I just don’t see a coming glut of good inventory (the inventory I am seeing linger in seattle has problems that prevent conventional loans, as-is, estate) like you are seeing in Phoenix, Miami, Las Vegas, Nor Cal etc. Nobody built anywhere close to the amount of these types of houses here as they did in other parts of the country. It is pretty clear now that the highest density of suicide loans and substantially overvalued housing that creates foreclosures has been in large developments.

Paul Allen recently answered some of the South Lake union questions by renting 11 buildings to Amazon as well.

http://seattlepi.nwsource.com/business/346949_blume11.html

SD is at 2.91 SF is 2.84 what they were in 1997, and we are 2.50 times. Sure, they went higher. I submit not qualitatively higher, however. I don’t see anything that would spare us their fate, though perhaps not quite as extreme a fate.

I don’t much like the median, as I have yet to see it act in a predictable way except when prices are climbing the fastest.

Using the case shiller index, seattle has been way below the bubbliest markets.

Looking at zillow for my house, my parents MI house and some friends around Seattle I am seeing more like a little under 50% over 10 years, definately not 3x.

I agree, prices are the key. If they continue flat or decline, defaults will accelerate. Subprime (and of course fraud) are the sentinels. People quickly realize even if interest rates fall, servicing debt on deflating capital makes for a good way to lose even more money. Isn’t negative leverage a biatch! There’s a lot of press lately about “walking away.”

Paulson and co realize this. Things like freezing rates, increasing conforming limits etc are being utilized to slow the process to avoid severe econonic shockwaves all at once.

By way of advanced warning, the article is entitled “A homebuyer’s market? Hardly”, but she also cites Seattle first among cities that have had “resilient” housing markets. Hopefully no one’s delicate sensibilities will be offended.

You are assuming someone wants to lend to people at 3.5-4.0% down the road, with the credit situation unfolding I would not be so sure about that.

Of course if I lose, I have to pay you back in depression dollars – which will be worth a bunch more. I don’t see any way home prices fall 50% without widespread deflation.

Who knows what that $100 will buy!

If the median prices fall as much as I’m predicting would you increase your investment in housing even more (as in buying an actual abode)?

Garth –

people don’t stop paying their mortgage if they can still refi, which they can still do here. Defaults and Foreclosures follow price declines, they don’t precipitate them.

It isn’t true that we have had substantially less appreciation than other bubble markets. We are just below 3 times the median of 10 years ago, and the bubbliest markets are just above 3 times the median of 10 years ago.

We too shall fall, 20% bare minimum, not adjusted for inflation. Much more likely 30-40%, and condos and townhomes 50%+.

Even a piddly 20% will send foreclosures sky-rocketing, and extend the slide back to affordability.

Sniglet // Feb 7, 2008 at 4:06 pm

Ok. I’ll bet $100 on a 50% decline in nominal Seattle median house prices in 2012. :)

Done. From today’s $430k to $215k median SFH by end of 2012.
That doubles my total investment in the housing market ;-)

If you define a popped bubble as a 10-20% decline, we are not even close to there yet. There were no CDO’s in the japan bubble, and the stock market was a bigger factor as well, as I have said before, Japan is not a good comparison.

“”This survey reveals that despite the data to the contrary, people either aren’t paying attention to their housing market or are in denial about their own home’s value,”

http://www.iht.com/articles/2005/12/25/business/bubble.php

By the way, there was no coup in Thailand back in 1998. Moreover, the muslim insurgency was not that big of issue until recently.

The year has just begun my friend. Look at those declines, then add in the impact of the credit crunch currently under way. Slow roast with several quarters (at least) of recession and what do you get?

You also have to consider the extremely low interest rates and the possibility that the Fed will keep dropping them as the lesser of two evils. If 30 year fixed rates get down to 3.5-4% a lot of people might jump at the chance to lock that rate – even if they are overpaying for the property. Not saying that’s sound finances, but short term memory is of 10% pricing increases throughout the ’00s, not the stagnant prices of the 80s or other past local recessions. “Get on the equity train!”

I know you were joking around, but the heat and humidity can be brutal sometimes. I’m sourcing a new dash for my car to replace the one the sun destroyed. Wish I had a pic to post. The sun is hard on plastic headlights that every car comes with these days too.

Of course, there is always Japan as an excellent case study. Their prices dropped around 80%, and many places are still worth less than 50% of their peak values. There are PLENTY of Japanese people who are still stuck in homes they bought in the late ’80s, uable to move because they still owe a fortune on the mortgage.

These examples demonstrate that not only can major price decline happen, but they also needn’t be apocalyptic. It’s not as if Japanese or Thai society went into anarchy due to their property busts. Such an event isn’t to be as feared as most people think.

Just out of curiosity, do you wish to include inflation in your bets? If you assume 4% inflation a year, a return to 2002 prices is actually only a 25% decline in the USD price.

um, no. Nominal prices. Inflation is one of the reasons I don’t go around making 50% off predictions…

I’ll definitely take that bet, if the time frame was till 2012. I feel confident in 40% price drops in 2010, and think it is possible we could see 50% declines by then, but just for safety I’d want to wait to 2012 to be sure to see the 50%.

sure. here are your scenarios
- 40% off takes us back to July 2002 pricing; to hit that by end of 2010 = 3.5 yrs of 18% declines
- 50% off takes us back to June 1999; by 2012 = 5.5 yrs of 12% declines
- 80% off takes us back to April 1986

happy to take any of those scenarios. I’ll even give you 2:1 odds on the last one!

Just out of curiosity, do you wish to include inflation in your bets? If you assume 4% inflation a year, a return to 2002 prices is actually only a 25% decline in the USD price.

Ah, inflation. ROI’s tricky pal.

I asked 1 of our in-house Mtg reps how many delas are you currently working on and he said 8. 2 set to close next week. 1 month ago he had 1. WOW!

Personally I know we are trendline down in housing prices for years to come but people are out there looking and finally pulling the trigger!”

What a great piece of self-serving advertisement in the same line as those traditional RE agents……..

Yeah, I was at the U Village last weekend and the place was packed, I couldn’t even find one open parking spot !! What recession are people talking about ??!!

Like I’ve said before, wait till the recession hits Seattle then we’ll see what happens to RE…….

The year has just begun my friend. Look at those declines, then add in the impact of the credit crunch currently under way. Slow roast with several quarters (at least) of recession and what do you get?

I used to believe similar to what you did about my own market and Seattle as well, that we would probably see 5-10% declines for a couple of years then stagnation. That was until I began reading about the credit crunch and its impact in various financial newspapers and blogs. From what I can discern, its going to be quite an epic implosion and one that only began in earnest a few months ago.

14% / year declines are not that unrealistic, those markets you cite have already experienced similar or higher declines last year. Seattle is behind the curve, but will be caught up by summer when the spring bounce has turned into the spring tidal wave of inventory and continued slow sales.

a) only one market has fallen at a rate greater than 14% – Miami clocks in at -16.5%, but has been falling for less than 1 year. Here are the stats based on C/S:
Market/ CAGR since Peak/ Yrs since peak
Miami 16.5% 0.9
Las Vegas 11.4% 1.3
Tampa – FL 11.1% 1.3
Atlanta – GA 10.7% 0.3
Los Angeles 10.6% 1.2
Phoenix – AZ 10.5% 1.4
Detroit – MI 9.4% 1.9
Charlotte – NC 9.1% 0.3
San Diego 8.5% 2.0
Seattle – WA 7.9% 0.3
Dallas – TX 7.6% 0.4
Washington 7.5% 1.5
San Francisco 7.1% 1.5
Composite 6.7% 1.4
Composite-20 6.5% 1.3
Minneapolis – MN 6.3% 1.2
Cleveland – OH 6.3% 1.3
Portland – OR 4.6% 0.3
Denver 4.0% 1.3
New York 3.9% 1.4
Boston 3.9% 2.2
Chicago 3.6% 1.2

b) your “behind the curve point is a good one”. we have precedents, and there is no market that is “ahead of the curve” that is dropping at the rate sniglet is suggesting – and half the sub-prime resets are behind us.

So perhaps if Seattle turns out to be the worst of the worst both in terms of intensity and duration of the downturn, we might see 3.5 years of 14% off. Most signs point to us being the best of the worst. It’s bad, but not cataclysmic.

Don’t get me wrong – I’m a believer, but I stop short of drinking the Kool-Aid.

20% off maybe 25-30% in outlying areas.

I got in 10 – 15% below peak value and i have plenty of sweat equity to add we will be able to make it through. I am looking at this place as an expense, a nice place to live and call home right outside seattle. Its not a “major investment” although it would be nice.

Case-Shiller data is released on the last Tuesday of each month. The data is for the period two months prior (for example, November data was released on the last Tuesday of January).

Therefore, January data will be released on the last Tuesday of March. And yes, I suspect you are correct in that the “stable” median price is an illusion created by the record low sales.

I had a “discussion” about housing prices (specific to Bellevue at the time) and the January MLS numbers (SFH holding steady) gave everyone ammo to “prove” me wrong. I have a hard time believing the steady SFH pricing is anything more than a mirage created by a shift towards move-up sales. If that’s the case, Case-Shiller should show it. Otherwise, the astronomical inventory is not having any effect on prices people are paying.

You are assuming that those people can get mortgages and easily. This will not be the case, which is why declines will be more severe than what you are saying. How many people do you know with $80k in the bank to buy a $400k house? Even in rich Seattle there are not that many. Without 95-100% LTV loan products available, huge amounts of potential buyers are wiped out. That is why this real estate cycle is much different from other ones, it is not just house prices you must consider but also the availability of credit to buy those homes with.

http://seattle.craigslist.org/search/apa?query=magnolia&minAsk=min&maxAsk=max&bedrooms=3

You seem to be buying too much into the romanticism of homeownership. You have only been renting for a year and a half. What has already gone wrong?

Now is not the time to capitulate and plunk down your cash. The credit crisis is not going away overnight and the market is not going to re-inflate tomorrow.

Take the example I just posted above. Assuming you could get $1550/month rent for it, then you will hit the ‘rent saver’ support level (people who buy because its cheaper than renting) at around a 20-25% price decline, and the ‘investor’ support level (people who buy, rent it out, and see positive cash flow after expenses) at perhaps a 30-35% decline.

But 50%? I think even a 30% decline will bring a lot of rent saver/investor money out. Not that there will be a big bounce, but the market will find a bottom when the rent-saver/investor see solid fundamentals.

Other leading cities are well on their way to 20-30%, that, followed by a long-period of near-inflation appreciation, strikes me as realistic.

Actually, I fully expect these kinds of price declines to occur generally across the US. The credit bubble impacted every region. Even those areas which didn’t see large appreciations (e.g. Denver) are seeing fall-out. Without the bubble those areas likely would have crashed long ago.

http://money.cnn.com/2008/02/07/news/economy/home_sales/index.htm?section=money_topstories

I hope no Seattlites think that this will actually affect us! We are isolated from all of this depreciation business. It’s almost as if we’re protected by a large protective bubble of some sort. Yeah, that’s it…the bubble will save us all.

http://www.redfin.com/stingray/do/printable-listing?listing-id=1294052

Posted on craigslist for $1550:

http://seattle.craigslist.org/see/apa/566132376.html

Redfin doesn’t list a purchase price, but if you assume they are trying to get out around break even after commission ($315K mortgage), then their mortgage carrying cost is around $1850 for a 6%, 30 year loan. Taxes are around $200/month. With maintenance they probably have carrying costs around $2200 or $650/month over their rental price.

Of course, if they have a high-interest 2nd, or they have a sub prime adjustable, their carrying costs could be much higher.

Many of the houses in that search do look like McMansions.

14% / year declines are not that unrealistic, those markets you cite have already experienced similar or higher declines last year. Seattle is behind the curve, but will be caught up by summer when the spring bounce has turned into the spring tidal wave of inventory and continued slow sales.

In the BA where I currently live, the California Assoc. of Realtors themselves are predicting 8-10% median declines this year. That is likely highly optimistic since they were calling for 4% a few months ago, and of course “normal” appreciation a few months before that.

1) there’s an upper substract of the market (say, the top 10% houses, as measured by a subjective “desirability” index) which is much hotter than everything else. Let’s call this “Prime Slice”.

2) There ARE buyers. Lots of people have money and can get credit – it’s just the buyers are all skittish. This huge inventory buildup also means there’s a surplus of “cautious” buyers, all waiting like hawks to prey on anything that comes up on “Prime Slice”.

So… if you want to benefit from the buyer’s market, you have to stay out of the “Prime Slice”. Sad but true.

Listening to talk from people whose income depends on transacations is part of what caused the bubble, do yourself a favour and make decisions based on verifiable fundamentals as the staggering increase in inventory and decrease in sales.

What are the odds of getting exactly $435,000 three months in a row. Me thinks the stats are being juiced somehow. I know have to look at these #’s with some doubt from here on out.

I’ll definitely take that bet, if the time frame was till 2012. I feel confident in 40% price drops in 2010, and think it is possible we could see 50% declines by then, but just for safety I’d want to wait to 2012 to be sure to see the 50%.

sure. here are your scenarios
– 40% off takes us back to July 2002 pricing; to hit that by end of 2010 = 3.5 yrs of 18% declines
– 50% off takes us back to June 1999; by 2012 = 5.5 yrs of 12% declines
– 80% off takes us back to April 1986

happy to take any of those scenarios. I’ll even give you 2:1 odds on the last one!