A number of people pointed me toward a “white paper” recently released from real estate brokerage John L. Scott titled “Why Now Is A Smart Time To Buy” (pdf). It purports to be “an objective assessment of the housing market as it stands at the end of 2007″ designed “to help home buyers assess the facts of the real estate market objectively.” With a title like that, it sure sounds “objective” to me…
Let’s have a look inside.
Three factors caused this decade’s housing boom to spiral upwards: 1) a run-up in home price valuations that spurred a high sense of urgency in home buying and selling; 2) poor lending practices, which caused many homebuyers to secure loans that they ultimately couldn’t afford over the long term; and 3) speculative purchases of homes also increased, with buyers investing in real estate with the hope of a quick return-on-investment.
Actually it doesn’t start off too bad. That’s an accurate assessment of the boom, with a rare admission that speculative purchases played a part, implying that this is even the case in our area (since Seattle is where JLS is based).
Like the dot com bust, the housing market has begun to correct itself after a number of years of unwise purchasing, but unlike what the media would have us believe, a correction in the housing market doesn’t equate to a crash. Unfortunately, the ongoing negative news about the troubled areas in the U.S. has caused a ripple effect, with home buyers and sellers on a national level exercising caution before making a decision.
Ok hold on. Did you catch what they said just there? “Unfortunately… buyers and sellers [are] exercising caution…” (emphasis mine). Huh?!? How is it “unfortunate” that people are being more cautious? Oh, right. John L. Scott sells real estate, so they would prefer it if all caution was thrown to the wind. Also, they’re blaming the downturn on “negative news.” That is so laughable it’s not even worth a detailed rebuttal. Here’s a hint though guys: it’s the other way around—the downturn is real, so the news is negative.
The rest of the paper focuses on superficial points that are unlikely to sway any but the most gullible (page numbers refer to the number printed on the page, not the actual pdf page number):
- We’re not as bad as Arizona and California! (p. 2)
- High inventory means more choices for buyers! (p. 2)
- Mortgage rates are low! (pp. 2-3)
- Did we mention we’re not as bad as California? (pp. 3-4)
- Subprime is like practically non-existent. For reals. (p. 5)
- We are so much better than other places in the US like, say… California. (p. 6)
- Never mind the fact that you could wait a year and buy at a lower price—real estate is a long-term investment. (p. 7)
- Here, look at some historical price drops in which the factors of the preceding booms were nothing like they were recently. Those weren’t so bad, so this drop won’t be bad either! (p. 8)
- In summary: Buy, buy, buy! (p. 9)
Take a few minutes to read through the pdf. It’s not that any of the things they’re saying are necessarily untrue, it’s just that this is definitely not an “objective assessment.” It’s quite clearly a marketing document intended to dupe cautious home buyers into throwing their money into a freshly-declining market. I hope nobody takes this document seriously.
I’ve added this paper to the library for future reference.
deejayoh » Jan 15, 2008 at 11:26 am
The “we’re not as bad as California” thing is pretty funny. It should be qualified with “yet”. I remember an interactive tool that was on the WSJ site a while back – if you looked at Seattle and San Diego, the statistics on high-interest rate loans were almost identical between 2004 and 2006.
http://online.wsj.com/public/resources/documents/retro-SUBPRIME07.html
Jason » Jan 15, 2008 at 11:47 am
I have a feeling I am going to get beat up here, but I can’t help but wonder if this isn’t good for Seattle? From everything I have read, it seems that Seattle remains warm comparatively speaking with regard to home values. We are starting to see a bit of the armor fall off with WaMu possibly laying off people, but the job market remains strong. Speculation seems to have curbed, and rental costs have skyrocketed.
I think this ‘white paper’ makes sense. Help those that are on the fence of purchasing letting them know that if they buy today, they won’t lose everything. I don’t think anyone is saying that we are going to go into a recession like that in the 30’s…
I have to admit that I want it to become worse before it gets better… as I want to buy a larger home. The more the interest rates fall and the more prices are driven down, the more house I can purchase. So bring it on… but somehow I just don’t think I am going to get much better of a deal, especially after looking at this white paper.
Bits_of_Real_Panther » Jan 15, 2008 at 11:57 am
The delinquency table is interesting
http://online.wsj.com/public/resources/documents/retro-MORTGAGE0807.html
Seattle is 197th of 200 metro areas, ahead of only Madison, SF, and Boulder
Anecdotally, note that the low end of the delinquency table consists almost exclusively of regional academic/technology centers
patient » Jan 15, 2008 at 12:23 pm
It has been said many times here. For delinquencies to build you need the home values to drop below the mortages value. Price declines just started in Seattle. Unfortunately I think this is the main reason we have been doing good so far.
Jillayne Schlicke » Jan 15, 2008 at 12:27 pm
in regards to delinquencies, yes, however, Seattle is not just Seattle. Move beyond Redmond out into Snohomish, Pierce, Thurston, and so forth.
We should expect large corporations that rely on housing to continue to release reports like this. Next up will be Windermere, Coldwell Banker Bain, and we don’t even have to wait to listen to the radio ads telling us that now is a perfect time to refinance, better do it now because “these rates could be gone tomorrow.”
An acquaintence of mine purchased a home with her new husband recently. They weren’t really paying attention to the market at all. Instead the purchase was to get settled and to start a family. They intend to be in that home for longer than a decade.
Unfortunately, people don’t always think too far into the future: What if we get divorced…need a bigger home…hate our neighbors…get transferred…Instead the emotional part of the brain usually wins over the rational side.
It is a true professional that advises a client NOT to purchase or refinance even though that person would obviously not earn a commission that day.
Here is what would be cool to see in a press release: We won’t always advise you to buy or refinance if it’s not in your best interest. We take the time to listen to you very carefully as you describe your unique situation……
Am I a dreamer?
David McManus » Jan 15, 2008 at 12:31 pm
Am I the only one that has a problem with real estate agencies putting out this sort of propaganda? It would be if I owned an ice factory and travelled around Alaska with my position paper on how it’s a great time to buy ice. Conflict of interest, yes? I thought they had an ethical code.
David McManus » Jan 15, 2008 at 1:05 pm
Chink in the armor
Hey, at least we’ve still got Microsoft and Washington Mut….
Scotsman » Jan 15, 2008 at 1:12 pm
I think this is to be expected- JLS sells real estate, and times are tough. If I ran such a company, I’d write a similar piece to give to my agents, both to help inform them, and to give the agent something to give to “cautious” clients. The company, and indeed the industry, needs to have a common, consistent position that can be expressed to their customer base. Such a piece needs to be factual enough to have the shadow of credibility, but not so negative or truthful as to scare folks away from purchasing.
But don’t think for a minute that this is anything but a sales tool. It’s not real economic analysis. It’s not comprehensive or encompassing enough to be truly helpful to anyone but a Realtor looking for some hope (and a pat on the back) as he/she heads out the door to get that sale.
rentfornow » Jan 15, 2008 at 1:13 pm
Having friends and family in Orange County and San Diego, prices are coming into range comparable to homes on the eastside. Seattle has a quite a ways to go…..
David McManus » Jan 15, 2008 at 1:19 pm
Yeah, scotsman, but unfortunately our cough, unbiased, cough, local media will use this in their stories about the local market.
gluten-freek » Jan 15, 2008 at 1:31 pm
I haven’t seen these skyrocketing rent prices that people keep mentioning. Rent in my area (renton) has had only slight price increases over the past year. This idea that rent is skyrocketing is nothing more than a RE talking point.
David McManus » Jan 15, 2008 at 1:35 pm
“This idea that rent is skyrocketing is nothing more than a RE talking point.”
You don’t say!
WestSideBilly » Jan 15, 2008 at 1:40 pm
I’ll save the savage beatings for some of the die-hards, but the basic premise of JLS’s paper and your post is that high prices are a positive thing. They’re not. High real estate prices only benefit those who earn a living by getting a margin off of transactions.
As for skyrocketing rental costs… based on what?
Jonny » Jan 15, 2008 at 2:15 pm
My rent ($900 for 1BR) is barely higher than what I recall from the early 90’s (~$700-800). There certainly are places with idiotic rents ($1200-$1600 for 1BR), but as there are plenty of reasonably priced units, I did not rent one of those. AFAIC, my rent has not even adjusted for inflation in 15 years.
Alan » Jan 15, 2008 at 2:33 pm
I don’t think anyone is saying that we are going to go into a recession like that in the 30’s…
Actually, I hear plenty of people saying that.
David McManus » Jan 15, 2008 at 2:38 pm
Speaking with people who actually lived through the depression, they will actually tell you they’re seeing a lot of the same warning signs.
sf_boomerang » Jan 15, 2008 at 2:41 pm
Agreed, WestSideBilly.
I’ve just started reading “Irrational Exuberence” (the revised-for-2005 edition that includes the housing bubble). I’m sure a lot of you guys are way ahead of me on this, but Shiller points out how it’s become convential “wisdom” that real estate is the new way to “save” money for the future. As he points out, why scrimp and save when you can buy and hold, essentially getting money for nothing?
Because of that, everyone’s willing to cooperate to send the housing price balloon up, up, and away — even when it’s not in their own best interest. Mostly because everyone believes that they have a shot at hopping aboard before it leaves the ground. Speculation has replaced saving as a national value. And there are entire industries devoted to exploiting that fact.
I know, I know, I’m preaching to the choir here.
ProblemWithCaring » Jan 15, 2008 at 2:48 pm
Jason said,
on January 15th, 2008 at 11:47 am
….rental costs have skyrocketed.
I live in SoCal, but for this to be “good for Seattle” wouldn’t renting 600-900sf have to cost close to $2k month (more without a down payment), before it would make since to buy a comparable median-priced home?
Its so “2007″ but Jason, really – discover the NY Time Rent-or-Buy calculator for yourself, bud.
If this was L.A. and I heard “and ‘rental costs’ are skyrocketing!” I’d think: Someone just passed their Real Estate Exaaaaam….
Bits_of_Real_Panther » Jan 15, 2008 at 3:01 pm
Rents might have spiked a bit in ‘07 but that party is definitely over. Recession –> larger households, reduced demand for rental units
sf_boomerang » Jan 15, 2008 at 3:09 pm
Panther,
Is “larger households” code for “moving back in with Mom and Dad?”
:-)
vboring » Jan 15, 2008 at 3:13 pm
if we include peak oil, climate change, and social security and medicare commitments into the discussion of a 5-10 yr housing price stagnation or decline, all of a sudden the first depression doesn’t sound so bad anymore.
all we had to deal with that time was leveraged asset speculation in a mostly unregulated market with problems set off by a drought. you could say that the situation this time is much much worse.
70% of our economy is consumer spending. a serious recession, it seems, could lead only to a major depression as lending standards and purchasing power across the board contract and our highly leveraged economy is forced to unwind.
forget gold, it is time to buy a homestead and some goats.
or not. the fact that our economy floats on confidence and trust (and nothing else) bothers me sometimes. i have no idea what it would take for j6p to lose confidence in the dollar. or for Citi to reduce people’s credit card limits. until one or both of those things happen, we’ll be fine.
those of us not in the RE or construction industry will be, anyway.
vboring » Jan 15, 2008 at 3:31 pm
sorry, i just have to vent a little bit of crazy doomsday prediction every day. otherwise, it builds up and i start to actually believe it and look at potential homestead properties in Eastern Washington.
bandersnatch » Jan 15, 2008 at 3:38 pm
WaMu buyout is imminent a la Countrywide. They’re just biding their time so that the new owners can do the layoffs. As per Msft, wonder how many business will be upgrading this year? Anybody have any info about how badly Vista bombed? I mean, they’re making jokes about it on Apple commercials.
David McManus » Jan 15, 2008 at 3:41 pm
Dude, I’m not worried. I can grow my own vegetables as well and I know how to hunt. My wife has already cut out lattes / mochas from SBUX which probably has impacted their stock price. I sincerely hope that we don’t get to a point where it was like in the depression, but I can at least guarantee this:
Sh*t will definitely not be like it was before.
Bits_of_Real_Panther » Jan 15, 2008 at 3:49 pm
-Is “larger households” code for “moving back in with Mom and Dad?”-
I’m sure we’ll see quite a bit of that phenomenon plus any and all other forms of shacking up depending on how bad things get. Historically the macro-trend in household size has been in a steady downtrend since forever but there are distinct pauses in the early ’80s and early ’90s that must have had something to do with recessions
http://www.census.gov/statab/hist/HS-12.pdf
Of course, there’s only so much farther that downtrend can go from 2.5 or whatever it is today
Just one of many factors that will be keeping downward pressure on rents over the next few years IMO
betamax » Jan 15, 2008 at 3:49 pm
For buyers and future mortgage-holders, falling prices are positive, not negative. Only in the bizarro world of realtors and flippers are high prices considered ‘good’.
col » Jan 15, 2008 at 4:37 pm
What, did they hire Lawrence Yun to write this gobbledygook for them?
Angie » Jan 15, 2008 at 5:15 pm
forget gold, it is time to buy a homestead and some goats.
See, one of the things that makes Seattle so special is that it’s totally legal to have laying hens, potbellied pigs, and now pygmy goats within the city limits.
You could have your little doomsday garden and a small passel of animals, and still live in a close-in, walkable urban village.
Just sayin’. ;)
disbelief » Jan 15, 2008 at 6:20 pm
Immigrant goat farmers will save the Seattle RE market!
Ira Sacharoff » Jan 15, 2008 at 6:53 pm
“High real estate prices only benefit those who earn a living by getting a margin off of transactions.”
I don’t agree. High real estate prices means less people are able to buy houses, which decreases the overall pool of buyers. High real estate prices also means that every Tom, Dick, and Harriet out there think they’re going to get rich selling real estate and become an agent.
Low(er) real estate prices will mean more people will afford to buy homes, and a lot of real estate agents will move on to other careers, so those who are still around should have more volume.
mike2 » Jan 15, 2008 at 7:13 pm
High real estate prices means less people are able to buy houses
O RLY???
Transaction volume increased along with prices in all of the bubble markets. All of that extra equity from rising prices meant people that held for a year or two were ready to double down on second, third and fifth homes.
Yeah, it wasn’t sustainable, but it went on for long enough to foster a fanatical cult of REvangelicals- all of which still KNOW that prices will skyrocket again as soon as the mortgage problems get resolved.
Beth » Jan 15, 2008 at 7:30 pm
>unlike what the media would have us believe, a correction in the housing market doesn’t equate to a crash.
I’m reminded of a comment from Paul Krugman. He said (and this is a major paraphrase) that often people who avoid irrational panic do better than those who give into it. However, sometimes panic is rational. That is, if everyone is stampeding for the exit because the theater really is on fire, the smart thing to do is to join the fleeing crowd.
In this case, assuming house prices are going to fall sharply, the smart financial move is to either sell or not buy.
Beth
disbelief » Jan 15, 2008 at 7:42 pm
mike2 said,
“Yeah, it wasn’t sustainable, but it went on for long enough to foster a fanatical cult of REvangelicals- all of which still KNOW that prices will skyrocket again as soon as the mortgage problems get resolved.”
REvangelicals! lol, Hey “the Tim”, there’s another one for the ol’ glossary :-)
economist » Jan 15, 2008 at 7:45 pm
the smart thing to do is to join the fleeing crowd.
No, the smart thing to do is to get out first. Or don’t go to the theater in the first place because it’s a fire hazard.
Kime » Jan 15, 2008 at 10:23 pm
It’s interesting to note that on their charts they show that our area already has more months of supply than California did last year and the supply is rising. Not really reassuring for someone thinking of buying. The logical conclusion is that prices are on the verge of a more serious drop but they didn’t point that out.
Ira Sacharoff » Jan 15, 2008 at 10:37 pm
yes, volume was up when the prices were at their peak, but for one thing that included a lot of people who shouldn’t have been qualified for loans..the bubble lasting as long as it did was fueled by loose lending standards and fraud…and you know the psychology of crowds; many people bought near the top.
Buceri » Jan 16, 2008 at 4:38 am
For the first time, last night I saw a TV commercial on CBS for NAR, of course, telling us what a wonderful time it was to buy a house. Soon enough, Detroit’s big 3 will put out one saying what a wonderful time is to buy a pick-up. “Never mind you can’t afford your groceries and gas, interests are low!!!”
Health insurance?? Are you sick?? Then, who needs it???!!!
WestSideBilly » Jan 16, 2008 at 7:41 am
Ira….
Sorry if it wasn’t clear, but I was referring specifically to RE agents, homebuilders, and the other people who make their living by getting a % of the final sale price. 3% of $400k is a whole lot better than 3% of $200k; selling a $175k cost-to-build property for $550k is a whole lot better than selling it for $275k. So, we’re in complete agreement on this. Lower prices benefit far more people than higher prices do.
WestSideBilly » Jan 16, 2008 at 7:44 am
Detroit already tried 0% APR loans. It moved a lot of cars, mostly at a loss, and at the expense of future (profitable) sales. Like NAR, the Big 3 don’t have a lot of tricks in their sleeve anymore, which makes the MI-IN-OH region look even worse.
Ira Sacharoff » Jan 16, 2008 at 8:36 am
Westside Billy,
You were clear, and we still differ in our viewpoint.
Right now, prices are still real high, maybe down a little but still real high..but sales are way down. The total number of RE agents is way up. When prices rise too quickly, they can’t be sustained and people stop buying. Partly because they’re unable to afford these high prices, and partly because they become cautious.
So if people aren’t buying, how could high prices be good for agents? 3% of nuthin is nuthin.
[troll] » Jan 16, 2008 at 4:12 pm
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Harley Lever » Jan 16, 2008 at 4:31 pm
I came across an interesting blog (by a real estate agency), that actually makes some pretty valid points for why now is the time to buy in Seattle, especially if you are a foreign investor. Here is the link:http://yourseattlehometeam.wordpress.com/2008/01/06/seattle-real-estate-a-foreign-real-estate-investors-dream/
After reading these blogs it becomes apparent that many do not view the economy with a global perspective which is a mistake. Bernanke is getting ready to cut rates again which will further devalue the dollar simultaneously making us an even better investment for foreign real estate investors who can take advantage of currency exchange. The foreign investors have been coming as this article depicts: http://sanjose.bizjournals.com/sanjose/othercities/tampabay/stories/2008/01/14/focus6.html?b=1200286800%5E1574053.
AFIRE (Association of Foreign Investors in Real Estate) has seen Seattle move from 15 (2004) to 9 (2005) and 5th in (2006) for preferred investments cities in the United States. While times have changed greatly in 2007, I would not be surprised if you see Seattle move up another position or two in the AFIRE 2007 survey. Seattle has held it’s value extremely well while other markets have tanked.
Seattle’s current unemployment rate is 4.8% which is down from 5% seen in 2006. We are uniquely positioned to get a boost from Canadian tourism and shopping now that our neighbors to the north have a currency advantage. Tourism (the world’s largest industry) to the US will increase greatly by Asian and European visitors and further stimulating the economy. We may lose some jobs, especially in the financial sector, but these will likely be offset by tourism related jobs and manufacturing as our goods get cheaper. Boeing will be a huge bargain over Airbus!!!
I just moved from Arizona and have seen first-hand the reason for home prices tanking. Builders feverishly bladed the desert to put up communities 20,30, and 40 miles outside of Phoenix. With gas prices at an all time high many Phoenicians are hesitant to move that far out of the city. The values of homes on the outskirts of the Phoenix-Mesa metropolitan area have tanked, but the homes near the cities core have been stable and have not seen great declines in value. Seattle is surrounded by water and unless your are going to start floating condo’s all over Puget sound I think your land values and intern your real estate values will hold up just fine.
NotaBull » Jan 16, 2008 at 4:38 pm
“Seattle is surrounded by water and unless your are going to start floating condo’s all over Puget sound I think your land values and in turn your real estate values will hold up just fine.”
Have you been to Snoqualmie Ridge? OK, so Seattle proper is surrounded by water, but there is this little plot of land called “the Eastside” and I hear that there are a couple of houses over there too…
[troll] » Jan 16, 2008 at 5:57 pm
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[troll] » Jan 16, 2008 at 6:02 pm
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Moe Ronn - Realitor® » Jan 16, 2008 at 6:32 pm
“Cause I sure as sh*t would like to buy a million dollar home in Medina for 1/2 the price, but it aint happening”
Let’s keep things in perspective. Middle-class folks with middle-class incomes SHOULD be able to by middle-class homes. Those homes are now twice the price that the average family can afford. Oh, it’s a f@c%1n’ tired point, but I’m happy to hammer on it time after time. The market will adjust to incomes, not the the other way around.
Moe Ronn - Realitor® » Jan 16, 2008 at 6:43 pm
” instead of eating sh*t on this blog, you should be able to put down a nice down payment on a home, instead of continuing to "female dog" about doomsday scenarios in the housing market, which will, obviously never come…”
I’m, for one, am not "female dogging" as much as analyzing data which has been presented in a far more objective manner than other so-called “authorities”, particularly those of the so-called REIC. I’d say we’ve all been quite consistent in what we’ve been saying, those things are now coming to pass, and the rest of you are trying to somehow convince us that although you were wrong all along that now you somehow have it right.
I know that the savvy have, and will continue to, find ways to profit in any market. I’m not one of them. So, I’m waiting to see what’s going to play out for the next 24-48 months. It’s been moving pretty much how I’ve believed it would for the past 24 months so far. I’m just sayin’…
Moe Ronn - Realitor® » Jan 16, 2008 at 7:04 pm
“It has been said many times here. For delinquencies to build you need the home values to drop below the mortages value. Price declines just started in Seattle. Unfortunately I think this is the main reason we have been doing good so far.”
Not true, not true at all. How about that ARM reset, and you can’t sell or refi? What about the lower value of our currency driving all other costs up? What about energy and healthcare costs going up, up, up? What about those that bought more than they could reasonable afford unless the market continued double-digit appreciation?
Good luck with all of that. Boy, glad I can afford my 1-bd duplex 3 miles out of downtown with garage, on a 3/4-income. I don’t have many assets, but I have zero debt and a good income. I’ll be fine in 24-48 months in my spacious, modern luxury condo for under $200K.
Harley Lever » Jan 16, 2008 at 7:12 pm
NotaBull,
You have made my point for me. Thank you!
I did say “Seattle” and not “Snoqualmie Ridge” . Much like those poor folks on the outskirts of Phoenix, no one wants to endure miserable commutes and equally painful gas prices. Seattle offers great restaurants, nightlife, professional sports, museums, great schools, a wonderful infusion of culture, excellent parks, and is arguable one of the most beautiful cities in the country.
We are the launching pad for many Alaskan cruises, a destination for conventions, and overall a tourist’s dream.
From a business standpoint we possess an exceptional entrepreneurial spirit coupled with the brains and the money to make would be business owners’ dreams become a reality. Simply stated, Seattle has created a critical mass of technology, intelligence, and the capital that will yield more prosperity than most cities in the nation. That is why we have moved from 15th to 5th position in the AFIRE survey.
You should not confuse what is happening in the bread basket of America with what is happening here. Yes, if you are 25 miles out of the city your house prices may have dropped, but the industries and economy around you is stable. In fact, we were just named one of the best cities for jobs in 2008: http://promo.realestate.yahoo.com/best_cities_for_jobs_in_2008.html
Our economy and entrepreneurial spirit will drive prices in “Seattle Proper” up. I bought a house here 6-months but with a long-term perspective. Flipping houses is much like trading futures in that you can see huge gains or huge losses. I knew full well that I may see a loss in value this year, but I didn’t buy it for this years price gains, I bought it for 5 and 10 years down the road. Seattle will be the next San Fransisco and I am glad that I got in now.
disbelief » Jan 16, 2008 at 7:39 pm
5 to 10 years down the road it will be worth approx. what you probably paid for it six months ago. btw, I didn’t see any mention of “pink ponies” in your post. You must really be new :-)
Harley Lever » Jan 16, 2008 at 8:35 pm
I just looked up “Pink Ponies”…that is hilarious!!!
Call me “Pony Boy”!
Clearly many of you Seattle natives need to get out of your depressed sense of self and tour some truly depressed parts of the nation. Might I suggest Cleveland Ohio? There you have on average a 72 hour window after vacating your foreclosed home before the looters and cooper thieves gut the house.
Housing prices drop 1.1% and you are all scrambling to beat each other to Aurora Bridge when other parts of the nation have experienced a 40% decline in the same time frame. The employment numbers predict a 5.5% increase and that’s just not good enough. Obviously for many, your Serotonin levels have followed a similar path as the Cleveland housing market and you have assumed the same outlook.
Even if my house did not appreciate a penny in 10-Years I could still write off all the interest on my 30 YEAR FIXED MORTGAGE. That beats the hell out of paying slightly less for rent and having no write offs.
Perhaps you should put the real estate and economics charts for Cleveland along side Seattle’s this might make you feel better. Our you could just move to Cleveland at least then you would have a good reason to be depressed.
Love always,
Pony Boy
b » Jan 16, 2008 at 8:37 pm
Harley Lever,
Seattle is going to have to triple in population to come close to the density of San Francisco. And speaking of SF, San Jose and silicon valley, the area has much better weather and a stronger economy than Seattle (entrepreneurial spirit x 100) and yet they seem to be having trouble selling homes and keeping the bubble going here. Good luck selling 500k "chocolate"boxes in Seattle to people who can live in Palo Alto or Mountain View for the same price and make more money. If Seattle real estate does NOT come down along with the rest of the nation, then the Seattle economy is ruined in the long run. All of the companies that exist up there can find better job bases in other locations for cheaper prices at that point.
b » Jan 16, 2008 at 8:40 pm
Last time I checked, dirty renters can still “write off” the standard deduction and not have to pay the privilege to do it. How are those property taxes going? You realize you will be paying those for 30 years while your write off continues to decline and the standard deduction continues to right, right?
b » Jan 16, 2008 at 8:43 pm
s/right/rise
Moe Ronn - Realitor® » Jan 16, 2008 at 9:15 pm
My mom had a saying when I was a child. “Wish in this hand and $h1t in the other. Which one will fill up faster?”
Harley Lever » Jan 16, 2008 at 10:05 pm
Hey B,
I am glad to hear that rent prices will not go up at all in the next 10 years… that must be a relief to all you renters. Especially, as you predict, everyone gets foreclosed on and will be forced to rent. The good news is that I will have a place for you to rent when I buy my next home.
Property taxes are great because I can deduct those too! Yeah you can have your standard $5,000 tax break. I prefer my $20,000 deduction. What ever could I do with that money I saved??? You are right 30 years from now I will just simply own my house… that sucks. I could be pissing it away to some landlord.
Yeah and the fact that Washington ranks 12th as the most tax-friendly state for businesses will surely scare all of the businesses away. Then you have that terrible no state-income tax thing going on… why would you ever want to move here? Plus when gas sky-rockets well beyond what we have seen who the hell will want to move to the city where you can walk, take a bus, or ride a bike.
I wish I could think unidimensionally…
what goes up comes down » Jan 16, 2008 at 10:56 pm
Nostradumbass as your posts get more pathetic I know we are stating to work our way through this bubble. Soon you will be posting, “Recession there is not recession that is just a rumor” GET A CLUE.
Harley, do ya think people in the areas you mentioned thought this type of storm would hit them? Do ya think the banks believed this type of storm was on the horizon? Come on look forward a little — Seattle is not an island. I work for this little airplane manufacturer so some might think I would feel pretty secure with our backlog etc… but aerospace is funny — there are ALWAYS down turns.
Orion » Jan 16, 2008 at 11:14 pm
“That beats the hell out of paying slightly less for rent and having no write offs.”
Harley, you show by this statement that you have no idea what you’re talking about. Regular readers of this blog are well aware that rents in Western WA are wayyy less than your PITI for a similar home purchase. It’s understandable that since you just bought 6 months ago, when anyone paying attention could see the obvious bubble we are in, you would not be interested in assessing the realities of the market at this time, it’s too late for you. I’m not saying you’re doomed or that you’ll be foreclosed on, many who bought at the peak will ride it out. That doesn’t mean that you made the most economically sound decision. So before spouting off the same tired real estate cheerleading talking points that have been spun here before, read back through the archives and see how they’ve all been discussed and beaten down many times before.
common1sense » Jan 16, 2008 at 11:42 pm
What is funnier is why anyone thinks a 27 year old electrical engineer has the corner on the understanding of the real estate market.
dh » Jan 17, 2008 at 12:24 am
I’ve been reading this site off and on over the last year. I have to admit, seems this site has a larger share of real estate skeptics and a conservative slant. Naturally a white paper by JLS may have some slant as well, but I have to agree with one of the first “response posters” (Jason). I’m on the buy side, will closely follow the trend of the market for a couple months, compare to seasonality of past years (late winter to spring), and then suspect that will tell me we aren’t in for a total sell off.
I’m only going from memory and hope i’m not sticking my foot in my mouth, but I believe the overwhelming consensus on here last year was that we would see a YOY decline of 7% or more.
Now, that said, some parts of KC likely have, but on the whole think we are still going to land slowly. 1) interest rates rescoping 2) I like to believe that sub-prime and ARM risks are less of an issue as I suspect KC buyers are on the conservative / finacial savvy side 3) still going to see more inflow of residents with capital (i.e.; from California)
So, my vote is 0%-3% appreciation on the whole in H1′08 / H1′07; and -3% – 0% (flat) H2′08 / H2′07
So, if you a like me and purchased more 3.5 yrs ago; don’t live outside your means (right size house for your needs); locked in to 30yr at 5.3% or less, etc, etc, etc…. The story goes, start renting as you should theoretically be able to cash flow, and look to buy some more real estate.
Forecast: 2009 (+3%); 2010 – 2015 (CAGR = +10%)
Seattle is the next Bay Area (Northern CA)…
Commutes into Seattle / Eastside from Mt. Vernon to the north, Olympia to the South, will become more and more common.
dh » Jan 17, 2008 at 12:31 am
Oh, and B-
you haven’t researched Palo Alto lately have you. Haven’t been able to buy anything for $500K in years… oh, my miss, except for the “up and coming” East Palo Alto (east side of 101) which used to have the highest murder per captia… but, it is turning around i have to admit
They don’t build 550sf condos/studios there like we do here.
Harley Lever » Jan 17, 2008 at 3:52 am
Perhaps you could try using some… I don’t know… facts.
Please try to keep in mind that we are in a global economy and there are far more measures to consider. Regional Jet sales in Asia are predicted to be the largest segment of growth for your industry. Why? Because of the exponential growth from our increasing wealthy neighbors in Asia, The citizens of the United States are not the only players in the real estate market.
Is there anyone who here can actually articulate a debate based on facts??? Seattle is not and Island… yeah, but I didn’t see “Land Production Facility Either”. The last time I flew over Seattle I didn’t see any rolling pastures… please point them out to me.
Don’t get me wrong, I like the Nostradumbass remark… it gives me hope that you have some type of frame of reference. I do appreciate the the many real estate charts and statistics provided on this site, but real estate statistics cannot be your sole source of measurement.
Yes, we are in a recession, but will it be a depression? My argument is that Seattle is in a much better place than many parts of the nation to ride out a recession and that the housing market will not crash to the extent of your dooms day scenario. We are a globally diversified technology hub, and a major port to Asia, and happen to have a phenomenal talent pool which is all extremely attractive to foreign investors. Foreign investors and companies looking to establish a States-side presence will see Seattle as a very viable option for the above reasons. Lastly, it’s an election year… those politicians who have sold themselves to the lobbyists and got us into this mess will now be scrambling to make sure any and all stimulus packages will be passed and they will cut rates faster than each others throats.
You know I think you are wasting your time at the airplane manufacturer… Bernanke needs you right now. Oh and can you tell that “moron” Paul Allen how stupid he is for buying up all of South Lake Union… what does that idiot know. The only thing on a down turn seems to be the intelligence of the responses and the use of facts.
Pink Pony Boy
notabull » Jan 17, 2008 at 6:42 am
All,
My point regarding Snoqualmie Ridge was that people can look at “Seattle” and say “prices are fine! we’re surrounded by water!” when in fact the Seattle metropolitan area is far bigger than the city itself. A *ton* of people live on the Eastside and prices are decreasing quite materially over there.
Not everyone lives in the city of Seattle, so this “water locked” argument misses the point, IMO.
What’s likely to happen is that prices will decrease across the board, but they’ll decrease in the outer areas first, and they’ll decrease more. I think this makes sense to most people, and it’s something we’re seeing in other areas of the country too. It was mentioned that it was seen in Phoenix, and I saw it in San Diego too. It’s happening right now in Seattle.
If the outer areas have declined and the inner areas have not, that doesn’t mean they won’t. It just means that they haven’t, yet, declined. Ultimately, though, I think the outer areas will decrease a lot more than the inner areas.
I didn’t mean to make the point that Snoqualmie is a bad place to live. I also agree that I’d much rather live out there than live way south on 405. The commute from Snoqualmie to Issaquah is a breeze (70mph speed limit – no traffic) so you’re really only talking an extra 10 minute commute than someone that lives right off the freeway in Issaquah. YMMW!
notabull » Jan 17, 2008 at 6:52 am
“My argument is that Seattle is in a much better place than many parts of the nation to ride out a recession and that the housing market will not crash to the extent of your dooms day scenario.”
I hope you’re right. The last recession, however, sucked for Seattle more than most other areas. I lived in Seattle at the time. Sure, it was a dot com recession and it doesn’t look like the current/next recession will be the same.
Also keep in mind that most people on this blog do not have a doomsday scenario. A vocal minority discuss the absolute certainty of 50-80% price decreases and depressions, but most are far more moderate (including myself). So let’s not put everyone in the same box, please.
“Housing prices drop 1.1% and you are all scrambling to beat each other to Aurora Bridge”
Here’s a fact for you. Housing is down 1% YOY, but 10% since last July! So it’s actually 10% down from peak, but because Spring 07 was a strong season the YOY stats don’t look as bad. So, a related fact is that if prices do not change AT ALL from this moment, they’ll be down 10% YOY when we get to July. Everything depends on this Spring in order to save the YOY stats, and it sure isn’t looking good for the sellers right now.
Chew on that, Pony boy! (just teasing. :) )
TheDexter » Jan 17, 2008 at 7:00 am
Meantime, Michael Kinsley just paid $6,700,000 cash for a listing that sat on market for (OMG) 16 days.
I am still waiting for this crash, kids.
deejayoh » Jan 17, 2008 at 7:25 am
Gosh Dexter. Maybe he can buy the other 9,000 listings in King County too!
Seriously. there are anecdotes, and then there are irrelevant anecdotes. The only news here is that Kinsley still lives in Seattle.
notabull » Jan 17, 2008 at 7:34 am
“Meantime, Michael Kinsley just paid $6,700,000 cash for a listing that sat on market for (OMG) 16 days.”
Dammit! I’m also in the $5M plus market for a home, and this person just reduced the inventory by one. This data point really shows a market trend and the strength of the Puget Sound economy.
sigh..
what goes up comes down » Jan 17, 2008 at 7:48 am
Harley I just don’t get you first you say:”Is there anyone who here can actually articulate a debate based on facts??? ”
Then you say:”I do appreciate the the many real estate charts and statistics provided on this site, but real estate statistics cannot be your sole source of measurement.”
Okay so what are you going to base your arguements on — Gut feel?
See here is the thing about six months ago some people on this blog said PRICES would not go down — well now we can see they were Wrong.
As far as old Bern goes got back to his comments over the last year — (paraphrase) economy great, economy okay, economy in trouble.
Seattle may or may not do better than other places, but for certain prices will decrease — this we now have seen.
So to go back to the point of this blog WHY would anyone with half a clue buy now? This is the question you need to answer.
Affluent Bitter Renter » Jan 17, 2008 at 7:49 am
“Oh and can you tell that “moron” Paul Allen how stupid he is for buying up all of South Lake Union… what does that idiot know.”
Actually, aside from his first investment, I’m not sure that Mr. Allen has all that great a track record in investments.
what goes up comes down » Jan 17, 2008 at 7:53 am
Harley btw why won’t these same stateside investors see SanFran or Portland or New York or fill in the blank as a place to invest?
Oh and why did the headquaters of your local aircraft manufacturer move to Chicago?
what goes up comes down » Jan 17, 2008 at 7:54 am
Additional Harley can I ask did you buy in the last six months?
Everett_Tom » Jan 17, 2008 at 8:57 am
Ok:
Jobs are not the sole indicator of the state of the housing market 1,2,3,4,5
Limited Land may not be as critical as people paint it 1,2
Seattle may not be better off, just slower to get hit then the rest of the US 1,2,3,4
renting is not = to being poor, destitute and stupid 1,2,3
There’s more in the archives if you care to look, but at least this should give you an idea why most people don’t feel the need to re-tread this ground.
deejayoh » Jan 17, 2008 at 9:16 am
he cleaned up on ticketmaster. everything else has been an exercise in turning dimes into nickels.
Affluent Bitter Renter » Jan 17, 2008 at 9:23 am
“he cleaned up on ticketmaster”
Agreed. Two good investments.
Chris » Jan 17, 2008 at 9:26 am
Wow. The graph on page 7 is really bad. They show that a homeowner in a ‘normal market’ makes approximately $100K on a $10K investment over 10 years, and compare that to $35K in the stock market.
Its misleading because it doesn’t clearly explain that the extra ‘earnings’ come from the leverage.
The leverage has two important implications. If the home declines 10% in price, the equity gets wiped out. If the stocks decline price, they lose 10%, or $1K. Far worse, it doesn’t account for the carrying cost on the loan over the 10 years, or any of the other expenses associated with maintaining the house, or the 6% cost to sell it (imagine a mutual fund with a 6% back-end load). Its like “if you invest $10K (and ignore the $50K in interest, the $10K in maintenance, the $15K in taxes, and the $5K in insurance) you make $100K! You cannot miss.
A more accurate comparison would be taking out an equivalent size loan and investing it in stocks. Anyone familiar with historical returns knows that stocks beat housing (and commodities generally) in the long term.
What is slightly depressing about all this is that the average person isn’t going to pick up on these differences. The average person sees a much bigger green bar for ‘homeowner’ and assumes owning a home must be far better than investing in stocks. That’s why pricing of houses is so irrational. However, if you are willing to rent, then the irrational overvaluing of ownership represents an opportunity for you.
S-Crow » Jan 17, 2008 at 9:31 am
Chris-
You make a very persuasive point.
b » Jan 17, 2008 at 9:38 am
Harvey,
You are nuts man. Your INTEREST ONLY is probably more than my entire rent! And I live in downtown San Jose, CA! So you get 30-40% of that back, after $10k, good for you! I am sure I would also babble a lot of nonsense about how Seattle is the golden city and everyone in the entire world wants to live there, but I am not insane and I have actually lived in several cities across the country other than Seattle. As the California market continues its rapid decline you’d better hope all those foreign investors are happier buying condos in Westlake than in downtown SF. You should also hope and pray that those tech workers would rather get rained on in Bellevue for $80k than tan themselves in Cupertino for $110k. Good luck with your “investment”, I know I would also be pretty defensive if it looked like I was going to lose 30% of a 5-10x leveraged investment over the next 2-3 years.
Marc » Jan 17, 2008 at 10:08 am
Chris,
I don’t take issue with your thinking, but I would remind you that at least you get to live in the house. With your “equivalent size loan invested in stocks” you still have to live somewhere and that cost needs to also be considered.
michael » Jan 17, 2008 at 10:30 am
“equivalent size loan invested in stocks” – I’d prefer the ETFs
Luckily I invested in ultrashort real estate ETFs. It makes the whole housing bubble twice as fun. Not only do I get to watch the real estate market tank. I get to make money while it burns. Check out ticker SRS and for fun check out SKF. That is a 70% return this year. I guess that last real estate agent that I talked to was correct. Real Estate is a sure thing!
Everett_Tom » Jan 17, 2008 at 10:32 am
Speaking of doing well on Real Estate Shorting…
http://www.realestatejournal.com/buysell/markettrends/20080116-zuckerman.html?refresh=on
a teaser from the article:
Chris » Jan 17, 2008 at 11:52 am
Marc,
Fair point.
However, I think the chart is still profoundly misleading. If a realtor pointed me to this chart, I would wonder whether he:
A. Knew it was a misrepresentation and consequently wasn’t too ethical, or
B. Didn’t know and consequently wasn’t too bright.
Either way, I would not be reassured.
Marc » Jan 17, 2008 at 1:14 pm
Chirs,
No doubt its a blatant over-simplification. I can’t help but think of people who bought in places like my home state of Oklahoma or Dallas. They haven’t had significant annual appreciation rates in years and certainly nothing on the scale of Cal/Nev/Fla or even sweet home Seattle. Thus, buyers there may have been much better off with securities over the past ten years. On the other hand, those places tend not to fall in price a whole lot so the price risk of ownership isn’t very burdensome.
Harley Lever » Jan 17, 2008 at 9:44 pm
b.
The average rainfall in San Francisco is 30 inches as year versus Seattle’s 36 inches…
Seattle has no state income tax… a person in Seattle making $80,000 would need to make a $118,000 to maintain the same lifestyle. So, in short, your point is baseless.
Seattle prices are less than half of San Francisco and a fraction of other cities including Tokyo, London, New York, Chicago, and LA. This helps eliminate psychological barriers associated with having to pay $875,000 versus $400,000.
There was a $138 Billion invested in the US by foreign real estate investors for the first half of 2007. Now with Bernanke pulling his “Edward Scissor Hands” with interest rates foreign investors are going to reap huge monetary benefits. We rank number 5 among US cities for foreign real estate investement and will likely go higher with regard to preferred cities for foreign investment. Please Google “Rate cuts” +”Currency Exchange” + “Foreign Real Estate Investment”.
I have looked at the statistics and spread sheets listed on this blogs and I could poke holes in all of the methodologies. You site a scenario of the interest rates going up to a maximum of 10% for your “affordability analysis”… well when I was a kid my parents were paying 13%. We are at 40-year lows in interest rates don’t ever think you will see these rate again.
After the sub-prime mess is swept up you better hope for interest rates under 10%. You also better pray that the housing market crashes in half because paying 5.5% on $300,000 is not any better than paying 11% on $150,000.
Next you guys will have a blog on the “Seattle Interest Bubble” whining away about how much interest rates are.
You keep on comparing Seattle to California and then use 2 maybe 4 data point to compare the two. That’s like comparing Beavers to Walrus… they both have big teeth and swim. Brilliant!!!
Researchers at MIT have been trying years to create the perfect economic model for investing based on thousands of factors and guess what, it always gets screwed up by human psychology. If you guys at the bubble think that you have it all figured out you need to get your butts over to wall street instead where the big bucks are instead of your paralysis by analysis.
The Tim » Jan 17, 2008 at 9:52 pm
Oh my goodness, you did not just compare Seattle to those cities. Clearly you are new here, good sir. Please read the posts “On Luxury Cars and World Class Cities” and “What Cities Does Seattle Compare To?.”
To sum up: Seattle is nice, but it simply is not in the same league as San Francisco, New York, Chicago, London, and Tokyo. I like it here too, a lot even, but to say that Seattle is the same class of city as these is to be delusional.
Harley Lever » Jan 18, 2008 at 3:04 am
No please make no mistake, I am not comparing Seattle to those cities. I am solely stating that Seattle moved from 15 to 5 position with regard to the top cities in the US receiving foreign real estate investment. This is foreign investor’s preference. I know you guys hate this city, trust me, that is obvious. However for Seattle to rank 5th is astounding.
Part of the sub-prime repair package is the raising of the limit of government backed loans above the current level of $417,000. Whatever the level might turn out to be will stimulate the Seattle market more than any of the other of the four top cities. Seattle simply has more upside and a much lower barrier to entry than the other top four.
Trust me, the city needs a lot of maturing to come even close to the lower end of a world class city, but that need to mature is where all the growth is.
what goes up comes down » Jan 18, 2008 at 3:56 am
Harley said:” Part of the sub-prime repair package is the raising of the limit of government backed loans above the current level of $417,000. Whatever the level might turn out to be will stimulate the Seattle market more than any of the other of the four top cities.”
People need to be able to afford $417k, think for a moment da ya think in a recession which is usually accompanied by job loss not growth that people will be able to drop that kind of change?
Harley Lever » Jan 18, 2008 at 5:39 am
Not all markets are going into recession.. the US maybe, but Europe and Asian are doing great. My points have been mainly about foreign investors and their currency exchange power.
Do you not read any of the previous posts???
It would be wonderful if you would read the entire argument before picking out one line and make a mindless statement.
what goes up comes down » Jan 18, 2008 at 6:21 am
Once again I wonder what you are thinking — Europe is not doing as good as you think, the UK is starting to go through the same housing/credit problems the US has seen. Germany and France have there own problems. Germany ( where I happen to live) is seeing consumer confidences at a two YEAR low.
Maybe the chinese GOV and the middle east GOV’s have money to invest but to count on the chinese consumer to stave off a world wide recession is stupid — as has been pointed out on WS.
You may not believe this but the old saying that “When the US Sneezes the World Gets the Cold still holds”.
Here is a link that explains it in more detail: http://www.rgemonitor.com/blog/roubini/131886
Again, I ask when did you buy? Six months ago I would guess right at the peak — ouch that is going to hurt.
what goes up comes down » Jan 18, 2008 at 6:24 am
Oh btw the way Harley, it was mentioned about four or five months ago on this blog about Canadiens coming to the rescue of the local Seattle market when their dollar and ours where pretty much equal — GUESS that didn’t happen either.
The Tim » Jan 18, 2008 at 7:05 am
Harley, you clearly have a problem with reading comprehension. I plainly stated “I like it here too, a lot even.” That’s far from hating this city. Sorry, but if you’re going to so blatantly ignore things that are said by others in order to make the point you want to make, I can’t be bothered to waste any more time talking with you.
notabull » Jan 18, 2008 at 7:17 am
Tim,
Wrestle. Pig. Enjoys it.
’nuff said.
notabull » Jan 18, 2008 at 7:25 am
“Harley, you clearly have a problem with reading comprehension. I plainly stated “I like it here too, a lot even.” That’s far from hating this city.”
I moved BACK to Seattle because I missed it when I moved away. I love it here! The winters get me down a bit and there are other things I don’t like about the town either, but we don’t need to get into details.
What is it with this “if you’re not with me, you’re against me” attitude? Can’t we like/love Seattle *and* want house prices to come down to a level where regular people can actually buy houses and stay in the city they also like?
We really seem to get the most trouble from those that bought recently, watched house prices tick down a bit, freaked out and searched for “Seattle Real Estate Bubble” and landed here. Panic sets in, and they post the following:
-Microsoft
-Boeing
-Lakes
-Not as bad as everywhere else
-Interest rates record lows
-Jobs
-Biotech hub
Sorry about the rant, but I’m getting fed up with those that are desperate to validate their own decisions to buy, after the fact. This is a forum for those to validate their decisions to *not* buy! :)
You have to wonder why housing bulls would spend so much time on a blog full of people that tell them their “investment” is going down in value and will continue to go down. If I owned a house right now I’d stay well away from this site as it would depress the hell out of me! :)
Everett_Tom » Jan 18, 2008 at 8:54 am
notabull ,
Right on! Couldn’t have said it better…
(I too move back here after waiting 6 years for the right job opportunity to open up.. )
Everett_Tom » Jan 18, 2008 at 9:22 am
what goes up comes down ,
by combing some data from his site with a guess, and the public sales data from Trulia and Zillow, I’d suspect that Harley bought a 2 bd / 1 ba condo with 1K sq for a little over $300K in the interbay area in June of this year…
Harley, did I get it?
Harley Lever » Jan 18, 2008 at 6:43 pm
Absolutely Tom! well actually it is a 2 bath condo.
Yes, it is a fourth floor condo with vaulted ceilings, views of Queen Anne, the sound, and Mt. Rainier. I purposely bought a condo with fixer-upper potential knowing full well that there might be a downturn in the market. I am a sweat equity kind of guy. Everywhere around me is selling for $376/sqft. I bought at $302/sqft.
I would love to live on the 30th floor of the Cosmopolitan, but guess what, I can’t afford it. However, I am not going to complain and worry about why I can’t live on the 30th floor now. I will just work hard, leverage my assets the best that I can, and most importantly live below my means.
Whining about how unfordable living in the city is not going to get anyone closer to living in the city. Will my place go down in value of the next 2-3 years maybe. Will interest rates sky rocket after the sub prime mess is over maybe. Remember “What goes up must come down” applies to interest rates too. RIGHT????
You need to find the best combination of both INTEREST RATES and PROPERTY VALUE. House flippers are the day traders of our past. If you are not in your investment for the long haul and don’t have contingency plans in case things don’t go your way then its your own fault. Buying a home was the right decision for me because of my specific situation.
I actually truly enjoy the debate and people challenging my points of view. Sincerely, I thank you all for that. I hope you in turn appreciate me challenging your points of view. You have all… well not all… made some good points. The truth is no one knows what is going to happen because there are too many variables.
Everett_Tom » Jan 18, 2008 at 7:10 pm
once again proving that you can only trust Zillow & Trulia so far.. :)
I don’t think most of the post come off that bad (do they?).. I’d like to suggest that many of the posters here (myself included) simply have made a prediction and are putting their money where their mouth is.. If we are wrong, we’ll pay for either by renting for longer, or buying a more modest house.. If we’re right, we’ll get a better deal on a house..
I’d agree with that last statement, though you can always make educated guesses..Good luck with your plan for the future, I hope it works out for you..
Harley Lever » Jan 18, 2008 at 7:43 pm
Thanks Tom!
The one thing I worry most for about the people on the post is that they seem just so fixed on the price of the house and not the price of the interest rate. Like I said earlier, my parents were paying 13% for their loan back in the 80’s (Savings and Loan Scandals) and there were some paying close to 15% (No Mafia Involved).
b » Jan 18, 2008 at 8:26 pm
Harley,
I think the problem you don’t seem to grasp is that your interest rate, over 30 years, is extremely likely to be able to refinanced lower. Your parents 13% could refi down to 3% after 20 years, with a spread somewhere in between basically that entire time. What you cannot do is go renegotiate a ridiculous initial price, you are stuck with that forever.
dh » Jan 18, 2008 at 9:07 pm
Chicago fans… you should be buying or watching the market if you are so long for the city.
High supply, low cost.
If Chicago is a barometer for Seattle, I’m curious how much of a factor lower should Seattle be priced?
Poll:
Should a “new construction” downtown Seattle 2bed / 2bath, 1000 sf condo be: 50%, 70%, 90% of Chicago’s prices?
dh » Jan 18, 2008 at 9:13 pm
Harley,
I enjoy your commentary and point of view, and agree with a lot of it. Keep doing what you are doing.
Live within your means, buying fixers on the low and give that sweat equity (especially if it is enjoyable and not a “chore”).
You will become the Millionaire Next Door that way.
Don’t let these skeptics get you down. Even if you bought on the high side, you will hopefully be able to pick up more realestate on the cheap and “Dollar cost average” if prices to drop.
Good Luck
Harley Lever » Jan 18, 2008 at 10:25 pm
Thanks DH
You are exactly right. I hope the prices drop and interest rates stay low… it would be a phenomenal buying opportunity. I did buy in a neighborhood “In Transition”. According to “Zillow” the neighborhood went up 15% last year. Is it true… well it’s a little “Zilly” to think so, but all the high-end condos going up around me aren’t going to hurt my property value.
Hey B.
Do you really think we are going to have these interest rates again??? They are at 40-year lows.. what goes down must go up! We have mortgaged our lives away to China, Japan, and Saudi Arabia to pay for the Wars, we still have the Social Security Issue to pay for, and now we want to take on free Health Care. Interest rates will go through the roof to cover all these costs. We are going to pay the piper big time for a long time and it’s only a matter of when.
With every rate cut our imports get more and more expensive and we are importing more than we are exporting. Inflation will force the Feds to raise rates sooner rather than later (12 months tops) so your betting that housing prices will fall at a faster rate than the interest rises.
After the elections are over you can bet the interest rates will rise dramatically.
what goes up comes down » Jan 18, 2008 at 11:02 pm
Congrats Harley you did buy at the peak :-)
Everett_Tom » Jan 19, 2008 at 10:29 am
Here’s another one of those “it’s been discussed a lot” topics, which you probably haven’t seen in the previous discussion yet.
The basic feeling here is that we’d rather take our chances with an interest rate, which can be re-financed at a later time, then a purchase price which will not change..
I’d point you back to your own statement about not knowing the future.. A few years ago my parent re-financed to a 5% fixed loan.. at the time, they were told the rates were down to a xx year low.. and it wouldn’t get there again in their lifetime… but today we’re pretty close…The future is a tricky thing….
I’ll take my risk with the interest rate, and I promise not to whine (too much) if I’m wrong. ;)
b » Jan 19, 2008 at 1:31 pm
Harley,
I am sure you do not agree with me, but we are looking at serious deflation, not inflation. Raising rates won’t help that, and will not be happening until we are on the other side of this beast. By then they will still be low and so will house prices. I recommend you read up on what is going on in the global credit markets, things are a whole lot worse than 1% YoY declines in Seattle real estate and its all just beginning.
Lone » Jan 19, 2008 at 7:25 pm
Rent’s going up?
I’m moving from one flopped flip to another. The one I’m moving into is 800 sqft bigger and $150 less a month than what I’m paying right now.
Rent’s going up?
Where??
T » Jan 19, 2008 at 11:32 pm
Is there ever a time it is not a good time to buy a house?
I made that post several months ago, and the more and more I watch the news and I pay attention to what realtors have to say, the more I fail to understand how some of these people can be employed. I use to think there was nothing worse than a car salesman, maybe I’ve been wrong.
Harley Lever » Jan 19, 2008 at 11:36 pm
Hey b,
Do you think refinancing is free? You site 3% interest rate… yeah for an ARM, and then you have to refinance again when your teaser rate is over in 1 – 2 years.. Do any of you actually own homes and ever go through the refinancing process? Your looking at $5,000 – $10,000 every time you do it. Yeah , often you can roll it back into your mortgage, but now you are financing it over 30 years which will cost you between $15,000 – $30,000 per refinance… do that three times and see how good it seems.
Deflation? Maybe you should read Bernanke’s statements… he is petrified on rapid inflation. We are on the wrong side of the coin. The US dollar is at all time lows against many of the currencies. I didn’t notice anything getting cheaper. Oil is near an all time high, which makes everything from plastics, to fertilizer, to our transportation costs for the products we buy go up. Milk is more expensive than gas… the only thing that is deflating is the value of the dollar which cause us to experience inflation.
notabull » Jan 20, 2008 at 6:02 am
Harley,
“Your looking at $5,000 – $10,000 every time you do it.”
This is not true. Total costs lie somewhere in the 1-3K range, from my own personal experience of actually refinancing. Your estimate looks like the “closing costs” of buying a house and getting a 500K loan *and* with paying a point to buy down the interest rate.
Also, I’d like to add myself to the list of those not whining. I can afford most houses in the Seattle area. I’m just not going to do it! I’ve owned houses before and am sitting on a ton of cash. Life is good. :)
Also, it is far better to buy at a higher interest rate and lower price than the other way around. As others have said, you can always refinance. Also, a lower interest rate only helps you if you keep that loan for the entire term. If there are unexpected events (job move, divorce, whatever) and you have to SELL, the principal on the loan is high. Most of this board, including myself, have gone through extensive analysis of different interest rates and prices. I’ve done many spreadsheets and I’m willing to take 7% and buy in a year than 5.4% and buy now.
Stick around, Harley. Differing opinions are a good thing.
LeftOverpricedSeattle » Jan 20, 2008 at 8:09 am
My last refi in 2003 in Puyallup was $300 out of pocket. I didn’t take any money out and they gave me the appraisal charge ($300) back as a credit on the $600 refi. cost. All I did was lower the interest rate. I didn’t withdraw any equity at all.
If it costs you $5,000-10,000 for a refi. you are paying WAY too much for one reason or another.
what goes up comes down » Jan 20, 2008 at 9:36 am
LeftOverpricedSeattle, see Harley likes facts which he clearly stated, however he doesn’t like facts which dispel his buy now philosophy.
Harley Lever » Jan 20, 2008 at 12:41 pm
We are at 40 year lows in Interest rates!!!! I hope that houses drop in half like you all predict and that the interest rates drop what are the chances… slim to none. If they do, I will buy two more homes. And guess what, so will everyone else pushing the prices back up. Is it going to happen like you predict doubt it.
You all repeat “what goes up must come down” we are at all time lows in interest rates.
LeftOverpricedSeattle $300 out of pocket means that you either didn’t get the best interest rate, the cost was rolled back into the mortgage, or you refinanced your trailer’s $15,000 mortgage.
Please let me ask what facts you have provided. You guys just cheer the same one-sided lines “What goes up must come down”, “House prices are going to crash”, “Interest rates will stay low too”. Does the “Bubble” in Seattle Bubble” mean you live in your own little dream world and don’t care to hear or even understand differing opinions?
I have provided dozens of facts and looked at things from multiple perspectives and many of you have the same regurgitated unidimensional misguided facts. Please tell me how much you think interest rates will be coming down from here?
EconE » Jan 20, 2008 at 1:29 pm
“Please tell me how much you think interest rates will be coming down from here?”
don’t care. I’ll be paying with cash.
deejayoh » Jan 20, 2008 at 1:47 pm
anyone who pays $10-15k for a refi has either never refinanced a mortgage,is a total chump, or is subprime.
I’ve refi’d both of the properties I’ve owned – and never paid much more than appraisal and paperwork fees. I don’t get the comment that the cost is “rolled back into” the mortgage. If the rate is lower, the amount owed the same – then one has acheived the goal of the refi – to reduce the rate for little or no cost. Yes. the broker probably makes something on the back end – that’s why you do business. But if one has decent credit, I doubt there is more than a couple grand in play for all parties on a $500k loan.
There are some broker types on the board that could comment – but saying the cost is $10-15k is hyperbole
Harley Lever » Jan 20, 2008 at 3:57 pm
Yes, I too have great credit, but not many enjoy a 720+ fico score. If you do not have a score above 720 expect to pay more and to get feed to death. In some scenarios the cost of refinancing can can run 3 – 6% of the loan.
The way mortgages work for the first 7 years you will not make a dent in your balance. Refinance after 7 years and guess what, you now basically have a 37-year mortgage (7 years of paying down nothing and another 30 to pay off the rest). Now it will take you another 7 years before you start putting another dent in the principal.
Here is a great article: http://moneycentral.msn.com/content/Banking/Homefinancing/P42715.asp
LeftOverpricedSeattle » Jan 20, 2008 at 5:29 pm
Ahh…
Now that Harley is being proven wrong on the costs of a refi, he/she is resorting to baseless insult attempts about how much house someone can afford.
Haven’t we seen this pattern many a time before?
b » Jan 20, 2008 at 6:12 pm
Harley,
You are acting like double or triple the rate is the “norm” and we are at some magical time when rates are only at 5-6%. Historically, we’ve only even breached 10% for a few years in the early 80’s, and they have been steadily going down since then. If we hit a similar spike in rates, it is FAR more likely they will again head down than continue to rise for 30 years. Again, it is much better to get a high rate and low principle than the other way around, especially since nobody knows if they will have to sell their house in the next 30 years or not. I don’t know about you, but I’d rather pay a higher interest rate than risk bankruptcy or foreclosure if I needed to get out of my house.
dh » Jan 20, 2008 at 6:42 pm
Harley,
Remember how my earlier post mentioned I “agree with most” of what you say…
well, you happen to be very wrong in this case. Refinancing is nowhere in the realm of $10K
They do make you put funds back into escrow for 1st months mortgage, property tax, etc. but that is all considered “equity”.
Lastly, 720+ FICO is not unheard of. In fact, if you are thinking of buying multiple properties you probably should be that high unless you are a true “flipper” and the short term interest rate is nominal impact to the overall equation.
I just looked into REFI yesterday on my remaining $210K, and we were talking $1,600 with all fees and paying 1/2 pts.
deejayoh » Jan 20, 2008 at 7:01 pm
These are not “fees”. You can take a shorter term mortgage. you can take a 30 year mortgage at year 5 and amortize over 25 years. Neither that argument, or the “MSN Money Basics” article support your premise that refinancing is outrageously (e.g. 2-3 points of loan) expensive. Yes you can be stupid and get reamed, but generally a person who is reasonably astute pays relatively little.
in addition – do the math – to offset a 10% decline in home prices, you’d need a 20-30% increase in interest rates.
Finally, in most years I would bet that home prices are more stable than interest rates and not make this bet- but lets look at the facts today:
– home prices are dropping in every market in the country. Many relatively conservative analysts are calling for 15% drops across the board (e.g Goldman Sachs). This fact is conveniently ignored by the “hyperinflation” camp
– Ten year T-bills are at 3.6%
– The fed is whacking rates at every opportunity – current bet is 100 BP in the next round of cuts
Against that backdrop, I’m quite comfortable with the market call I’ve made. Since you’re hanging out here, I’m pretty sure you’re not…
Harley Lever » Jan 21, 2008 at 4:04 am
Okay the Bubble People, I need you to sit down for this one. It is probably a good time to drink some water and take some deep breaths. Here it is I WAS WRONG. There I said it. I exaggerated the cost of refinancing. You can refinance from between $1500 -$3000. The $300 quoted earlier was equally exaggerated.
With that said, serial refinancing is self defeating. The way mortgages work is that you pay all your interest up front and make little to no dent in your principal for 7 years. Every time you refinance you prolong the time it will take to pay off your low.
However the more important issue is this. Rates have to drop to be able to refinance… well you could refinance at a higher rate, but it’s slightly defeating. Here is some great history for you:
http://www.freddiemac.com/pmms/pmms30.htm
You will notice that in 1981 and 1982 the average interest rate on a 30-year mortgage was 16.63% and 16.04%. Take a look a the rest of the years all 37 of them. Do you see any rates lower than we have now??? Are you going to refinance into a higher rate after you buy your home?
Lastly, I am feeling great about my market calls. I have a home in Arizona 1/2 mile from ASU that is currently at 100% more than I bought it for (even after the crash) and I am renting it out at $400 more a month than it costs me. I bought my home here $70/sqft cheaper than most of the places around me in a neighborhood in transition. The Seattle market posted gains for 2-years after many markets fell.
You need to realize that there are opportunities all around you and you can proactively effect the outcome. Look for a fixer-upper, look for neighborhoods in transition, look for opportunities to trade your skills for skills you need to improve your home. I design websites and am a professional photographer. I create websites, marketing material, and take photographs for home builders, roofers, painters, tile layers, and whoever else is willing to trade. You can create opportunity in every market.
LeftOverpricedSeattle » Jan 21, 2008 at 5:35 am
Harley,
Care for me to scan my closing docs and post them here with redacted personal information to show you what I refinanced for in 2004 and the closing costs?
FICO’s that are in the low 800’s for each borrower has companies scrambling for your business. I just did a recent home purchase at 6% (June 2007, when rates had ticked up a bit unfortunately). Total out of pocket (not including my 20% down payment) $1900. They credited the $300 appraisal fee to me and gave me a 1 point discount for free as well.
I can show you the paperwork anytime you want.
Remember, up until July 2007, Wall Street was using loans like mine as the sweet cream on top of the toxic garbage to create the tranches and levels of risk.
I knew how near perfect my credit was and used it to my advantage with the company I picked to get my business.