorizing that the middle to low end of housing will be relatively harder hit than the higher end. I have heard this mentioned before and have not fully understood this principle. Although I get that people with more disposable income may not be as susceptible to standard affordability calculations, I can’t see how two different segments of the market can move that independently from each other. Wouldn’t that leave a big inventory hole at the price range between the top end of the lower price range and the bottom end of the higher price range? If so, would the bottom end of the upper price range not have to adjust downward and eventually affect more expensive houses in sequence?

• 80 whats my name // Dec 9, 2007 at 11:09 am

  bitterowner,

  Perhaps your friends were asking overmarket 10 months ago. Perhaps they paid too much in 2005.

  YOY, SFH median sales prices increased in every submarket (as defined by the Times) except SW County. It’s a fact, just like its a fact that sales are down in every area.

• 81 b // Dec 9, 2007 at 11:28 am

  whats my name,

  All that tells you is that SW King County is the first to drop. Sales being down but median going up means the bottom has dropped out of those markets. Since housing is a “pyramid” scheme, whereby 99% of people who are moving up need to sell their previous house to someone else. I would say it shows those areas will be in price declines within the next few months as people stop buying new houses since they cannot sell their old one and don’t want to pay dual mortgages like their friends who sold this month.

• 82 rose-colored-coolaid // Dec 9, 2007 at 1:44 pm

  What a snarky set of comments. It’s clear the bulls are very scared and very angry at the people on this board who’s negativity is forcing prices down.

  Well, get over it.

  Also, it’s false that only first time buyers should care about the price of houses. Let me enumerate the types of buyers/sellers. You have first time buyers, move up buyers, buy and holders, move down buyers, and sellers closing all their positions.

  So who benefits from higher prices? First time buyers don’t. Move-up buyers don’t - they buy $100,000 house but want $200,000 house, if prices double they now own a $200,000 house and want a $400,000 house. Buy-and-holders lose because of their increasing taxes - especially those on fixed incomes.

  Only two groups benefit from rising prices. Those moving into a smaller house, who can bank their profit, and those who are completely selling out and going to rent.

• 83 johnnybigspenda // Dec 9, 2007 at 2:23 pm

  i think that move up buyers benefit when prices go up… if I have $50K of equity in a $250K home. If that place goes up by 20%, I now have 100K of equity. I now have enough for a $400-500K home as a down payment. (yes that 400-500K home would have been 20% less a couple of years ago, but you still get more benefit from the leverage when prices go up.

  It can work the same for prices going down as well. (as long as you still have ’some’ equity in your original property by the time you go to sell and you have saved enough cash for your next home. 10% off a $250k house… you lose $25K.. 10% off a $500K house, you save $50K. the bummer is, you could have had that $50K downpayment invested in a CD at 5% and made a couple of grand while you waited for the prices to come down. Still, its not the worst thing in the world for ‘mover uppers’ if prices fall.

• 84 johnnybigspenda // Dec 9, 2007 at 2:29 pm

  wonder if there is some data about the breakdown of firsttime buyers vs. mover uppers vs. down sizers ect ect… I’d like to see what % of the market each of these demographics makes up. Its true that they are all inter-related.

  Can we do a poll?

  “for which reason did you buy your last house?” or “for which reason will you buy (or sell) your next home?” and then split into those categories: first time buyers, move up buyers, buy and holders, move down buyers, and sellers closing all their positions

• 85 just_checking // Dec 9, 2007 at 2:51 pm

  The crux of the problem is that housing went from a shelter to the investment category in the last 3 years. Mass psychology is very difficult to swim against. The no-doc/cheap loans fueled the fire.

  One other thing unique to seattle metro maybe the
  percentage of southeast asian population. I believe it is quite large compared to the rest of the cities. As any SE Asian can tell you - housing and gold are considered the king of investments in these countries.

• 86 Other B // Dec 9, 2007 at 3:16 pm

  (No problem with the new ‘b’ who is posting… keep it up!)

  I liked this take on the silly RE reporting that goes on this area:

  “I guess “Affordable Housing” isn’t much of a headline”

  http://www.horsesass.org/?p=3922

• 87 AndyMiami // Dec 9, 2007 at 6:03 pm

  A must read on what Paulson’s Teaser Freeze really means, and that we are facing quite challenging times in the credit markets..
  http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/09/IN5BTNJ2V.DTL&hw=interest+rate+%27freeze%27&sn=001&sc=1000

• 88 Jonny // Dec 9, 2007 at 10:17 pm

  nice post andy miami.

  i totally agree with that article. the two bit banking criminals behind all this are going straight to prison and the whole US financial system is in fact in jeopardy. "lick" them. i hope they rot in prison for the rest of their days.

• 89 economist // Dec 10, 2007 at 12:10 am

  And people at the bottom of the home buying chain aren’t looking for the median house (unless they haunt this blog)

  Of course not. They’re looking for the “entry-level” house.

  Which they can’t afford.

  Does that make things a bit clearer?

• 90 Markor // Dec 10, 2007 at 12:21 am

  “It’s clear the bulls are very scared and very angry at the people on this board who’s negativity is forcing prices down.”

  I didn’t see any scared bulls above. I did