Seattle Bubble

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Posted today over at MSNBC - sometimes viewed as a source of “news”, I found this tidbit. It looks like we’re gonna get bailed out by the Canucks! Phew

As loonie surges, Canadians snap up US homes
Snowbirds bring checkbooks to grab properties at deep discount

CHANDLER, Ariz. - Two hours after his flight landed in Phoenix, Calgary resident Doug Farley already was cruising the city’s vast stuccoed suburbs in search of the one attraction Canadians cannot seem to get enough of these days: cheap homes.

There are thousands of them here: almost new, unoccupied and dropping in value. The mortgage meltdown, combined with a surging Canadian currency, has Farley — and many of his countrymen — dreaming of winter golf on grass that’s always green.

“My dollar’s the same as your dollar, finally,” Farley said, grinning as he peered through a pool fence at a sparsely populated condominium complex in Chandler, a Phoenix suburb
For moderate-income Canadians like Farley, the race is on to take advantage of the “loonie,” which in September reached parity with the U.S. dollar for the first time since 1976. Many are combing the Internet for anxious American home sellers and looking with an investor’s eye at the condos they rented while on vacation in sunbelt states.

and guess what.. they’re nice too, cuz they’re Canadians! (note, I am not making fun of Canadians here. Just the writer)

“Fifteen of my friends are on buying trips down here, and we’re all cheap,” Sirockman said. He brought his family to Scottsdale this month while he submitted a lowball all-cash offer for a three-bedroom home.

“I don’t want to take advantage of a guy who’s having trouble in the market and is losing his shorts,” Sirockman said. “But I have no problem with a guy from California who bought on spec and has five houses in Arizona and never lived in them.”

The reporter must have been working on this story for, oh say a month or so. Might not have noticed what’s been going on with the loonie the past couple of weeks. If they’re going to save us, they better hurry!

US Dollar to Canadian Dollar

Oh. My. Goodness.

Remember this?

13425 Avondale Rd NE, Woodinville
May 2006: $1,625,000 (Asking)
August 2006: $1,495,000 (Asking)
October 2006: $1,275,000 (Asking)
November 2006: $1,275,000 (Asking - New Brokerage)
January 2007: $1,275,000 (Relisted)
February 2007: $1,275,000 (sold—finally)

You thought it was over, but oh no. It is not.
December 2007: $1,650,000 (Flipping?!?)

I kid you not. February’s buyers have now put this beast back on the market, at nearly 30% over what they paid for it just ten months ago, and $25,000 over the previous owner/builder’s original ridiculously high asking price last summer.

Just for laughs, here is the description in the MLS this time around:

Amazing NW Craftsman Lodge-style home. 3+private acres! Soaring high ceilings announce the entertainment size entry with Brazilian Cherry wood floors flowing into the formal dining room and beyond giving a spectacular entrance. A cozy library greets you, next to a living room/flex room. The Master Suite has a territorial view, fireplace,jetted-tub,and glass block shower. Seperate [sic] Nanny’s quarter’s and bedrooms +. This is a ‘must see’ and too wonderful for words. Come experience this grand home!

I can think of something to describe as “soaring high,” and it’s not the ceilings.

Good luck with this one, you’re going to need it. Badly.

Update [03.22.08]: Price reduced to $1,590,000.  Keep going…

This post is different from the usual fare here, but I think it’s worth taking some time on. I ran across this post in my news alerts. It’s a look at the human consequences that result when affordable apartments are converted into upscale condos.

I was very surprised at the time that I first wrote about Lock Vista at the seeming bias against renters. No doubt this is a small minority who are particularly vocal, but the sentiment seemed to be, “stop whining about being poor because you’re an artist,” or “if you worked harder, you could own a house.”

I learned that renters have very few rights. One such right is sixty days notification if a rent increase will be over 10%. How generous. Buildings can be sold. Rent control doesn’t exist. The people that I’ve met have owned homes and have chosen to become renters at a different stage of their life.
…
Three hundred sixty-five days in the year but not enough days for the number people being forced to leave Ballard due to economics. The condo conversion at Lock Vista will affect over 200 people; many have already left. Then there are the renters in triplexes and duplexes - most slipping away without any publicity or outcry at all.

Of course, when the alternative to renting costs twice as much and puts you in financial risk of foreclosure should interest rates rise or the value of your home drop, you’re stuck between a rock and a hard place. You can thank your friendly neighborhood housing bubble for putting people in a situation where the only choice is between insecure renting or taking on financially crippling debt.

(Peggy Sturdivant, At large in Ballard, 12.13.2007)

If you’re viewing Seattle Bubble for the first time today because you heard me, Tim Ellis, on 710 KIRO, I’d like to welcome you. Be sure to check out the about page and some of the links on the right under “Read These.” Feel free to jump into the discussion on the posts here on the blog and also in the forum. If you have any comments for me, you can contact me directly.

For regular readers who did not catch my short segment on the Dave Ross show this morning, here it is:

I was caught a bit off guard at how short it was, and was hoping to make some additional points. Hopefully next time I can actually join Dave in-studio for an entire hour-long segment. I’d love to be able to have more time to discuss the issue with Dave and respond to calls.

Here’s an email I got from someone named Andy:

I am in the process of relocating to the Seattle area from the Midwest and have been monitoring your blog in an attempt to get some insight into the local real estate scene.

First, thank you for your highly interesting and informative blog. Knowledge is power and you certainly are providing some interesting information for the consumer.

Here are my questions for you. What is with the psyche of local home buyers and sellers in the Seattle market that they are willing to overpay for housing (at least that is my impression)? Am I crazy to pay what people are asking for a home?

Let me elaborate. I have been scouring every information source I can for real estate information in order to become the most informed consumer I can. Here is what I have learned in a nut shell. Nationwide housing is in a slump (to put it lightly). For example the recent announcement that U.S. median sales price of a new home fell 13 percent in October, compared with a year ago. There are some markets however (Seattle, Salt Lake City, San Jose) whose home prices actually rose YOY. I get that Seattle is somewhat special in terms of real estate markets.

An additional piece of information is that I’m one of those people that wants to be a home owner. I appreciate that home ownership may not be the smartest financial move when compared to renting (especially at this time) but I put a great deal of value on the intangibles. I have two small children and the concept of “home” is very important to me so I accept the potential financial downside of home ownership.

BUT as you have stated on your blog, Seattle prices rose 4.69% YOY as of September. So here is my conundrum. I have been monitoring housing prices on the internet using various real estate tools. I have been specifically monitoring a few houses to see if their asking prices are dropping, how long they stay on the market and what the actually sell for. I have noticed a disturbing trend that I simply can’t figure out and would like your insight. I have monitored a couple of houses (in Issaquah and Bellevue for example) that were purchased in September of 2006 for around $600,000. They were put on the market in the fall (September-ish) and the asking prices were about $720,000. My calculations show that these people were expecting a 20% increase in the value of their property in one year. Is that realistic for Seattle regardless of the market – prior to 2007 were people really getting 20% annual growth. The interesting thing is that I have seen the asking price for these properties now drop to about $695,000. This is still a 16% increase. If the numbers show that Seattle prices rose 4.69% YOY as of September, why would anyone pay more than $628,140 for a house that was previously purchased in 2006 for $600,000? Furthermore, I’m thinking for that house that was purchased in 2006 for $600,000 I would pay about $610,000 right now because even though it gained 4.69% in 2007 it will probably lose value in 2008. Are Seattle home purchasers crazy enough to pay $700,000 for a house that was just purchased a year ago for only $600,000?

Andy seems to have three basic questions: Do you have to be crazy to pay today’s home prices in Seattle? Is an asking price 20% over last year’s purchase price realistic? And lastly, how does the median home price relate to specific houses?

To address the last two questions, I will point out the statistics only tell part of the story. We primarily focus on the median single-family home price in King County when discussing prices here, but that number is useful only in gaining an overall picture of market direction, and is fairly useless when trying to determine a reasonable price for a specific home. There are a few reasons for this. First, as has been discussed here a couple of times before, the median price can easily be (and has been) skewed by a change in the demographic mix of homes sold.

Secondly, while the market in general tends to build momentum and move together in the same general direction, every neighborhood has its own unique considerations that will result in larger or smaller changes in price. For example, looking at the county-wide statistics (or even the more local NWMLS areas within a county) won’t tell you that a particular neighborhood just had a big box store approved to build two blocks from a home you’re looking at, causing its value to drop like a rock. When you are seriously interested in a particular home or neighborhood, you really need to look at all the factors that affect that particular location.

That being said, if the county-wide median is flat year-over-year (which it is), it’s a pretty safe bet that someone asking 20% over last year’s price has got their head in the clouds (to put it politely). Maybe that neighborhood has had some significant improvements in the last year, making them more desirable relative to other choices in the Seattle area, and a 5% would be realistic. You can’t tell just by looking at median prices though. Statistics are useful for gaining a high-level view, but to know whether a particular house should be appreciating and by how much, you have to look at that particular house.

As far as the more general question about the sanity of those that would shell out $600,000 for a run-of-the-mill house in Seattle, my personal opinion is that most people paying these prices have been caught up in the “bubble mentality.” It’s the little voice that says:

Look how fast prices are going up! Don’t you want to get in on that action? You know, if you don’t take advantage of it and buy now, you’re going to be priced out forever! You don’t want to be the only one of your peer group that doesn’t get a ride on the equity train, do you? Buy now before it’s too late!

For a great example of this mentality in action, check out this article I highlighted in 2006. It’s that mentality coupled with the easy, standards-free lending we saw 2004-2006 that pushed prices up to their present ridiculous highs.

However, as I’ve said many times before, if you have the finances, place a high value on the “intangibles,” and can tolerate the downside risk of buying now, more power to you. I’d at least hope that you will take your time home shopping and not pay full asking price for whatever place you end up selecting.