Here’s an interesting comparison.
As of December’s Case-Shiller data, prices in San Diego County have fallen nearly 20% from their November 2005 peak. As of last month, their median price for all homes sold (single-family and condos) was $415,000 (source: San Diego Union-Tribune).
In the Seattle area, December’s Case-Shiller put prices off 4% from their July 2007 peak. Last month the median price for all homes sold in King County was $395,000 (source: NWMLS).
Now, if you listen to the so-called real estate “experts” around here, they will tell you that prices here in Seattle are just going to “plateau” and stay flat for a while, before continuing their ever-upward journey to the stars. On the other hand, no one in their right mind believes that San Diego’s price drops are over yet, given the continued severity of the foreclosure problem down there.
So let’s project the rest of this year for King County and San Diego County based on two allegedly reasonable assumptions:
- King County home prices will remain flat through December.
- San Diego County home prices will continue to decline, at roughly half the rate they have dropped in the last six months.
Here’s what that would look like:
If those two predictions were to hold true, homes in sunny San Diego will be seven percent cheaper than here in King County by the end of the year. I’m probably just ignorant of how super-great-awesome the Seattle area truly is, but to me, that doesn’t seem very likely. I predict that if such a turnaround does take place, it won’t last long once people realize that they can move back to California and buy a home for less money than in Seattle.
Wow, the median prices between here and San Diego are getting pretty close. Give it a few more months and San Diego may be cheaper (if only for a little bit) and may have to jump ship to So-Cal.
Sunday’s forecast high: Seattle 49, San Diego 76.
Good thing no one wants to live in San Diego!
Man, those 76 degrees sure sounds good at this time of the year! It will truly be amazing if people endup being priced out of Seattle but have the option to buy in SoCal.
Oh, what are you guys talking about? I like it cold and gloomy all the time. That’s what make us special. Summer is sooooo overrated.
Let’s see…..a year round sunny “Greek Island” climate or 9 months of wet gloom with a “hit or miss” summer (summer of 2007 was a washout but summer of 2006 was great).
San Diego would be a no-brainer for me. I love the SoCal climate. One wonders if all the Californicator Equity Locusts aren’t kicking themselves for “just renting” for awhile in CA before snapping up something much nicer with their CD-enhanced wad of cash. Instead they are gonna ride the RE roller coaster down in gloomy Seattle….huddled by the fireplace for months during the long gloomy winter and losing hundreds of thousands for the right to do so.
Yep, we are special.
That’s cool, Tim. It’s a pretty dramatic graph. One question that immediately popped to mind, however, was what’s the historical difference is price between SD and Seattle, pre-bubble years?
In 1997, about the time I think both SD and Seattle began to depart from fundementals, Seattle and SD’s median home price was essentially the same.
Does that mean they will end up at the same place? Dunno. My guess is that SD won’t be cheaper after all is said and done, but I’m not sure how much of a premium it will have either.
I love the climate in San Diego, but I have visited the place a lot and I don’t know if I would want to live there. It just feels like there is more crime there than here (although most of Cali that I have seen has that feeling nowadays, apart from Napa).
The other thing is – where would you work there? I don’t see a whole lot of work for computer folk there. Lots of tourist work though.
Sad to say, all things equal, I probably would rather live here. But I am over 30, so different things are more important to me now. 5 years ago I would love to have moved to SD.
Tim,
You have to look more at the amount of large developments and density of price drops in those areas. As your post the other day pointed out, areas in Washington (south and north of seattle proper) where there were large developments of single family homes prices are dropping too.
Thus far in every market nationwide in order for prices to drop substantially in an area other than Detroit or Cleveland you need big single family home developments where mortgage brokers and builders worked together to put many new buyers into new houses using exotic financing concentrating the effects of the resets and foreclosures in those areas and increasing the number of desperate sellers putting downward pressure on prices. (In Detroit and Cleveland brokers managed to do it without developments to existing homeowners)
Without looking at the financial situations of the specific groups of homeowners in places where there were many new homeowners or large turnover from stable to new homeowners saying San Diego is sunny more days of the year so their housing prices should be higher is just as silly as saying a house is a good investment for everyone.
Sounds like Seattle real estate needs to start taking some more performance enhancing drugs.
I lived in the SD area for eight years and absolutely loved it. While Seattle is ’special’ in my eyes (not Pink Pony special though) SD has us beat in so many ways. If I could get the job I have now in SD I would move in a heartbeat. But as Ben pointed out there just isn’t the IT work down there as there is here.
SD “pre bubble” average price, inflation adjusted, was around 300k.
Seattlee “pre buble” average price, inflation adjusted, was around 200k.
Heres the links: ]
Seattle: http://mysite.verizon.net/vodkajim/housingbubble/seattle.html
SD: http://mysite.verizon.net/vodkajim/housingbubble/san_diego.html
Looks like SD has a historical premium of 50% compared to Seattle. Don’t know if the numbers/graphs are Case-Schiller or not. If they aren’t, then they wouldn’t compare 100% with Tim’s graph/numbers. My guess is the premium would be just about the same using Case-Schiller numbers or just Average selling price numbers.
steve
I just realized that the 50% premium rule held up between seattle and SD even “post bubble” right up until January 2006(see Tim’s graph). Average Case-Schiller price for Jan 2006 in SD was 500, average CS price for Jan 2006 in Seattle was 350. 350 x 1.5 = 525. Close enough.
Looking 2 years ahead and using SD as a guide and the 50% premium rule, prices in Seattle (CS) would be 276K (.666 x 415k). A nice 30% drop. And SD is still dropping.
Holly Crap Batman!!
You can’t really use the Case-Shiller index to calculate the premium between any given areas, since every city is indexed to 100 for January 2000. They don’t give actual dollar amounts, just a rate of change compared to the past.
The graph in this post is based on NWMLS data (for King County) and DataQuick data published in the San Diego Union-Tribune. Median prices are really the only way you can compare the historic premium between two different regions.
Very interesting comparison indeed Tim. To “normalize” the data we need to consider a few other factors: Avg income in SD vs Avg income in Seattle. I am guessing historically there wont be a real difference between the two. I would expect San Diego to have higher prices than Seattle historically though simply because of better climate.
Another critical question is home equity to mortgage ratio. In King county right now we are still pretty much at peak prices (there has been a slight drop but not too much). Although the signs are obvious, people are dropping prices in smaller amounts right now (5K-15K). Remember that these are “virtual drops” from overinflated values left over from the bubble.
Soon (another 3-4 months) sellers will realize that A: buyers arent willing to commit at these prices. B: People simply cannot buy (at least first time home owners) at the current prices because loans are difficult to obtain. That is why we are seeing contingency sales as opposed to real sales. As inventory grows, so will the pressure.
Most under duress will be the people who purchased 600/700K houses in late 2006 and early 2007 (now worth 550K/650K in todays market and more realistically 400/500K 1.5 years from now) and have double mortgages with an older house they thought would sell for 500K/600K. If they are wise, they will drop prices real fast (20-25K) because believe me, the fed has dropped interest rates by what is it 3% in 3 months and the fixed rate has moved down by only 0.5 percent.
That will snowball into comparisons with other people who are not necessarily tapped out (took out home equity loans of 50-100K)but still want to sell before the market really tanks. I think that snowball effect is what you see in the San Diego graph from Jun 07 to Dec 07. Its the initial inertia of homeowners not accepting reality and then suddenly realizing they better get ahead of the curve. Seattle has always been behind the curve during this real estate boom. I dont see any reason why it would be different for the bust.
Cool graphs steve-o. The median in the graphs would imply a 57% drop from the peak in SD and a 50% drop from the peak in Seattle to get to the inflation adjusted pre bubble levels. That strongly contradicts the people saying that Seattle and SD is not comparable since we had a much less appreciation here.
I went back and realized that your graphs are not CS, just average. Well, I’m pretty sure that historical graphs in the links I posted are also average price, so the 50% premium should apply to your chart as well, yes? So I still stand by my comment that in 2 years Seattle is looking at a 30% drop using the SD premium rule. Not sure if the rule will hold up, but it seems to have held up for about 20 years now.
One thing: comparing the graphs of Seattle and SD historical average price, the 50% premium rule applies at certain locations along the chart but SD has more volitility and the premium was only 30% or so in the mid 90s and about 100% in early 2000s. I’m shooting from the hip here with my numbers. But I’m pretty sure I’m in the bal park.
Tim -
You need to do this similar comparison for the San Jose / Silicon Valley area. Already new condos here are approximately the same price as Seattle new condos (which is ridiculous). It won’t be much more than a year that, if Seattle holds on, homes will be similarly priced as well. I think the choice between the rainy mini-valley and the sunny real silicon valley will make things a whole lot tougher for Seattle tech companies. I imagine M$ would expand its Mountain View headquarters quite a bit more if that becomes the case.
If San Diego’s prices can drop 20%, I don’t see why they can’t do so here. San Diego has had a strong jobs base and population growth (until very recently). Permitting is every bit as difficult down there as it is up here. Most of the new developments were far from the center of things, requiring long commutes. Just like we see here with our remote burbs.
We’re just behind by a couple years.
steve-o, I agree with your rough estimates there. That’s exactly what I’m getting at in the post. Nobody has offered any real reasons why Seattle should suddenly command a significantly larger premium than it did just 5-10 years ago.
patient, you probably weren’t around this long ago, but I looked at the “we had less appreciation here” argument back in October 2006, comparing King County directly to San Diego, including the affordability factor with incomes. The results were somewhat surprising.
The Tim, I can’t remember when I first starting lurking on SB, it was around when a suggestion of the readers coming together to fund a billboard. It was in the “open thread” era, probably prior to Oct. 2006. I must admit I had forgotten that post. From steve-o’s graphs though it seems like with a bit of a larger bubble scoop the difference is far less than in the scoop you used in that post.
Regarding the argument that California is so overbuilt the last years and Seattle is not these stats from the US census bureau are interresting:
http://factfinder.census.gov/servlet/GRTTable?_bm=y&-_box_head_nbr=R2502&-ds_name=ACS_2006_EST_G00_&-_lang=en&-format=US-30&-CONTEXT=grt
We also had a higher percentage of new buyers of all ages of homes:
http://factfinder.census.gov/servlet/GRTTable?_bm=y&-geo_id=01000US&-_box_head_nbr=R2504&-ds_name=ACS_2006_EST_G00_&-_lang=en&-redoLog=false&-format=US-30&-mt_name=ACS_2006_EST_G00_R2502_US30&-CONTEXT=grt
This is all great information guys, thanks. I’ll probably use some of this data you all are digging up in a future post.
Great graphs. Having moved up from SD a 2 years ago, I stay abreast of housing trends down there. The SD MLS is skewed a bit by the South County (Chula Vista, San Ysidro, National City), all places that are not as glamourous as Central or North County. Housing is going down in all areas, but the impact from the south side is what is driving the drastic declines. So, don’t pack up and move just yet… True the IT jobs are limited, but there are some great companies down there (Sony, Qualcom, Sempra, a plethora of biotech, and don’t forget the huge military impact and the housing allowances for personnel to live off base)
Regarding mediterranean climate areas they are definately special. I think anyone who has lived in one or vistied one will agree that the positive impact on quality of life is huge from this climate. So with other important factors being similar or even moderately stacked against them they deserve a premium towards areas like Seattle in my opinion.
http://en.wikipedia.org/wiki/Mediterranean_climate
It’s obvious that Seattle is worth more because Bill Gates is worth more.
Ubersalad:
But Bill Gates lives in Medina.
Huh. I had done a quick Google search which turned up this page:
http://www.laalmanac.com/economy/ec37.htm
Which shows a median price of 185K for San Diego in 1997… and now that I like through to Steve-O’s post, I see the exact same thing. Around 185K. Almost exactly what is in Tim’s spreadsheet for Seattle in the same year.
Where’d you get 300K, steve-o?
by Seattle I meant King County.
A little averaging adopted to the inflation adjusted pre-bubble graph in the link posted by steve-o gives close to $300k.
The climate in Seattle is better than the climate in New York, therefore a home in Seattle is worth more than a home in New York.
Seriously:
While climate is important and doesn’t change much from decade to decade, things like the local economy and quality of schools can change a lot from one decade to the next.
and has Seattle made such change in local economy or quality of schools?
I got it! I know why Seattle has appreciated so much:
http://seattletimes.nwsource.com/html/localnews/2004295455_webforbes20m.html
The quality of schools and safety argument is pretty useless when you look at large metropolitan areas as Sand Diego or Seattle. Each area have good and not so good neighbourhoods, schools and crime rate. It’s my experience that the difference between good neighbourhoods in different counties of this scale is minimal. The difference of the not so good hoods is big. I’ve lived in a good hood in one of the most violent and crime ridden cities in the world for many years it felt safe and we never had an incident and neither did our friends and neighbours. The schools were top notch as well, though private.
Actually the quality of Seattle city schools are very low. Let’s be real, it’s Redmond, Kirkland and Bellevue we’re really talking about here.
we should push for Pierce County to annex all those borderline cities…then KC would truly be the top county.
patient:
What was the proximity of your ‘hood to the violent inner core? That’s a big factor in whether the criminals will make the trek out to the richer burbs to commit their crimes.
“A little averaging adopted to the inflation adjusted pre-bubble graph in the link posted by steve-o gives close to $300k.” – Patient.
First, there was a small bubble in the late 80s/early 90s in Cali. You would be best to avoid that time period – that’s why I picked ‘97 (before looking at the data, btw).
Second, if you are looking at inflation adjusted in SD, you better darn well compare it to inflation-adjusted numbers in Seattle.
But why not just make it easy and compare unadjusted numbers, which we have without the calculation. Which happen to be nearly identical.
This isn’t a horrible thing. SD went up higher, and it’s still got a long way to fall.
Imagine Calvin and Hobbes leaving the house in the morning together. Think of SD as Calvin going to the top of the hill, but dropping Hobbes in a snow bank 2/3rd of the way up.
How I imagine this playing out is Calvin cruising down the hill, and grabbing Hobbes by the arm and he flies by. They both end up in a giant garage sale far down the hill, it’s just that Hobbes didn’t join the ride until later and didn’t descend quite as far as Calvin.
No biggie, but we should be honest about where they started so we have a better idea of where they’ll end up.
I think to really be real the differences between Seattle and San Diego has not changed that significant. What changed was the access to easy money coupled with the financial and psycological impact of the dot com crash and 9/11 which raised the home as the prime private hobby and investment. It seems like both Seattle and San Diego were exposed to similar bubble frenzy and will most likely face the same correction though slightly offset in time.
Hooray for Calvin and Hobbes analogies!
Bili, no intention to be dishonest. Check both graphs provided by steve-o. Seattle is almost perfectly flat on $200k for inflation adjusted median and SD is $300k with very mild averaging. Using the nominal values Seattle is on about $150k and SD on $200k.
Heh. I aims to please, Tim!
Looking at the data a little more closely, there does seem to be a discrepancy between steve-o’s linked data and your spreadsheet, however. Probably the geographic mix, as they are both SFH.
Maybe SD’s baseline is a bit higher than Seattles, depending on the area you are calling Seattle.
Yeah, patient, I finally got around to doing that!
patient // Mar 20, 2008 at 4:10 pm
I think to really be real the differences between Seattle and San Diego has not changed that significant. What changed was the access to easy money coupled with the financial and psycological impact of the dot com crash and 9/11 which raised the home as the prime private hobby and investment. It seems like both Seattle and San Diego were exposed to similar bubble frenzy and will most likely face the same correction though slightly offset in time.
That’s true the Seattle downtown condo towers are a disaster. However similar towers in Kirkland, Bellevue and Redmond are doing very well. You think it might just have something to do with crime?
condos doing well in Bellevue? where?
Ubersalad, check this out:
http://seattlecondosandlofts.com/2007/03/bellevue-towers
Bellevue Towers is another condominium project that is re-shaping the heart of downtown Bellevue. But, unlike the other projects, Bellevue Towers may well become one of Bellevue’s iconic buildings. At 42 & 43-stories, the sleek glass-enclosed towers will be among the tallest residential buildings in the greater Seattle area, not just Bellevue.
Downtown Bellevue condos beckon to younger crowd:
http://seattletimes.nwsource.com/html/eastsidenews/2004273774_condos11e.html?syndication=rss
“It’s not uncommon to see a 28-year-old tech worker in a $1 million condo,” said Dean Jones, president of Realogics, a Seattle company that markets several Bellevue residential projects.
where’s the part that says it’s doing well? and where’s the math that 28 years old tech-worker can afford 1 million condo?
“where’s the math that 28 years old tech-worker can afford 1 million condo?”
Obviously, the 28 year old tech-worker makes $300,000, which is the income required to support the million dollar mortgage.
oh sorry, and obviously he had been saving 20% of his income while making ~300k since 23-24.
Bingo. I’ll take Seattle passive aggressive over California me me me. Not sure I could trade the mountains for the (real) ocean either.
I have hearsay that says a lot of Microsofties and other folk are trying to get out of downtown Bellevue condo contracts they did as investments to flip.
Ubersalad // Mar 20, 2008 at 4:59 pm
oh sorry, and obviously he had been saving 20% of his income while making ~300k since 23-24.
Must be one of those brilliant geniuses that already has 20 patents…
Lincoln Tower gave a lot of false investment hope to downtown Bellevue condos…5% down and turn high double figure profit on the value of the home upon completion, why not?!
A friend of mine is living w/ roommates in a large Kirkland house, ~800K, owned by two 20-somethings. They own 3 other similar houses. Or at least they did until just recently when they sold them all after only a few weeks on the market, unfortunately for a profit it seems. They had the cajones I guess.
sadness is that I could have done the same thing…my coworkers all made a killing…
keep grasping guys…keep grasping lol
We might just survive this whole thing ok… 10% decline would be a victory and we have a long way to go until then. Just imagine the mantra when Seattle survives the crisis, govt bailouts kick in (if Hillary gets her way) and then in 4 years we resume normal appreciation. Imagine the mantra, people will throw Seattle (core downtown area not outer areas) in with the bay area.
Its all psyche, and Seattle may just survive, and if we dont i have a roof over my head and a locked in payment. Good luck.
It’s, like, totally not uncommon to see a 28 year old tech worker totally over their head in bad financial decisions that they will eventually be able to work their way out of. Banks love them in the same way that wolves love to chase calves instead of bulls.
I have the feeling–my heart tells me this–that somehow, some way, Seattle/Eastside is going to escape the worst of the housing downturn. Like no return to 2004 prices. Anyone else feel that way? My brain says the opposite. My heart has a better track record…
If all else fails, we can just open our border for Canadians to invest and bail us out.
Markor,
I have the same feeling, it may just happen. 9 months into the credit crisis, fed bailouts govt bailout talk…. we have not even seen rough times here yet so coult it be that they get held off… could it?? time will tell
Markor, read my comment above about the snowball effect. Just remember Seattle and Eastside have only just started seeing the real effects of the housing bubble. This spring season could very well be the tiny butterfly that flaps its wings and becomes a hurricane.
Ubersalad // Mar 20, 2008 at 5:15 pm
sadness is that I could have done the same thing…my coworkers all made a killing…
It’s all about steel cajones man…. The same type of guy sky-dives and jumps on a live grenade!
Another perspective: tech workers are actually quite stupid in general…and we have a lot of them.
It takes a special breed of man to not care about the risk of buy and flip. It takes the kind of man who if he loses everything overnight will think nothing of it and proceed to rebuild himself. Alas, most of us are not that steel man.
Magnolia44 and Markor:
Care to back up your ‘psyche’, and ‘feelings’ with some quantitative analysis? I’d like to hear it.
I have seen a lot more B.C. license plates about. The US is their Mexico now. Now we just need a special lane to funnel them into condo “presentation centers”.
I hope. Though I don’t believe in the “Seattle lags other places” as much as “Seattle bucks the trend”. The resistance of sellers is remarkable. Many houses on the market 180+ days, no price drops. There might be something to the “don’t need to sell” factor. I don’t see the point myself (when I’m a seller), but if a large enough percentage of sellers do it, it might pay off for them on average.
Yep. I have some friends who’ve taken big gambles and won big. Others who did that and lost big. I’d rather have more assurance of being able to retire some day.
Not really, my brain doesn’t back it up. It’s just a hunch. I have a feeling we’ll be waiting through spring, then summer. All the condos/high-rises coming to completion, price stagnation or slight drift downward, growing inventory (all those condos), growing sales times, empty condos, but no major price drops on the stuff that sells, at least not on SFHs. Same into the fall and winter. I’d like to be wrong.
If there’s anything quantitative-ish behind the feeling, without data, I’d say it’s that maybe Seattleite sellers can afford to hold out longer than those in other cities, for whatever reason. This is moreso a working town, like much of the San Fran Bay area, and unlike Las Vegas, say. Maybe more sellers here are relocating withing the area, like myself, and so don’t need to sell (even if it’s irrational to hold out for a fantasy price), and that puts a real upward pressure on the market as a whole. I really don’t have any facts though.
I’m with Markor : i don’t believe that Seattle will see “the worst” of the downturn. But that doesn’t mean that everything will be peachy keen…And yeah, it’s just a hunch with me, but some places so home prices rise more astronomically than Seattle, and those places are seeing more severe drops.
Oh, it won’t be pretty at all for these fools who bought here a year at the top with an adjustable rate or an interest only loan.
We seem to be falling about 1/2 percent per month on average since the peak of July ‘07? and the bottom is seemingly aways away, maybe another 15-18 months? And then maybe flat for a couple of years after that…
So if Seattle falls about 15% total from it’s peak, that’ll be better than many areas, and we may see fewer foreclosures, but small comfort that will be to those that do lose their homes.
One thing is clear from the census data, few renters practice the bubblehead method
Percent of Renter-Occupied Units Spending 30 Percent or More of Household Income on Rent and Utilities – Washington almost 45%
http://factfinder.census.gov/servlet/GRTTable?_bm=y&-geo_id=01000US&-_box_head_nbr=R2515&-ds_name=ACS_2006_EST_G00_&-_lang=en&-redoLog=false&-format=US-30&-mt_name=ACS_2006_EST_G00_R2512_US30&-CONTEXT=grt
Garth, it’s more like everyone who can buy have already bought except for bubbleheads…another bad sign for the Seattle housing market.
Washingtonians go home!
As a long time member of the bubble blog I have something to confess. I am beginning to think that prices in Seattle may not go down. Here is why. I thought that the banks were going to get killed, leading to tighter lending standards and a profound decrease in home values. In fact, this is what should happen. But the scenario changes if the Federal Reserve just starts printing money and handing it out to the banks. The Fed has handed out 26 billion in the last couple of days in these “loans.” What do the banks put up as collateral? You guessed it – Mortgage Backed Securities. Wall Street is booming because the Federal Government is allowing banks to simply dump their bad loans onto the Federal Government. Since Bush used the Comptroller of the Currency to sue the states for enforcing predatory lending law we have had irresponsible lending. Do you think that Bush is going to pressure the fed to stop buying junk loans? I doubt it. Soon the fed will be collecting credit card debt and school loans. What do you think? Is this possible. What do you think will happen when no one is responsible for the bad loans – housing bubble 2.0!
The federal reserve does not “print” money. The U.S. Treasury prints money, the FED sets the interbank rate at which money is borrowed.
The Fed has a limited amount of money to loan, and they are running out. This thing has a loooooong way to go.
Michael -
The Fed has used up more than half of its treasury back stop already ($500b+ of $800b), so they do not have much more room to buy up this garbage. Once they run out they will have to go begging to congress for more, which poses its own set of dynamics. So far the begging money is there to keep them from bankruptcy rather than them to lend out for a 4% spread. I think a lot of people are just getting discouraged with the equity/credit markets "chocolate"ting the bed while home prices sticking. Patience is required, these effects will take a while to ripple out to Joe Issaquah and his cracker box. But they will eventually, there is no doubt about it.
Michael,
I’ll wager a beer that prices will be lower in three months than they are now.
I wager that prices on the Eastside stay flat for the next 2 years.
You guys are unbelievable! We just decided to back out of our deal because the sellers are being what we feel is unreasonable on the inspection request — you know, as if they are in a sellers’ market or something (the nerve of them!). We thought with the economy doing so poorly now, we might as well walk and maybe have more to choose from and cheaper in two months. But now that Markor, of all people, is admiting some of what I have been feeling as I tried to synthesize what I learn here and in other reasearch with what I see as a buyer on the market — well,.. I’m more confused and paralyzed now than I was before. I was feeling pretty confident with our decision about an hour ago. Maybe it is a sellers’ market still and WE are the unreasonable ones to ask for $8K in vital safety repairs?
Jess,
Just curious..What were these vital safety repairs?
and..I don’ know about cheaper, especially since you are looking in “the other world” where the market is still strong, but there will be more to choose from. And not all of it will be junk.
Electrical and water main — we let everything else go by. The worst thing is that my hubby had the idea of “not wanting to play games and just ask for the minimum we want done.” They balked and told us no way. I was already a bit unhappy with the final price, 15% below asking but still high for the neighborhood according to the comps. Appraisal is still to be done, but the whole thing feels pretty poisoned for us (honeymoon is over and we never got out of the church).
If my agent “fires” me over this, Ira, I will be looking you up.
I should add that if we walk, we are thinking of forcing ourselves into a 30 or 60 moratorium on house-hunting by putting our down payment in a CD — then we won’t be able to do any more house-hunting or make any more offers until mid-May.
There is absolutely no chance that Seattle or the Eastside will escape this crash. The demand for homes always was artificial – even when people were waiting in lines and sleeping in their cars to buy homes at asking prices. Realtors couldn’t imagine the buyers ever disappearing – there were just too many of them. The trouble is, they were just you and me. We were buying houses every 18 months instead of every fifteen years as before. There is no means or reason for those circumstances to resume. Tell me…how will the California Jingle Mail craze come to end? Will banks just forgive the mortgages and take the hit without failing? Will the taxpayers cover the hundreds of billions in mortgage debt with tax money? Will the Fed lower interbank loan rate to zero and not start an inflation wave? Will an inflation wave be gradual and predictable so that employers will keep up with regular cost of living wage increases? Nope, sorry everyone. This is going to be a very long haul. If prices go flat here, they are going to stay flat for 10 years or more. The derivatives market is unwinding. The Fed is powerless to prevent that. Not only does the derivatives market represent more money than there actually is in the market, it represents more money than has ever been in the market in history. It is impossible to have a happy ending to this story.
jess, just buy a house already.
Ok, so on one side we have basic economics as local supply outstripping demand, unaffordability, falling prices a national credit crunch and recession and shrinking household funds due to inflation of neccessities growing faster than salaries. On the other side we have a person who feels in his heart that it will not matter and one that is willing to wage a beer on it and one that thinks the fed will suddenly be able to magically rescue the whole thing. And who does Jess bet on being right? Sorry Jess, I feel for your distress but I would say you are kind of unbelievable not “us”.
I tend to not trust anyone with the name “FreedomLover”. I wonder if this guy wakes up and gives himself Kool-Aid injections.
Doesn’t everyone on Seattlebubble love freedom? Maybe I should change my name to “FreeMoneyLover”.
Redundancy 101.
deepcgi:
How does that apply to me? I’m a first time buyer.
matthew:
Hey it’s just a moniker. Besides I do love freedom, what’s wrong with that? Some people hate freedom.
Jess,
Even if you declare a moratorium and put the down payment in a CD, looking at houses is a tough addiction to break.
Ira:
Honestly I don’t get it. Another thing is that real estate agents are not honest people. They are simply house salesmen. They should be admonishing people to not buy more then they can afford instead of pushing them into any house to get their fat commission. It’s a slimy profession.
Jess -
I think a moratorium is a great idea, it will take a whole lot of pressure off. I would go so far as to say you should put it in a 6 month CD, then you can come in at the end of the summer season and be able to bargain with sellers who have not sold for many months while having much more inventory to choose from.
Freedom Lover,
I don’t get what you don’t get. I have never pushed anyone into buying a house, never pressured anyone in any way. I typically steer people away from houses that they are interested in because I feel that either they are too expensive or that the repairs are too extensive. I wasn’t saying that Jess should or shouldn’t honor her moratorium…It’s just that people get very sucked into the whole thing. It’s like heroin, but maybe not as healthy.
We have visited this topic before. San Diego, like most exotic sunny locations, is home to many “second homes”, or “beach homes” (aka “flipper’s paradise”).
Many more “investors” acted in SD than Seattle. A home in SD (or any sunny local – like FL, AZ) not only attracts local buyers; but also out of towners.
Back in 2005 a neighbor visited a new community (here in Tampa) being built by the same builder that built our cookie cut ‘hood. He went in the model and met the same salesman that had sold him his house 4 years earlier. The salesman told him that everyone was required to put $10K down, and showed him the checks that were in the drawer just from that day; every single one was from the Northeast, not a single one from a local. He even told him: “Floridians are less than 20% of the buyers”.
I just don’t see people buying summer homes in Seattle. This is an aspect of the bubble madness that Seattle did not get. I guess this is something that we need to consider.
Like I wrote before, I hope I am wrong; and prices do go back to 1997!! (just arbitrary, relax)
Regarding San Diego:
“Housing is going down in all areas, but the impact from the south side is what is driving the drastic declines. So, don’t pack up and move just yet…”
I have a friend who is just now putting his house on the market in Encinitas, which is a cool little town on the coast about 25 miles north of San Diego, but only 5-10 miles north of the main tech area (Sorrento Valley). He’s very aware of the market (everyone down there is, finally) and estimates it to have lost about 15% since the peak. He has comps to prove it. His house is west of I5, a mile or two from the beach – all the things that are supposed to “insulate” certain areas down there.
Now, it’s certainly true that the south side and places like Escondido are screwed. This is the classic case of people moving further and further out “just to get into the market” and the froth comes right off those areas almost immediately.
Also, I just moved back from San Diego last year. I was down there for a couple of years and the weather is really great. Boringly great. I had a classic case of the Northwest guilt and felt like I had to go outside every time it was sunny. You can imagine the consequences.
Anyway, San Diego is great if you’re younger, have the cash to live <5 miles from the coast (otherwise it’s hotter than hell – which everyone forgets when they say that it’s 70 degrees all the time down there), and don’t miss things like trees and lakes.
I’m willing to put up with some greyness and misery for 6 months for the lakes, the mountains, and the snow! Each to their own. Most people can’t deal with the PNW climate, and I fully expect a lot of SD transplants to relocate back down there when they realize that if indeed WA is “behind the curve” they can sell here while the going is still kinda ok and move back to SD while the going is totally awful.
People, people people! You ain’t seen nothin yet. Forget fundamentals, climate, and even avg/med wage issues. The real killer is going to be lack of credit AND requirements for large down payments AN D much higher interest rates.
Jumbo mortagage loan rates now 8%! Still gonna buy? 10-20% down payments! Got a hundred grand for your desposit? This will still only buy you a $550k house. How many folks ya spose have the income/credit rating AND down payment to buy now?
These issues transcend geography, economy, etc. Seattle is not immune. Sorry to burst your (ahem) bubble. You will see much lower SELLING prices because the selling prices will be the ones with all cash. Those in a mortagage obtained in the last 5 years will be upside down and unable to sell for less, hence those homes won’t sell. Sure ASKING prices may level off but not the ones that sell.
Still calling for 50% off from 2007/2008 prices!
Jess, sorry to hear the house didn’t work out like you hoped. I agree with a commenter above that if you’re going to wait, you might as well wait until at least September / October. Inventory is always much higher then, competition with other buyers will be lower, and I’m betting prices will be lower too as the pressure mounts on the “must-sell” sellers.
That chart sure looks like someone(s) is rigging the prices reported in our area. What are the odds that our monthly reported numbers are so flat when historically that has not been the pattern. All stable while the rest of the world’s housing prices are in a massive collapse. What are the odds of that. I believe these reported figures as much as I believe the gubermint’s reports on inflation. Someone is cooking the books.
Jess,
I agree to take your time and wait for the right home to come along, BUT don’t give up hope on the house you’re walking from right now. I have helped many clients get the house they want by walking away. When the house is over-priced and likely to sit on market a while longer, one approach I’ve advised to clients to take which has met success is to mail a handwritten thank you note to the seller immediately after the deal falls apart. In it you thank the sellers for taking the time to work with you, generously praise their house and the features you loved, and you express regret that you couldn’t make the deal work. You very briefly mentioned the things that concerned you (i.e., plumbing/electric) and then you ask them to please contact you directly if their situation changes and they think they might be able to make a deal work with you.
Even if you have a terrible taste in your mouth over how the deal fell apart, do this anyways. The beauty is that if they call you back and want to explore another deal the shoe is entirely on the other foot. You now have the leverage to lean on them because they know you have the stones to walk if they don’t play ball.
I recently had a client who did this and got the seller to come off his price by a hundred grand on a fully remodeled house.
Oh yeah, as I mentioned when you first told the SB about your deal, think about Magnolia.
“Jumbo mortagage loan rates now 8%! Still gonna buy? 10-20% down payments! Got a hundred grand for your desposit? This will still only buy you a $550k house. How many folks ya spose have the income/credit rating AND down payment to buy now?”
Less then there used to be, but they are out there. I’m one of them.
Also, I’m not sure if you’re entirely aware of the mortgage market right now. I have friends that just bought a 500K house in West Seattle with 5% down. The rate was 6.8% as they didn’t want to pay PMI and so they got the rate increased to compensate. I didn’t know you could do that.
Similarly, I didn’t know that you could get 97% LTV through Fannie Mae, and that HELOC providers are still offering 85% CLTV at prime rates (currently 5.25% – thanks Ben!). Maybe you were also not aware of this.
Also, “jumbo conforming” allows for 90% CLTV so you can very easily get a loan for up 560K for a house worth 620K with 80K down, which is easily within reach for a move-up buyer. BTW, the current APR on that loan is 6.4%.
Finally, regular jumbo rates are not 8%. Try 7.5% even for a 10 year IO payment. higher than conforming, but not AWFUL by historical standards especially when you consider we’re in a nasty credit crunch.
If your view of 50% is shaped by your understanding of the loan programs out there in WA, then you might want to revisit your estimate. I’m not saying that prices are going to stay up (they’ll likely continue to go down) but saying “50% off” and backing it up with bad information is probably not wise.
“I agree with a commenter above that if you’re going to wait, you might as well wait until at least September / October. Inventory is always much higher then, competition with other buyers will be lower, and I’m betting prices will be lower too as the pressure mounts on the “must-sell” sellers.”
Indeed. And as we approach summer, we’ll be starting to contend with the fact that the YOY prices will look awful! Even if the current price doesn’t change at all, the YOY prices will be going down due to the price bump last spring. This, combined with the likely officialization (new word) of the recession could put quite a bit of panic in the market towards the end of summer.
That is good advice Mark. I’ve successfully used the same approach for purchasing several other costly items. It can take some time though and personally I write the deal off mentally not to be held back in making new plans and if the seller comes back it’s just a nice surprise. The most surprising incident that comes to mind was when I made a lowball offer on a new Ducati 998 that had been in the store for a while and 7 months later I got a call when the dealer accepted it…at that time I had already bought a bike at an even better price but the seller thought I tried to bargain and offered and even lower price. All in all it’s a good idea to use Marc’s approach when a seller doesn’t cooperate since it can payoff down the line.
50% off – can it already. Nobody is going to cut their price 50%.
To the inpatient that is loosing faith. For crying out load we are just in the beginning of a price decline. At some stage we will reach the self feeding depreciation loop that rapidly will drive prices down. My guess is that the threshold is about -5% YoY Case Shiller. Then foreclosures will escalate, panic will spread, builders will crack due to cost of standing inventory, high price homes with equity will accept lower offers to get out of above water. The circus will be on. But we are not there yet but my guess is that it will start around August when C/S for May is reported.
Maybe no individual home owner will accept 50% price declines, but the banks sure will if that is what they have to do to move foreclosed inventory. Prices really start moving downward when 50% of your sales are REO properties.
Seattle is just behind San Diego by a couple years in this respect. Our first wave of foreclosures likely won’t hit till 2009. We have only just now hit zero appreciation, and it is simply a matter of time for the foreclosure numbers to pick up as struggling home-owners find that appreciation isn’t bailing them out anymore.
Remember, depreciation is the single biggest driver of foreclosures. Even life tragedies like divorce or job-loss don’t bring on foreclosures in appreciating markets (i.e. because it is easy to sell if you run into any trouble). When prices stop going up, there is no longer any cushion to help people who do run into these kinds of issues (e.g. job loss, etc). Of course, increased foreclosures and price-depreciation start a vicious cycle of further depreciations and job-loss (e.g. construction jobs, brokers, agents, etc).
STOCKS WENT UP YESTERDAY, DUMP ALL YOUR MONEY IN STOCKS
Gold and oil plummetted…..selllllll…..
My point is folks, we’re on a long bumpy roller coaster and daily, even monthly shifts aren’t a reason to radically change investments, yet. Same with homes, your neighbor may have just sold his for a high asking price, so that means all homes sell for a high asking price? On the otherhand, if your greater Seattle neighborhood looks like mine, empty houses sitting around and for sale signs up for 6+ months with no takers….
Now, if I bought a $100K worth of gold before it dropped from a $1000/oz; I’d be telling everyone to buy gold, if I was a con. If I owned a condo in Bellevue, I’d tell eveyone condos in Bellevue will never plummet in price, if I was a con.
Cons preach from their own pocketbooks.
Ira is definitely different [so are most of the Bubble Brains] , he’s an honest pragmatic realitor and sometimes his blogs remind me of me…lol
Well, I don’t know about 50% however, I was looking at a house yeesterday wih my realtor and the original asking price in July of 07 was $469,000.
Now it is $355,000 and has actually had 2 buyers unable to purchase.
He said that it was likely financing but he wasn’t sure.
I have heard that if you don’t have 20% down now it is extremely difficult to get financing.
On that note, when alot of homes in foreclosure are only getting 50 cents on the dollar, wouldn’t the bank start wanting 50% down?
Sniglet:
All the economic fundamentals of WA state are good right now. There is nothing to indicate a big bubble burst here. I see a few isolated examples like Seattle condo towers.
Gary:
In sounder times, everyone put 20% down. Why should it be any different now. I can tell you stories of people buying 900K houses with 0 down….
HI GARY, GOOD QUESTION
I’ve researched foreclosed properties, like bidding on them at the courthouse and the answer is simple….you need 100% cash to buy ‘em.
Can you get a loan to have cash before the bidding begins?
Yes, but money’s tight and I imagine banks want wealth equity in back of cash loans now-a-days. So if you have no wealth, start saving.
If you can’t save much, like most Seattlites…..save what you can. I’m not saying there’s going to be a depression and run on the banks soon, God forbid that happens….but a couple safes hidden in two places with ready cash or gold is what even accountants are recommending lately instead of just money markets, FDIC CDs, bonds or equities….its a bit horrifying when your finacial experts recommend it though.
By the way, last I heard, FDIC insures your safe bank money at 1.2% deposited in their vaults in ready reserves if withdrawl lines at the banks form…lol
Patient,
That’s exactly the point. Sure it’s nice to have a little bit of leverage but the principal purpose is to set pride aside and bring a buyer and seller together so they can do a mutually beneficial deal.
I tell clients everyday, whether they’re buying or selling, suing or being sued, don’t let pride drive you to a bad decision. When buying a house, 90% of the time the buyer never sees the seller again so what should the buyer care if the seller thinks he got the better of the deal. And vice versa, sellers seldom look in the rear view mirror once they’ve sold a house so why care if the buyer thinks he got a steal. If you got what you want at a price you were willing to pay, do the deal.
The trick is to be diligent in determining the price you’re willing to pay or accept. Last summer I had a client with multiple offers on her Greenlake home. She accepted the second highest because she really liked the single woman who made it and was moved by a letter sent with the offer. It was ten thousand dollars less than the highest offer which was from a well qualified, but not especially likable, buyer. I tried to talk her out of it but she insisted. Sure enough, a week later, after talking to people work, she told me she’d realized she’d made a costly mistake. Since there wasn’t much we could do to change things, I reminded her that price was still higher than her asking price plus she would have an anecdote to tell at dinner parties.
With regard to falling prices – my (6 mo) study in Bothell (single fam resales only) will be complete 3/31. An yes prices are falling. I’m seeing prices have now reset to late 2005/early 2006. All 2006 & 2007 gains are gone.
So far we have 8% of the currently listings upside down on their mortgage. I have nothing to compare that to, whether up/down as I haven’t looked up any history if there is any.
Price reductions since 10/1 total $16,358.000. That’s an average reduction of $20,650 per listing.
For new construction price reductions total $9,497,921 or an average of $17,270 per listing.
Next time I’ll count only those that had price reductions – rather than the total listings as that would reflect a higher yet more acurate picture of average price reductions.
I’ll have lots of other interesting stats when I’m done.
#86 Freedomlover:
As a Realtor, I take exception to your statements. In 20 years of selling homes you will find none of my past clients in those “fraudulent high risk loans”. I can’t tell you how many people we had to talk out of them because the loan officers were pushing them as such a great deal. Fortunately we prevailed. None of my client’s have bought homes they couldn’t afford and only 1 client went into foreclosure a couple of years ago due to a job loss and divorce.
To lable all of us as “not honest” is flat out wrong. I am in this business for life and rely on repeat and referral business, and as a result of my ethics remain successful. There have been many times I’ve advised clients not to buy or sell for specific reasons. That is why my clients return – they know they will get an honest opinion is what is “in their best interest”.
Sure, there are categories of agents, I just don’t fit in that one.
Since we’re all using our “guts” here instead of our brains…I’m gonna use my gut to say….
"golly"…these new trolls are smooooooooth. They sure do know how to try to play the good cop/ bad cop thing.
Funny thing is that they all seem to talk like people in the “industry” with the same lingo and conversational demeanor…and they still do a good job avoiding/ignoring the hard questions.
The crisis has been averted. You are all free to buy a condo now!
I think we should start an informational section where all of us REAL bubbleheads can list those that we think are the subversive RE trolls…but I forgot…Seattle…home of the candy ass, politically correct, over polite…well…you know.
Wow JJL, if Bothell followed the Seattle metro area in appreciation a reversion to January 2006 (C/S 165.49 ) prices is a 14% decline from the top (C/S 192.30).
The economic fundamentals for San Diego were looking great a couple years ago too, just as they began their real-estate decline. In any event, the economic fundamentals for the global economy are downright terrible right now, and it’s not as if Seattle has some protective bubble that will keep us immune from massive contractions in the global economy. Just watch how quickly our economy turns south when Asia and the Middle East start cancelling aircraft and software orders.
The global credit crisis is truly of awesome proportions, making it vastly more expensive (and downright impossible) for many consumers and businesses to get financing. The spreads between sovereign debt and all other manner of credit instruments is growing dramatically, and companies are being squeezed the world over as the cost of capital has gone up.
It’s not our local fundamentals that matter, it’s the fundamentals of the global finance system that will ultimately dictate what happens to our own prosperity.
There are sure a lot of people here “whistling past the graveyard”…..
When it is all said and done the Seattle area will be off by an average of about 1/3 off peak (summer 2007) prices. If you can survie that great. If you can’t….you better start thinking about it.
Don’t forget that the recession is just underway and it is going to be brutal. This will be the worst downturn since the Great Depression.
You can take that to the bank….er, on second thought.
Off-topic, is something wrong with the KC SFH inventory tracker? It’s been stuck on 10504 since yesterday noon.
Hmm, not sure what’s going on. My inventory grabber is working properly, but the source its getting the data from seems to be in a holding pattern. 10,504 is indeed what they currently show: TheMLSOnline.com King County SFH Search
FreedomLover -
Of course they won’t cut their prices 50%, that is insane. They will cut 10%, then cut 10% again next year, then 10% again the year after, and so on. This isn’t the stock market, housing moves slloooowwwwwwllllyyyyyyy. Inflation adjusted it will probably be more like 80%, judging from how the world is reacting to Uncle Ben.
“I have heard that if you don’t have 20% down now it is extremely difficult to get financing.”
This is not true right now in WA. You need good credit. Not the best, but 720+ certainly helps. I believe this is somewhere near the median credit score, perhaps a little higher.
You also need a JOB and proof of INCOME. OK, so a lot of people didn’t provide those things back in the crazy days, but most people I know have jobs and income.
The problem isn’t the amount of down payment you need, it’s the amount of loan you qualify for under sane underwriting standards. All of a sudden, the only thing the bank will give families money for is a little "chocolate"box in the middle of nowhere. People look at that and suddenly realize that something’s wrong with prices, and they wait.
i agree with 17 poster above, the Bay Area is starting to look relatively affordable now compared to years past and vis-a-vis the run-up and no fall off yet in Seattle real estate.
My hypothesis is that Seattle will slowly see some loss of residents back to the Bay Area (which is more than okay as i understand it with most washingtonians)… however, this will help to drive down prices to some extent.
If the concept (believe from some) is that in the late 90s – current day, 1st time home buyers that couldn’t afford homes in the Bay Area moved to WA but were able to “over bid” some properties thus adding to the run-up….
… some of these individuals may be willing to take any gains and run, pricing to sell below market which will be teh pressure you all predicting losses will need to see your projections prove out.
I am one of those individuals that is “looking” back in the Bay Area.
Yes, i understand there is a lifestyle difference, guess i am ready for that.
I consider Bay Area to be akin to the “Gold Standard”. Seattle, Pheonix, San Diego, etc, etc… all these places saw a run-up as people could no longer afford the Bay. Seattle will not correct as much as Pheonix, San Diego have.
Seattle does have more substance than those cities. Climate (actually not that bad), education, outdoors, city that is becoming more metropolitan, technology
[...] I thought since I’ve been on a road trip in California the last week or so, it would be appropriate to post a quick update on the San Diego / King County median price comparison I originally posted back in March. [...]
[...] you recall, back in March San Diego County’s median was at $415,000, while King County’s was at $395,000. Our [...]