Seattle got a little bit of attention in a recent Wall Street Journal story titled Housing Slump Starts to Hit Stronger Cities:
It’s getting harder to hide from the housing bust.
Tight credit, fragile consumer confidence and a weakening economy are slowing sales and depressing prices even in some places — such as the Pacific Northwest and North Carolina — that until recently had avoided the housing slump afflicting most of the country.
…
Some of the fastest increases in home listings have occurred in relatively strong markets. The inventory in the Seattle metro area counties of King, Snohomish and Pierce leapt 50% last year. At the end of December, when listings are lower than usual because of the holidays, the inventory there was enough to last 4.9 months, denoting a fairly balanced market — but up from a very lean 2.7 months at the end of 2006. In King County, the median price in December was down 2.6% from a year ago.Given the rise in supply, home prices in Seattle probably will fall further, says Glenn Kelman, chief executive of Redfin, a real-estate broker based there. “If you walk around town, you see cranes everywhere,” he says.
I guess Glenn figures that it isn’t really possible to be any more reviled than he already is by “traditional” real estate salespeople, so why not call it like he sees it. It’s nice to see the national media giving some attention to the Seattle market that is something other than the usual look what a great investment type of stories.
I’m not sure where the WSJ got their months of supply figures from though, because the numbers they quote don’t match any that I’ve seen from the NWMLS. They’re correct when they say inventory across King, Pierce, and Snohomish is up 50%, and prices in King are down 2.6%, as that data matches the “res + condo” figures from the NWMLS. However, when you divide the total inventory at the end of December by the number of pending sales (the traditional method for determining “months of supply”), you get 8.4 months of supply in December 2007 (not 4.9), and 3.8 in December 2006 (not 2.7). If anyone can figure out where those numbers came from, let me know. The NWMLS data can be found in the December 2007 Recaps linked here.
(James R. Hagerty, Wall Street Journal, 01.14.2008)
Update: In the comments Garth pointed me toward the chart that was included with the story, which I overlooked. In the chart, the “Overall Strength” of the Seattle metro area housing market is listed as “moderate.” In the footnotes, it indicates how they arrived at their months of supply figure:
Number of months that homes listed at year end would last at the average 2007 sales rate. Listings normally decline for seasonal reasons in December and rebound in January.
Taking the average of the whole year is a ridiculous way to calculate “months of supply,” for all the same reasons laid out in this post. In reality, the seasonal decline in sales rate is accompanied by a seasonal decline in listings, which tend to balance each other out. As you can see below, the “months of supply” really took off in late 2007.
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29 responses so far ↓
1
AndySeattle
// Jan 24, 2008 at 2:19 pm
But but… We have Microsoft and Boeing! And Mountains! We’re special! And people like us!
2
The Clizz
// Jan 24, 2008 at 2:51 pm
I’m wandering how the administration’s idea of raising the FHA limit to 725K will effect home prices in the area. It would allow for more qualified buyers of our overpriced homes.
3
NotaBull
// Jan 24, 2008 at 3:26 pm
“I’m wandering how the administration’s idea of raising the FHA limit to 725K will effect home prices in the area. It would allow for more qualified buyers of our overpriced homes.”
I was wondering about the same thing. I think it will certainly help to unlock the jumbo market a little, but jumbo mortgages *are* available, they’re just 1% or so higher. So instead of getting 5.5% you’ll get 6.5%. Big deal…
Actually, it would be good to get someone from the mortgage industry to comment on this. Question I have:
Will this open the doors to enable more borrowers to get a jumbo mortgage, or will this keep the number of prospective borrowers the same, but decrease the rate they could get? Will it lower or raise the standards for those mortgages?
My own (unqualified) opinion on this is that this move will certainly lower the rate about 1% for mortgages now under this umbrella, but that the raising of the FHA limit will have the perverse effect of reducing the number of qualified borrowers. Why? Because as the GSEs take over the 417K to 650ishK market, everyone else will drop out and the market will end up with higher standards, not lower standards. The concept of “conformance” does not just apply to price, after all…
4
CG
// Jan 24, 2008 at 3:42 pm
I agree with The Tim that it’s great to see Glenn Kelman bucking the traditional broker industry to opine on the increasing softness of the local (and national) RE markets. Kelman’s fearlessness reinforces Redfin’s mission to empower home buyers with knowledge and choice. If any RE enterprise will come out of the RE downturn stronger and more viable, it will be Redfin.
5
WestSideBilly
// Jan 24, 2008 at 3:56 pm
Tim, using some mix and matching of data, I was able to get close to those numbers by comparing the Dec ‘07 (or ‘06) inventory with the average pending sales for all of ‘07 (or ‘06). I think I had 5.1 for ‘07 and 3.2 for ‘06. This was using King County’s house-only numbers from the spreadsheet. I assume you have links to more data so you can quickly put together 3-county sums and find the pending sales from the last 24 months… might be worth a check?
Some serious hand waving, if that’s the case.
6
Wm Swanson
// Jan 24, 2008 at 4:03 pm
CG said: “If any RE enterprise will come out of the RE downturn stronger and more viable, it will be Redfin.”
Not so sure about that. My belief is that most folks will need more advice and hand holding than ever before. The internet and RE sites are a tool for most to supplement their search.
7
Cougar
// Jan 24, 2008 at 4:28 pm
What about bypassing realtors all together? I was walking my grandkids in their neighborhood where I would like to own a house to be close to them. We passed by a guy washing his car and started neighborly small chat. In the end I told him if he was ever interested in selling his home I would like to buy it and I gave him my number. Maybe he will call before I find something and we agree on a purchase price, have inspections, use an attorney and I am responsible for the transaction without realtors. If this became the norm or the next hot trend to come, bye bye realtors, self check out home transactions. Just thinking~
8
Markus
// Jan 24, 2008 at 5:28 pm
Cougar,
That is exactly how I purchased a second home in my neighborhood. The seller offered a price significantly less than the appraisal; no realtor was involved. We used an escrow company in Kirkland to close the deal and I downloaded a standard WA purchase and sale agreement from the web. However, there will always be a need for full-service realtors/brokers. Cheers!
9
S-Crow
// Jan 24, 2008 at 5:50 pm
Coug,
You bring up an interesting and exceptionally controversial topic. Worthy of a post. I’ll put something together.
10
Brian
// Jan 24, 2008 at 6:01 pm
Seems like your “months of supply” would always jump like crazy in December if you used December’s “pending sales” as the denominator. Using a typical month’s pending sales, or maybe better yet, average sales is probably much more realistic.
11
The Tim
// Jan 24, 2008 at 6:22 pm
Brian said,
Not really. Check out 2000-2007:
Click to enlarge
Looks like it goes up slightly near the end of each year, but 2007 is definitely out of the ordinary. The reason it doesn’t spike is because while it is true that sales are always sluggish, it is also the case that there are always few homes on the market as well, so they balance out.
12
Garth
// Jan 24, 2008 at 7:27 pm
Never blog about a journal article without a copy of the journal. The online version of the journal lacks all the charts with the data.
Also MSFT is up ~4% on their earnings announcement.
http://afp.google.com/article/ALeqM5j7Ss0dIMIYoyojDLRRXU0hZ9YRvA
When everywhere else is way down and we are coming in even or a little positive, with super low numbers for overdue loan payments, and Microsoft reporting fantastic numbers the persistant scoffing by bubbleheads at the idea seattle is different seems kind of silly.
Here is the chart from the journal today, there are notations at the bottom about the source of the data.
Looks like far and away the most special city on the list by to me.
13
Garth
// Jan 24, 2008 at 7:29 pm
http://farm3.static.flickr.com/2282/2217317457_ae8f443e06_b.jpg
14
geon
// Jan 24, 2008 at 8:29 pm
Big friggin’ deal: msft up 4% on earnings. LOL.
15
kzle
// Jan 24, 2008 at 11:00 pm
Unless you, yourself, are a real estate expert, always use someone with legal expertise in a transaction. I’d recommend a longtime real estate expert, or real estate lawyer (if you’d prefer to do the looking on your own), one whose career began well before the bubble. But I’ve seen horrifying things, like no clear title established, no title insurance, and a resulting real cash loss of a $100,000 down payment raised over a decade by a working class couple who were trying to save a few thousand by not involving an expert.
NOT a realtor, but I’ve seen and heard horrifying things. Solidly covering your legal bases and paying well for good inspections that’ll sniff out problems is worth every flippin’ penny.
16
christiangustafson
// Jan 24, 2008 at 11:06 pm
Holy sweet deals! Seattle now has a bubblicious lockbox fence:
http://deflationland.blogspot.com/
Ha ha.
17
jake
// Jan 25, 2008 at 9:18 am
I have been following Magnolia and Queen Anne and have seen homes sitting on the market for months. Then they disappear and then the reappear as 1 day on the market.
This is happening with many of the homes so I am sure this totally skews the numbers.
18
Joel
// Jan 25, 2008 at 10:45 am
Spoke too soon. Now hovering around yesterday’s close. A single stock going up 4% for a few seconds before dropping is not going to prop up an entire real estate market.
19
License2Sell
// Jan 25, 2008 at 10:55 am
I’m a Queen Anne native & resident, & a real estate agent since 1992 & I’ve lived there since 1968 (Can you figure out how old I am?). The statistics used are usually from NWMLS. In the old days, agents used to cancel listings in order to get a new listing number & days on market (DOM) to get the other agents & public to think it’s new on market. It is now a NWMLS rule violation that will result in a fine. In order to protect the integrity of the database, NWMLS changed the way a listing is inputed onto the computer to prevent said cheating. DOM will not change if an agent tries to do this or they re-list the home with another broker. Only after the property has been off the market (NWMLS system) for 90 days, then the Days On Market/DOM will reset.
I just got back from the San Diego yesterday. The headline news was Foreclosures up 353% in S.D. county. I was attending a seminar (One-On-One Retreat for those in Coaching with Mike Ferry the top real estate trainer.) with all the top agents in North America on how to sell more in this declining market. The top agents are making more money in the declining market because sellers need their skills more than ever. On the other hand, we’re seeing many real estate offices close and agents leaving the business in numbers because the gold rush mentality (bye bye part-time low-skilled agents & the discount brokers) is now over & it now requires good, skilled, experienced agents that have the courage and can explain that price & motivation are the only issues when pricing a home to sell.
A home/object is only worth what a buyer will pay for it. The buyers are the market or they make the market. No buyers, no market. Interest rates don’t mean a thing. In the 70’s to early 80’s there was double-digit interest rates, yet people still bought and sold houses.
Real estate is a long-term 15-year investment, if you got burned, too bad so sad. You shouldn’t have been playing housing like the stock market, because there is always a cycle.
#
jake said,
on January 25th, 2008 at 9:18 am
I have been following Magnolia and Queen Anne and have seen homes sitting on the market for months. Then they disappear and then the reappear as 1 day on the market.
This is happening with many of the homes so I am sure this totally skews the numbers.
20
WestSideBilly
// Jan 25, 2008 at 11:14 am
Footnote two verifies what I posted above… they used December’s supply but the 2007 average pending sales to get month’s supply. New, post-bubble math.
Hey, what’s this with “Employment Outlook” being Average? We’ve got MSFT and BA and pink ponies!
21
Happy Renter
// Jan 25, 2008 at 11:17 am
“I was wondering about the same thing. I think it will certainly help to unlock the jumbo market a little, but jumbo mortgages *are* available, they’re just 1% or so higher. So instead of getting 5.5% you’ll get 6.5%. Big deal…”
Isn’t that like 100k+ over the life of the loan on a 500k house (30yr fixed). Big Deal Indeed.
22
old_B
// Jan 25, 2008 at 11:23 am
The straws people grasp at to “prove” that XYZ market is special are getting thinner and more scarce.
This problem is real, huge, structural, and no place is immune.
23
Scuba Steve
// Jan 25, 2008 at 12:25 pm
“I have been following Magnolia and Queen Anne and have seen homes sitting on the market for months. Then they disappear and then the reappear as 1 day on the market.
This is happening with many of the homes so I am sure this totally skews the numbers.”
That’s why I just have a spreadsheet for a particular zip code I was following. It has the original date it hit the market and calculates DOM according to whatever date I put in the “Today” cell. It’s been interesting seeing short sales and price drops starting at the low end of the market migrate into the mid-range houses over the last 2 weeks. The highest priced short sale listing I’ve seen up through last weekend was in the ~550K range. Who knows what this weekend will bring.
The thing that’s surprised me though is that for the two sales I’ve caught over the last 45 days (by searching addresses that fall off the listings and looking at last sale date in Redfin) is that there really doesn’t seem to be a whole lot of negotiation going on right now.
24
Marc
// Jan 25, 2008 at 1:32 pm
“I have been following Magnolia and Queen Anne and have seen homes sitting on the market for months. Then they disappear and then the reappear as 1 day on the market. This is happening with many of the homes so I am sure this totally skews the numbers.”
I believe that License2Sell is correct in saying the NWMLS has revised its rules to discourage manipulating listings to reset the DOM (part of that change involved creation of a “Combined” Days On Market (CDOM) to add up total days). However, I understand from reliable sources that it remains easy for an unscrupulous agent to still accomplish this result. For example, changing a single digit in the tax parcel number or dropping the street direction (e.g., from xxx 45th Ave. NW to xxx 45th Ave.). The agent is at risk of being sanctioned or disciplined by the NWMLS if found out, but I don’t know that the NWMLS aggressively seeks out these violations.
Like Jake, I also follow the Magnolia/Queen Anne area religiously and it seems to me that this practice continues virtually unabated.
25
Markor
// Jan 25, 2008 at 2:07 pm
Agreed, esp. since the legal/advice paperwork can be as little as $900.
26
magnolia44
// Jan 25, 2008 at 2:11 pm
buying a family home in Magnolia, yeah the practice is ramapnt. I have been following this market here for the last 3 years. I will say this it has picked up in January with sellers having some reasonable prices. But many still holding out and just wont give in, stay tuned.
27
NotaBull
// Jan 25, 2008 at 2:43 pm
“Isn’t that like 100k+ over the life of the loan on a 500k house (30yr fixed). Big Deal Indeed.”
Aside from the fact that the additional interest rate bump is tax deductible, and that the money difference you state needs to be adjusted for inflation over the life of the loan, there is less of a difference than you might imagine.
Say you want a 600K house and you have the 20% down-payment. (let’s not get into the debate about how many people have this much money. I do, and I’m sure there are others).
In today’s market you would do the following:
First: 417K conforming GSE loan (5.5%, say)
Second: 63K HELOC (6.5% ish, and decreasing by the month, for now)
Down-payment: 120K
If the conforming limits are raised, then you would instead do:
Loan: 480K at 5.5% (assuming the rates are the same)
Down-payment: 120K
So the interest rate difference is only on the 63K HELOC, and the rate difference is less than it seems because it’s deductible. PLUS, every time the fed cuts rates this HELOC rate goes down. So if you’re sensible, you pay it off like crazy before the rates start to go back up again in a year or so.
Therefore, I don’t think that raising the limits is going to make much difference regarding affordability. I could be wrong of course…
28
Happy Renter
// Jan 25, 2008 at 8:56 pm
Whether you can deduct a significant amount depends on your salary to begin with, but I was incorrectly thinking about the whole loan… if I could get a larger loan at the same rate, and only have to deal with one loan, it would be easier.
You’re right it wouldn’t save that much $.
Not a worry for me either way, as I won’t buy with less than 20% down or a serious slump… although hopefully by then I’d have 20% anyway.
29
what goes up comes down
// Jan 26, 2008 at 2:00 am
here comes the inventory
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