Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

60 responses to “King County Home Prices: 1946-2007”

  1. newbie

    I would love to see median home income on this graph as well

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  2. Chris

    Wow Tim. Good work on that. Very impressive.

    I agree Newbie, the correlation would be fascinating.

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  3. Marc

    I think this is a great use of an incredible data set, well done Tim. However, I think it very clearly shows the limited utility of economic data. Past results are no guarantee of future performance. IMHO, I strongly suspect that the previous peaks and valleys have very little predictive value. Seattle has changed enormously since the the late 80s. I think I’ll refer to the periods on either side of 1990 as B.G. and A.G., Before-Grunge and After-Grunge. The A.G. Seattle real estate market is a completely different animal than its P.G. predecessor.

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  4. Pegasus

    I saw the shamelessly promotional NAR tv ad this weekend that proclaimed that real estate values just about double every ten years and that we need to contact a realitor right away to get in on this bonanza. They said NOTHING of downside risk nor did the mention the wild historic jumps in real estate prices in recent history that have justified their figures are over. They did mention that markets were different place to place though.

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  5. deejayoh

    Good stuff Tim. I know this was a lot of work. Thanks for sharing, and I look forward to the next installment!

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  6. Scotsman

    Great work, Tim! I, too, would like to see income/afford ability data overlaid.

    This stuff obviously fascinates a large group of us. However, I have to agree that the past may be of very limited use in predicting future events at this time. There
    are too many new variables tossed into the mix, not only here in the U.S., but also on a global scale.

    The stable period from 1945-1975 is more probably the true norm. This is especially apparent when one looks at the inflation adjusted Case-Shiller data starting in I believe 1890, and remaining essentially flat until the 1980’s when it heads for the sky.

    I think we all know long term affordability has to be the primary determinant of price. But “temporary” irrational deviations sure can last longer than we think they should.

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  7. deejayoh

    I think it was in 1990 or 1992 when they quit making more land. I can’t remember exactly.

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  8. Olaf

    Looking at that 15-year-long increase — without so much as a plateau — one would expect that there’s a long plateau or even decline just ahead of us. Seems like a simple matter of market balance.

    But as many of you have already observed, past performance does not predict the future. It WOULD predict the future if the other variables stayed the same, but that sure isn’t the case, here. This IS a different city, after-Grunge. There are a lot more people who’ve moved to Seattle either with big incomes or with big tolerance for taking on ridiculous amounts of debt.

    What I want to know is: which is it? Was the run-up in home prices due more to Seattle buyers having bigger INCOMES, or was it due to their having bigger LINES OF CREDIT? If it was the former, then I think the price inflation will endure. If it’s the latter, then — given this new credit crunch — we’re in for a big ol’ plateau and/or dip in prices.

    The affordability index might shed some light on this… but I think there’s also something to be learned from looking at correlations (inverse correlations, I guess) between interest rates and home prices in Seattle, proper, since ’92.

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  9. Tsuru

    Looks like the time to buy was 1975! Thanks for the data Tim.

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  10. Mike

    Several things need to be kept in mind with each of the drops in identified in the graph, there were also significant economic issues at the same time.

    (I apologize for not have the exact dates for the recessions, I was hoping to find regional data but just gave up)

    1969-75 Boeing lays off half of its work force and the nation enters a recession and the oil crisis. Billboard reads “Would the last person who leaves Seattle please turn out the lights.”

    1979-85 Interest rates were above 11% topping out at 15+% and there was a recession.

    1990-1992 Recession

    2000-2002 Dot.Com bust.

    The significant down turns that were mentioned were associated with significant economic issues. While I suspect the economy will contract I doubt it will be similar to the ‘70s or ’80s.

    If Seattle keeps on growing there will continue to be pricing pressure put on land. This would cause price increase so I don’t think we can expect an extended period on no growth similar to 1945-1970. There wasn’t a shortage of land from 1945-70.

    I do believe that homes are over valued but I do not see an extended period of decline. Assuming no significant recession, my prediction is a modest price drop, 5-15%, followed by a few years on minimal growth turning in to modest growth of 2-6%.

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  11. Marc

    Tim,

    I agree with your uncharted waters reference and I look forward to the affordability post. Could it be that Cobain and his cohorts put Seattle on the road to un-affordability? Talk about unintended consequences.

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  12. Dan Edwards

    Great graph Tim… I would also like to see the interest rate along side. I believe it is a key factor in someone being able to afford a home. Most buyers look at what they have to spend, on a monthly basis, not necessarily the total cost of the home. If we had 15% rates right now home prices would be alot lower. I am rambling now….bye.

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  13. softwarengineer

    FROM 1990 ON, BANK DEREGULATION (UNFETTERRED CAPITALISM) CAUSED THE ENDLESS REAL ESTATE BUBBLE TO TODAY’S SUBPRIME MESS

    Tim’s graph makes it clear. Real Estate prices in Seattle went up almost linearly [if you take a regression analysis average] from the time of Reagan’s deregulation of banks in 1990 to today’s 2008 subprime mess [caused by Reagan's bank deregulation].

    There’s no stair step. Horrifying.

    See the proof:

    http://en.wikipedia.org/wiki/Savings_and_Loan_crisis

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  14. Sniglet

    This is certainly an interesting chart. What would be particularly interesting is to see how the use of various mortgage types for the Seattle region track over time as well. For example, is there a much higher percentage of loans which are 100% finance, negative amortization, or Option ARM today than in the past?

    I have a suspicion that not only has property appreciated at a far higher rate in the last 15 years than ever before, but that far riskier types of mortgage products have been in use as well. If so, that could leave our real-esate market much more fragile, and much more vulnerable to any kind of economic stress that may occur than it has previously been.

    Perhaps a higher percentage of home-owners may have been capable of withstanding job loss, or a recession, back in 1980 than today, if most borrowers had significant equity and traditional ARM or fixed loans.

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  15. Mike

    Sniglet, you bring up a good point. Major downturns in the past have been caused by significant economic issues, Boeing laying off 50,000 people or 15% interest rates. Today with more risky loans it may only take a mild recession to put a significant number of people into foreclosure. And while I think we have done a good job of minimizing substantial downturns in the ecomony we have not been able to eliminate all downturns.

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  16. hesotriflin

    in the 1970s the US dollar also went of the gold standard…

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  17. Sniglet

    Unfortunately, I suspect there is a much higher correlation between the availability of credit and housing appreciation than there is between jobs or population growth. If this theory of mine is true, then a contraction in credit will negatively impact real-estate more than either job losses or population declines.

    As far as the strength of our local economy goes, if the global economy contracts 5% to 15% in the next couple years, there is NO way Seattle’s major employers won’t feel the impact. There is a LONG tradition of orders for new aircraft being cancelled when economies turn south, and tech is highly vulnerable to changes in IT and consumer spending. Upgrades are the first thing to be put off when companies are tightening their belts (even before the lay-offs start), and what consumer is going to buy a new high-priced video game player or MP3 player when they can’t refinance their home and are struggling to make the mortgage payments?

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  18. michael

    http://news.yahoo.com/s/ft/20080219/bs_ft/fto021920081334359078;_ylt=AozoX8V3CwKFRV6c_RfR1f0E1vAI

    Read the article above – this is where I’m putting my money.

    Our banks sold us on toxic levels of debt that our grandparents would never go anywhere near. The only way to increase our economic expansion is to increase this debt even furthe- r because we certainly don’t have the salaries to back it up. Can you imagine a Seattle ten years from now that has $900,000 – $1,000,000 median home prices on an average household income of $70,000 – $90,000 or do thousands of our neighbors losing their homes and going bankrupt seem like a more probable scenario.

    Optomism is not the answer if you are about to walk off a cliff.

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  19. Matthew

    The only areas that are going to survive this bubble are the areas that didn’t appreciate faster than their historical averages. Seattle is not one of those areas, this graph demonstrates that perfectly.

    Notice how the time frame with the sharpest rate of appreciation corresponds directly with the time frame in which loose lending was most prevalent. Coincidence? I think not!

    Is it any shocker that now that the funny money has dried up, housing prices are now turning negative YOY?

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  20. Lionel

    For yet another example of just how disconnected house prices here are from reality — I just signed a lease for a house in Bryant, a nice brick tudor for $1850. Two doors down, a house that is nearly indistinguishable from it is listed for sale for $730K. It’s larger and has been tricked out, but those numbers just don’t comport with reality.

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  21. AMS

    It might be better to use a logarithmic axis for the raw price. In my opinion the doubling between 200,000 and 400,000 is way over represented, and it makes the doubling in price between 100,000 and 200,000 look smaller. Note, however, that both doubles took about the same length of time: 15 years.

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  22. disbelief

    I also want to say thanks Tim for all his work in putting together these graphs!

    I agree with Sniglet that credit trumps all other factors in this most recent and unprecendented runup in the price of homes as shown on this chart. From everything I’ve seen, most of the country (at least where there are sizeable cities) saw similar increases in this time frame.
    I suspect that graphs made to represent those areas would look very similar. Obviously most of these areas can’t lay claims to strong regional economies or rapidly depleting availability of land, etc. I’d like to see a graph for San Diego, Phoenix, Miami, etc. superimposed on the one above to see how they compare. Notice also how the abrupt end of the spike coincides with the easy lending spigot being turned off.
    I also think that interest rates will play a big role in how the graph shapes up from here on out. An increase of a percentage point or two over the next several years could definitely accelerate downward momentum and severity of a decline.

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  23. Ray Pepper

    “Interest rates will play a big role”

    I agree 100%. Just this week 2 loans on short sales that were waiting for final signatures from seller will be falling out of Escrow due to the recent bump in rates. Buyers no longer qualify. They were locked at 5.5 but rates expired after 90 days. What a mess!! This recent run-up in Mtg rates will definitely slow the already testy mkt.
    But, alas what are we at. 6.25 on a 30 year par.? .not bad anyway in my book. Its going to be a long bumpy road the years ahead. But, my oh my, talk about a strong rental mkt. My investors are getting $200-300 more on their homes now in North Tacoma and Federal Way.
    My money continues to travel to Nevada. I just submitted another offer on a foreclosure 180k, 3 years old, turn key, and will rent for 1200 easy. This house 2.5 years ago was 310k. I definitely smell blood and will continue to scoop GEMS where I see them.
    Thankfully we still have World Savings (Wachovia) with their Cosi/Cofi stated stated option arm. One of the last great products for us investors! Just no 500 Realty there…………..YET!

    http://www.500Realty.net

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  24. economist

    RE cycles typically have flat bottoms but peaked tops, and there’s a very good reason for this.

    At a market bottom you have rent equivalence or better. It makes sense on a cash flow basis for someone to buy, so you get a steady stream of new buyers. Then something happens – maybe an economic upturn or lower interest rates – to encourage speculative buying, and prices start rising.

    But suppose prices have stopped rising. Ownership costs are now well above renting. Why would anyone want to buy? Better to keep renting and save some money. In addition, recent buyers are going to be underwater on an after-sale, or even pre-sale basis, yet paying a lot more to hang on to the house than to rent. So a lot of them start walking – either as a response to some crisis, or just because they don’t see the point of feeding the alligator any more. As we are seeing all across the US right now. But the builders are still producing houses at an accelerated rate due to high prices. Who’s going to buy them all?

    So the idea of a flat-top at these price/rent ratios is just as absurd in Seattle as anywhere else.

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  25. george

    Mike: Sure but we already saw something unprecedented: national price declines without a recession. Round 2 of the real estate deflation hasn’t even hit yet. A 20 percent decline over a few years seems like it’s not even the worst case scenario.

    Tim, this blog is now officially better than anything I’ve seen in the Seattle media on real estate.

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  26. Buceri

    I believe we are facing an unprecedented global economic reality. While we keep spending billions in military might, the rest of the world is moving forward technologically. We have never seen competition like this. After WW II, we were the shopping mall of the world; if you needed clothes hangers you needed to come to us; nobody was making anything. Today, China and Germany export more than us. I have traveled the world for business during the 90s and in most Asian and Latin American projects, I was the only engineer representing a US company; everyone else was from Italy, Spain, Germany, Canada, Japan, Australia, etc.

    Oil at $100, Euro at us$ 1,50, the Dow 30 brings in bank of America to reflect the move of our economy to services and finances. Americans are in a historic amount of debt; and our economy is over 65% consumption!!!!! How much more cheap crap can we buy??

    I am not sure historical trends work when the world is such a different place.

    But it’s fascinating.

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  27. bigdollordog

    Tim said -“after a very short breather”
    I wonder if that was because of the new 1996 land use Regs., if things were left alone to progress naturaly you might have seen a longer step, not just a breather in the mid ’90’s, – somting to tink about

    you do alot of good investigative stuff, though of expanding your service, I’d like some work done on my family tree. I’m at a dead end after my fathers father

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  28. softwarengineer

    BUCERI, I AGREE WITH MOST OF YOUR BLOG

    I’d tweak it a bit with pragmatic facts, check out the latest world rankings for IT and communications:

    http://arstechnica.com/news.ars/post/20070403-world-economic-forum-releases-annual-it-rankings-us-slides.html

    America used to be #1, we’ve plummetted to #7 in technology innovation.

    If by the rest of world, you mean China and India, I don’t want to disappoint you, but those countries aren’t much better in technological innovation than Mexico. They rank a subpar #44 and #59 [even Japan is only #18]….can’t see from these pragmatic facts why we go to the east for savior labor in IT?

    I’d add a foot note to this world banking mess causing a horrifying bubble pop; we have a glut of engineers and ITs in America, but at normal salary levels the elites are too cheap to pay. Lots of young engineers ready for experience, but you need to get a job in Seattle first to get experience.

    We should be going to Europe, not Asia, if we need technical IT and communications consulting, they basically control the top ten slots now.

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  29. mydquin

    Once again, technical analysis is not grounded explanation. You have to look at the actual facts on the ground in order to understand what is happening in any particular market.

    What happened in the 1970-1985 period? Seattle’s economic well-being was highly dependent on a single company that was struggling.

    What happened after 1992? Seattle’s economy diversified and grew at an unprecedented rate. In addition Seattle govt passed significant restrictions on how properties could be developed. Seattle literally ran out of land during this period.

    Trying to force fit past trends on to some obscure notion that there must be ‘stair step” is as pointless using technical analysis to predict anything other than very short term trends in the stock market.

    So let’s review some FACTS…

    1. Median home prices keep getting used in analyses here, but I never see any attention paid to the structural improvements to the average Seattle home. Homes have gotten significantly larger and nicer since 1992.

    2. Median incomes keep getting used here, but little attention has been paid to the median incomes of the HOME BUYING CLASS. The sad fact is that over the last 8 years, the rich have gotten richer and the poor have gotten poorer. Median income has not changed much, but the median income of the home buying class has increased significantly.

    3. Most of the sub-prime mortgages have now reset. It will take another 20 months for the Alt-A mortgages to reset. This generally will affect the lowest end of the real estate market. Will problems at the low end bleed up to the high end? Maybe some, but certainly not completely. Most of the weakness in the market will come from the 1000 sq ft boxes in drainage ditches on the south side.

    4. Seattle’s economy will benefit disproportionately from strength in the non-US global economy. Amazon, Google, Microsoft, Yahoo & others have all announced plans to expand in Seattle. Don’t bother citing Tim’s employment study because it is majorly flawed.

    5. The jumbo loan limit is about to expand to $500-700K in Seattle. This will effectively lower interest rates.

    6. The fed rate is likely to fall another 2 points before the end of the year.

    I am not saying the market won’t stagnate for a few years. But there are lots of reasons to think there will not be a 20+% bloodbath, like what has been seen in LV, Miami, etc.

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  30. Lionel

    “But there are lots of reasons to think there will not be a 20+% bloodbath, like what has been seen in LV, Miami, etc.”

    I’d hardly call a 20% drop a bloodbath, when prices have more than doubled in these areas. When I left LA in June, there was little belief that prices could drop significantly because of many of the same reasons you listed: land restrictions, the strength of h-tech and entertainment, both of which feed into the global economy, yet… asking prices have come down 14.5% since then, meaning prices have dropped $110,000. (All this when inflation is pushing 5%.) And we’re just beginning this process. The losses in LA are going to push 40-50%.

    I think you’d have to be a complete fool to buy right now. I don’t what would compel me to buy the house a few doors down for 730K when I can rent virtually the same place for 1850.

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  31. Buceri

    I agree with Lionel and Software engineer. In the book “The World is Flat”, the CEO of Infosys tells the writer “we are eating your lunch and you don’t even know it”.

    Folks; we are all one board meeting away from loosing our jobs. China will keep on taking jobs from Boeing in exchange for big orders (Boeing’s obligations are to shareholders, not employees). And who knows about MSFT??

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  32. WestSideBilly

    1. Median home prices keep getting used in analyses here, but I never see any attention paid to the structural improvements to the average Seattle home. Homes have gotten significantly larger and nicer since 1992.

    Does this really mean anything? You could run the same analysis on a price/sq ft basis and the results would be more or less the same.

    2. Median incomes keep getting used here, but little attention has been paid to the median incomes of the HOME BUYING CLASS. The sad fact is that over the last 8 years, the rich have gotten richer and the poor have gotten poorer. Median income has not changed much, but the median income of the home buying class has increased significantly.

    What you’re saying, indirectly, is that the home buying class has shrunk significantly. If median incomes as a whole aren’t moving, but the median incomes of the home buying class have grown, then by nature of a median, the subset buying homes must shrink. 10-15 years ago, someone earning a median income in Seattle was part of the home buying class; today they need double the median to get in the game.

    This is a bad thing.

    Also, if someone is not in the home buying class, it means they’re renting. And if they’re renting, it means someone else bought that property and is trying to earn a profit off it. Since rents have not matched purchase prices in growth, it means that buying a property as an investment is also not as good as it was 10-15 years ago.

    3. Most of the sub-prime mortgages have now reset. It will take another 20 months for the Alt-A mortgages to reset. This generally will affect the lowest end of the real estate market. Will problems at the low end bleed up to the high end? Maybe some, but certainly not completely. Most of the weakness in the market will come from the 1000 sq ft boxes in drainage ditches on the south side.

    When the price of those 1000 sq ft boxes in Federal Way go down by half, you don’t think that’ll impact 1200 sq ft boxes in Renton and Burien? And when those go down by 40%, you don’t think that’ll impact 1500 sq ft boxes in Bellevue and West Seattle? Obviously it’s not linear, but when people at the bottom are losing their tails by selling, they can’t really afford to buy the next level up unless those prices also come down.

    4. Seattle’s economy will benefit disproportionately from strength in the non-US global economy. Amazon, Google, Microsoft, Yahoo & others have all announced plans to expand in Seattle. Don’t bother citing Tim’s employment study because it is majorly flawed.

    The job creation doesn’t support buying a house. Most of this job creation is lower level work paying in the $60-80k range and is mostly going to recent college grads (i.e. they’re poor and don’t have 20% down payments). That rules out buying anything in Seattle.

    5. The jumbo loan limit is about to expand to $500-700K in Seattle. This will effectively lower interest rates.

    Agreed. Not sure it’ll have a huge impact on the bulk of properties in Seattle.

    6. The fed rate is likely to fall another 2 points before the end of the year.

    Doubtful. The inflation measurements are starting to reflect the rate cuts earlier this year. The Fed will be loath to keep slashing rates when the CPI hits the 5% mark. Wall Street won’t like seeing their profits getting inflated away, and at some point they’ll start pressuring the Fed to ease off the cheap money.

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  33. WestSideBilly

    Also, with respect to #6 above, even if the Fed cuts rates, that may not impact the rates which mortgages go at. If banks are seeing inflationary futures, they will increase mortgage rates if the Fed cuts their rates.

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  34. deejayoh

    I am not saying the market won’t stagnate for a few years. But there are lots of reasons to think there will not be a 20+% bloodbath, like what has been seen in LV, Miami, etc.

    Nice post, but I think you need to check some of your “facts”:
    – check the link on Tim’s radarlogic post. Seattle property is falling at a rate of 16% annualized on a $/sq foot right now (7.5% off peak in < 6 months)
    “Conforming Jumbos” won’t help much if at all. Seattle “median” is $435k. 125% of that is $543k. That’s your new limit. And OFHEO has been clear on 2 things – they’re going not rolling these into the existing pools, so there is likely to still be a jumbo premium, and they’re going to be pretty restrictive on requirements so most will not quailfy.
    – Based on data I have seen and shared, job growth has zero correlation with home price appreciation. I’ll believe that until proved otherwise.
    2007 vintages of subprime are worse than previous vintages, so more defaults on less volume = about the same amount of problems.

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  35. deejayoh

    6. The fed rate is likely to fall another 2 points before the end of the year.

    Doubtful. The inflation measurements are starting to reflect the rate cuts earlier this year. The Fed will be loath to keep slashing rates when the CPI hits the 5% mark. Wall Street won’t like seeing their profits getting inflated away, and at some point they’ll start pressuring the Fed to ease off the cheap money.

    Check mortgage rates lately? How much have fed rate cuts driven them down so far?

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  36. WestSideBilly

    DJO, I’m not sure what you’re trying to say. Mortgage rates are going up (1.375% in the last few weeks?). Banks are seeing inflation in the future and pricing mortgages accordingly.

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  37. deejayoh

    ah. I was not clear, my comment was meant to reinforce yours. fed cutting rates hasn’t done a thing.

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  38. Angie

    Catching up after a few days away: Tim, really nice job–thanks for the truly long-term perspective.

    The ensuing discussion seems like more of the usual for this thread, but a few comments, like

    #33: Folks; we are all one board meeting away from loosing our jobs.

    and

    #34 Most of this job creation is lower level work paying in the $60-80k range, emphasis added

    drive home the fact that the esteemed readership of Seattle Bubble really are looking at the issues from a peculiar, privileged perch.

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  39. Alan

    When the median house costs $450k, $60-80k of income seemes like lower level pay.

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  40. Angie

    Alan, I know that all too well–my family income (w/2 working parents) is in this range.

    It’s also just about the median income for a family of 4 in the Seattle area. For single workers the median is somewhat lower (in the $50K range). That someone would consider $60-80K “lower range” for some snotnosed kid right out of college is pretty, um, ridiculous.

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  41. WestSideBilly

    Angie, I’m in that “lower level”, so I’m certainly not looking at the world from a lofty perch. My point was that the job creation at M$, Yahoo, Google, Amazon, et al is not $150k/yr jobs. $60k is a lower level job at M$, and that’s what they’re adding. I realize that for many people, that income level is something they can only dream of, but at the same time it’s not going to be buying you a house anywhere in Seattle.

    In short, stating that job creation will keep prices from going down is completely false if the jobs being created don’t pay enough to buy property.

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  42. BuyerOnTheSide

    Great chart. Sure likes like Robert Shiller’s historical chart for nationwide prices after inflation!

    Gee, a guess Seattle’s not such an exception after all. But I think we all know that…

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  43. Lukasz

    I would also like to see the graph with logarihmic axis for house prices. Is there any chance Tim that you can share the data behind the graph (perhaps add it to the SeattleBubble spreadsheet that you publish monthly? Thank you very much for your work in helping us all make an informed decision about the housing market.

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  44. John

    If you have an EECS degree, earning $60k right out of college is pretty much the norm. It will take 5-7 years, which isn’t unreasonable, to save for a 20% down payment. I am sure many people put down less than 20% so it will require even less time.

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  45. mydquin

    Nice post, but I think you need to check some of your “facts”:
    – check the link on Tim’s radarlogic post. Seattle property is falling at a rate of 16% annualized on a $/sq foot right now (7.5% off peak in < 6 months)

    October and November were ugly. If you annualize those months, you get disasterous looking statistics. That’s misleading and you know it. The market is relatively even YOY in Seattle proper and stablized in December and January. People here who are insinuating that the market is going to drop 40-50% are just smoking crack.

    – “Conforming Jumbos” won’t help much if at all. Seattle “median” is $435k. 125% of that is $543k. That’s your new limit. And OFHEO has been clear on 2 things – they’re going not rolling these into the existing pools, so there is likely to still be a jumbo premium, and they’re going to be pretty restrictive on requirements so most will not quailfy.

    This article about Jumbo limits doesn’t say anything. First off, a lot of jumbo loans in Seattle fall in the $417,001 to $543K range. Second, how do you know where regional boundaries will be set? We won’t know what the local median is until that is done. Third, Fannie Mae and Freddie Mac will do what their told by congress.

    – Based on data I have seen and shared, job growth has zero correlation with home price appreciation. I’ll believe that until proved otherwise.

    Clearly, your eyes are only trained to see misleading two-dimensional graphs. If you controlled for factors, like land restrictions, home structure growth, income growth in the HOME BUYING CLASS, then you would see a much clearer relationship.

    – 2007 vintages of subprime are worse than previous vintages, so more defaults on less volume = about the same amount of problems.

    You are going to have to produce some evidence. The vast majority of sub-prime loans have already reset. Alt-A’s will continue to reset until the end of 2009. The nature of those relative to subprime loans is not clear nor is it clear the effets that new mortgage work-out rules will have.

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  46. Sniglet

    Mydquin,

    I think you are working off of a few misconceptions.

    1) There is NO correlation between job creation or population growth and housing prices. There are examples of house price declines even while jobs and population were growing (Arizona in 2006, for example).

    2) Weakness in the housing market has little to do with “sub-prime” or “resets”. Foreclosures are mainly determined by the amount of equity home-owners have. The greater the number of home-owners with 100% financing the greater the default rate. When a home-owner without equity runs into any trouble, they can’t just sell or re-finance, and the only option is foreclosure. This is why we are seeing the most recent vintage mortgages have the highest delinquencies (i.e. because they have the least amount of equity).

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  47. bitterowner

    “If you have an EECS degree, earning $60k right out of college is pretty much the norm. It will take 5-7 years, which isn’t unreasonable, to save for a 20% down payment. I am sure many people put down less than 20% so it will require even less time”

    But John, isn’t housing just going to keep shooting up indefinitely with double-digit percentage price increases after this “buying opportunity” plateau has run its course? Won’t this individual with EECS degree never be able to keep up with the appreciation train and be priced out forever?

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  48. King County Affordability: 1950-2007 | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] I posted last week’s 61-year home price history, I promised a follow-up on affordability. So, here it [...]

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  49. The Tim on Internet Radio with Rain City Guide | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] King County Home Prices: 1946-2007 [...]

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  50. Steve Tytler

    Tim,

    Thanks for giving me credit for the “stair step” explanation of home price appreciation in the Puget Sound region.

    This is the best graphic illustration of my “theory” that I have seen to date.

    As you know from our previous conversations, my real estate research only goes back to the 1960’s and like you, I agree that is the beginning of the “modern” housing market in this area.

    If you look closely at the chart, there was another “stair step that starts about 2000 and continues until about 2003, then the housing market takes off again.

    This was an unusally shorty “step” because the housing boom was triggered by historically low interest rates. Mortgage rates hit a 40-year low in 2003.

    When you can get a 5.25% 30-year fixed loan, you could afford to buy a much more expensive house with a given level of income than you could with a 6.5% loan.

    Buyers used this new found buying power to run out and bid up home prices to previously unaffordable levels — because with low interest rates they were now “affordable.”

    The whole key to the “stair step” theory of house price inflation is based on supply and demand. When you have a high deman for housing — such as the one caused by lown mortgage rates — the inventory of homes for sale drops until it becomes a “Sellers Market.” It stays that way until the supply of homes for sale starts to get too big and/or demand from home buyers starts to decline.

    The market then “peaks” out and pulls back slightly form the peak value as home sellers are forced to cut prices to attract the dwindling number of buyers.

    Eventually the inventory of homes for sale gets bigger and bigger and the housing market becomes a “Buyers Market” which is where we are in the cycle today.

    Based on past history, after a “correction” period in which home prices drop to try to get buyers back, we reach a “flat” period where this is very little appreciation or depreciation. During this period the excess housing inventory is wrung out of the market until eventually the supply-demand curves tips into the seller’s favor and we are off to the races again with another housing boom.

    What is unusally about the recent history of this market is that the flat period of the early 2000’s was unusually short and the “up” period was unusually long.

    I think this was fueled by a combination of low interest rates and loose lending policies. Like the low rates of the 2003-2004 period, the emergence of subprime loans and loose “stated income” loans with zero down payment opened the housing market to many people who had been previously shut out.

    That caused the housing boom to go on longer than it normally would have because of the huge increase in demand.

    Now, we are going “back to the future.” Lending standards are reverting back to sane levels and that has reduced demand for housing.

    I have predicted home prices would fall about 10-20% from the peak value (depending on neighborhood) and then flatten out.

    So far, my predictions seem to be right on track.

    We will then have a flat period while all this excess inventory works its way out of the system. Most of the foreclosure activity will take place this year and possibly into next year because the people who bought homes they never should have qualified for in the first place are not able to keep up with their payments indefinitely and they are forced to sell or lose their homes at auction.

    Home prices will remain flat for a few years as income levels increase and housing supply levels decrease.

    Believe it or not, I think we will see another housing boom within the next 10 years, I just can’t be sure exactly when it will start.

    My best guess at this point is that it will take about 4-7 years from now before we start to see any significant housing appreciation.

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  51. Pat

    Thanks for your honest opinion and reality in what is going on.I have owned homes in the past and it was simple and you worked for what you had.People changed and were looking for a jackpot in a short amount of time so with what is going on with the reality with over living and the motgage being due,life is changing for some people and you saw the change awhile ago and it is happening I think the same reality as a person who understands.Thanks for the reality bite of truth.

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  52. Bubbles vs. Steady Appreciation | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] the best year to use as a baseline, since it was right at the peak of a good-sized run-up (see the 60-year Seattle home price graph), but it still gives us a good idea of where home prices would be if the appreciation curve had [...]

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  53. Was King County’s Recent Home Price Boom Unprecedented? | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] home price boom in the Seattle area is “unprecidented.” We have already explored the long-term home price trends in King County going back to 1946, but I thought it would be instructive to look at the data in a slightly different [...]

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  54. M. Hett

    This is very useful information. Could you please explain how you adjusted for inflation? Also, did you post the affordability graph that you mentioned in February? Thanks.

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  55. Bottom-Calling: Simple Mirror Forecast | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] The overall decline in this forecast would put Seattle’s Case-Shiller HPI at slightly below 4% annual appreciation since the start of the index in January 1990, which incidentally is about where it landed in early 1997 at the end of a seven-year period of relatively stagnant prices following the late ’80s mini-bubble (for a long-term view of Seattle-area home prices check the post King County Home Prices: 1946-2007). [...]

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  56. King County Home Prices & Affordability 1950-2009 Q1 | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] chart of the long-term (50+ year) trend of local home prices since I originally posted my research in February 2008. So, here’s an updated look at the long-term trends in local home prices and [...]

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  57. Kary L. Krismer

    I have no idea what I accidentally clicked to get to this piece, but I’d like to see the first graph updated, and it would be nice to have inflation stats superimposed on it too since that’s what caused the run up in the 70s. It’s amazing that the runup actually beat the rate of inflation back then.

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  58. $800,000 for Sydney termite 'dump' with no floor - Page 4

    [...] between the attitude in Seattle in 2006 and the attitude in Australia at present. Here's the link: King County Home Prices 1946-2007 • Seattle Bubble And here's the first line: [...]

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