Seattle Bubble

With gas prices passing another big round number lately, there’s been a fair amount of talk about how the high price of fuel is affecting people’s daily lives. When it comes to the real estate market, common knowledge says that higher gas prices will hit home prices in the suburbs and exurbs, while helping to strengthen prices in the “downtown core” and “close-in” neighborhoods.

Financially speaking, I have to say I can’t really buy that. I’ll use a somewhat extreme scenario to illustrate why. Let’s say you’ve got a 30-mile commute from Sultan to Redmond (one of my former coworkers did that—yuk), and that your car gets a decent but not great 25 miles to the gallon. At $2.50 per gallon, you were spending $30 a week (~$120 a month) on gas for the commute. At today’s $4.00 per gallon, that is up to $48 a week (~$192 a month), a difference of $72 per month, or $900 more per year.

So lets say you decide to move in closer, to Kirkland or Woodinville. Now your commute is just 6 miles, and a week’s worth of commuting costs you just $10, saving you a grand total of $1,900 per year.

That doesn’t seem like nearly enough of a price difference to make up for the much more expensive cost of living close-in. It’s certainly possible that most people don’t actually do the math, and make irrational decisions based on their gut and that “pain at the pump” feeling, but mathematically the decision to move closer just because of higher gas prices doesn’t really make sense.

To me, what’s far more important than gas prices is commute time. I personally would never want to live much further away than about a half hour from my place of work. Time with my family is more important than having a huge house that I never get to spend any time in.

What about you? Do gas prices really figure into your decision about where to buy, or are things like commute time, neighborhood, schools, etc. more important?

Time for another update on the fundraising drive. So far 39 people have donated a total of $885, putting us over 1/3 of the way to the goal. Thank you for your generosity!

If just 65 more people were to donate $25 each, the goal would be reached. Please consider making a donation if you have not already. If you have—thank you again.

Someone left the following comment on the previous fundraising post:

I’ve wondered how you monetize your detailed, quantitative knowledge of the real estate market once the local market passes its bottom. Seattle Bubble, by the nature of its title is a bit time limited.

That’s a great question, and it’s something I’ve definitely been thinking about. When Seattle Bubble launched in late 2005, the purpose of the site was to explore the housing bubble and how it related to the local real estate market. Since then, I feel like the site has grown into much more than that, and become more of a general news and analysis source for the local residential real estate market.

I think this is a service that has a place even after the housing bubble has played itself out, and as I have said, I intend to continue growing the site and making it an even better resource to that end. That being said, I am interested in more feedback regarding the name of the site. Technically speaking, it would be a piece of cake to re-name the site and automatically redirect visitors to a new domain, but is that really necessary? Does the name of the site really matter if the content is quality? What’s a “Zillow” or a “Redfin”?

I’d like to hear your thoughts on the “branding” of the site, keeping in mind the goal of where I’d like to bring the site over the next few years (which I described in the initial fundraising post).  If you have any good name ideas, feel free to list them here as well.  Thanks!

Speaking of economics, I’d like to hear from people who are in the trades: small general contractors, electricians, plumbers, siders, framers, painters, masonry/hardscapes, landscapers, flooring installers, heat/HVAC contractors, small remodeling contractors, etc..

I spoke recently with a client of ours who is an electrician and the individual mentioned that there were recent incidences of builders either not paying or delaying payment for services.

• How are fuel prices influencing your small business?
• Has work dropped off in a noticeable manner?
• Are bid requests still robust?
• Have you been asked by builders or Gen. contractors to drop your prices as a sub?
• Are you getting paid in 30, 60, 90 days or longer?

For homeowners that are doing remodeling or home improvements this Spring/Summer season:

• Are you scaling back your projects?
• Are you going to do more work yourself?
• Are you receiving more bids, more promptly?
• How far out are contractors scheduling your projects?

Thanks,

S-Crow

I was out looking at commercial property and I ventured around Everett’s Silver Lake neighborhood where I bumped into a street (block and a half ) with five real estate signs, indicating five homes for sale. I pulled over and took a flier from a yard sign—a dated rambler, vacant with the yard a mess. $400K. Out loud, I said, “insane.” Hmm. What could it rent for? Gosh, just a rough guess would be that I’d have to come up with about $200,000 as a down payment to get the PITI to break even. Maybe more. Oh, and I’d need to put probably about $30K into it to just get it up to today’s modest standards.

Last night, I pulled into Top Foods to get some milk and other things for my kids lunch. On the way, adjacent to the store are a Chevron and Shell gas station. One gas price sign was illuminated, the other darkened, but both stations were open. Both stations increased their prices to a $4.03 9/1Oth. per gallon for regular unleaded. We finally hit over $4. in Snohomish. Diesel? $4.89/gal! I have a John Deere tractor to help mow my lawn and do other yard work. Takes Diesel. Does anyone know the per capita ownership of trucks in Snohomish Co? It is fairly high. A lot of F-250’s, SUV’s, Chevrolet Duramax Diesel’s. Lot’s of big rigs. I recently read that Ford was ramping down their SUV and Truck lines this July for a period longer than normal due to poor sales (evidently they stop the production each July for re-tooling purposes).

Ok , I’m now a bit grumpy pulling into Top Foods. I pick out four Gala Apples, my two gallons of milk and a couple other things.

I look over at what a gallon of Minute Maid Juice is going to cost. I do a double-take. I can’t believe it. $7.30! Seven dollars and thirty-cents!

I still can’t believe it when I’m typing this. I said outloud, to be overheard by two other patrons in the isle, “this is insanity!” For a basic fruit tray, they want $24.99! Do you think an agent in their right mind is going to buy a basic fruit tray at that price for their broker’s open? No chance.

Lawrence Yun, I have a message for you: the idea of your recent comment suggesting we are not in a recession is beyond me. Soon, you will be parody on Saturday Night Live. I’m still waiting for our 30-40% increase in median prices for 2007.

My father-in-law put his two kids through college and law school at Pepperdine. He is still working (driving local routes throughout Washington delivering potatoes, hay, apples etc…) although he retired recently from BP-ARCO doing of all things (for 30 plus years), delivering our fuel! I asked him what it takes to fill his big-rig up and he says about 15. That’s $1,500. But, he says he never keeps it full. Why? People are siphoning.

By the way, those Gala Apples….all four of them……a sliver under $4.00!!

Is this the first sign that downtown Bellevue has reached its condo saturation point? Seattle Times: Bellevue condo project, European Tower, put on hold

The housing slowdown has claimed another local high-rise, high-end condo project.

The developer of 16-story European Tower, a downtown Bellevue project whose design features just one unit on each floor, said Wednesday that it won’t start construction until the market turns around.

Eugene Gershman, chief operating officer of Bellevue-based GIS International Group, attributed the delay to reticence among prospective buyers whose current homes are taking longer to sell.

He said buyers indicated that if construction started now, the tower might be finished sooner than they could close on their units.
…
Buyers have reserved six of the project’s 16 units, he said.

The article also mentions some of the other projects around the Seattle area that have recently been “postponed.”

European Tower’s delay is the latest in a string of postponements. The Insignia Towers project in Seattle’s Belltown neighborhood recently announced a delay, citing the market slowdown.

And earlier this year, work on the luxury 1 Hotel & Residences in downtown Seattle was postponed until at least late summer while developers redesign the project to make it more appealing to lenders.

Gershman said availability of financing was not a major reason for European Tower’s delay. But Dean Jones, of the Seattle marketing firm Realogics, said tight credit is taking its toll on a number of downtown Seattle and Bellevue condo projects.

“If they’re not under construction now, with a few exceptions, I would doubt we’ll see any break ground this year,” Jones said.

The question is, are enough projects holding off to keep the market from experiencing a severe oversupply in the next few years?

(Eric Pryne, Seattle Times, 05.22.2008)

I have now been tracking the Distressed Sellers Index for a full year, and since I haven’t mentioned it on here since way back in October, I thought it now would be a good time for another update.

Please keep in mind that I do not claim the DSI to be in any way scientific or statistically rigorous, but rather I provide it as a point of general interest. It uses an original and proprietary algorithm to measure the ratio of listings using “distressed language” compared to the total number of listings.

Here’s a graph of one full year of the DSI:

Click to enlarge

Last May the DSI was in the upper 20s. This May it has bounced up to over 100, with the latest update coming in at 103. You can also see above that February and March had a series of particularly high points on the index, and it appeared to be heading back down to the upper 70s until the last few updates.

Again: I’m not attempting to apply any sort of predictive meaning to these values. They’re provided as a curiosity, nothing more.

For the sake of comparison, here are the current DSI values for select additional cities:

• Boston: 77
• Detroit: 96
• Las Vegas: 222
• Sacramento: 150
• Miami: 212
• San Diego: 209
• Los Angeles: 168
• Phoenix: 162

Most of the other cities fall more or less in line with where you would expect based on the condition of their respective housing markets, with the notable exceptions of Boston and Detroit (down 12% and 23% from their respective peaks). My guess as to what’s going on there would be that most sellers in those cities have managed to make it all the way through the five stages of grief and since they’re now accepting the falling prices situation, they don’t tend to use distressed language in their listings.

Anyway, there you go. If this index is interesting to enough people, I can make it into a regular monthly post. Otherwise it will remain just an occasional curiosity.