Amazing to look at the table and see Tampa NOT in a bubble; I have to give the good news to the 6 neighbors in my subdivision in foreclosure, and the endless owners with the “for sale” signs out for so long that the sun has discolored them.

I assumed FHA loans with 3% down (jumbo rates applied), PMI insurance, 1.5% home maintenance, equity paydown, 30 year loan, and 0.85% property taxes. I also assumed 4% rental price increases on average in the coming 10 years.

My numbers are quite different than this story, they tell a good story for someone like me looking for housing for the next 5-10 years in Seattle. BTW- we are relocating from San Francisco where we rented as we just couldn’t stomach (even though we could afford) buying a house.

See my analysis summaries at http://stephenmcdaniel.files.wordpress.com/2008/04/rent_own_scenario_1.pdf and http://stephenmcdaniel.files.wordpress.com/2008/04/rent_own_scenario_2.pdf and http://stephenmcdaniel.files.wordpress.com/2008/04/rent_own_scenario_3.pdf .

http://www.npr.org/templates/story/story.php?storyId=89338743

I’m having a lot of difficulty putting all the pieces together. It is amazing how complex the pieces of our financial system have become. This story should scare the hell out of you. I don’t know if anyone else noticed but Paul Volker came out of retirement last week. The former Fed Chairman gave an amazing speech at the New York economics club about the credit derivatives and off balance sheet, accounting that inflated the bubble.

Volker sounds like he is predicting a 1927 style “Greater Depression” led by massive housing, credit, student loan debt. We got rid of the wall between commercial and investment banking so the bankers gambled on housing with heavily leveraged bets backed by your bank account. Have fun!

Average household income in Indianapolis is around $36,000 per year while the average in Seattle is $57,000 last time I checked. The average home in Indianapolis is $140,000 and the average in seattle is $430,000. So if the average income in Seattle Indianapolis is 64% of what it is in Seattle and the average house is %30 of the cost in Seattle then I would say those are pretty good metrics. On top of that I would argue that the trends are in Indianapolis’s favor.

If you look at the companies that made the biggest gains in the last quarter they were heavy equipment manufacturers like Caterpillar and International Harvester. Ben Berneke has stated that he has absolutely no fear of deflating the dollar so it only makes sense that our exports will become cheaper.

This is standard real estate agent math. Since Seattle is a very desirable place to live people will keep coming here even if is double or triple the cost of other cities. Seattle has a good job market and that should justify higher home prices but mulitples of two or three times seem overvalued to me.

Angie. I’m happy to hear about your expanding real estate empire and your fabulous rental prospect on a public message board. Keep up the great work.

Jane and Joe would not be filing for bankruptcy if they’d have known that to take a $300K loan on a $50K salary was stupid….

One person’s “nitty details” is another one’s “critical thinking”.

I like that this blog aspires to be “data driven”. However, I wager that Tim regards this report as “great” because the sound bite support his point of view. A closer examination reveals it’s simplistic, not especially relevant to the average Joe and Jane–and its ultimate conclusions are a shot in the dark. Nice sound bite, not a lot of meat.

If our fearless leader can slice and dice NWMLS data six ways from Sunday, he can do better with this one. (Confidential to The Tim: I love ya, Tim; it’s just a tough kind of love.)

Finally–I do have a “foot in the water”, but you couldn’t be more wrong about my take on the current situation. Frankly, I’m delighted about falling prices. There’s a long (long, long) way to go before I’m even close to the surface of the water, much less under it. I’ve got one rental more than paying for itself already, and our current residence could pay for itself if we rented it out at a reasonable rate for the size, condition, location. At this point we’re building up a down payment for the next house and we’ll get more for our money if prices keep going down. I hope the bottom will really be in about two years from now so we’ll have a nice big down payment ready.

Relating this back to the report referenced above, ultimately the authors recommend government policies making it easier to turn foreclosed homes into rentals to keep from destabilizing communities even further. Even as someone who is a landlord and would like to hold more rental properties, I think this recommendation is kind of disturbing. What exactly would those policies do, what supports exactly could be used to do this? No matter how you slice it, what they’re advocating is lending more government support (presumably money) to investors rather than renters, to the “haves” rather than the “have nots”. That doesn’t sit right with me–and I can hardly believe the rest of the Bubbleheads swallow it, either.

Most of the PI blog realtors use 3 months as the cut between buyers and sellers market for seattle

Actually I think 3 MOS is the cutoff between seller’s market and a balanced market and then 6 MOS is the cutoff between a balanced market and a buyer’s market. So we’re barely into a buyer’s market but still far from a seller’s market.

I never suggested that we apply the mathematics of quantum mechanics to housing, I merely observed a similarity.

Invoking quantum mechanics in an argument about numbers is like invoking Hitler in an argument about an ethical point. Clearly a desperation move.

And calling out nitty details is a power move? The point is, prices are falling and you are nervous because you’ve got a foot in the water.

Is she the new Meshguy? Hmm, Meshgal, kinda rymes with Mezcal, which is what a lot of people are going to need before this is over.

The first bubble begat the next bubble by the seed of the FED! It is a most unholy abomination.

There is optimism, there is pessimism and there is pragmatism. I choose door #3.

Invoking quantum mechanics in an argument about numbers is like invoking Hitler in an argument about an ethical point. Clearly a desperation move.

Los Angeles median home prices have dropped 120K since June.

I guess you can never provide any data to satisfy anyone…

Seattle is only a smidgeon above the magic 6 month supply.

Most of the PI blog realtors use 3 months as the cut between buyers and sellers market for seattle

My gross monthly ownership costs (mtg, ins, taxes) are indeed at the middle level. And my friends upstairs are indeed slightly below the standard monthly rental costs. However, they’re renting half my house from me. So they’re paying $X+ins to rent a 2-bedroom space, and I’m paying $2X+ins+taxes to own two 2-bedroom spaces.

I’d imagine the square footage of the “median house” is significantly higher than the square footage of the average 2-bedroom apartment. I bet it has a few more bedrooms, too.

The prevalence of huge homes available for purchase is another weird bubble issue, and not really the topic at hand, but I did want to point out the methodology weakness. On the other hand, you’ve got to compare something to something, and that’s the available data.

That $942/month is derived from Housing and Urban Development and is intended to represent a modest *two* bedroom apartment. Who knows what their metric is (maybe section 8 housing? one of the authors is from a low-income housing think tank), but it sure doesn’t represent “market conditions”. Run that craigslist scan again–I find that on the first page of results for 2 BR+ apartments in Seattle rents range from $900-$2500, with most in the $1200-1600 range.

Next, their method for concocting “low”, “medium”, and “high” costs is atypical and not well justified. On first blush the low/med/high suggest home prices less than/equal to/higher than median, or something like that.
Instead, their method was this: assume a house costing 75% of median. For “low cost”, assume it’s funded with a 6% mortgage and has low maintenance/utility costs. For “medium”, a 7% mortgage and somewhat higher maintenance/utility. For “high”, 8% mortgage and slighty higher M/U yet. No clue what this approach is trying to convey. Maybe if the emphasis is on lower-income homebuyers, it may represent higher-cost mortgages for people with worse credit scores (or who were taken advantage of by crooked lenders) and homes in worse shape, but unless I missed it this isn’t made explicit in the justification for the methodology.

The equity loss numbers assume buying the aformentioned 75% of median house today and selling in 4 years, when rent-to-own cost ratios are 1:15, or whatever their yardstick is. Not everyone bought their house yesterday, and truly, where the rent-to-own ratio winds up four years from nowin is anyone’s guess–but it certainly not likely to be uniform across all those 20 cities.

Shore do look fancy and all, but there ain’t a pony in there.

Michael, you go on and enjoy yourself in Indianapolis. I know a guy who used to be a firearms examiner in Indy–he says the crime is ten times worse than it is out here. Hell of a lot colder in the winter, too. But go ahead, check it out. Write if you find work.

my parents stay in a 2 bed place in Loyal Heights for $850/month.

other than the rare good deal in town, it is good to keep in mind that it is referring to the metro area, not just Seattle proper. there are bunches of places in Renton, Bothel, Everett, etc in this price range.

Read this: http://tinyurl.com/6gptxk

Read http://www.huduser.org/datasets/fmr/fmrs/2008summary.odn?INPUTNAME=METRO42660MM7600*King+County&county_select=yes&state_name=Washington&data=2008&statefp=53.0&fmrtype=Final

Go to craigslist, look under houses/apartments for rent, enter $900-1000 as your bounds and limit your search to Seattle. All studios and 1br units. People who’re living in studios and 1 br units almost certainly aren’t using the money they save to pay childcare costs. Dollars to dougnuts they don’t have kids.

For that matter, its not too easy to find 1 bedroom houses, either.

So, right off the bat you’re comparing apples to oranges. Even on the low end of that range for housing for sale, the units are bigger.

https://www.verticelending.com/marketing/VerticeMarketIndex.pdf

Looks like we’re all San Diego, Phoenix and Vegas now.

Am I disputing that if you bought a house today it’s going to be worth $100k less next year? ABSOLUTELY!

That’s a straw-man argument as nobody has said that we’re going down $100k in a year.

I am seeing my rental rates increase 20-40% right now

Sure, that’s believable.

Price drops in Seattle will hit condos and townhouses the most. Then you will see new developments in the burbs undercut prices in the city, which will encourage families to move on out to where the better schools (and most jobs) are.

- You see a lot of stuff in the $60,000 – $140,000 price range that is undervalued.
- The job prospects are getting better in manufacturing because of the cheap dollar
- They are priced like detroit but with lower crime and more industry.
- The city has had horrible sprawl but people are being forced back into the center because of higher gas prices

What do you think?

That’s not necessarily true. Much of the recent price increase was due to land getting more expensive. Also, as demand slows for building materials and construction labor, it gets less expensive.

DOW Stocks collapsed 250 points today too, along with the real estate asset crash progressing down as us bubble brains predicted all along.

I met this Lake Sammamish lady last night who bought an old Redmond home for $92K by the lake and alleges the 5 acres it comes on are worth $1M today. She also alleges that Redmond is special and even the mobile home on an acre fetches like $425K and no price decrease ever. By the way, her property taxes alone are $8000 a year. She’s 51.

I told her cash in now and buy cheap later, that’s what a guy like Buffet would do. I could see in her eyes she totally agreed with me, but she said “what will I do with my three pets if I rent”?

LOL

http://www.housingnumbers.com/completions.html

housing starts are down almost 50% from two years ago. That suggests builders are not making money in a lot of markets at the current prices. So eventually the demand will catch up to existing supplies.

Since there is a disparity between cost of renting and owning, and the price of houses is already below replacement cost, this indicates a surplus of rental properties. That is due in part to past speculation, and also people renting out condos and houses because buyers don’t want to buy into a falling market. That can quickly turn around once the market is perceived as no longer falling. When that happens, rents will rise as units are sold to buyers who are now holding back.

House prices aren’t going to fall by 50% unless the cost of building new houses also drops by 50%. There might be markets like Riverside, CA where there is ridiculous oversupply that will take years to clear out, but Seattle is only a smidgeon above the magic 6 month supply.

I am seeing considerable movement in Seattle (though I don’t travel to the Eastside, up North or down South) and seeing places move…

I seriously doubt that there will ever be a time when we lose $100k of value from our homes, except of course, in the case of the great Depression II.

Am I disputing that it’s expensive to buy in Seattle? No. Am I disputing that it’s ridiculous to buy a place hoping to make $50k in the next year? No. Am I disputing that if you bought a house today it’s going to be worth $100k less next year? ABSOLUTELY!

I am seeing my rental rates increase 20-40% right now, though I worry about the glut of invetory coming on in 2009 in both the commercial sector and the residential new construction sector.

Tim, I would append to your comment that it’s a great time to buy if you don’t mind losing $100k, that it might also be a great time to buy if you can get at least $100k off the purchase price. If someone out there is looking at making ‘lowball’ offers and seeing if anyone bites, this document suggests to me you need to demand at least $100k off the price for anything within a couple standard deviations of the norm.

In other words, do not pay more than $350k for that $450k house you are eying. And if the seller or realtor ‘laughs’ at you for making an ‘unrealistic’ offer, just laugh at them, and explain they will lose that much anyways over the next 4 years.

By the way – Vancouver WA YOY SFH sales were off 63% in March.

But, but, my parent’s real estate agent told me that the Vancouver market was recovering!

(Why do my parents have a real estate agent, you may ask? Well, I’ll be explaining that in a later post.)

I wish Portland had been in there (we’re too small). By the way – Vancouver WA YOY SFH sales were off 63% in March.

Not a beautey of a house but for 70k who can complain.

http://spokane.craigslist.org/rfs/638792564.html