Seattle is going through the denial phase. “I can’t be the one that needs to reduce the price; Joe next door sold for $XXX last summer and his kitchen was outdated, and he has one less bathroom”, blah, blah.

3 comments ? one by the orignial blogger…

The only thing falling faster than home sales is Seattle Bubble readership.

How ironic that this post now has over 80 comments…

1) I actually believed the hype. I thought we would go from 10% appreciation to 6% appreciation without a hiccup. Plugging those numbers into my rental projection spreadsheet last year made it look like a no-brainer.

2) I have always liked the idea of having one or more rental properties as a side business, so this seemed like a chance to give it a try considering that I already own the house and mortgage (under more favorable terms than a purchase for rental use mortgage).

Only time will tell if this works out for me. I decided to stick with my plan because I think I have already missed the top of the bubble, I have good tenants with a one year lease in place, and I think that in 10-15 years this could turn into a good business decision. In the short term though it is a horrible choice. I am underwater every month on the rental (-$700) and am certain my equity will completely evaporate within two years ($80,000 loss from peak…break even from original purchase price, but not considering money put into the house).

If I could go back and do it over again, would I make a different choice? Hell yes. I would sell last summer and be sitting on cash in the bank and a more flexible monthly budget by not having to cover the shortfall between rent and mortgage payment.

I can appreciate the experience as being part of a bigger education on real estate economics. That, combined with all that I have learned here on SB, should serve me well in the future.

I anticipate there being a reasonable chance I would have to sell and realize a loss

There may indeed be a chance that you will be able to sell without seeing a loss in 10 years, but there is an equally, and likely even larger, chance that any Seattle home purchased in the last 3 years won’t be able to fetch it’s original purchase price a decade from now. Like I said, I don’t think anyone should be buying a home today with the expectation of any appreciation whatsoever (even over a 10 year time span). If they are, they are very likely setting themselves up for a lot of disappointment.

I am not against buying a home, I am just against the expectation that homes will inevitably appreciate (even over a 10 year time frame).

Sniglet, I would be upset because over a 10 year time span, I anticipate there being a reasonable chance I would have to sell and realize a loss. While I do not expect to retire off the equity in my home, I have an expectation of at least breaking even when I exit given inflation, financing cost, maintenance etc. If I do not, I would be a little upset because it implies I paid more for the roof over my head for the 10 years than a newer neighbor did and like everyone else, I like a deal. But as you say, if I take a loss it is not the end of the world and life will go on. It’s not as if I have never taken a large loss in the stock market although I do prefer a portfolio with positive gains. The key is to not plow all your income into housing but to diversify over a portfolio of investments.

If 10 years from now my neighbors can buy an equivalent home in my neighborhood for less than I paid, I would be upset.

Why would you be upset? If the purpose of buying a home is to have a place that you like living in why does it matter if the place depreciates substantially or not? As I’ve said on this blog many times if a 50% price drop on a home you buy wouldn’t substantially cause you economic hardship or problems, then you should go right out and buy now. Why wait and try to time the market? You aren’t buying to get financial security, so don’t worry about it.

Now, I feel for anyone who wants to delude themselves into thinking that homes in good Seattle neighbourhoods won’t ever see substantial price declines. Real estate can be just as, if not more, risky than stocks or other investment classes and people need to remember that. The only difference of real-estate is that it is not as immediately volatile, taking MUCH longer for price trends to play themselves out.

There are plenty of examples where real estate prices have dropped 50% or more (e.g. Japan, Hong Kong in the ’90s, etc), so to think that homes can’t drop much is wishful thinking. Mind you, even in these cases where real-estate dropped 70% or more it wasn’t as if it was the end of the universe. Life still goes on in Japan and Hong Kong despite the fact there are plenty of people who have been stuck for a decade in homes worth less than the mortgage.

Bitterowner, that’s a valid point and one that only the future will validate or not. Purchasing is a personal decision with personal circumstance sometimes outwaying caution. I was lucky enough to find close to my dream home in my dream location that was priced right and then negotiate a 6% discount off that. I was also fortunate enough to have sufficient cash flow to cover my mortgage and then some. I put 20% down and in the past 10 or so months have accumulated a cash balance of 20% of the outstanding loan principal which, when I choose to partially pre-pay my loan, will give me 40% equity in my home within 12 months of purchasing it. Not bad for a first time homebuyer. So to me, the cost of my home is a sunk cost and there is nothing I can do about it other than to pay off my mortgage, which is what I am doing. Price perturbations do not bother me, unless I am forced to sell due to something untoward occurrring. Once again, there are opportunities to make a smart buy even in this uncertain environment. There is no certainty in life and I chose to take the next step even though I had doubts about the market. It feels good not to have to agonize over this decision any more. That was my only point.

Rhonda – there is no point, which I think was DJO’s (and your) point.

I have mentioned this before and might be sounding like a broken record (I know, what’s a record?) but I’m not sure that referencing historical or traditional norms in appreciation does much to reinforce the argument for buying a house during the current unprecedented positive deviation from these norms.

IE when people say that housing historically appreciates at a rate just above that of inflation, to me that does not mean that this traditional degree of appreciation occurs independent of the point at which any house is purchased. What it means to me is that over the past 100+ years or so, housing prices in the long term have followed a relatively consistent and somewhat straight line of appreciation, at a rate slightly greater than inflation, Short-term positive and negative fluctuations are therefore aberrations that must subsequently correct to this consistent, long-term line of appreciation

It therefore does not make sense to claim that you can buy a house during a time when housing prices have deviated enormously in a positive direction from the above-mentioned historical norm and expect historical appreciation from the point of your purchase. What you are really saying, if cite historical trends, is for the price to correct over time, in an inflation adjusted manner, so that it once again reaches that historical line.

should I get some popcorn?

If 10 years from now my neighbors can buy an equivalent home in my neighborhood for less than I paid, I would be upset. However, the odds of that happening in one of the better Seattle neighborhoods are pretty low in my opinion. I do miss spending all my extra income on wine, women and good restaurants when I rented instead of plants, furniture and renovations like I do now but that is life!

Tim, I am not referring to this blog but to people who blindly cling to a belief and will not consider an alternate position. These people are no better than the “Now is the best time to buy a house” realtor BS. I think there are good housing purchases to be made and there are bad housing purchases to be made. IF you are at the point in your life where you want to buy, then find a good home in a good neighborhood at a good price and buy it with a mortgage you can afford. Qualified buyers are in the drivers seat and you have strong price negotiating leverage which can provide you with a cushion if the market continues to decline.

I negotiated a pretty hefty discount on the home I purchased in a close in neighborhood arguably at a time the market was relatively strong. I also forced my mortgage broker to drop my rate by 0.25% if he wanted my business. The real estate market in seattle is not homogenous, it is bifurcated (at its simplist) both in terms of buyers financial wherewithall as well as housing quality. Applying averages does not work. You need to go house by house, neighborhood by neighborhood and mortgage by mortgage. Then, make an informed decision and let the chips fal where they may.

I will give you that the current trends should give anyone pause in moving forward purchasing a home. However, the verdict on whether now is a good time to buy or not is far from certain. For those of you 100% convinced now is a bad time to buy and completely committed to this position I would suggest you don’t have a very good grasp of economics. If you did you would at least acknolwedge the role of externalities in determining the outcome of a complex economic market with a multitude of forces. I would guess that most of you are engineers that lack formal economic / financial education. To my point, you buy when your personal situation dictates. My home may be worth $900k or $850k or $800k…I really don’t care. I don’t plan to sell. My 401K portfolio is down 20% over the past 12 months yet I continue to invest in it each month and I am not losing sleep over it. My personal brokerage account is 95% cash right now but I am looking to invest shortly. Life goes on. The good thing about the USA is you make decision and live with the consequences …unless of course you are a deadbeat subprime borrower or investment bank.

True to a point, but various indicators can give you some clues about likelihoods and risks and it looks like your timing might have been particularly bad. Only time will tell, but if you can continue simply being happy that you are a homeowner without having considerable buyer’s remorse if the market takes a significant hit and your neighbors are able to buy comparable properties at a major discount from what you paid, then you are a stronger person than me.

I’m sure you are being more thorough in your financial analysis than most , who simply look at the difference between selling price and purchase price and claim that the difference represents how much money they ‘made’. I bet if most people really crunched the numbers and looked at all the costs of homeownership and then factored opportunity cost and inflation into the equation, they would find that they are not as far ahead on their ‘investment’ as they thought and might even be in the red. I remember reading a PI post last year in which a bunch of old timers were making comments about how you’d be crazy not to buy as much house as you could as soon as you could b/c they had purchased their house for X amount in 1958 and just sold if for X++ . Although the return seemed impressive (based on 2006 valuation, I wonder what it would be if they sold now), I punched that information into an inflation calculator and it turns out they barely broken even just based on sales vs purchase price so were considerably in the red when factoring in the rest of the costs, despite benefiting from the most spectacular housing price appreciation in history. My comment to that effect was not greeted with much appreciation or comprehension.

Mirtika – for God’s sake don’t move from Miami to Seattle. There are almost 300 cloudy days a year. It’s currently about 34 degrees outside, only 10 days or so short of May. What are you thinking? I am stuck here…there is still hope for you.

How ironic is it that while you were supposedly a bubble advocate you watched prices skyrocket, and now that you are anti-bubble, you are about to watch them plummet?

Not one for timing are you?

Did you filter out AOL(most traffic from virginia), you and any staff members, your syndication pages and any visits shorter than a human could read X words (average person takes about 1 minute to read 150 words). Do that and i would guess it will become much less of a fiction.

Raw server logs include every activity on your site, including visits from robots and updates from assorted ajax pages and social network stuff that often have numerous ips and don’t accept cookies generating all sorts of bad data that needs to be filtered out. AOL still creates a unique visit for each page a user visits and unless they are logged in for a quick analysis I just filter out all of Virginia.

“A large portion of posters here tend to spout the same biggotted view on RE”

What?

Wow, you really feel passionate about this. I guess protecting real estate agent’s income has become the new civil rights movement. Maybe NAR can get the Dalai Lama and Amnesty International to take up their cause. As for me I’m ready to put on my robes, dance around a burning sub prime mortgage, scream about financial ruin, and scare the sh#!@ out of every home owner in the Seattle metro area.

As to the comment about Rain City guide comments being mostly talk amongst the very people who write it, that’s spot on. Look at the comments on this post:

http://www.raincityguide.com/2008/04/17/seattle-real-estate-2008/#comments

I got bored counting, but out of the first 32 comments, 20 or so are from the various authors on the site and it seems to hold true for the remainder of the comments too.

So lots of comments lots of readers

Don’t be a lemming, buy when you are ready based on the best information available to you not on biggotted views on the economy or housing.

That sounds familiar…

Don’t take anyone’s word when it comes to what will likely be the largest financial decision of your life. Do the research, and determine if the market is right for you.

From the this site’s About Page.

The difference between 1990 and now is the banks, prices and wages mitigation.

Actually, I think the really big difference is that today we have a far higher percentage of home-owners with little or no equity, leaving them with no cushion should they face any difficultied (e.g. unemployment, divorce, etc).

Further, the global nature of this bubble is truly breathtaking, with booms from Shanghai to Madrid, Dublin, Saskatoon and Seattle. Now that credit is contracting we are seeing everyone hurt. There won’t be any country left to bail us out.

I am sure that many other readers/participants here also get information from a variety of other sources that cover real estate, finance, markets, and macroeconomic trends. If Seattle Bubble’s analysis and reporting were substantially out of sync with my other reading, I might be willing to entertain your point about the site being “bigotted” [sic]. But it isn’t, so I’m not.

I started reading what little there was to read about a bubble in 2003, and bought in early 2004. I promise you, I am not sitting on a “pile of equity”. Taking into account costs, if I sell for my optimistic price, I am still taking a loss.

When real estate prices dive, the sellers stay put or like Ira said, become landlords.

The difference between 1990 and now is the banks, prices and wages mitigation.

A good percentage of the households in 1990, with double incomes, could afford the 10% interest $100K homes.

The retirees were also spending their 8-12% interest retirements into the economy [today its like 2% to -15%]; allowing the worker wages to continue increasing back then with airplane ticket, automobile, etc purchases by the graying population.

We hadn’t added another 50M to the country’s growth [putting strains on energy and food supplies, mitigating home buyers' wages and driving the energy based food and material costs way up], outsourced all our industrial base tech jobs [software is not an industrial base, either is video game S/W] yet either, so permanent wage degradation wasn’t implemented back then, like today.

Seattle’s growth was horrifying in 1990 [the roads were hopelessly clogged back then too] and we’ve added five times the people since then with the same basic freeway systems, drove Boeing’s Auburn Plant out [and other manufacturers] because our clogged highways can’t get the parts to Renton and Everett cost effectively.

We didn’t implement insourcing of lower waged workers back then either in the hoards we do now.

But lower wages in Seattle with more massive growth, means more companies will be interested in coming to Seattle? Not if history is the future, its just the opposite, it drives them out.

“I was a bubble proponent for years, since shortly after the dot bomb implosion. As a result I rented while housing prices rocketed. I was confident housing prices were not based on fundamentals and the trend would end precipitously. This view was confirmed by like minded people reading and posting on bubble blogs.”

Ok…so the dot-com implosion was in 2000…and you were a “bubble proponent” from 2001? Who and where were these “like minded people people reading and posting on bubble blogs” at that time?

Oh….and pointing to the economic meltdown that we have been watching hardly makes us “bigots”

I want to rent a house, rather than an apartment. Is this same sort of thing likely to happen in the Seattle area, or less likely? Any reports of that happening already there?

And how would a renter be able to check that a homeowner is up to date with mortgage?

Mirtika

I have noticed that it is not currently growing as fast as RCG (since about january), which I don’t understand

I understand it.
Look at the comment threads. All the mortgage, Real Estate types are posting multiple comments to the post. They are all talking to each other in a chatty way.
You might recall they were all coming over to the SeattleBubble for a while and a couple of bubble heads took the bait and raided the Real Estate sites which in turn created more drama.
I’d be interested to see data showing the RGC site is getting more traffic. I can’t imagine why. There is nothing there. As a matter of fact I’m having a hard time finding real information on any of the Real Estate sites.
I come here for data, insight, and perspective. This is the site I recommend to my clients. It has something to offer.

A large portion of posters here tend to spout the same biggotted view on RE. Housing prices will fall, rents will fall….25 – 50% price drops are in the bag. Well, if you are hoping for declining rents you should check out rent trends in Californian cities like SFO and LAX. Rents are increasing not decreasing. They are increasing because demand for rentals outweighs the supply as people defer purchases despite homeowners puting homes on the rental market that they cannot sell without realizing a loss. Is Seattle different? Perhaps but I doubt it. Yes, prices are declining but the externalities make it far from certain how prices will decline.

As to my story, I bough 12 months back and couldn’t be happier. The joy of having bought is that I no longer agonize about buying a house. I already own one and enjoy the fact I own my dream home in my favorite neighborhood. My interest in RE extends to watching mortgage rates for an opportunity to lower my borrowing cost and or pre-pay my mortgage. You cannot time the market. You buy when your personal and financial situation dictates you are ready to buy. Don’t be a lemming, buy when you are ready based on the best information available to you not on biggotted views on the economy or housing.

If so, why? Are agents telling these poor suckers that the market is about to bounce back? ”

I don’t think it’s so much that the agents are advising that prices are going to bounce back ( although they probably are giving that advise), as much as houses just not selling, and sellers just not being able to sit on their properties.

Who can tell me what’s happening to the Seattle rental market right now? From reading between the lines on the listings I’m seeing a lot of places that look like frustrated sellers decided to become landlords. Is this the latest trend?

We’ve been prediction this for months. First rents would rise slightly as housing was restricted by vacant units up for sale. The rents would drop as frustrated owners demonstrate loss aversion by renting instead of selling for less than they think it is worth.

The joke is on them though because they are going to have to accept even lower rents as everyone follows suit and sales prices are going to drop even futher.

So, if you think these guys are so accurate please explain how you think they acquire their data. I checked my server logs against their metrics and everything they produce looks like pure fiction to me.

If so, why? Are agents telling these poor suckers that the market is about to bounce back?

If there’s anyone on this site who recently became a Seattle landlord on a SFH property rather than selling it, can you tell us why?

more people watch American Idol than PBS.

whatever.

I have no relationship with quantcast other than having used them on customer sites when there was a need for verifiable stats to show to potential advertisers or clients. As a clarification I never said that sb traffic was down, I have noticed that it is not currently growing as fast as RCG (since about january), which I don’t understand.

I think the ben jones blog pretty much illustrates my point, for a national site their monthly uniques are about 25,000. John L Scott who sells houses in 3 states gets about 200,000 uniques a month and the westseattleblog.com gets about 35,000.