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.
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117 responses so far ↓
1
Dave0
// Mar 20, 2008 at 11:03 am
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.
2
Affluent Bitter Renter
// Mar 20, 2008 at 11:18 am
Sunday’s forecast high: Seattle 49, San Diego 76.
Good thing no one wants to live in San Diego!
3
patient
// Mar 20, 2008 at 11:30 am
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.
4
David McManus
// Mar 20, 2008 at 11:47 am
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.
5
SeattleMoose
// Mar 20, 2008 at 12:16 pm
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.
6
biliruben
// Mar 20, 2008 at 12:41 pm
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.
7
Ben
// Mar 20, 2008 at 12:44 pm
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.
8
Garth
// Mar 20, 2008 at 12:44 pm
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.
9
vanderleun
// Mar 20, 2008 at 12:55 pm
Sounds like Seattle real estate needs to start taking some more performance enhancing drugs.
10
AndySeattle
// Mar 20, 2008 at 1:04 pm
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.
11
steve-o
// Mar 20, 2008 at 1:14 pm
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
12
steve-o
// Mar 20, 2008 at 1:22 pm
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!!
13
The Tim
// Mar 20, 2008 at 1:23 pm
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.
14
TheHulk
// Mar 20, 2008 at 1:32 pm
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.
15
patient
// Mar 20, 2008 at 1:33 pm
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.
16
steve-o
// Mar 20, 2008 at 1:38 pm
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.
17
b
// Mar 20, 2008 at 1:42 pm
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.
18
Sniglet
// Mar 20, 2008 at 1:42 pm
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.
19
The Tim
// Mar 20, 2008 at 1:52 pm
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.
20
patient
// Mar 20, 2008 at 2:26 pm
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
21
The Tim
// Mar 20, 2008 at 2:27 pm
This is all great information guys, thanks. I’ll probably use some of this data you all are digging up in a future post.
22
bizniz2000
// Mar 20, 2008 at 2:58 pm
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)
23
patient
// Mar 20, 2008 at 3:01 pm
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
24
Ubersalad
// Mar 20, 2008 at 3:04 pm
It’s obvious that Seattle is worth more because Bill Gates is worth more.
25
FreedomLover
// Mar 20, 2008 at 3:09 pm
Ubersalad:
But Bill Gates lives in Medina.
26
biliruben
// Mar 20, 2008 at 3:21 pm
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?
27
Ubersalad
// Mar 20, 2008 at 3:25 pm
by Seattle I meant King County.
28
patient
// Mar 20, 2008 at 3:31 pm
A little averaging adopted to the inflation adjusted pre-bubble graph in the link posted by steve-o gives close to $300k.
29
Nabil
// Mar 20, 2008 at 3:36 pm
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.
30
Ubersalad
// Mar 20, 2008 at 3:41 pm
and has Seattle made such change in local economy or quality of schools?
31
Ubersalad
// Mar 20, 2008 at 3:50 pm
I got it! I know why Seattle has appreciated so much:
http://seattletimes.nwsource.com/html/localnews/2004295455_webforbes20m.html
32
patient
// Mar 20, 2008 at 3:57 pm
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.
33
FreedomLover
// Mar 20, 2008 at 4:01 pm
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.
34
Ubersalad
// Mar 20, 2008 at 4:01 pm
we should push for Pierce County to annex all those borderline cities…then KC would truly be the top county.
35
FreedomLover
// Mar 20, 2008 at 4:03 pm
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.
36
biliruben
// Mar 20, 2008 at 4:03 pm
“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.
37
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.
38
The Tim
// Mar 20, 2008 at 4:11 pm
Hooray for Calvin and Hobbes analogies!
39
patient
// Mar 20, 2008 at 4:15 pm
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.
40
biliruben
// Mar 20, 2008 at 4:18 pm
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.
41
biliruben
// Mar 20, 2008 at 4:19 pm
Yeah, patient, I finally got around to doing that!
42
FreedomLover
// Mar 20, 2008 at 4:34 pm
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?
43
Ubersalad
// Mar 20, 2008 at 4:36 pm
condos doing well in Bellevue? where?
44
FreedomLover
// Mar 20, 2008 at 4:43 pm
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.
45
FreedomLover
// Mar 20, 2008 at 4:47 pm
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.
46
Ubersalad
// Mar 20, 2008 at 4:52 pm
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?
47
Affluent Bitter Renter
// Mar 20, 2008 at 4:57 pm
“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.
48
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.
49
Markor
// Mar 20, 2008 at 5:06 pm
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.
50
FreedomLover
// Mar 20, 2008 at 5:09 pm
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…
51
Ubersalad
// Mar 20, 2008 at 5:09 pm
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?!
52
Markor
// Mar 20, 2008 at 5:13 pm
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.
53
Ubersalad
// Mar 20, 2008 at 5:15 pm
sadness is that I could have done the same thing…my coworkers all made a killing…
54
magnolia44
// Mar 20, 2008 at 5:27 pm
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.
55
B&W Nikes
// Mar 20, 2008 at 5:28 pm
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.
56
Markor
// Mar 20, 2008 at 5:30 pm
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…
57
Ubersalad
// Mar 20, 2008 at 5:33 pm
If all else fails, we can just open our border for Canadians to invest and bail us out.
58
magnolia44
// Mar 20, 2008 at 5:33 pm
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
59
TheHulk
// Mar 20, 2008 at 5:34 pm
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.
60
FreedomLover
// Mar 20, 2008 at 5:35 pm
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!
61
Ubersalad
// Mar 20, 2008 at 5:38 pm
Another perspective: tech workers are actually quite stupid in general…and we have a lot of them.
62
FreedomLover
// Mar 20, 2008 at 5:41 pm
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.
63
wreckingbull
// Mar 20, 2008 at 5:51 pm
Magnolia44 and Markor:
Care to back up your ‘psyche’, and ‘feelings’ with some quantitative analysis? I’d like to hear it.
64
Markor
// Mar 20, 2008 at 5:53 pm
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.
65
Markor
// Mar 20, 2008 at 6:20 pm
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.
66
Ira Sacharoff
// Mar 20, 2008 at 7:20 pm
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.
67
Garth
// Mar 20, 2008 at 7:29 pm
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
68
patient
// Mar 20, 2008 at 8:30 pm
Garth, it’s more like everyone who can buy have already bought except for bubbleheads…another bad sign for the Seattle housing market.
69
nitsuj
// Mar 20, 2008 at 8:36 pm
Washingtonians go home!
70
Michael
// Mar 20, 2008 at 8:53 pm
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!
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matthew
// Mar 20, 2008 at 9:20 pm
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.
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b
// Mar 20, 2008 at 9:21 pm
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.
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Ira Sacharoff
// Mar 20, 2008 at 9:34 pm
Michael,
I’ll wager a beer that prices will be lower in three months than they are now.
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FreedomLover
// Mar 20, 2008 at 9:44 pm
I wager that prices on the Eastside stay flat for the next 2 years.
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jess-Pumpkin
// Mar 20, 2008 at 9:59 pm
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?
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Ira Sacharoff
// Mar 20, 2008 at 10:20 pm
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.
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jess-Pumpkin
// Mar 20, 2008 at 10:31 pm
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.
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jess-Pumpkin
// Mar 20, 2008 at 10:39 pm
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.
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deepcgi
// Mar 20, 2008 at 11:22 pm
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.
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John
// Mar 20, 2008 at 11:48 pm
jess, just buy a house already.
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patient
// Mar 21, 2008 at 12:10 am
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”.
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matthew
// Mar 21, 2008 at 12:22 am
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.
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FreedomLover
// Mar 21, 2008 at 12:22 am
deepcgi:
How does that apply to me? I’m a first time buyer.
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FreedomLover
// Mar 21, 2008 at 12:24 am
matthew:
Hey it’s just a moniker. Besides I do love freedom, what’s wrong with that? Some people hate freedom.
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Ira Sacharoff
// Mar 21, 2008 at 12:57 am
Jess,
Even if you declare a moratorium and put the down payment in a CD, looking at houses is a tough addiction to break.
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FreedomLover
// Mar 21, 2008 at 1:01 am
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.
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b
// Mar 21, 2008 at 1:06 am
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.
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Ira Sacharoff
// Mar 21, 2008 at 1:14 am
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.
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Buceri
// Mar 21, 2008 at 4:47 am
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)
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NotaBull
// Mar 21, 2008 at 6:36 am
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.
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50%off
// Mar 21, 2008 at 8:04 am
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!
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The Tim
// Mar 21, 2008 at 8:17 am
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.
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Pegasus
// Mar 21, 2008 at 8:17 am
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.
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Marc
// Mar 21, 2008 at 9:23 am
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.
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NotaBull
// Mar 21, 2008 at 10:01 am
“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.
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NotaBull
// Mar 21, 2008 at 10:05 am
“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.
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patient
// Mar 21, 2008 at 10:12 am
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.
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FreedomLover
// Mar 21, 2008 at 10:22 am
50% off - can it already. Nobody is going to cut their price 50%.
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