http://lightsblue.com/homeprices

Helps visualize the numbers.

The lag chart is an interesting perspective. We can argue the relevancy of it ’til we’re blue in the face, but I get the impression that those arguing it are mostly hoping we don’t follow the trendline of LA and SD. Fear, Uncertainty, Doubt – the Seattle way. (old /.ers will know what I mean)

You have to think about it differently. The same factors inflated the bubble everywhere, but it took longer for it to start in some areas than others. The only reason SD fell before Seattle is that SD started earlier, it hit its maximum price inflection point sooner than Seattle did. Had the credit spigot continued in the Seattle area, we likely would have had another little while to go before hitting that point. You can think of the bubble apex as the maximum price a region can afford even with bull"chocolate" loans and no money down. For every area this is different due to demographics, bubble start time, etc. I think another influencing factor for Seattle in particular is the California equity locusts like to move into the PNW when their bubble has heated up. It happened this time and it happened back in the early 90’s as well, they cash out at bubble prices down in Cali and move up with cash and buy investments in the PNW, creating a new bubble up there.

Gack.

P/E = price/earnings = price / (rent – taxes – insurance – maintenance – condo fees)

If you want to expand on my gross oversimplification, you should also include vacancy as a factor.

And looking at it from the buyer/renter’s perspective, what really matters is cost to buy (PITI + maint + assoc fees) vs cost to rent.

Looking at the charts you can see a lot of cities falling at about the same rate in 2007, but some of those peaked in 2004, while some of those peaked a year later. There is no fixed delay from the peak, but a fixed timing for the fall. That’s easily explained by the national crisis, which hit everybody at the same time.

That explains why it took Miami 11 months to hit 85% of the peak value, but San Diego 24 months. It’s simply because San Diego peaked 13 months early.

I may be wrong, but Tim does have that graph posted.

Isn’t it the second one down from the top showing all 20 cities?

I think it is random when the bubble starts and mass human psychology creates a nearly constant cycle time.

By that logic, the Seattle market will not fall as much as others, and will recover before everyone else.

You can scream all day about workforce but the only data that matters is the price of a home to the average income in the city. The Bush era has brought in the golden age off book accounting, opaque financial insturments, and general ignorance about finance. Here are three things that will make this crisis so much worse.

1. 45 Trillion Dollar Derivatives Market! Since when was the derivatives market larger than the stock market? Since most derivatives are off the books you can bet that the banks were buying mortgage backed securities with leveraged capital for the last three years.

2. All those investment banks are holding mortgages in SIVs. Banks sold toxic debt to their own off book entities. The SIVs and other off book entities are holding the mortgages not the banks! The banks only had to report a minimum of the mortgage debt and they are frantically fighting to change accounting rules before they bring any more of it onto their books. (ask Citigroup)

3. Ben B. is stuck in a really bad spot. When the toxic mortgage debt moves from off book entities to on book the banks are going to need more than fake loans to bail them out. No one knows for sure but we are looking at Trillions not billions in loses. So now the banks want to price bad mortgage backed securities at “historic” prices. The bank gets to pretend (for accounting purposes) that no one lost a home.

Either the dollar or the banks crash – end of story.

nt tht TM ddn’t hv th blls t rspnd.

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Lagging a graph to show a similar pattern isn’t messing with the data, or injecting one’s personal opinion, it’s facilitating an understanding that indeed, Seattle follows the same reality as the rest of the country, and is no more special than any other place.

It’s a great time to get out of debt- if you can. Too many, I’m afraid, are stuck in a trap that will restrict them for years to come. It’s great to be a renter!

Explain why DC metro has returned to Oct 2004 price levels. Thank you. I spend a good deal of time in DC metro for work, and everyone there told me that DC was a “special market” before it went south. People said the same line of BS you are spewing “DC is different, we have new people coming here all the time, the federal government is still hiring like crazy, we are running out of land out here, we are more educated than the rest of the U.S., blah blah blah”.

Now they are at 2004 price levels. Seattle is at 2006 price levels and tanking. Our price run up merely started later, end of story.

Gack.

P/E = price/earnings = price / (rent – taxes – insurance – maintenance – condo fees)

Yr 17 mnth lg grph s BS.

Sttl s th scnd mst dctd cty n th cntry nxt t DC. W hv dffrnt dmgrphc, wrkfrc, prsnl ncm nd nmplymnt rt cmprd t Prtlnd, Sn Dg r Ls ngls, nd tht shws n th fct tht th Sttl rl stt mrkt s hldng bttr.

Pst th FCTL GRPH, nt yr prsnl crv fttd pp drm.< hrf="#" clss="rplyt" nclck="rplyt('48915','∓#91;trll∓#93;',''); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('48915','∓#91;trll∓#93;','Tm,\r\n\r\nYr 17 mnth lg grph s BS.\r\n\r\nSttl s th scnd mst dctd cty n th cntry nxt t DC. W hv dffrnt dmgrphc, wrkfrc, prsnl ncm nd nmplymnt rt cmprd t Prtlnd, Sn Dg r Ls ngls, nd tht shws n th fct tht th Sttl rl stt mrkt s hldng bttr.\r\n\r\nPst th FCTL GRPH, nt yr prsnl crv fttd pp drm.',''); rtrn fls;">Qt

I don’t get the drift … would the author (or anyone else who “gets” it) care to clarify?

Thanks!

If you are a home owner and can pay off the 5-7% interest principle [or any amount of it] with investment cash, do so ASAP in my book.

Its like making 7-9% interest on your investment cash before taxes. The 2.6% money markets at BECU are a joke right now. The avearge short-term stock market returns are worse [negative 5% the last year].

Make money in investments, pay off any home principle you can right now and I don’t see banks offerring higher investment interest rates for years to come either. The tax advantages of paying high (5-6%) interest are a joke, compared to the money you make not paying their interest (when investment interest is so darn pitiful in comparison) or risking more losses in the stock markets.

I bet the Suzy Orman show on CNBC would totally agree with me.

We have been shopping for a house recently around Bellevue. We can rent a $2000 house that would cost us $3000+ to purchase

Only a 33% premium (actually I think that that is a 50% premium to rent, a 33% discount to buying)? What area of Bellevue are you looking at beacuse I’m seeing more like a 100% premium. Maybe you’re assuming a large downpayment, but then you have to factor in the opportunity cost of using that downpayment on a house vs. investing it.

If you are referring to the income of rental properties, then there is still a LONG way for things to drop. Since rents cannot be financed, rent is always kept in check by actual incomes (which we see is definately not the case for home purchases.)

We have been shopping for a house recently around Bellevue. We can rent a $2000 house that would cost us $3000+ to purchase. A 33% home-ownership premium is pretty steep. A 33% drop in housing prices to bring them in line with rent… ouch.

gn, wht md dffrnc whn w bght s th lctn, nghbrhd, dstnc frm mjr SD mplyrs (.g. Qlcmm), qlty f hm/”mtnl ppl”, tc.

Frnds wh bght ftr s, hvn’t md mny n thrs, hwvr thy hvn’t lst thr (nd thy wrn’t vn n th Scrpps Rnch r -whch s rlly nc/ttrctv).

SD ddn’t bbbl p. nd SD rl stt cn’t rlly ls vl. T nyn wh hs bn t SD, thy knw wht th rl vl f th plc s – nd t n’t th rl stt s mch….< hrf="#" clss="rplyt" nclck="rplyt('48898','∓#91;trll∓#93;',''); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('48898','∓#91;trll∓#93;','Sn Dg hs flttnd t, rthr thn \&qt;brst\&qt; - hm w sld thr md bt 40k vr th lst 3.4-4 yrs, vrss nrly 200k btwn nd f 2001 nd md-2004...\r\n\r\ngn, wht md dffrnc whn w bght s th lctn, nghbrhd, dstnc frm mjr SD mplyrs (.g. Qlcmm), qlty f hm\/\&qt;mtnl ppl\&qt;, tc.\r\n\r\nFrnds wh bght ftr s, hvn\'t md mny n thrs, hwvr thy hvn\'t lst thr (nd thy wrn\'t vn n th Scrpps Rnch r -whch s rlly nc\/ttrctv).\r\n\r\nSD ddn\'t bbbl p. nd SD rl stt cn\'t rlly ls vl. T nyn wh hs bn t SD, thy knw wht th rl vl f th plc s - nd t n\'t th rl stt s mch....',''); rtrn fls;">Qt

Here are the numbers

09/90 – 03/91: -6.0% in 7 months
09/91 – 02/92: -2.2% in 6 months
11/91 – 02/95: -1.1% in 4 months
11/95 – 01/96: -1.0% in 3 months
08/07 – 03/08: -7.3% in 8 months (current streak)

In the 218 months that C/S has tracked Seattle, 170 months have seen appreciation M2M and 48 of months have seen depreciation (22% of the time).

This is only the second March in the series that has been negative.

As

I think it would be good if you considered removing the ‘17 month lag’ from the Case Shiller. Its misleading to many who are new to the board.. a nuance that could be taken as reality by someone who glazes over your graphs and takes them as fact.

I like the data you post. I worry when you post ‘theories or opinions’ that appear to be facts… its misleading and it will devalue your brand very quickly.

By visually juxtapositioning those items, it is dangerously close to mis-leading people.

Post the data, let us all discuss what it may mean. Don’t tell us what you think it may mean and then let us talk about it.

In my opinion, this blog is successful because of the limited amount of bias (as compared to the mainstream realestate information). Do not let the articles on this blog become an equal and opposite amount of bias… your point is strong enough without exaggerating.

“As the home-buying season — that annual rite of spring and early summer — enters what is traditionally its busiest period, there are simply too many homes in many parts of the country, and two few people with the means to buy them.”

Hmmm…

N = number of homes for sale
N-2 = number of people with means to buy them?

The price of other homes will set the price of those. Once the low end comes down to rental equivalent “fair value” prices, it will set the comps for every other home just like now. Since the majority of the housing market is based on first time buyers enabling other people to move up, the price they can sell at will set limits for the prices the next tier can charge and so on.

http://calculatedrisk.blogspot.com/2008/05/case-shiller-real-prices-off-21-from.html

Based on that, one could expect nationwide prices to continue to decline, but Seattle looks to be in good shape going forward.

If you want a 2br apartment / townhome, then pretty soon the rent / own ratio will adjust prices for you. But what about a 3000 sq ft 4 br house less than 5 years old? I don’t see many (or any) of those for rent on the Eastside, so what will set their price?

http://www.nytimes.com/2008/05/28/business/28home.html?hp

” Home sales post unexpected April increase”!
http://news.yahoo.com/s/ap/20080527/ap_on_bi_go_ec_fi/home_sales;_ylt=AhpSFK3b4wYJO0.eKbKr0lOs0NUE

Negative indeed.

How far this will go before we level off, keep plummetting or eventually make a come-back is anyone’s wild guess.

My guess:

Without a surge in our local domestic industrial base, the inadequate industrial base replacement (glueboard housing with massive deficit spending) is just pushing America into a Banana Republic economy (to quote Ross Perot); this means continued degradation in Seattle’s average household wages.

With banks holding on to the ropes in the recent boxing ring losses; don’t expect them to loosen up lending to allow even lower Seattle houehold incomes to buy 1st time bigger homes. Those days are long gone.

The Seattle housing market is as strong as its houses of cards, propped up by the 1st time home buyer dodo birds or everything else collapses in price too.

When will it level off or ever go back up? Lord only knows.

That is a BIG “other”! Equity locusts have played a huge roll in the run up and the absence of such locusts will play a huge roll in the downturn. Out here in Pullman, our market has been heavily influenced by Seattle area parents pulling equity out of their homes and buying houses for undergrads to live in. This is just one big pond with housing bubble waves rippling out from the epicenters in California, the southwest, Florida, and the northeast.

I agree that Seattle isn’t as bubbly as San Diego or Las Vegas. But as Tim points out, that is rather like winning a tallest midget contest. If the bubbly markets fall 50%+, Seattle could easily fall 30%.

The key, above all, is to look at rents. Rent value will put a floor under housing price drops, though when the GSEs become officially insolvent (I suspect that with honest accounting they would already be insolvent) we could see prices drop below equivalent rent value due to unavailability of home loans.

Did you happen to see the note in the comments section, posted by the Classifieds Director at the Washington Post? He’s rushing to the defense of his paper, saying “WE don’t report negative news, honest!”

It’s a revealing glimpse on the pressure those Classifieds departments must be putting on the reporters to keep the real estate news positive.

Here’s his post:

Submitted by Tim Condon on May 23, 2008 – 7:22am.

Nobody likes to be the subject of generalizations – not even media. The Washington Post reported on housing prices today, and specifically referenced in the first part of the article that the OFHEO index is ‘considered the most comprehensive measure of value in the U.S…’. The article also pointed out that the data is skewed by areas such as California, Florida and Nevada. Later in the article, the S&P/ Case-Shiller index is referenced, but the article AGAIN mentions that the government index is more comprehensive.

Not all media is out to report sensationalist stories, and making broad statements to that fact is a bit of sensationalism in iteself, now isn’t it?

Tim Condon
Director, Classified Advertising
The Washington Post

The time delay factor is interesting; there are several metropolitan areas which seem to be experiencing a time-delayed proportional correction to the “market-leading” bubble areas (eg: Seattle, Portland, Austin). I’m guessing speculators migrated money from the leading bubble areas to those areas looking for opportunities.

I also agree with the P/E being the practical bottom, but I expect rents to go down as well, as people consolidate living spaces to reduce costs and lenders unload REO inventory. Hopefully this will be encouraged with new laws to make lenders more financially responsible for upkeep of vacant units (making it more profitable to sell than ASAP at market). As inventory increases faster than demand, rental prices should come down a bit, which will allow a lower P/E floor (and better affordability for non-investors).

Just my opinions. :)

other than possibly reducing the number of people migrating North to cash in our “cheaper”housing.

Thanks for stopping by Steve. While I don’t disagree with your assessment, it looks like SD is not so much cheaper any more…

http://seattlebubble.com/blog/2008/05/20/san-diego-county-now-cheaper-than-king/

I think the predictions thread was here

Do you forsee what I do…..? The major Brokerages will advertise Buy from US and receive 5000-10,000 toward closing costs? Do you see the door swinging to the Left in the major Brokerages offering a discount service and to the right a full service ? Do you forsee all the tiny satellite offices merging into the major hubs? Do you see a veritable collapse of the MLS system as I do? Do you forsee Google/Yahoo/Msft/Zillow being the future of real estate as I do? Many of these changes are happening today! I hope you see it!

As a Mtg Rep I hope you are educating your clients in the ONLY way to Buy real estate not on when to buy real estate. You owe it to your customers don’t you? You will not be like many MTG Reps will you? You will be an advocate 1st for your client . Right? When a buyer needed another 4000 to close you will not sit there and think. Hmmmm, too bad they didn’t use a different “type” of Brokerage to find their home.

There is so much to predict. Most are blatantly obvious! Buy GEMS! Lets watch this all unfold together. It will be a GREAT RIDE! Home prices WILL come around in time but the Greatest change in real Estate for the Consumer is happening everyday.

Ray Pepper
http://www.500Realty.net

Would you agree that the credit bubble is what drove insane housing appreciation in every area of the country (and some other countries)? If so, then what happens in SD or other markets will certainly effect Seattle. When all of those AAA rated securities that were backed with homes in Vegas or SD or other superbubble areas continue to deteriorate, so will the available credit for every other market in the country. This will become especially pronounced when Seattle is still posting declines (and thus higher risk to lenders) when those other areas that are rocketing downward have hit their floor.