This is a little redundant, but that’s why I’m posting it on a Saturday. It’s just a slightly different take on the economic fundamentals that allegedly drive the local housing market. Much of this data comes from the recently-released 2007 King County Annual Growth Report. You can get all these charts and the data behind them in this spreadsheet.
Here’s a chart of local economic fundamentals from 2000 through 2006:
And here—on the same scale—are some measures of the local housing market for the same time period:
Here are the fundamentals and the housing market measures all on the same chart.
I realize that posts like this are seen by some as beating a dead horse. The sad thing is that there are still people that believe that home prices are somehow supported by these fundamentals. I wonder if someone that believes this could be bothered to bring out the data that supports such a position.
(King County, 2007 Annual Growth Report, 2007)
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116 responses so far ↓
1
SeattleMoose
// Feb 23, 2008 at 12:22 pm
I am waiting for the inevitable fool/ostrich to crawl out of their hole and try to explain how Seattle RE is “different” or prices will just “flatten out” in light of the huge AFFORDABILITY gap offered up by these great graphics.
Gravity was turned off for house prices…..that mistake has been rectified. All that is missing is the loud crashing sound as gravity “does its thing”.
Meshugy? We miss you man!! This is your big chance!!!
2
SNA
// Feb 23, 2008 at 12:35 pm
Hey Tim -
Great post as usual.
One other data dimension that I don’t recall seeing on here but that might help explain how we got to this ridiculous spot re: affordability would be to dig up some data that showed the minimum payment required to float the median or Case/Shiller equivalent house over the same timeframe.
The access to funny-money financing certainly seems to have been a key factor (along with hype, realtors, media puff pieces and general innumeracy in the population etc.). Anyone know of a data source that we could use to discover or derive the monthly nut that was needed to keep a house in your name for any given time period? For better or worse most people pay for large purchases based on what kind of monthly payment they can afford, so some way of displaying the relationship between income, house prices and monthly payments might explain part of the gap.
I would speculate that it will also put the lie to the realtor refrain about how great interest rates have driven the boom - I suspect that even accounting for interest rates, the degree of leverage handed out by the financial complex and lapped up by housing consumers would track very closely with the bubble prices.
During the bubble people who could do math were essentially put in the position of playing chicken with people who were willing to absorb all the financial risk they possibly could, and the financial world obviously obliged with all of the ‘innovations’ we know all too much about these days.
I know this is rambling, but is there a source somewhere of average/median payments that people paid or could ‘get away with?’
This might also allow for some educated-guess modeling about what other interest rate/degree of leverage averages might in turn do to future prices.
I’d be willing to help crunch numbers if anyone has input on where to locate this.
SNA
3
softwarengineer
// Feb 23, 2008 at 1:00 pm
THERE’S GOOD REASONS TO BUY A HOUSE RIGHT NOW
Of course there’s good reasons, besides financial, to buy a house. You need a roof, you’re sick of landlords, you fell in love with it, etc, etc…
What burns me up though, is a lot of buyers won’t admit that buying right now is an extremely poor economic choice, albeit a personal subjective right we all have living in America. We have a right to lose money in the short term or the long term; but to preach that a bad economic decision is a good economic decision, no matter what, is completely brainless.
4
js
// Feb 23, 2008 at 1:04 pm
You make a compelling case for King County. Maybe you should start a site called kingcountybubble.com.
I’d like to see the numbers for Seattle, not for all of King County. What would be even better would be the numbers for the nicer Seattle neighborhoods, not for all of Seattle.
Another critical factor that isn’t mentioned here is median household net worth. Median household income doesn’t tell the whole story.
5
Ira Sacharoff
// Feb 23, 2008 at 1:35 pm
Nationally, home prices have skyrocket in those same years in the graphs…A home in Hattiesburg, Mississippi or Cleveland likely went up by the same percentage as a home in Seattle, yet those fundamentals weren’t in those places at all.
So maybe we can’t attribute the boom to solely one cause, but…if job growth and population growth don’t justify the housing price increases anywhere, then what’s a bigger contributor?
I think it’s mostly that delightful combination of loose lending and fraud…maybe some of it wasn’t outright fraud in the legal sense, but I’ve seen lots of cases ( and still do) where agents, brokers, and lenders use trickery to get people to buy…not quite lying, but close to the border….has the level of all this trickery gone down?
Sure, with the housing slowdown a lot of these hucksters can’t make a living so they’ve gone into other venues where they can continue their hucksterism:
used cars, law, and politics?
6
Bits_of_Real_Panther
// Feb 23, 2008 at 3:21 pm
This may have been bounced around on these pages before but it strikes me that rising nominal incomes has a real effect on percentage of income available for housing, outdating the traditional 28/36 ratios. Obviously the mania on the supply side made the lending boom possible but on the demand side people were deciding that they could spend much more than that and still get by, and in some cases they were wrong of course.
For example it’s easier to live with a $2800 mortgage payment when you’re making $120K than an $1867 mortgage payment when you’re making $80K.
Slightly off topic I know but illustrative of the point that fundamentals aren’t necessarily static.
7
whats my name
// Feb 23, 2008 at 3:58 pm
“I suspect that even accounting for interest rates, the degree of leverage handed out by the financial complex and lapped up by housing consumers would track very closely with the bubble prices.”
Does that mean national lender programs in Vegas were twice as aggressive as here, but in Ohio they were twice as conservative? And if so, why do we see declining prices and high foreclosure rates in Ohio?
“A home in Hattiesburg, Mississippi or Cleveland likely went up by the same percentage as a home in Seattle”
No.
8
Want to live in Wallingford
// Feb 23, 2008 at 8:18 pm
JS,
Great point. I saw a post on Rain City Guide that some areas of the East Side have dropped 30% YOY in January, but if you want a place in Wallingford that isn’t a dump, has a decent yard and some off street parking you still have to offer the asking price or above the day it comes on the market and prices aren’t dropping. I’d agree that the housing market in general is overheated and starting to fall, but in the more desireable neighborhoods in this city and probably the country I have to imagine things aren’t going to change that much.
9
softwarengineer
// Feb 24, 2008 at 6:17 am
OPINIONS AND ALLEGATIONS AREN’T EVIDENCE
I’m not going to pick on any blogger in particular above, but to allege that certain homes in certain neighborhoods are immune from the Jonestone Koolaid Banking Deregulation price crash is totally absurd advice. Give us an address(es) and listing proof, then I might be swayed, but I doubt its no more than just false allegations or unfounded.
Its like saying, there’s no foreclosed homes increases near me…lol
My neighborhood is all Pink Ponies, doncha know?
Swallow the glass with the oat meal, all Seattle area home owners are going to lose their shirts this year. Prove me wrong with listings and facts, multiple listing trends too, not hotair opinions or fairy wishes.
10
Ira Sacharoff
// Feb 24, 2008 at 6:51 am
Software Engineer, you have me curious. I’ll try to unearth some evidence, one kind or another.
I’m not sure about how much prices have or haven’t dropped in Wallingford/Ballard/Greenlake, but I can tell you that older homes in decent shape in those neighborhoods don’t stay on the market very long. I find some homes to show clients and poof, they;re gone.
But..I think prices in those neighborhoods will drop if they haven’t already. Wallingford is part of Seattle, and Seattle is part of this country, so I don’t see these neighborhoods as being immune from downturns, and I also can’t really predict the future…but thus far my hunch is that Wallingford/Fremont/Ballard/Greenlake have held up better than other neighborhoods. It doesn’t make them a better investment from here on out.
11
george
// Feb 24, 2008 at 7:36 am
Don’t work hard enough? Prices seem too low?
Does a 20 percent price drop on a 450-600K+ “older home in decent shape” in the Wallingford/Fremont/Ballard/Greenlake sound good to you?
If so, now may be a great time to buy!!!!!
12
softwarengineer
// Feb 24, 2008 at 8:32 am
HI IRA; YOU’RE MY KIND OF REALITOR AND IF I EVER NEEDED TO RECOMMEND ONE, YOU’RE THE MAN
You might want to check not only if homes sell fast in certain neighborhoods; but this data may be real hard to find:
Was the home that sold “relisted”, maybe several times, with several price decreases alomg the way?
Its an older money pit home, I assume, how much remodeling money [with receipt proof] was poured into it to get it to pass inspections?
If sweat labor was poured into it; how long was the old owner a slave to the effort; and the equivalent “contractor costs” it would have cost?
I ask these questions because I had a 1953 Bellevue house not too long ago that took me two months to remodel, with me doing half the work [it through my back out too for a month]….sure, I did it for like $75K, but if I’d hired a contractor, try like $200K+ for the same upgrades to get top dollar for the home. Its value in 2007 dollars went up about $100K per an appraiser after my “back aching” work, but I’d never do it again….lol
13
Displaced Seattlite
// Feb 24, 2008 at 9:28 am
JS makes the point about median worth; there are still many homes being sold in Bethesda, MD at >1.2M. Household income is not the driver, obviously. I postulate that the delayed reaction in Seattle is because there were still folks coming from other places with clear equity, and now that’s turned off, leading to less liquidity in the RE market, esp. on jumbo-mortgage homes. My question is, if there are still people with the equity who sell (because they have to, or whatever), are they going to buy RE now? These are the clever investors, I assume, because they have the money. So, if they don’t buy RE, what are they doing with their money? I doubt they stick it in the mattress or freezer….
14
Amy
// Feb 24, 2008 at 9:51 am
Someone asked what people are doing who cashed out earlier? We’re saving money like crazy and patiently waiting. Everyone says trash is cash until they don’t have any. We moved here last June and won’t look at houses until next year. Until then, we’re getting about 5% in s-term CDs, (hey, it’s better than losing money), investing in the down market for the long -term in international and large-cap stock portfolios that pay dividends, and stockpiling reserves so we won’t be penalized when lending standards continue to tighten and we need more cash to put down on a house.
15
Ray Pepper
// Feb 24, 2008 at 10:09 am
“buying right now is an extremely poor economic choice.”
I couldn’t disagree more. Buying in 2 years, 4, or 8 years could be a very poor economic choice. Its about what you buy and what you pay for it. It will always be about that. Educate yourself Washington!! There are tremendous deals that will be coming down the pike every month here in Washington and elsewhere.
Keep bubblizing yourselves into thinking your makiing a correct decision and will be better off in 2 years. The fact is maybe and maybe not. Always be looking! Always Always Always!. There are Gems that people will have to let go. And I think you all know my definition of a GEM…I will restate it…………….
Peppers definition: GEM
Any purchase in the Greater Seattle Market area that if the current mkt continues to drop 20% the Buyer will still have a 10-20% profit in the purchase. In Nevada Gem equates to any purchase that is currently 40% off mkt highs and if the mkt continues to drop another 20% you will still be 10% above water. I closed on one Gem and one March 28. Both 3 year old foreclosures 180k and 190k.
Find Your Gems friends. Wait if you want but always look.
Last day at the Home Show. 40 Shirts left. Many bumper stickers. Lots of Ivars fish !!
Come on down and try to “Grind my Gears!”
http://www.500Realty.net
16
Cougar
// Feb 24, 2008 at 10:28 am
Ray,
Give us some examples of GEMS you have found in King County. I am ready to buy and I don’t intend on living in Nevada!
17
js
// Feb 24, 2008 at 10:35 am
softwareengineer wrote:
… to allege that certain homes in certain neighborhoods are immune from the Jonestone Koolaid Banking Deregulation price crash is totally absurd advice.
It is equally absurd to think that all neighborhoods in King County are going to fall at the same rate. Seattle is a geographic anomaly — it has water on both sides of the city and a lake downtown. This limits the supply of property close to the center of the city. The demand for in-city property increases as the population increases (see Tim’s graph to verify population increase). This demand increase is further exacerbated by the inadequate transportation infrastructure. There are homeowners from the suburbs renting in my neighborhood because they were sick of the commute.
An ebbing tide lowers all boats. However, an ebbing tide does not sink all boats. Just the ones in shallow water to begin with.
18
magnolia44
// Feb 24, 2008 at 10:39 am
Just completed a 95% ltv on grandmas old house here in Magnolia. House is 3x income, monthly payment with the 95% down is 25% of income (5% down allowed us to keep another 45k or so in the bank both loans fixed). I think we got the home around 80 - 100k of peak potential price according to this block. Time will tell if it was a very “poor decision” its scary, but i think we have decline next few years and then 5- 15% then back to normal. Thats my opinion.
Its weird once you buy how i am now a cheerleader, i just saw a house listed on the block directly behind me for a enormous amount, I know it wont sell for that price but even if its close … we are sitting just fine. We will see, i need to get a fresh set of pom poms.
19
david losh
// Feb 24, 2008 at 11:27 am
Pretty charts and graphs; the problem is they don’t show anything. In the past week I’ve talked to more than a couple of buyers who work for Amozon. I don’t know what they are doing or why, but they are moving offices to South Lake Union. These workers are different than blue collar. So far money is not the object for these people who are moving here. They are leaving high paying jobs else where then coming here to work for Amozon. I don’t know why.
Another thing is that i have a listing out off of the 164th street exit. All my charts and graphs show it is depreciating faster than a BMW pulling off of the show room floor. It is getting the most activity of any of my better priced listings. I don’t know why.
This is the Real Estate business. Sellers sell for a variety of reasons, people buy because it makes sense to them. There are over priced listings the same as there are under priced listings. There’s a condo on Capitol Hill today in a concrete and steel building for $400K. It’s one bedroom, big closet, and bath. The view is from down town to north lake union. Anywhere else in any metropolitain city in the world that condo would be $650K to $1.5M. Here in Seattle it sits on the market week after week because Seattle buyers are so special.
The fact is that Seattle is that special. We have tech jobs, import export, international financial markets, and a proximity to Vancouver Canada. The fact you can’t see the money, or that the money doesn’t show up on your charts and graphs, means very little to the price of Real Estate.
Now if you want to talk about housing units, such as town houses, yes those depreciate at a staggering rate. They were never built as Real Estate. They are simply worker housing units. The idea was that they could sell for $250K then lose value until the dirt could be redeveloped. Seattle is special in that buyers did not see a difference between a house and a town house, the same as what happened in San Diego.
As much as the pepper may be abrasive, and as much as I may be from another planet, the fact is Seattle is special on many levels.
20
george
// Feb 24, 2008 at 11:35 am
JS: Solid reasoning, but to turn it around, the close-in micro-bubble has inflated faster and gotten bigger than it has elsewhere. Does that mean prices will hold up? Or do big boats end up bigger trouble when the tide does go out?
What will the fundamentals look like as the national recession hits home? Are we going to see hiring freezes or layoffs like the ones announced @ Starbucks? How about the spin-off affect to the economy from the housing downturn that will hit housing twice?
Time will tell…
21
whats my name
// Feb 24, 2008 at 1:28 pm
Your Seattle Bubble Horoscope for February 24, 2035.
To the victor go the spoils. Although lesser lights knowing nothing more than nominal prices may disagree, your own model of value, developed over 15 years, and based on gold plus a basket of currencies shows Seattle house prices have fallen 35% since July, 2007.
And while your original target zone between the ship canal and N 85th no longer features single family houses, your new target zone in South Everett has much the same look and feel, except for access to nightlife and ethnic restaurants which you no longer care about anyway.
You have located a GEM of 150 square meters on 5 floors. The 10 square meter outdoor area holds a spacious 9 meter patio, and the remaining garden space will not tax your arthritis. You have generously offered full price, subject to installation of an elevator and safety rails in the bathroom and halls. Stupid seller should feel lucky to get it, given the crappy 2017 construction.
22
BanteringBear
// Feb 24, 2008 at 1:29 pm
When people wonder who on earth is buying right now, they need only read Magnolia’s post. Scary is right.
23
BanteringBear
// Feb 24, 2008 at 1:35 pm
David Losh:
I cannot make any sense of your post, and I don’t see any relevant statistical data whatsoever. What are you talking about?
24
magnolia44
// Feb 24, 2008 at 2:15 pm
lol Bantering bear whats so scary?
The fact the wife and I are under 30 and can afford a house over 500k and the piti is 25% of our income? Or the fact we had $100k in liquid cash sitting in the bank and decided to use a good portion of it to buy a family home?
I am not sure i get your point.
25
magnolia44
// Feb 24, 2008 at 2:25 pm
to edit post above I meant to state that we would see declines in Seattle the next year or 2 of 5-15%, then would be back to normal in terms of appreciation.
I am not sure it reads that way with the typos,..
26
b
// Feb 24, 2008 at 2:28 pm
magnolia44 -
You had $100k in cash and bought property with it right now? I hope you don’t have to sell in the next 5-7 years, losing that money will be brutal!
27
frenzied.reader
// Feb 24, 2008 at 3:06 pm
magnolia44, you bought with logic and sensibility. all these engineer-like graph-a-holics know they want prices to fall, and can’t figure out the fact that they’re just too young and inexperienced to know it all. most don’t have wives or children, so the idea of a nest is something they cannot relate too. a rental nest isn’t a good nest but they can’t see that.
even crazy ray says buy. everyone has their own version of why to buy, except those who want the market to crash so they were right. but they are not right, nor are they economists.
follow your own heart and brain. use your brain. it works.
28
Want to live in Wallingford
// Feb 24, 2008 at 3:20 pm
Listing #28027350 in Fremont: Listed at 500k, 2 conforming bedrooms, 1 without a closet, 1 bedroom. Decent house with decent yard, but a nightmare of a basement: pending in 6 days.
Listing #28024819 in Wallingford a house away from the Shell on 45th St: Listed at 475k, sold days after it was listed. I didn’t even get to look at it to see if it was any good, but my guess is it was.
Listing #27191024 in Wallingford on 40th St. Listed at 449k, 2 bed 1 bath, sold in less than a week for 455k, and there’s no where to park at this house.
Listing #27207377 on Dibble was listed at 460k and sold for 465k in 7 days.
Listing #28002352 on 58th St was listed at 515k and sold for 500k in 9 days.
Mind you, we’ve looked at dozens of crappy houses, many of which were priced even higher than the nice ones and they’re not selling. But we can’t find a place that’s not a dump in the Wallingford-Greenlake-Phinney-Fremont area for less than 450k, and the nice houses, provided they’re not delusionally-priced, are going pretty quickly at or near the asking price. I think what is changing in these areas is that only the nice houses are selling, whereas in the past everything was selling instantly at or above the asking price.
29
Jeff
// Feb 24, 2008 at 4:16 pm
Nice job displaying this information. The message jumps out at you and that’s what’s important.
I do have one pet peeve with the chart however. I’ve seen the same mistake quite a few times here actually. Specifically, the title of the chart is incorrect. It isn’t a graph of “Fundamentals vs. Housing” - it’s a graph of 9 different things vs. time.
The 9 things could be described as “Fundamentals & Housing” and it would be reasonable to call the chart just that. Or, “Fundamentals & Housing vs Time” would be an accurate and descriptive title. But “Fundamentals vs. Housing” is just plain not what is graphed.
30
local Realitor
// Feb 24, 2008 at 4:37 pm
Regardless of what ole Ira spouts it is a good time to buy now if you are prudent and look at the market and are buying in a geographical area that is and will always be in demand. Remember these three words…..LOCATION…LOCATION…LOCATION. There are some good deals to behold out there right now.
And yes Ira….there is a market out there where buyers want to buy and sellers want to sell so get off your duff and do something about it. You nor any of the “experts” blogging away out there are going to get in the way or be able to predict bottoms and tops. You have to be out there in the streets and in the hoods to have a clue. Some posters here do, many do not.
Flame away!
31
Ira Sacharoff
// Feb 24, 2008 at 5:10 pm
I’m not sure what I’ve done to gain the enmity of Local Realitor, but I don’t think he’s really paid much attention to what I’ve stated in the past.
Yeah, as a rule I think it’s not a good time to buy. Prices are still too high, and I think we’ll see further drops…Sure, I can predict a bottom…it may not be anywhere close to accurate, but I can still predict…and I hate to agree with David Losh, the Pepper, and Local Realitor, but..they are all correct, I think, in that .there are some good deals out there right now, especially if you are prudent…and I think the Pepper nails it on the head when he defines a deal as something 20% or more below market value.
That said, there are some people paying the price for buying at the top of the market, which locally here I think was about July 2007.
Some people are having their rates adjusted, others will need to sell after a decline in prices…it’s happened in other places with strong economies and we’re not immune, despite water and mountains and double short hazelnut lattes.
32
Matthew
// Feb 24, 2008 at 7:45 pm
“Flame away!”
Here’s a flame for you: Learn how to spell your supposed title. It’s REALTOR not REALITOR.
Troll.
33
Roger
// Feb 24, 2008 at 9:44 pm
Magnolia44, can you please define non-liquid cash? I’m just curious how that would differ from your “liquid cash.”
34
economist
// Feb 25, 2008 at 12:48 am
Seattle is a geographic anomaly — it has water on both sides of the city and a lake downtown. This limits the supply of property close to the center of the city. The demand for in-city property increases as the population increases (see Tim’s graph to verify population increase).
No it doesn’t. The demand for in-city property increases as the number of in-city jobs increases. So how many jobs have to be located in Seattle city, or even King County?
35
js
// Feb 25, 2008 at 2:21 am
economist, are you sure it is only the growth of in-city jobs that increase demand? Seattle is a regional Mecca that offers more art, culture and activities every year. There are multiple in-city universities and private schools with enrollments that are steadily increasing. Tourism is at an all time high.
As I said before, in-city median household net worth statistics by neighborhood would be very interesting.
36
what goes up comes down
// Feb 25, 2008 at 3:20 am
js, how about those sonics? I guess they are foolish for moving away from such a special place :-)
37
what goes up comes down
// Feb 25, 2008 at 3:20 am
local realitor you are a moron.
38
economist
// Feb 25, 2008 at 7:03 am
Seattle is a regional Mecca that offers more art, culture and activities every year.
Well that’s fine, but I think people go to work at lot more often than they go to the art gallery or the opera. Except for a few culturistas, nobody’s going to pay more to live in the core than the burbs if they work in the burbs.
39
matthew
// Feb 25, 2008 at 8:23 am
Not to mention the fact that they have been building downtown like crazy. If you look at TIm’s previous post regarding density, you can see that Seattle still has a long ways to go to become as dense as many of the other cities it compares itself to.
This city still has a ton of room to build downtown, in the core you don’t have to build out, you can always build up.
P.S.
We are not that different from San Diego geographically. They have a border with Mexico to the South, water to the west and mountains to the east. They also have a higher rate of employment than Seattle. How is their housing market doing lately????
40
Everett_Tom
// Feb 25, 2008 at 8:28 am
Not sure how many of you are Three Panel Soul fans (if your not.. it’s a web comic).. but they had a housing comic today that I though was funny.
Seemed to somewhat go along with this post…
sorta..
41
david losh
// Feb 25, 2008 at 8:39 am
Ira why would you hate to agree that the Real Estate market is about sellers wanting to sell and buyers wanting to buy?
My point is that I have met buyers these past two weeks who have come here to work for Amozon. They are looking to buy around South Lake Union. It’s just strange that in two weeks I would meet buyers with the same story.
The condo I mentioned in the concrete and steel building has a 360 degree view. This is another example of Real Estate agents in the Seattle area that would rather sell a new construction POS than something of value.
Anywhere else in the world an urban center has a value to the people who live in the region. We don’t have that here. Here in Seattle we seem to count the working man as the economic basis of our survival.
In New York there is Wall Street and Madison Avenue, San Fransisco has the Financial District. Here in Seattle we talk about Boeing orders. It seems to me that the region wants Seattle to stay the same. I’m just saying it’s going to change.
42
brettro
// Feb 25, 2008 at 8:40 am
Seattle is a geographic anomaly — it has water on both sides
You mean, like, Miami Beach?
43
david losh
// Feb 25, 2008 at 8:42 am
I just read the previous post about San Diego. It’s a naval base set to our southern border. Employment by the government, or for the government always looks rosy.
44
stephen
// Feb 25, 2008 at 8:57 am
The city locations I gather also have increasing huge problems from some articles I’ve read. It seems that the thugs have figured out that folks that can buy 500-700k condos seem to carry more cash on them and wear nicer jewelry…
45
stephen
// Feb 25, 2008 at 8:58 am
‘huge’ is supposed to read ‘crime’…
46
frenzied.reader
// Feb 25, 2008 at 9:03 am
Stephen, I haven’t found that Seattle is much for cash or jewelry. Credit or debit cards maybe, but jewelry? We’re only one step away from grunge, today it’s hemp and natural. Maybe some handmade jewelry.
Crime is rising, but that’s because drug use is rampant, as is a more violent kind of homeless/street patrons.
47
WestSideBilly
// Feb 25, 2008 at 9:19 am
This is what I’ve seen lately in the Green Lake/Phinney area. When I first moved here in ‘06, everything that came on the market almost immediately had multiple above-asking offers, usually with buyer waiving rights to a full inspection. Some of these houses were run down crapholes that were barely livable, going for $400k or more. I swear some of these houses hadn’t even been cleaned since they were built in the 20s, and I assume the buyers had to dump another $50-100k for a remodel.
Now, those properties are languishing on the market. The few properties that I watched that actually sold were reasonably priced (based on 6-month comps), had been remodeled, and will probably turn out to be okay long term. The ones sitting on the market for 3+ months are overpriced and/or dumps.
In fairness though, these properties are not appreciating significantly, and some actually are declining in real price. The Seattle is special, the certain neighborhoods are special mentality will not hold forever - we’re only about 8 months into this. As much as living near Green Lake or on Queen Anne Hill is nice, people will move 10 blocks if it means a significant price difference.
48
pragmatic
// Feb 25, 2008 at 9:21 am
nobody’s going to pay more to live in the core than the burbs if they work in the burbs.
I hate to differ on this when I happen to agree that you should live closer to where you work, but if that was the case why is the eastbound bridge traffic to Bellevue/Redmond so bad every morning?
49
Gary
// Feb 25, 2008 at 9:32 am
—-I just read the previous post about San Diego. It’s a naval base set to our southern border. Employment by the government, or for the government always looks rosy.—–
You are joking right? We have Naval Station Bremerton, Naval Station Everett, Whidbey Naval Air Base, McChord AFB, Fort Lewis and Bangor!!!
So….what were you saying about SF?
50
Gary
// Feb 25, 2008 at 9:35 am
Grr… I meant SD
51
Ira Sacharoff
// Feb 25, 2008 at 9:44 am
David Losh,
IYou misunderstand. I don’t disagree with you about real estate being a market of sellers looking to sell and buyers looking to buy.
I was saying that I actually agreed with you, and “hate to agree” came out of the fact that I just don’t agree with you much…that I take a certain pride in being an “anti” real estate agent contrarian, I’m not supposed to agree with people like you.
52
John
// Feb 25, 2008 at 10:29 am
If we already have had the significant decline some of the places in the country have had, then now would be a safer (still not good) time to buy. But from all the financial news I am reading, the government is still trying everything it can to prevent a recession (which I think is ridiculous) and the banks are trying to fix the credit mess and help the bond insurers. That all just doesn’t sound like real estate has bottomed.
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economist
// Feb 25, 2008 at 10:44 am
why is the eastbound bridge traffic to Bellevue/Redmond so bad every morning?
Well first of all Bellevue/Redmond aren’t cheap, so they aren’t quite what I was talking about. Second two income families are the norm these days and often the two spouses work in different areas.
But as I say aside from a few urban fanatics people just aren’t going to pay more to live in the core when they work in the burbs. I can’t think of a city anywhere that has an expensive core without a lot of good jobs downtown. I can think of lots that have a cheaper core without good jobs.
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softwarengineer
// Feb 25, 2008 at 10:49 am
MOST OF THE BUBBLE BRAINS ARE WAY TOO POSITIVE?
Check this out, the positive inflationary effect of housing decreasing in price, may be bottoming out?
See the proof:
http://biz.yahoo.com/ap/080225/wall_street.html
I hate to pop their bubble’s back on the rise negativity allegation; but even the MSM news article above makes it clear as states in part:
“….”The home sales, even though they were weak, showed some signs of stabilization,” said Chris Johnson, president of Johnson Research Group. “People will get very excited if they sense a bottom in the financials because they’ve been the Achilles’ heel of this market.”
However, he warned that the market still remains highly volatile — and that the Dow Jones industrials can fluctuate back and forth into positive territory several times during a session. The market this year has been prone to quick swings as investors buy on dips and then quickly cash out….”
Sounds like those prescription drug ads that promise the moon, but side affects may be your eyes fall out…..
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softwarengineer
// Feb 25, 2008 at 10:54 am
ECONOMIST, YOU’RE TOTALLY WRONG
Two income families are not the norm. They’re the minority. The average household in Seattle is 1.2 workers. That’s about a single worker per household on the average. This statistic hasn’t changed much in 20 years either….check out the Census Bureau data if you don’t believe me.
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Joel
// Feb 25, 2008 at 11:15 am
If desirability was the key driver of price increases during the last few years, how come rents didn’t follow?
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stephen
// Feb 25, 2008 at 11:24 am
frenzied.reader, good point.
Maybe nothing to it. The couple of articles I read made it sound like a number of street thugs now target the new condo projects and folks are in real danger just taking a walk or going to diner. Which is why most move to the downtown condo’s in the first place. I tend to over worry about this as I am unlikely to just give’em what they want and thus more likely to get the crap kicked out out me or worse :-)
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mikey
// Feb 25, 2008 at 12:04 pm
our favorite guru, lawrence yun, calls a bottom in today’s AP release. comments pls.
“Lawrence Yun, chief economist for the Realtors, said he believed the housing market may be on the verge of bottoming out with a rebound expected to start toward the end of this year.
“Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales,” he said.
He said he expected demand to be bolstered in coming months by congressional action on the economic stimulus bill to raise the caps on the size of loans that can be backed by Fannie Mae and Freddie Mac and the Federal Housing Administration.”
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explorer
// Feb 25, 2008 at 1:26 pm
What economist may have been thiking, is that it is the norm to base PRICES upon two income families, for SFH’s and just about everything else in this decade around here.
Moving the goalposts is how things are justifed as “affordable” or not. Seem expensvie, well just refine what “expensive” means until it becomes affordable again. The Feds do that all the time….
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Olaf
// Feb 25, 2008 at 2:24 pm
(Sigh) Like all previous graphs and numbers presented by Tim, these numbers LOOK like the bubble should be bursting. Any reasonable analysis would conclude that prices in Seattle are unsustainable.
I’ve believed this for three years, as we wait to make our move and buy our first house.
And yet, and yet… this weekend we broke down and decided to make an offer on a house in Maple Leaf that we liked. It was still overpriced — from an objective standpoint — but it was reasonably priced compared to other offerings we’ve seen. And it was gone in five minutes. We never even had a chance to make an offer. Same thing happened on a dumpier place in Ravenna, last week.
These prices are insane — I still believe in that. But there’s still too much "golly"ed money sloshing around this town. Maybe all we can hope for is what we already got: a breather from the go-go, no-inspection, bidding war frenzy of 2005. But actual price decreases? Maybe not?
Guys, I’m starting to lose my faith in the Seattle bubble… I know it’s heresy… but there it is.
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Jess-Pumpkin
// Feb 25, 2008 at 3:01 pm
Wow, I am so with you, Olaf. We are looking in the same areas, and I know which house in Ravenna you are talking about (I couldn’t get to it fast enough either). I’ve been watching and waiting since Aug. 06 with nary a pop to be heard in our target areas. We finally gave up and decided to go for it at the beginning of the year, and were promptly outbid last month on a house in Magnolia (someone on this board helped me recognize that they probably did us a favor). We put in an offer on another house that we have fallen in love with today at 12:30, well below comps for the rest of the neighborhood, and we were the FOURTH offer they heard today! The house has only been on the market for 5 days. I have no idea what’s going to happen for us, but I can certainly tell you that it is NOT a buyer’s market in-city (note: I wrote “in-city” and not Bellevue, Bothell, Lynnwood, Sno-Ridge, or wherever else you all are swimming in a sea of real estate signs).
I wish double good luck to “Want Wallingford” — that was our original target area so that our kid could walk to and from school. The Wallingford/Greenlake/Phinney areas are soul-crushing for buyers who cannot go above $650K.
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Ira Sacharoff
// Feb 25, 2008 at 3:32 pm
Olaf and Jess,
Keep the faith! I know, as an agent who shows property, that it can be really frustrating seeing these places disappear, especially in Wallingford/Fremont/Ballard/Greenlake, etc…the norm for these areas are insanely expensive houses so that when something affordable shows up, even an ugly dump, it seems to get snapped up really quickly…
It’s one thing to read about how prices are way too high and bound to fall, and another to be out there seeing these places disappear.
You might consider looking in-city but further south. Parts of Beacon Hill and parts of West Seattle and Upper Rainier Beach near Kubota Gardens don’t have the “coolness’ factor of some of these other neighborhoods, and they stay on the market longer.
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js
// Feb 25, 2008 at 3:47 pm
…But there’s still too much "golly"ed money sloshing around this town.
As I’ve pointed out twice earlier in this thread, median household net worth is a critical factor that Tim’s graphs do not show.
How else could markets like San Francisco, NY, Hawaii, and Boston have supported median salary/price gaps much larger than ours for so long?
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Jess-Pumpkin
// Feb 25, 2008 at 3:56 pm
Just got a call from my agent — despite our escalation clause for $25K above asking, we lost to someone who offered $50K above with no contingencies at all. And we were not the 4th offer but rather the FIFTH offer. uggghhhhh!!!!!
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Jess-Pumpkin
// Feb 25, 2008 at 3:56 pm
thanks, Ira~
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S-Crow
// Feb 25, 2008 at 4:27 pm
And therein lies the conundrum that so many buyers run into. A property selling for tens of thousands above asking because of several buyers vying for it. Soon, a homeowner will utilize these homes as a comp and justify their asking price. Thus, the upward price escalation. Is is enough to drive buyers crazy and their agents too. Not again!
Is that normal appreciation due to pent up demand and a lack of housing stock, low interest rate environment and borrowers with healthy downpayments? I know there are several properties I’ve looked at in person that have lanquished for months and months (one for well over a year), and today they have sold signs on them. A couple were purchased in late 2007 and the asking prices were above and beyond what they sold for just a year or so ago. We are talking 30 miles north of Seattle.
Is this the market or just buyers flush with cash or buyers woefully misinformed?
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Jess-Pumpkin
// Feb 25, 2008 at 5:00 pm
This house that I loved and did not get was under-priced for the comps of the neighborhood (about $90 less per ft2). I should have believed my husband when he told me he thought they were looking for a bidding war.
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The Tim
// Feb 25, 2008 at 5:13 pm
It’s stories like these that have inspired me to start making the neighborhoods posts. I find it quite interesting that we’re at a time when some neighborhoods around Seattle are still seeing a relatively hot market, while others are clearly stagnating. If you have any specific data you’d like to see broken down by neighborhood, let me know and I’ll see if it’s something I can get my hands on.
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david losh
// Feb 25, 2008 at 5:22 pm
People like whom? Me, I work for a living. My wife and i run a cleaning company. We buy and sell properties. Buying is always easy. Selling has proven to be a little tougher.
The people talking about Wallingford and Maple Leaf are perfect examples of the perfect storm. Both properties they are lamenting are pretty much crap. They are well presented to the market place and buyers fall all over themselves to buy them. At the same time some really good properties sit on the market.
What ever happened to agents making offers on over priced listings? For that matter why don’t agent show properties that have been on the market for more than two weeks? Why don’t agents get out of the office and look at properties to figure out what’s good and what isn’t? Why don’t Real Estate agents know anything about construction, Real Estate Law, negotiation, market research, economic forecasting, land use codes, and the list goes on? Why do Real Estate agents think they are there to open doors and write up the paper work?
People like whom?
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TJ_98370
// Feb 25, 2008 at 5:23 pm
I think what we are witnessing is the result of a phenomenon known as “dark income”. Dark income has been suggested before on this blog awhile ago. It is similar to “dark matter” in astrophysics. Like dark matter, dark income cannot be observed directly but can be detected by it’s influence on objects and conditions. There is some debate whether dark matter really exists and I believe the same can be said about dark income.
Our most current theory about the structure of the universe is based on something that is unobservable and may not actually exist. If it can happen in physics, it can certainly happen in real estate finance. The funny thing about physicists crazy ideas though, every once in a while they come up with things like nuclear bombs and nuclear bombs are hard to ignore. (Note: Some observers claim that the real estate industry has developed their own bomb. It is sometimes known as ” creative financing”.)
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Alan
// Feb 25, 2008 at 5:28 pm
Buying is always easy. Selling has proven to be a little tougher.
Funny, I’ve found buying and selling to both be easy. It’s buying low and selling high that I find to be the tricky part.
Granted, I’ve only been involved in two properties from purchase to sale.
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Alan
// Feb 25, 2008 at 5:30 pm
I’d forgotten about the dark income meme.
I wonder if dark income has any relation to black swans.
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Ray Pepper
// Feb 25, 2008 at 5:41 pm
****Olaf******
Whos your Agent?
Whats the address of subject property that you missed out on? How about the one in Ravenna?
Sounds to me like your Agent is NOT on the ball. Your offers are lacking in some respect?
Losing out on two deals in this mkt? I would look at myself and my agent and ask why have I lost out on both these “over priced deals”.
Sometimes the “entire” story must be told.
http://www.500Realty.net
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Angie
// Feb 25, 2008 at 5:58 pm
I wonder if dark income has any relation to black swans.
Kind of the flip side of the goose that lays the golden eggs?
Jess, yikes, that sucks. I wish you better luck soon. You too Olaf.
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Jess-Pumpkin
// Feb 25, 2008 at 6:20 pm
Thanks for the reply, Tim. I’m not really sure what data would be helpful except when, oh when, will this bubble finally pop in the city? My theory is that a few years ago people in the market would overpay for anything, ANYTHING (houses on 4-lane arterials, next to grocery stores, overlooking I5, next to the parking lot of Chiangs Diner on Lake City Way, etc), and now they cannot sell. The other houses glutting the market are extremely over-priced and poorly done flips (see the “audacious renovations” thread in the forum). Uh uh, I will not bite. Now these are the houses that are sitting forever, making the DOM for N. Seattle go up and us searchers scramble for the good properties when they do come on. Everyone talks about record-breaking inventory, yet my agent and I have only had 2-3 houses worth looking at the last two weekends. So when I do see a property like the one I didn’t get in View Ridge today, I — and four other buyers — try to jump on it as fast as possible.
David Losh — I have no bone to pick with you. I am not an agent/pro-RE nor a die-hard bubble-head. But this comment has irked me:
“The people talking about Wallingford and Maple Leaf are perfect examples of the perfect storm. Both properties they are lamenting are pretty much crap. They are well presented to the market place and buyers fall all over themselves to buy them. At the same time some really good properties sit on the market.”
I can tell you that I have personally seen every SFH that fits the needs of my family and is worth looking at on the MLS in the zip codes 98103, 98113, 98105, 98115, 98125, and 98117 (i.e. not on N. 85th or some such problem). Do you really think that someone who visits this blog regularly would not be super-analytical and thoroughly research the market and properties? Do you really think that we (that is, we who read more than the RE section of the paper) would be so easily swayed by BS staging, marketing fliers, and granite f—ing countertops that we would overlook “really good” properties? Please show me some good examples that have 3+ bds, at least 1800 ft2, lots bigger than a postage stamp, and are not on busy streets or next to gas stations.
Sorry everyone (and David); I am a woman scorned today.
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laxtosnoco
// Feb 25, 2008 at 6:22 pm
The truth finally surfaces about Mr. Losh: “People like whom? Me, I work for a living. My wife and i run a cleaning company.”
See: http://www.seattlehousecleaning.com/house-keeping-aboutus/house-keeping-aboutus.aspx
I’m not knocking running a cleaning business, but this is the first I remember Mr. Losh mentioning anything other than his history as a ‘contractor’ or ‘real estate investor.’
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b
// Feb 25, 2008 at 6:51 pm
Jess -
If you are stressing out this much about just buying a house, I would hate to see what happens once you own it! I think you have waaaay too much invested in the idea of home ownership, and it would probably be better to just forget about it for a year, not look at anything, and come back with a fresh perspective. If you are not willing to do something like that then you need to just buy now whatever you can for whatever price, and gain the status you crave. Trying to buy something rationally that you are irrationally obsessed with is just going to make you go crazy.
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david losh
// Feb 25, 2008 at 6:57 pm
What we do is troll expired properties, canceled listings, FSBOs and make offers on over priced listings. In both market places of Wallingford, or Maple Leaf I door knock looking for properties people are looking to put on the market.
Yes, I’m an investor and represent investors in Real estate transactions. Anyone who knows me will tell you I toy with the idea of having a career in Real Estate. Being a Real Estate agent is a tough way to make a buck. Sure there are scroundrels in any business, but there are some great Real Estate agents.
If you are looking on the internet, in the paper, or getting a panic phone call to come see that new listing quick, you need a new agent.
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magnolia44
// Feb 25, 2008 at 7:21 pm
we closed today, its all a done deal. I have now turned cheerleader and want the home behind me thats for sale to sell for at least 90% of what its listed for. Its funny how ownership changes your mentality, to those that frequent here you will know what i mean once you buy. I was a bubblehead for 3 years, now i am a homeowner.
Who knows, Seattle could (thats a big stretch) hold strong. No one truly knows whats going to happen Seattle has held strong so far and homes are starting to sell. Good luck to the fence sitters I was once in your shoes.
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John
// Feb 25, 2008 at 7:21 pm
b, can you imagine what she is going to be like if she buys a home and its value drops 30% in a few years?
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magnolia44
// Feb 25, 2008 at 7:24 pm
BTW thats closed at a fixed rtae of 5.75%, not sure we see it again the way the bond has been acting. I think the govt does whatever it can to help home prices, they will only fall so far if WA can have anything to do with it. Yes the cuts have done nothing so far…in other places, last i checked the median held strong here in Seattle despite 30% drop in sales.
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economist
// Feb 25, 2008 at 8:29 pm
Two income families are not the norm. They’re the minority. The average household in Seattle is 1.2 workers.
Households include single people and single-parent families, as well as retired people. For households including both a working age husband and wife, the norm is that they both work.
Really isn’t that obvious? How many working-age couples do you know where only one spouse works? Aside from those with pre-school children, I’ve never met any.
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jess/pumpkin
// Feb 25, 2008 at 8:38 pm
Yeah, OK, irrationally obsessed — that sure is the pot calling the kettle black. The only moderation on this blog comes in the form of Ira, S-Crow, Deejayoh, Angie, and occasionally Tim. All I hear from the rest is the standard broken record mantra, with obviously no idea what’s really happening in the market. I was so grateful to find this blog last summer, I found it so helpful and informative, but the screeching, insults, and putdowns are too much.
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Matthew
// Feb 25, 2008 at 9:29 pm
Magnolia,
The .gov can only do so much to protect the housing market. The bottom line is that housing has become unaffordable in most areas, and the only thing that is going to solve the problem is for prices to come down. They can delay the inevitable, and sellers will be reluctant to lower prices, but the increases in inventory are going to eventually cause prices to fall.
The situation in the financial markets has only begun to play out. The bond market is in dissarray, banks are being squeezed, and the majority of ARMs have yet to reset. We’ll see how this plays out, but its not looking good.
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what goes up comes down
// Feb 25, 2008 at 10:17 pm
jess, I think it is obvious that you are somewhat obsessed with buying, take a look at the inventory numbers over 10000 in Feb. Why not take a break and wait until the end of summer? Unless you think the market has bottomed and if so just state that — but why would anyone getting in a bidding war in this market?
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John
// Feb 25, 2008 at 10:44 pm
jesse, irrationally obsessed is about right. It is just like the fixation on getting a diamond ring for engagement, which I often use as an example of irrationality. Home ownership is the American dream and diamond is forever are both marketing hogwash.
I still don’t get what is so bad about renting. Half of my childhood was spent in a rental and I didn’t notice any difference. We lived in one place for a few years, then moved onto another for a few more. Same neighborhood, same school. My parents made a bundle in real estate later. They were the dreaded flippers. They are retired now and are renting probably for the rest of their lives. They’d rather collect 5-7% interest and appreciation in foreign currencies. A home is just an indoor space. Take the emotion out of the decision making and everything is clear.
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Olaf
// Feb 25, 2008 at 11:07 pm
There’s something to the “dark matter” theory. There’s clearly a deep reservoir of capital here, propping the prices up.
God forbid Seattle become another San Francisco… An expensive theme park for tourists and a deracinated urban elite. U Village on steroids. Ugh. I don’t think I want to stick around long enough to watch that happen.
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