Before we begin May’s reporting roundup, let’s have a little review of the year so far.
January
Barb Lamoureux, owner and broker with Lamoureux Real Estate in Everett, said the typical slow December market is over. She’s seen signs the market is picking up, including a significant increase in open house traffic and even some multiple offers on properties. Her agents are expecting a busy spring.
February
February housing activity around western Washington signaled signs of an emerging spring market with a noticeable increase in open house traffic, reports of multiple offers and a big jump in pending sales from the previous month.
March
NWMLS director Dick Beeson believes the local market has “reached bottom – or pretty darn close.” Even though inventory continues to grow, Beeson acknowledged, “so does optimism among buyers, sellers and agents.”
April
Spring did start slowly, said Coldwell Banker Bain agent Margo Hass Klein. But she said traffic in the last couple of weeks has increased by at least 10 percent at open houses.
May
“We still haven’t had summer hit us yet as the weather remains cool, wet and cloudy. I expect both temperatures and the market to heat up as summer approaches,” commented Dick Beeson, broker/owner at Windermere/Commencement Associates in Tacoma. “Open house traffic is picking up and buyers are coming off the sidelines to make buying decisions.”
I’m starting to wonder if maybe, just maybe “open house traffic” isn’t quite the best measure of real estate market health.
Read on for the this month’s roundup with all the blind real estate agent optimism you can eat.
Elizabeth Rhodes, Seattle Times:
Home prices remain soft, inventory remains high and interest rates are relatively low — all of which point to a buyer’s market. With interest rates at their highest levels since mid-March and likely to go up, it would seem that buyers would get off the fence.
But sluggish sales say buyers remain unconvinced.
Proof is in median prices of single-family homes, which declined year-over-year in King, Snohomish, Pierce and Kitsap counties, according to statistics released Thursday by the Northwest Multiple Listing Service.
…
Teresa Darragh, an agent in one of John L. Scott’s West Seattle offices, said the lack of pressure is allowing buyers to make thoughtful decisions.“They’re able to take some time to look at the market and the inventory,” Darragh said. She also said prices in her area are down about 5 percent.
How great that agents are suddenly so concerned about a buyer’s ability to make “thoughtful decisions.”
In a surprising change of pace, Ms. Rhodes also has an article out today that focuses on the meaty subject of financing: Higher hurdles to home loans slow real estate sales in Puget Sound region. Be sure to check that one out too.
Aubrey Cohen, Seattle P-I: Home buyers, it’s your time to haggle
Ewan Hruska and Leya Barr plan to buy a house in Seattle — if they can sell their home, which has been on the market in Shoreline since October.
“We have our price point that we can’t go below,” Barr said, outside of an open house in Greenwood late last month. “It’s made it difficult to price it to move.”
They estimated between 60 and 80 people have toured the house.
“We’ve never had a problem with viewings,” Barr said. “It’s just, we haven’t had an offer.”
Nice. I get the impression that maybe Aubrey is as tired of the “traffic at open houses” nonsense as I am.
“There is clearly some bargain hunting going on,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University. “Certainly there are some sellers out there that are panicking a little bit. Their homes have been on the market much longer than they had been accustomed to seeing homes on the market, so they have been accepting some disappointing offers.”
But the decreases are greater than what the market merits, Crellin said. “(I) don’t see that we should be having the degree of problems that these numbers are implying.”
Oh man, that’s rich. Prices are off just 8.5% from their peak, and Crellin’s freaking out. Granted, he’s been doing the real estate analysis gig longer than I have, but honestly Glenn, are you really that surprised? I think we’re just getting started. Of course, a good amount of Crellin’s WCRER funding comes from Realtors (more on that later this month), so I suppose that comments like those should be expected.
Mike Benbow, Everett Herald: Snohomish County home sales slow in May
Some brokers blamed newspaper reports on the national economy and poor housing for the lack of an expected revival in local sales. Others said the continued cold weather hasn’t helped.
Ok let me stop that one right there for a minute. How can real estate agents—with a straight face—blame the weather for slow sales? Do they seriously believe that there are people out there saying “gosh honey, I know we were planning to buy a home this month, but gosh darnit, would you look at that rain—let’s just wait until it’s sunny”? Really?
“There are such great opportunities for buyers right now to position themselves for the future,” J. Lennox Scott, chairman and chief executive of John L. Scott Real Estate, said in a news release.
…
“Buyers are realizing that interest rates may creep up, and they would be in a worse position if rates went up 1 percent than if prices fell 5 percent,” [MLS Director Dick Beeson] said.Mike Skahen, a multiple listing service director of Lake & Co. Real Estate in Seattle, said there really wasn’t a spring buying season this year as people stayed on the sidelines to see what would happen with prices.
“When the press gets less negative,” he said. “It’s going to push buyers off the fence and they’ll regret having waited.
Nice. Notice how the tone of agents has shifted somewhat in the last few months. It’s become almost threatening. “You’ll regret this…” Classy.
Devona Wells, Tacoma News Tribune: It’s spring, but home prices fall
…spring is the time of year when agents and brokers expect to see business picking up. Instead, prices have hovered around the $260,000 mark since January and the number of sales, while moving north from February through April, dropped on a month-to-month basis in May.
…
Buyers remain hesitant but sellers are getting a better handle on today’s market, said Dick Beeson, an MLS director and Windermere broker. Still, more whittling of inventory would help, considering how long some of today’s listings have been on the market and that some remain overpriced, he said.Real estate agents, he said, are having heart-to-heart sit downs with sellers and turning down properties they might have previously tried to market.
“Agents are finding they can’t spend their time on properties that aren’t sellable,” he said. “You get real with the market, no more hoping. It’s reality time.”
…says Mr. “I expect both temperatures and the market to heat up as summer approaches.”
Jim Szymanski, The Olympian: Home sales down 32 percent from ‘07
Some agents say the dropping numbers mean it is a good time to shop for real estate because many homes are available.
“People are hanging on to their wallets,” said Blake Knoblauch, an agent with Greene Realty Group of Thurston County. “Buyers are waiting to see the bottom of the market, but we don’t know when we’re going to see the bottom. For all we know, it could be now.”
Ah yes, the “better not try to time the bottom” nonsense. Of course, for all we know, the bottom could be 2012, and today’s buyers will be kicking themselves a year from now. Also, we’ve already shown that today’s “fence sitters” have nothing to lose by waiting it out, so the argument really doesn’t hold water.
(Elizabeth Rhodes, Seattle Times, 06.05.2008)
(Elizabeth Rhodes, Seattle Times, 06.06.2008)
(Elizabeth Rhodes, Seattle Times, 06.06.2008)
(Aubrey Cohen, Seattle P-I, 06.05.2008)
(Mike Benbow, Everett Herald, 06.06.2008)
(Devona Wells, Tacoma News Tribune, 06.06.2008)
(Jim Szymanski, Olympian, 06.06.2008)
johnnybigspenda » Jun 6, 2008 at 8:43 am
Found an article about renting vs. buying for first time buyers:
Downsizing the American Home
by Shawn Tully
Friday, June 6, 2008provided byCNNMoney.com
During the housing bubble, KB Home priced out first-time homebuyers by building bigger. Its new, more modest model provides a glimpse of what the return of the housing market may look like….
http://finance.yahoo.com/real-estate/article/105204/Downsizing-the-American-Home
shawn » Jun 6, 2008 at 8:51 am
here is the reality, people were irrational when the bubble was expanding. And the realtors loved it. People will continue to be irrational, when we really do hit a bottom, people will still be expecting more incentives and lower prices. And realtors don’t love that, so they spin. But just as when the bubble was expanding, no reasoning could stop it. Now with it going in reverse, no propoganda from realtors can stop the falling prices or get the bubble back. It will be at least ten years before people forget about this bubble. What we should all accept is that we will never, never ever, get truth from realtors or the mass media. The new age is getting our reality check from sites like this.
vboring » Jun 6, 2008 at 9:23 am
re: where to get the truth
no offense, but the biggest problem with any source of information lies in the incentives that source of information is exposed to. most RE news is worthless because it is paid for by RE agents or developer ads.
the problem is, though, SeattleBubble has an incentive to make things seem bad.
i have all respect for The Tim and have seen no signs of bias. even so, people come to this site to see reasons why RE prices in Seattle will fall. and The Tim gets something out of people coming here, so The Tim is incentivized to publish bad news for local RE prices.
The Tim focuses on data analysis and critiques of other market coverage, so there is less chance that his information will be skewed. but the incentive is there.
also, i tend to prefer information from engineers over info from salespeople, since engineers seem to have a respect for testable truths that salespeople miss.
vboring » Jun 6, 2008 at 9:26 am
i have no desire to be flamed, just pointing out the unavoidable
The Tim » Jun 6, 2008 at 9:28 am
No offense taken, vboring. I constantly encourage readers not to take anyone’s word (including my own) on market conditions or if it’s a “good time to buy.”
Do the research yourself and make the best decision you can based on the available data and your own personal situation.
Tsuru » Jun 6, 2008 at 9:30 am
This one is my favorite. I wonder if Dick has paused to consider the fact that house prices will have to drop even further in the face of higher interest rates? I assume not.
Let’s take this to the flipside and see what the opposite spin is on Dick’s statement: sellers may want to lower their prices 5% now so they can sell before buyers are “squeezed out” by a 1% interest rate hike and there are no buyers left that can afford to buy their house.
shawn » Jun 6, 2008 at 9:36 am
Hi Vboring,
my main point was just where were we hearing any truth about the re bubble. If we want some alternative views we cannot get them from the mass media.
Ray Pepper » Jun 6, 2008 at 9:42 am
GEM OF THE WEEK ALERT!!!
Bring the family home Lil Caesars this weekend. I have been doing it for the last 2 months. Its 10.80!!. 1 Large pepperoni and 1 cheese. It feeds 4-5. It appears we all have gained weight but HEY! I have saved at least 125.00 a month!
See its not all bad out there.!! You just have to find the GEMS!
Ray Pepper
singliac » Jun 6, 2008 at 9:50 am
Ray Pepperoni?
NotaBull » Jun 6, 2008 at 9:52 am
“See its not all bad out there.!! You just have to find the GEMS!”
http://www.gems-girls.org/
Ray, you’re one sick puppy.
Scotsman » Jun 6, 2008 at 10:30 am
In other news, oil shot up again to over $135 a barrel and unemployment rose for the fifth month in a row, increasing by the largest margin in 22 years. But a drop in the ten year treasury rate from 4.04% to 3.96% was expected to lead to a reduction in mortgage interests rates, fueling a rebound in Seattle’s housing market. (Once the rain stopped, and open house traffic continued its upward trend.)
EconE » Jun 6, 2008 at 10:31 am
Somebody better tell these realtors that the increase in open house traffic that they are seeing…is nothing but us bubbleheads out in search of free food.
Imagine if college students knew there was free food at open houses! We’d here about hundreds of people at every open. Sales?…not so much.
disbelief » Jun 6, 2008 at 10:42 am
“open house traffic” really does seem to be a statistic of last-resort for the Realtor crowd – the last one they can spin into something that sounds favorable. Makes for a pretty week argument though, as it can’t be verified or, for that matter, actually quantified.
I myself have noticed an increase in “window shopping” at downtown luxury stores, and expect that this summer will be a strong one for the luxury retail market!
CCG » Jun 6, 2008 at 11:01 am
My personal open-house traffic has gone from zero during the bubble years to several times a week, as the g/f and I like to look at what we can expect to pick up at nice discounts in a couple more years. Given that, nationally, all house price inflation since mid 2003 appears to have been wiped out, we’ve been using 2003 prices to give us an idea (or earlier ones when we’re feeling optimistic).
(Cue enraged screeching and trolling as to why this will never happen here)
David McManus » Jun 6, 2008 at 11:17 am
CCG, I think you’re spot on. I bought right at the beginning of 03 and that seems like it’s when prices really started to get crazy around here. They can go to 1995 prices for all I care, since I haven’t been using my crib as a piggy bank and don’t think of it as an investment.
TheHulk » Jun 6, 2008 at 11:20 am
Wow, with all these news I haven’t heard a peep from RAL in the past few days. Maybe all the “open house” traffic is keeping him too busy from posting.
On a more serious note with the latest round of bad news (especially problems in the prime sector), I expect things to get worse around the puget sound.
We haven’t seen problems hit the eastside yet in the prime market. I have seen foreclosures on redfin at the 800K level. These were obvious grossly inflated sales between last July and last December and obviously the houseowner/investor just gave up. However, when prices start hitting 2003 levels, I can imagine a considerable amount of pain for all the people who bought around 500K/600K and will be seeing sale prices 100K less than that.
David McManus » Jun 6, 2008 at 11:25 am
Or Nostra d-bag.
Gill » Jun 6, 2008 at 11:46 am
Just an observation –
My wife and I just moved to the ‘upper Ballard’ / Whittier Heights area.
I have been tracking prices here for a while and still do — I’ve noticed that the homes that are staying on the market are either overpriced by a lot, need a lot of work (or ‘have issues’) or are both overpriced and have a lot of issues.
By contrast, the homes that are in good shape and don’t need a lot of work are either selling for their asking price or just below it within the $10K range within about a 3 month period on average. These homes are generally priced between $450 and $575.
It seems like Ballard/Greenwood is still experiencing a slow or steady growth pattern — I guess it seems ‘normal’ to me overall in the face of the bubble.
I’m not saying it will continue this way, but it is holding on rather strongly in the face of the surrounding collapse at this time. Maybe it’s an anomaly and maybe not.
Alan » Jun 6, 2008 at 11:53 am
Maybe fewer houses sell during rainy weather because more mold problems are observable.
Slumlord » Jun 6, 2008 at 12:19 pm
This is a little off topic, but I read that Evander Holyfield is being foreclosed upon. From my own perspective, I’d hate to be the guy who has to try to evict him!
rose-colored-coolaid » Jun 6, 2008 at 12:21 pm
Let’s draw a conclusion, shall we? (NOTE, some of my figures might be made up.)
In 2006, all houses sold in bidding wars within hours of going on sale. Most were sold without official inspection, or even inspection by the buyers. There was no foot traffic.
In 2008, no homes are selling regardless of price, quality, or location. Foot traffic has soared as a result of the fact that there is now time for feet to reach a home before a transaction closes.
In short, I believe that foot traffic has an absurdly strong correlation to market conditions. High foot traffic means a collapsing market and low foot traffic means an appreciating market.
Finally, foot traffic is quite the convenient measurement to use anyways, since I’m pretty certain it’s not actually being measured at all. If it were so high, would Redfin be offering free tours in June to encourage more foot traffic?
Mammoth » Jun 6, 2008 at 12:22 pm
“‘We still haven’t had summer hit us yet as the weather remains cool, wet and cloudy. I expect both temperatures and the market to heat up as summer approaches,’ commented Dick Beeson”
—————————————
Given the weather we typically have here in the Seattle area, and considering how ‘hot’ the local housing market was during the bubble – to blame sluggish home sales on the weather is just laughable.
-Mammoth
Gill » Jun 6, 2008 at 12:37 pm
“In 2006, all houses sold in bidding wars within hours of going on sale. Most were sold without official inspection, or even inspection by the buyers. There was no foot traffic.”
-and-
“In 2008, no homes are selling regardless of price, quality, or location. Foot traffic has soared as a result of the fact that there is now time for feet to reach a home before a transaction closes.
Um, sorry — no offense, but this is straight BS.
Do your homework.
TheHulk » Jun 6, 2008 at 12:40 pm
“In 2006, all houses sold in bidding wars within hours of going on sale. Most were sold without official inspection, or even inspection by the buyers. There was no foot traffic.”
“In 2008, no homes are selling regardless of price, quality, or location. Foot traffic has soared as a result of the fact that there is now time for feet to reach a home before a transaction closes.
As said many times on slashdot, correlation != (thats NOT EQUALS) causality
Scotsman » Jun 6, 2008 at 12:48 pm
Uh, guys- I think the post by RCC was a joke. Try getting out of the office once in a while.
Ken » Jun 6, 2008 at 1:14 pm
RCC,
You’ve shot down the Seattle RE industry’s last remaining spin factor. Man, how could you do that?
There are some people that just can’t bring themselves to say “Ok, yeah, sales are down, prices are falling and the bottom is anyone’s guess.” Those people need some positive ending to their reporting of the negative numbers. What are they supposed to do now?
I think it’s our responsibility to come up with a replacement positive spin since the foot traffic thing is now just not working it.
How about….
“Yeah, sales suck right now, but with gas prices climbing, in-close home sales are projected to rocket up.”
…or
“Yeah, sales suck right now, but with food prices climbing, home-based farming is poised to drive up overall KC sales”.
Come on, any other ideas?
TJ_98370 » Jun 6, 2008 at 1:35 pm
RCC is exhibiting his genius once again. I propose a new metric for foot traffic so we can standardize and measure this phenomenon. It could be a useful tool for gaging and / or predicting market activity when coupled with other data.
How about “visitors / door threshold – day”.
Everett_Tom » Jun 6, 2008 at 2:01 pm
I think we should measure foot traffic more indirectly,
like in pounds of free food consumed per day, or even better number of house fliers removed per day (as this number is easy to manipulate if thing get worse).
Gill » Jun 6, 2008 at 2:04 pm
Sorry — didn’t see the “some of my figures may be made up” portion.
Shouldn’t blog at work, I guess.
vboring » Jun 6, 2008 at 2:39 pm
The Tim,
have you posted on your bias versus that of other media reporting and analysis of the RE market?
a metric for degree of bias in reporting could be useful. you could look at consistency of which numbers are reported, how data is presented, degree of use of forward looking statements, use of emotional language. a sort of “distressed salesperson” index.
if it were good enough, you may even be able to use a quality of reporting metric as a way of predicting future market conditions.
a decline in quality of reporting may reliably indicate falling prices in the near future. probably not.
disbelief » Jun 6, 2008 at 3:00 pm
vboring,
Nah, I think the readers of Seattlebubble do a pretty good job in reigning in TheTim when his views and sympathies towards a declining market become to “un-American” or “socialist”, as RAL can attest to.
(*Sarcasm)
stesmo » Jun 6, 2008 at 3:13 pm
http://blogs.thenewstribune.com/politics/2008/06/06/tax_man_says_pierce_county_residential_p
From Political Buzz’s blog:
“Need more evidence that residential real estate is slumping? Check your mailbox after June 13.
That’s when the Pierce County Assessor-Treasurer’s Office will mail this year’s residential property assessment notices. According to the assessor’s office, 85 percent of those notices will show a decrease in value.”
Olaf » Jun 6, 2008 at 3:21 pm
Open house traffic is primarily an indicator of the neighbors’ nosiness about what’s inside the sellers’ closets.
vboring is right to raise the question of “confirmation bias,” a problem that infests the entire internet. Americans are getting too much information from the sites they already agree with — be it politics, economics or sports. So yes, there is a hazard in basing one’s real estate decisions solely on a site called “Seattle Bubble.”
That said, I think Tim does a good job. He does suffer from a bit of confirmation bias — especially when he time-shifts certain graphs to suggest Seattle prices are “following” California — but given how the local newspapers have spent the last five years as mouthpieces of the mortgage and RE industries, this site’s bias amounts to little more than a mild tonic for the general mindless real estate boosterism. Read this site, glance at the papers, ignore what your home-owner friends think (talk about confirmation bias!), and you’ll get a balanced view.
The Tim » Jun 6, 2008 at 3:30 pm
Which I sincerely hope nobody is doing. Not because I don’t think I am providing useful information, but because making what is likely to be the largest purchase of one’s life based on reading a single source is dangerous, to say the least.
And regarding the time-shift graph, I just find it interesting how similar they are, that’s all. When I first posted it back in July last year I was looking for a way to visualize the “behind the cycle” theory. I have said over and over that I’m not declaring the graph to have predictive value.
That said, I thought this quote from my July post was amusing:
Olaf » Jun 6, 2008 at 3:51 pm
Yes, Tim, you called it last July! But didn’t you make similar predictions in ‘05 and ‘06?
(Maybe you didn’t — I really don’t remember, and I don’t feel like digging through the archives.)
I happen to share your belief about this market being over-inflated — based in large part on the raw stats you’ve so helpfully provided — but sometimes I have to remind myself not to get to hypnotized by it all. God forbid we respond in kind to the foam-at-the-mouth dogmatism of mortgage-holders like RentersAreLosers.
Check out this paragraph discussing the very psychological phenomenon we’ve been seeing in this war over the “bubble”:
“The researchers found that people tended to hold that research that agreed with their original views had been better conducted and was more convincing than research that conflicted with their original views.[8] Whichever position they held initially, people tended to hold that position more strongly after reading about research that supported their position. Lord et al. point out that it is reasonable for people to be less critical of research that supports their current position, but it seems less rational for people to significantly increase the strength of their attitudes when they read supporting evidence.[9] When people had read both the research that supported their current views and the research that was conflicted with their views, they tended to hold their original attitudes more strongly than before they received that information.[10]”
from : http://en.wikipedia.org/wiki/Attitude_polarization
Yikes. Sound familiar?
Joel » Jun 6, 2008 at 4:01 pm
Anyone care to predict when reporters and realtors here finally get that the downturn is an effect of the winding-down of the credit bubble and not because of negative reporting?
Garth » Jun 6, 2008 at 4:02 pm
I think this pretty much sums it up :)
http://xkcd.com/386/
The Tim » Jun 6, 2008 at 4:04 pm
That’s just silly, Joel. The so-called “credit bubble” is also merely a result of all the negative reporting.
Garth, I love xkcd, and indeed that one speaks so personally to so many of us, doesn’t it?
deejayoh » Jun 6, 2008 at 4:48 pm
I think this is spot on. I’ve sold three houses – each time I’ve been told by the agent “open houses don’t really sell houses, just a chance for the neighbors to come by”. Perhaps that was because they didn’t want to do the work. But it’s funny that they trot out open house foot traffic as an indicator of market health when things go to sh!t.
didn't just fall off the turnip truck » Jun 6, 2008 at 5:49 pm
Garth // Jun 6, 2008 at 4:02 pm
I think this pretty much sums it up :)
http://xkcd.com/386/
now that is funny thanks for the link
Harley Lever » Jun 6, 2008 at 5:56 pm
Measuring “foot traffic” is silly. Like web sites, you can have tons of traffic, but if you cannot convert the traffic into money then you are still in the same position.
I think SeattleBubble suffers from the polar opposite effect of real estate agents.
It is way too fixed on price as the sole measure of affordability. If you are going to be critical of the real estate agents you must be equally critical of your own analysis, especially considering that you want people to make the absolute best buying decisions.
Here are my gripes with the Seattle Bubble.
It does not intelligently consider interest rates and often caps the theoretical at 9% when the historical data shows highs of 18%.
It uses unrealistic examples of down payments when creating theoretical analyses often 20%; realistically 3% – 5% are what people are putting down.
It concentrates and highlights news that supports its own position; condo prices in Seattle are up 4.1% YOY and are up in King County and Snohomish County… why is that not on the headlines too?????
And as a whole the blog definitely suffers from group-think; if you disagree with the stated position you are beaten up and attacked by some of the regulars.
Lastly, the name should be changed to “Puget Sound Bubble” it more accurately describes the situation. Yeah I know, it has been grouped by economist as Bellevue, Tacoma, and Seattle. Seattle the city is doing far better than “the out of city locales”. As gas prices skyrocket, more will seek close-in places to live regardless if it makes truly good economical sense.
Don’t get me wrong, The Tim does a great job and I appreciate the analysis. He puts a tremendous amount of work into the blog and you cannot take that away from him. In interviews he is a straight-shooter which is more than I can say for a lot of the real estate cheerleaders.
However, because your stated goal is to help people make a good decision because it is “largest purchase of one’s life” it seems the blog would greatly benefit the users from a more balanced view and more realistic analysis. You should not beat up on the real estate agents when your views have holes too. I realize that highlighting contradictory facts is not in the best interest of the blog, but it certainly is for the users.
Joel » Jun 6, 2008 at 6:04 pm
I heard open houses aren’t good for selling houses, but they’re good for agents to find new clients. If it is true then it means that agents do know that price isn’t very important compared to transaction volume .
EconE » Jun 6, 2008 at 6:25 pm
Condo prices up 4%?
Sure…if you are a sucker for “medians”.
EconE » Jun 6, 2008 at 6:26 pm
18% interest rates?
Bring em on!
Do you remember what CD’s were paying then. Sweeeeeeet!
Harley Lever » Jun 6, 2008 at 6:49 pm
EconE
Not wanting to be a sucker…
then based on your reasoning shouldn’t we then throw out all the “median” data compiled on this blog that is so conveniently used to support your position?
You can’t have it both ways… I know it’s easier that away.
A CD back then paid 16% which was offset by 9% inflation and a 66% tax rate which left a net rate of return at 3.5%. Not so Sweet. The other problem is that you are assuming you will have any money to deposit… that whole inflation thing can really do a number on your savings.
LUC » Jun 6, 2008 at 7:19 pm
“then based on your reasoning shouldn’t we then throw out all the “median” data compiled on this blog that is so conveniently used to support your position?”
What are you talking about all the median data compiled on this log?
Also, I had a great-Aunt and Uncle in Philly who made a killing on CDs in the mid-80’s.
drewba » Jun 6, 2008 at 7:33 pm
If I could net 3.5% after taxes and inflation right now, I’d be quite pleased. I’d bet most CDs are losing value net of taxes and inflation.
Hen » Jun 6, 2008 at 7:41 pm
Increased Open House traffic = more people using Redfin ;)
TJ_98370 » Jun 6, 2008 at 8:01 pm
Harley-
This website is a work in progress. At risk of speaking for The Tim, my impression of his primary motive for this website was to counterweight the BS published by the real estate industry. The MSM is just now picking up on what he was saying months ago.
Yes there is “goupthink” expressed by the long time readers. It is a “Seattle Bubble” blog. What do you expect?
As The Tim said in previous posts, it is not his intention that this website should be the sole reference when deciding to purchase real estate – think of it as an informed reference independent from the established real estate industry.
It’s your choice to separate the BS from the true stuff as it has always been. What is different now is that the info you get now on the internet isn’t all “paid for” MSM controlled content.
[troll] » Jun 6, 2008 at 8:02 pm
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Harley Lever » Jun 6, 2008 at 8:12 pm
LUC,
EconE said “Sure…if you are a sucker for “medians”. He did not like the fact the the median condo price was up 4.1% YOY in Seattle.
I was simply calling him out. Well if he wants to discount/eliminate observations made about “Median Condo Prices” then by his same reasoning you should throw out any observations using “median housing prices”.
In the post “NWMLS: Sales and Prices Take Record-Breaking Dive” the fact is cited:
the Median Closed Price*: $440,000 – down 6.2% YOY (new record)”
This figure is so proudly displayed and worshiped . However when I point out that the Condo prices in King County, Snohomish County, and Seattle show a YOY increase, I am being “Poo Pooed” as being a “Sucker for Medians”.
You cannot have it both ways. If Medians are for suckers, then by EconE’s reasoning all data using “Medians” should be for suckers. You can’t just cherry-pick the data that fits your argument.
I am sure your Great Aunt and Uncle did make a killing off of CD’s. I am willing to bet they had a tremendous amount of cash to transfer in to a CD.
My grandparents were wealthy at the time and they were able to capitalize on these high yields. They too benefited, but no one else in my family did.
Most regular people had little to know savings and the idea of being able to throw the extra 10k-100k in a CD was not the reality of most people. Inflation was at 9%. My father had two full-time jobs and my mother had one and they barely scraped by.
Scotsman » Jun 6, 2008 at 8:23 pm
Heh, heh, just checked Zillow for the first time in a while. The l home I rent has dropped from just over $500K to $433K in the last year, June of 2007 to the present. That’s over $5,500/mo on top of the PITI my landlord pays of about $3,000/mo.
So let’s see- I can be a renter/looser for less than $1,800/mo, or an owner for $8,500/mo. Less my rent, that’s a net cost to own of $6,700/mo. And what he owns is continuing to depreciate.
Yup, ownersarelosers…… still. I’m not to poor to own. I’m too smart!
TJ_98370 » Jun 6, 2008 at 8:26 pm
Harley-
Do a Google search on how median prices can be misleading.
LUC » Jun 6, 2008 at 8:37 pm
Harley-Lever,
My Great-Aunt and Uncle were schoolteachers in Philly and were not rich by any stretch of the imagination. They were products of the WWII generation and were good savers. They diverted any income received from rental income to savings. Their savings were amassed over extended period of time. They took advantage of those high interest rates during the eighties.
Harley Lever » Jun 6, 2008 at 8:42 pm
TJ_98370,
I truly appreciate everything The Tim does and I appreciate the fact that he has expressed on multiple occasions to use this source as one of many sources.
In my opinion I feel the blog would best serve the users by focusing on trying to provide accurate information from many resources and not to counter act the rhetoric from real estate agents. By focusing on the accuracies and providing balanced information you build a foundation of trust that will best serve the users and insure the longevity of the blog. Counter-acting the rhetoric from one-side forces you to become an “extremist” for the other side.
This puts you in a position of wiping out all credibility as soon as the market goes in the opposite direction. By providing balanced insight you will develop rapport and trust which makes you a valued and reliable resource, and not simply a mouth-piece for one side or the other.
Like I said, I appreciate the Tim’s honest and straightforwardness when he is asked questions. I just think if he wants to take it to the next level and insure his and the blog’s longevity, he should concentrate more on providing more balanced insight.
Rentersarelosers,
Thank you for your kind words. I do have one question about your assertion that most are putting 20% down. Are they doing this through “Piggy Back” loans or are they really coughing up $70,000 cash? I currently do not have the data to support my belief, but most people I talk to are getting loans for a portion of their down payments.
Harley Lever » Jun 6, 2008 at 8:46 pm
Ok LUC,
So your Aunt and Uncle were rich, they were just frugal and didn’t show it off. They got rich slowly.
Harley Lever » Jun 6, 2008 at 8:50 pm
TJ_98370,
I am not saying median prices cannot be misleading.
My point is don’t tout it in one instance as being a wonderful data point and how it proves your point and in the next instance call someone a sucker for using it to back up their point.
This is where the lack of balance is rearing it’s ugly head.
Harley Lever » Jun 6, 2008 at 9:01 pm
Scotsman,
How the hell is your landlord paying $8500 for a $500,000 home????
I think you are a bit confused or you are renting from and idiot who got a loan from the mafia. I could see $3500/month but I think your math is way off buddy.
I am not sure I would be bragging about paying $1800/month in rent either.
disbelief » Jun 6, 2008 at 9:20 pm
RAL said:
“disagree with this one, I believe most will put down 20%:”
so, being that the median house costs about $450K, I take it that most people have been putting down about $90K?
If only it were so! I think the 3-5% figure is closer to the truth, and, I believe, what S-crow has cited in his previous posts (and he ought to know).
disbelief » Jun 6, 2008 at 9:26 pm
“I am not sure I would be bragging about paying $1800/month in rent either.”
Why not, if you knew that “owning” the same property, would cost you $3,500 + per month (and especially if market values where declining)
Although, I agree that $8,500 figure is outlandish.
Scotsman » Jun 6, 2008 at 9:31 pm
Harley- the home I rent has lost almost $70,000 in value over the last year. That’s an opportunity cost that must be added to the owner’s direct costs in order to accurately asses his cost of home ownership. My math is fine. Read more closely, and factor in basic economic theory.
My landlord may be an idiot, or at least the victim of circumstances. I’m pretty sure he owes more on this house than it’s currently worth, thanks to a “cash out” refi in the past. Now he’s trapped. But I’m very happy to rent from him at a bit less than the market rate for comparable homes, and will probably buy from him when the market bottoms and he has a better shot at convincing the bank to go for a short sale.
hzg » Jun 6, 2008 at 9:36 pm
I think the point was that the landlord is losing 5500 a month in equity and paying 3000 a month in payment.
5500+3000=8500
I think thats what the point was.
Now that the arithmetic has been explained rip into it
Harley Lever » Jun 6, 2008 at 9:36 pm
Scotsman,
Please provide your equation…
wobbly » Jun 6, 2008 at 9:40 pm
King County Prices.
But are prices really crashing everywhere? The King County NWMLS May breakouts don’t show that. In fact, what’s amazing is how in some areas the median price is plunging (area 500 SFH’s are down 23% in the last year) but some areas have had tiny falls, or appreciation.)
Call me dumb, but after renting and watching the market and looking at > 100 houses over the last 2.5 years (this Web site has been invaluable) we’ve just taken the plunge and bought (SFH area 710).
The markets are more complex than the doomsayers seem to understand.
There’s not going to be a universal melt-down. Some parts of the country are going to be worse hit than others, some parts of King County are going to be worse hit than others, and some types of homes, and market segments are going to depreciate more. Some may even continue to rise. I do not buy Tim’s theory that Seattle is going to mirror San Diego, just 18 months on.
Your house is not a very sensible investment (there are much better ways of making money), it’s a place to live. If you bought a house in Seattle in 1970 and still own it in 2008, you still own just a house in Seattle. You’re no richer.
People still need a place to live, preferably close to work / school or in a community where they feel safe and comfortable. Not everyone’s going to lose their job, or will hurt when oil hits $200 / barrel, inflation hits 10% pa, or the S&P500 drops 15% in a year.
Seattle’s a city with a great future. Like California, Vancouver BC, parts of Australia, and Asia, we’re going to be part of an massive economic boom over the next 20 years, as a high tech center in the next world economic powerhouse: the Asia / Pacific region. The wealth that will be generated in this region will make that generated in the US and Japan over the last 50 look like peanuts!
Harley Lever » Jun 6, 2008 at 9:49 pm
HZG
Your equation assumes that it will continue to lose $5500 per month… forever. I think we know that is not true.
Harley Lever » Jun 6, 2008 at 9:50 pm
Scotsman,
You are assuming interest rates will stay low. There is every indicator that they will be moving up.
At your current payment level, the house would have to drop to $200,000 to cost you $1800/month including (PITI). Do you really think this is going to happen?
Harley Lever » Jun 6, 2008 at 9:55 pm
Disbelief,
I am one for living below your means. Blowing $1800/month on rent is mind-blowing to me unless you have a family and kids. Living below your means is crucial.
There are opportunities in every market regardless if it is a “buyers” or “sellers” market. To me, you need to be a smart shopper in any market and if you work hard and put some sweat equity in you will reap huge rewards.
I have yet to read the book “Renting your way to becoming a millionaire”.
The Tim » Jun 6, 2008 at 10:18 pm
Harley, regarding why I don’t bother highlighting the condo statistics, the short answer is that I never have (positive or negative). For the long answer, please refer to this post. Thanks.
The Tim » Jun 6, 2008 at 10:23 pm
Oh, and as far as the median price goes, I don’t see how you can say that it is “proudly displayed and worshiped,” unless you didn’t bother to notice the blue asterisk that has been included every month since I first made the post: Median Price Not Telling the Whole Truth.
Scotsman » Jun 6, 2008 at 10:36 pm
$1800 a month is well within my means, and a bargain for the home I live in. I expect it’s value will fall another $70,000 to $80,000 over the next year or two, back to it’s 2003 price. I am in the area between Issaquah and North Bend where prices have been falling sharply for a year now. It is, admittedly, a very different market from Seattle proper. If the country enters a severe recession values could easily fall below 2003 numbers. Real estate does not always go up.
Will interest rates rise significantly from where they are today? I doubt it. We may see a short blip up, but my long term bets are on deflation and further rate cuts to try and stimulate the economy, not inflation. When everyone you know is getting 8-12% annual wage increases I’ll believe in inflation. Don’t confuse a few price increases in specific commodities with systemic inflation. I’d go further, but given the confusion this has already generated I don’t think it would be a very productive discussion.
disbelief » Jun 6, 2008 at 10:47 pm
Harley, I agree with your sentiments about “blowing” $1800 per month. However, for those in the market to purchase, there are times when “holding-off” is a prudent thing to do. This is such a time.
If you agree that real estate does not always go up (and indeed, this site is dedicated to that premise), then you ought to agree with that.
Many people are now suffering the repercussions of purchasing under the assumption that prices would continue to go up (especially folks using non-traditional, and “exotic” financing, and also folks who took out second mortgages while “cashing out” the current equity in there home). i.e. many people do not fall into the smart shopper category.
Some would say, to be a “smart shopper” now is to wait and and least hold out for the possibility of remaining decline in the market. In any case you are very unlikely to miss out on a sudden rebound and upswing of the RE market. To understand what caused the bubble in the first place, is to understand that this is a very (and I mean very) unlikely scenario.
disbelief » Jun 6, 2008 at 10:51 pm
oops, there home=their home. time to hit the rack!
BellinghamREnter » Jun 6, 2008 at 11:42 pm
Hi Tim. This may be a stretch but maybe you could include Bellingham Info. I know your busy but Bellingham is going to crash SPECTACULARLY. Nearly same prices for Seattle area but very few jobs to support them. Sales are tanking also. Just came out new home sales are down 24%. Plus we consistently have the highes price gas in the state! I was just in Seattle last weekend and thought it was cheap : ) Keep up the good work!
singliac » Jun 6, 2008 at 11:58 pm
Why hasn’t anybody noted what Harley does for a living. He can’t exactly claim that he has a more objective opinion than the rest of us.
Don’t worry, buddy. Your business will be ok. As sellers become more desperate, they’ll need your services even more.
Achoo » Jun 7, 2008 at 1:28 am
I would also love to see Bellingham information included. Horizons at Semiahmoo tract is up for sale. It’s listed for $7,000,000 with Windermere. Looks like they missed the market.
mikal » Jun 7, 2008 at 6:01 am
There it is. A person doesn’t agree verbatim with the gloom and doom people , therefore he must sell real estate. What a load of $hit. Harley is right about location. Some area have actually gained in value. The srangest thing I have noticed recently is the commute. I reverse commmute and work in in a variety of places, but observe the commute in both directions. There are less people on the roadways. Traffis is not nealy as bad as once was. Not sure if this is because of gas prices or that fewer people are working.
[troll] » Jun 7, 2008 at 6:16 am
mk,
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Rntrsrlsrs,
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Peter Taylor » Jun 7, 2008 at 8:45 am
It should be pointed out that paying rent is not “blowing” money or “throwing your money away”. Rent is a service, simple as that. I would like to know if any of Harley, RentersAreLosers, or Mikal own their own electric utility, mobile phone company, cable company, or internet provider. No? Why not? You are just throwing away your money to your utility landlords! You are just lining their pockets! What a waste when you could be owning your own utility company and be paying YOURSELF! Don’t you feel humiliated when the utility companies look down their noses at you, a simple consumer of their service? Don’t you?
Seriously people, get over it. Renting is a fairly simple financial decision to consume a service and isn’t an indicator of a person’s character.
S-Crow » Jun 7, 2008 at 9:03 am
Purchase business: it went from virtually nothing down all the time to 5-10% down depending upon factors. There are a few here and there that are low LTV (substantial downs) but those are usually from move up buyers with equity. Not many transactions for first timers show 20% down, from what I observe coming through the office. Mortgage insurance is a real drag for people to get used to again.
Credit worthiness of the borrower pool, both refi & purchase is much better. Mid-High 700’s and low 800’s.
This is the kind of lending that creates stable markets.
Matthew » Jun 7, 2008 at 10:10 am
RAL,
I don’t think you have any ulterior motives, I think you are a middle aged loser that lives in his mom’s basement and spends all day on Seattlebubble.com!
Everett_Tom » Jun 7, 2008 at 10:31 am
RAL,
you said:
For a response to your “study” that owners make significantly more then renters, please see the response I gave to your post at the time, which you ignored then too.
You can find it here
but i’ll include the key quote from it here:
Everett_Tom » Jun 7, 2008 at 10:39 am
And I agree with Mikale at least a little,
Harley Lever has been here off an on for awhile. He bought a condo back in January of this year in King County (it’s in the comments back awhile ago, it’d take some digging to find).
While I don’t agree with him on many of his positions, he’s been very willing to go with the give and take.. and he knows how to do something other then just throw insults.. (like RAL or Nostra).
I’ve always felt that turnabout is fair play… since he hasn’t turned to name calling, or character assassination I don’t think it’s appropriate to do it to him..
Bes2wait » Jun 7, 2008 at 11:01 am
I have been told now is a great time to buy, glad I didn’t listen
1.7825 13TH ST SE #60, Everett, WA 98205 Dr Horton Price Reduced: 02/13/08 — $513,737 to $464,950
Price Reduced: 03/08/08 — $464,950 to $454,950
2.7723 13TH ST SE #67, Everett, WA 98205 Dr Horton
Price Reduced: 02/13/08 — $484,950 to $474,950
Price Reduced: 03/08/08 — $474,950 to $454,950
3.7719 13TH ST SE #68, Everett, WA 98205 Dr Horton
Price Reduced: 02/13/08 — $478,510 to $449,950
Price Reduced: 03/08/08 — $449,950 to $439,950
4.7724 13H ST SE #56, Everett, WA 98205 Dr Horton
Price Reduced: 02/13/08 — $461,910 to $429,950
5.7806 12TH ST SE #76, Everett, WA 98205 Dr Horton
Price Reduced: 06/15/07 — $484,950 to $474,950
Price Reduced: 09/10/07 — $474,950 to $459,950
Price Reduced: 02/13/08 — $459,950 to $439,950
Price Reduced: 03/08/08 — $439,950 to $429,950
Price Reduced: 06/04/08 — $429,950 to $399,950
6.7802 12TH ST SE #75, Everett, WA 98205 Dr Horton
Price Reduced: 09/10/07 — $452,950 to $439,950
Price Reduced: 02/13/08 — $439,950 to $424,950
Price Reduced: 03/08/08 — $424,950 to $419,950
Price Reduced: 06/04/08 — $419,950 to $389,950
7.7720 13TH ST SE #55, Everett, WA 98205 Dr Horton
Price Reduced: 09/10/07 — $407,950 to $389,950
Price Reduced: 03/08/08 — $389,950 to $369,950
Price Reduced: 06/04/08 — $369,950 to $349,950
8.7722 12TH ST SE #72, Everett, WA 98205 Dr Horton
Price Increased: 04/14/07 — $394,950 to $398,950
Price Reduced: 06/15/07 — $398,950 to $398,330
Price Reduced: 07/22/07 — $398,330 to $378,330
Price Increased: 03/24/08 — $359,950 to $364,950
Price Reduced: 06/04/08 — $364,950 to $334,950
TJ_98370 » Jun 7, 2008 at 11:06 am
Good post, Everett_Tom. Lack of civility does detract from the discussion, IMO.
Alex_Renter » Jun 7, 2008 at 11:24 am
Few years ago I used to work for WMC Mortgage in Woodland Hills and I was working on their automated underwriting system. When I started there, the guidelines required, among other things, monthly mortgage payment to be no more than 28% of gross monthly income and total monthly debt to be no more than 37%. There was 2 years after forclosure/bankruptcy waiting period.
By the time I left, total debt was raised to 54%, waiting period was reduced to 3 month, and they started working on 50 years mortgage program.
What I think is that eventually prices will fall to historically proven 28/37%. Personally, I am not going to buy a house which will require from me higher payment than that limit. Going above is a gambling. You may win, you may lose. It’s your choice.
Harley Lever » Jun 7, 2008 at 12:34 pm
Singliac,
You should note that photography is only one of my businesses. I am a business development consultant, and… you guessed it I OWN RENTAL PROPERTIES!
It is true, the architectural photography portion of my business has skyrocketed. I benefit greatly from a depressed real estate market. When houses were on the market for a few days the real estate agents didn’t need my services. However, like the rest of my businesses I am diversified and seek opportunities regardless of the current market conditions.
Every property I have purchased required sweat equity. Generally, I look for the cheapest house in the neighborhood and fix it up and after I am done living it, I rent it out. This has worked out for me each and every time. My properties are all cash flowing and I have protected myself from a downturn by purchasing on the lowest end of the neighborhood. Today’s market downturn is of little concern to me because I reduced my exposure by buying cheap houses which I fix up, close to the cities, and most importantly, I am in it for the longterm.
What baffles me about the $1800/month is you could live well below that level and invest the money elsewhere… maybe real estate, maybe stock, or maybe even a CD. But to blow $1,800 a month because it is a “good value” is silly.
It is like saying I drive a hummer because I can lease it for $500/month. To own it would cost $1200… this does not make you a financial genius. It might make you feel good, but that’s it. You could drive a beat up car, but that does not provide the instant gratification, but costs you nothing. I prefer too “look not as cool” and build a foundation upon which I can amass some wealth while I am young.
The houses i have bought looked a little scary when I moved in, but in 6-months as a weekend warrior, I turned them around. Now they are working for me. I have some properties where the rent is double my mortgage payment. Admittedly some I break even on, but in a few years when rents go up I will be cash flowing, in 20 – 30 years I will own them outright. I see them as a nice addition to my retirement.
My point being, you can make money in any market. Being lazy and waiting for “prices to drop” when there are dozens of other factors to consider when investing in real estate is silly. Like I said in a previous post “SEATTLE INTEREST RATE BUBBLE HERE WE COME”!
disbelief » Jun 7, 2008 at 1:13 pm
I don’t think that buying “cheap” houses necessarily translates to less “exposure” to a market down-turn. It’s mainly a function of what you paid (and that includes purchased materials and possibly services, if not “sweat equity” involved in refurbishing properties), and what the property is worth at a given point in the future.
also, I don’t see what waiting for prices to drop has to do with being lazy. That’s simply an irrational statement-and a little “silly” at that.
Harley Lever » Jun 7, 2008 at 1:47 pm
Everett Tom,
Thank you for being a gentleman.
One slight correction. I bought my place in June.
It is valued at $80/sqft. cheaper than everything else around me. It needs work, but I am getting there.
“Zillow says” that the Interbay neighborhood went up 7.2% last year. However if you Zillow my condo it says it is down 3%. So much for Zillow being accurate! If the median condo price data in Seattle is true and went up 4.1% then I am in an even better position. Especially since I was able to refinance to 5.5%. If Interbay did go up 7.1% then I have made $21,000. What I do know, is my payments will never increase regardless of how many people move in to Seattle city limits. I am currently paying less for my mortgage than most renters are.
I have done the drywall and painting myself. I have replaced most of the light fixtures. I will be replacing the doors with six-panel doors. In addition I am trading out services with a granite company, electrician, and a plumber to improve my home on the cheap.
I just became a board member on the HOA and we have started a “Sweat Equity” committee that is focused on cosmetic improvements to help elevate our building to near median levels. With $80/sqft of room, we all feel very comfortable doing this. The great part is many in our condo are extremely excited and motivated to improve the building as well as their units.
What I like best about living 3 miles from downtown Seattle is the fact that I put 4,000 miles on my car. In Arizona, I averaged 20,000. We have a bus line across the street that runs to down town every 45 minutes. With Magnolia, Ballard, and Queen Anne surrounding us, I am pretty sure we will not take as hard of a hit as Issaquah, Everett, or those other way too far out locales.
Let me be clear, I too saw the writing on the wall when I first started shopping for a home. In fact, I was ready to rent for a year or two until the downturn played out, but I came across this condo which had tremendous upside. I do feel that interest rates will begin to spike soon. They are already up .75% and Bernanke is eye-balling interest rate hikes to stave of inflation. How will the economy effect this, we will see.
Harley Lever » Jun 7, 2008 at 2:01 pm
Disbelief,
My statement about being lazy is strictly targeted at the mindset of “prices dropping” is the only factor that influences home value and home affordability.
You can “create opportunity” and “create home value”, but it takes doing a lot of home work, busting your butt to get out of bed on the weekends and work on your home, and trading services to reduce your cash out put.
My lazy comment is targeted at those people who only buy based on median price data, will not improve the home, and will not go out, or at least keep an eye out for opportunity. Instead they have spreadsheets and engage in paralysis through analysis. Price is a factor, but not the only factor in afford ability and real estate investment. Smart and hardworking people can create real estate wealth and opportunity in any market.
The Tim » Jun 7, 2008 at 2:02 pm
Harley, did you miss my comments above (#68 & #69)? I responded to your questions/complaints, but I noticed you seem to have dropped both subjects.
Also, congratulations on making the buy-move-rent it out method work for you. It sounds like you have been quite successful at that, which is definitely a good accomplishment.
That said, some people have no desire to be constantly moving up the “equity ladder.” Some people just want a reasonable price on a home that they can live in for 20+ years. For example, my parents bought their first house in their early 30s, paid it off in 20 years, and only just moved out of it last month because the county bought it from them. They traded straight across to another house in the area and still have no mortgage.
For people that fall under this category, I don’t see how it is “lazy” to wait for prices to come down to reasonable levels. They’re not looking to “make money,” they’re just looking for a place to live at a decent price.
EconE » Jun 7, 2008 at 2:09 pm
Good to hear you’re upgrading that Thorndyke dump with granite Harley.
Yeah…I know I know….you pay less for your mortgage than most of us pay for rent…but then again…I wouldn’t even want to rent your POS let alone own such an eyesore.
How’s that condo in Tempe treating you.
Yup…you sure are a big shot investor.
Can you humor me some more?
Go ahead…call me uncivil. It will just make me laugh more.
DebtFree » Jun 7, 2008 at 2:17 pm
Call me lazy. What kind of a loser buys a house right now in the Seattle area? You are going to lose 20% of your value in the next two years at least. The coming opportunities are going to be amazing for those who are patient.
Some of these posts are calling people like myself doom and gloomers, LOL! I have never been so excited about housing prices, because they are finally coming back to reality.
Harley Lever » Jun 7, 2008 at 2:29 pm
EconE,
Yeah, the Tempe place has doubled in price and I am making double my mortgage in rent. What a moron I am.
The best about it is they put a light rail system in that will connect Phoenix, Mesa, and Scottsdale, they are building half-million dollar condos all around me and it is 3/4 of a mile from ASU which will have 30,000 more students on top of the 55,000 students already there which translates in to constant stream of renters. Geez, I am in idiot.
Yeah as far as the dump I live in, there are dozens of town homes all around me either being demolished and new townhomes are being put in their place, renovated, or upgraded. This dump went up between $12,000 -$21,000 and I am saving close to $2,000 a year in not paying for gas. What an idiot I am.
Like I said, you need to see the opportunity, get off your butt and make it happen, and think long term.
That is why you are stuck trying name calling instead of working hard to create wealth. When does your rent go up next? When you move, tell me about first months rent, last months rent, and your security deposit.
Harley Lever » Jun 7, 2008 at 2:56 pm
The Tim,
I have read both of your posts. Thank you for passing them along.
Would you call your analysis balanced? Granted, I have not read every single post ever created on this blog. Read your topics. Most of the post point out pro-bubble thoughts and those that contradict your thoughts have the “Yeah, but” and then go on to disprove the statistics contradictory to pro-bubble views.
Please clarify why you consistently do not run your theoretical interest rates up to 18% as they have gone that high historically. Instead you cap them a 9%.
Please explain why you always assume 20% in your theoretical down payments when most down payments are 3%-5%.
Tim price is only one aspect of cost and affordability. Yeah prices will likely drop, outside of the city especially. However interest rates are moving up. Everyone here seems to assume they will stay the same. Just like home coming off their historical high, mortgage rates will move off of their historical lows.
I just ask that you stop capping interest rates at 9% and stop making the 20% down payment assumption. If your goal is to help people you must be more of a straight shooter when talking about interest rates and down payment.
Lastly, with regard to my lazy statement. I should have chosen a better word. I apologize for offending anyone. My point was more pointed at proactive creating opportunity instead of waiting for it to happen.
DebtFree » Jun 7, 2008 at 2:58 pm
I think I’m lost, is this the Carleton Sheets website?
Scotsman » Jun 7, 2008 at 3:23 pm
iNTERBAY? No way. Never. Sorry.
At some point quality of life has to enter into this discussion. For example, a Geo Metro gets great gas mileage, but if you can afford a Mercedes, and still put more into savings every month than most people gross, should you still buy the Geo?
It always surprises me how bound by their own situation and limits many people’s perspective can be.
The Tim » Jun 7, 2008 at 3:29 pm
Harley, I agree that many people do not have a 20% down payment. I’m being exceptionally generous in favor of affordability when I throw out calculations that assume 20% down. It goes without saying that with less money down, affordability is going to be worse.
As far as the interest rates go, when rates skyrocketed from 7-8% to 18% in the early ’80s, it took over eight years (July 1973 to October 1981). I think you’ll find that when I run possible scenarios I only usually play out 2-3 years.
It’s not impossible, but I find it highly unlikely that not only will interest rates skyrocket all the way back up to 18%, but that it will also happen three times faster than it did last time.
In the late 70s to early 80s, rates rose (on average) at 1.25 points per year. For rates to reach 18% by December 2011 from their current level, they would have to rise at about 3.33 points per year.
Harley Lever » Jun 7, 2008 at 3:34 pm
Debt free,
According to the data reported, this loser’s condo went up in value between 4 – 7%. With gas prices skyrocketing, I would not be surprised to see a move by many buyers to come in closer to Seattle and get away from the strangle-hold of OPEC.
This loser plans on keeping this home I mean “dump” and “POS” as a rental once it has been fixed up.
I guess what this loser is wondering is with inflation skyrocketing, gas prices predicted to hit $200/barrel, banks desperately seeking to make money, and Bernanke hinting that he needs to raise interest rates to combat inflation, what makes you think interest rates are going to stay where they are???
LUC » Jun 7, 2008 at 3:44 pm
Harley Lever,
Thorndyke Ave in Magnolia…has got to be the noisy street in Magnolia. When I had a condo at Baywatch, I couldn’t keep the windows open at night during the summer because of the street noise.
Did you see the condos they are still trying to sell by Discovery Park (I think it’s has been about a year) and the dumpy condos down the street from the Safeway?
disbelief » Jun 7, 2008 at 3:45 pm
Let it be known that Carleton Sheets has never advocated renting in any of his strategies for financial success through real estate. So there!
Nor has the Vietnamese guy who fancies yachts and bikini-clad companions (what ever happened to him?)
Harley Lever » Jun 7, 2008 at 3:52 pm
Scotsman the difference is that I will have a place to live in while your ever-depreciating asset collects rust. I am sure you will look very nice sleeping in your Mercedes.
Might I ask how much your Mercedes has gone up in value? How much has the home that you rent gone up in value? How much income does your Mercedes and rental produce for you?
Lets face it driving a Mercedes vs a Geo Metro only increase your “quality of life” if you have absolutely no self esteem and are buying things to increase your image of yourself. I am sorry you correlate your self worth to materialistic possessions for it is a truly sad existence.
At the end of the day, I am locked in at a fixed cost for the next 30 years or less if I pay it down. What will your rental cost in 30 years?
I too am amazed “how bound by their own situation and limits many people’s perspective can be”.
disbelief » Jun 7, 2008 at 4:04 pm
Oh Sh*t, turns out that guy (Tom Vu) did pretty well in his second incarnation on the World Poker tour!
“At first I got lots of discouragement from friends and stranger who are loser! You know what these people kept telling me? They kept saying, ‘Well Tom Vu, you a crazy nut, here you are, a poor immigrant, poor minority, speak no English, no contact, on and on, and you trying to be rich in America! You crazy, man! Look at people out there! They smarter than you are, they not even rich! Who are you to try?’ And you know what? I have to keep telling these people every time, I kept saying, ‘You are loser! Get out of my way! I make it somehow!’
Anybody remember this guy? No? Well maybe you bubblehead looser!
Harley Lever » Jun 7, 2008 at 4:05 pm
LUC,
You should come back and have a look. Almost every other building on Thorndyke is being demolished or upgraded. Seattle has multiple plans to revitalize Interbay. We will soon have a Whole Foods across the way, I am walking distance to dozens of restaurants, grocery stores, and bars, a 10-minute bus ride to downtown, and walking distance to both Ballard and Queen Anne. There are multiple bike paths to the waterfont and tons of parks.
Yeah, there is noise, but it is the city after all. Are you laughing at the people of Belltown, Ballard, or those who live around Greenlake? It’s the city, not the Cascades. I have vies of Mt. Rainier, Elliot Bay, Queen Anne and the Interbay Golf Course.
Lastly, this is not my final home. It is just a stepping stone to the next one.
TheHulk » Jun 7, 2008 at 4:09 pm
Hey Harley,
It seems to me that you are in the real estate business, and by that I mean more so than the average reader on this site. You own multiple properties, upgrade them, rent them out etc etc. Good for you. We are not interested in all that. It’s great that the tempe place is doing so well for you. Call me cautious, but I wouldn’t be that anxious to rent it out to ASU fratboys. All those “half-a-million” condos that are being built. Lovely! must be on the lakefront! (for the uninitiated its on the “waterfront” of a man-made lake. He he, Harley might be comparing that to Lake washington waterfront. Anyways, let me know what those actually sell for.
I believe that you might be making money off the place. Just not so sure whether you can actually sell it for a lot. See tempe doesn’t really have anything except ASU. Students are even lower than dirt cheap (yes cheaper than “renters” if you can believe that). They typically dont care about credit reports and all that. Just keep that in mind if you are renting to a student since they just might trash the place. And let me know if you find any “Young Single Professionals” to rent/buy the place. The only thing remotely good in tempe is mill ave and YSP’s dont like mingling them those cheapo student folks, they go to scottsdale.
Tempe/Phoenix/Scottsdale/Chandler are all a joke as cities unless you are a student. I have never seen a downtown as deserted as the one in Phoenix. No one I met ever wanted to stay there unless they wanted to work for Intel or Motorola. And btw, those people usually stay in Chandler, not in tempe. All the professors at ASU stay in scottsdale unless they already have a house in tempe. No one but students stay in tempe. Its a great place, for students not working professionals.
TheHulk » Jun 7, 2008 at 4:10 pm
Another thing Harley,
Most of us who come here on Seattle bubble do so to take a look at real data and analysis. More often than not, Tim does put in a “yes but” comment in response to the FUD put out by the realtors in this area. What he does the best is encourage the person reading to make up his own mind.
On the other hand my realtor sends me mails like “OMG this house dropped 10K!!!” when comparable houses have dropped 25K in the last 6 and are still dropping. Doesn’t inspire much confidence .(not that our realtor has done anything spectacular and we may be getting rid of his services)
The difference between you and us. We do NOT consider a house to be an “investment”. Its primarily a place to live, a place we call home. If it so happens that 10 years from now, I have to sell my place for whatever reasons and I lose 10%, I will still be happy knowing I would have paid something similar to rent in the same area. Keeping this in mind, falling prices (which as of today are still unrealistic, at least eastside) keep me away from what we call knife catching.
Oh yeah, when you say that people don’t have the money for 20% down and state that its more like 5% you may be right. Beware that currently this is hurting potential buyers. In “declining markets” which includes king county now, they require 10% down.
Another thing. If interest rates are going to go through the roof, its gonna hit all those ARM resets people even more. That would mean even more foreclosures and even lower prices (good for us, we will have i guess 30% down instead of 20% down). Be careful what you wish for.
Cougar » Jun 7, 2008 at 4:10 pm
Harley, your condo purchase was the right move for you; it would not be the right move for me. Agreed? I am not against buying, I haven’t found what I want yet and I keep scouting everyday. Most of us report what we are seeing in the marketplace around Puget Sound and comments come from our experience. Some have more than others. A side note; I like your photography, you are good.
DebtFree » Jun 7, 2008 at 4:11 pm
Anyone who thinks they are going to build all of those “planned” condos in Tempe is full of it. I can only extrapolate that to the rest of your bs.
If interest rates rise, then home values will fall even more to compensate. It’s all about affordability now that all the funny money is gone.
I have been a landlord in the past, and will probably be one again, but only after the price re-adjustment that has yet to occur. I know you’re a little scared right now, but face the facts. Sell now, or be priced in forever!
LUC » Jun 7, 2008 at 4:40 pm
LUC,
You should come back and have a look. Almost every other building on Thorndyke is being demolished or upgraded. Seattle has multiple plans to revitalize Interbay. We will soon have a Whole Foods across the way, I am walking distance to dozens of restaurants, grocery stores, and bars, a 10-minute bus ride to downtown, and walking distance to both Ballard and Queen Anne. There are multiple bike paths to the waterfont and tons of parks.
Yeah, there is noise, but it is the city after all. Are you laughing at the people of Belltown, Ballard, or those who live around Greenlake? It’s the city, not the Cascades. I have vies of Mt. Rainier, Elliot Bay, Queen Anne and the Interbay Golf Course.
Lastly, this is not my final home. It is just a stepping stone to the next one.
_______________________________________________________________
I still live in Magnolia on 26th off of Bertona. You are really exaggerating when you say every other house is being demolished or upgraded. There 2 new (either condos or townhouses) going up near Thorndyke and Boston. On Dravus there is a new apt complex going up and behind that there are condos. Also there are lease-to-own townhouses down the road from the Arco station.
Just wait till summer, Thorndyke is a major Thoroughfare in Magnolia.
By the way, did you happen to see that Interbay is on the selection list for a possible prison?
Everett_Tom » Jun 7, 2008 at 4:52 pm
whoops! My bad.
Regardless, I think I’d agree with much of sentiment here:
1) Glad your purchased worked out for you
2) I don’t want to invest in Real Estate, so I’d rather wait to buy instead… and then stay in the place for 20 yrs…
Harley Lever » Jun 7, 2008 at 5:21 pm
Hulk,
The Tempe you describe was that of 10 Years ago. Tempe is far more diversified. Young Urban professionals have moved in. The Lake has seen multiple high rise and luxury developments that have sold for a half million+. The light rail was just built and there are plans to send it directly up Scottsdale Rd.
Any renter can be a problem. Especially frat boys. I have my condo rented to one of those young urban professionals you claim does not exist..
It amazes me how many of you are experts on both Tempe real estate and Seattle real estate, but live in neither place. The east side, Everett, and Issaquah is not the city of Seattle and Phoenix is not Tempe. I have made the point several times that real estate is different from neighborhood to neighborhood and there are opportunities to be found in any market.
I understand that we all own house for different reasons. However price is not your only measure of affordability. You can wait two years and buy a house for 20% less and pay 2.5% in interest rates. Will either happen who knows?
Does any one understand the effects of interest rates????
Harley Lever » Jun 7, 2008 at 5:29 pm
LUC,
There are several condos and renovations going on. At the top of the hill there are three buildings being renovated. As you move down the hill towards Dravus, there are two more houses being gutted and upgraded on the east side of the street. The townhomes you are talking about on the corner of Boston and Thorndyke have all sold. Just North of that is a complete set of newly gutted apartments that are being gutted and sold as condos.
I did hear about the proposed jail. Interbay is 1 of 4 locations. They are also contemplating demolishing pier 90 and 91 and make them cruise ship terminals for a mixed use shopping, restaurants, and living areas. Obviously I am hoping for the later, but I will likely move on well before either happen. I wish my future tenants the best!
Harley Lever » Jun 7, 2008 at 5:41 pm
Cougar,
I absolutely agree with you. Real estate is personal and you have to make the best choice for you. I think this conversation got way off topic. My original point was that this blog is way too fixed on price as the sole measure of affordability. When providing examples it uses unrealistic scenarios to make their point (20% downpayments and capping interest rates at 9%). It suffers from group-think and if your opinion differs from everyone else you are attacked as being a “loser” living in a “dump” or “POS”. I would like to thank EconE for making that point for me!
I just want people to realize they can influence the outcome through smart buying, sweat equity, and looking longterm.
Thank you for your wonderful compliments. I wish I could just be a Nature and landscape photographer, but that does not pay the bills.
Because I love you guys I am willing offer a 25% discount on Nature and Landscape prints to any “bubble heads” looking to decorate their rentals! If and when you buy a home I will give you a print for free!
Cougar » Jun 7, 2008 at 5:44 pm
“Does any one understand the effects of interest rates????”
Yes, Harley it’s always part of the equation, nothing new.
Especially the 12% I’m getting from a builder to extend payoff for one more year, 5th extention that is pretty sweet since 2003. Asking price stays the same yet I have made a lot from the “interest rate”.
The Tim » Jun 7, 2008 at 5:45 pm
Harley, I still don’t get what point you’re trying to make with the whole 20% down thing. If we assume a more realistic scenario of 5% down, affordability is far worse and it makes even more sense to rent right now.
b » Jun 7, 2008 at 5:46 pm
Harley -
You do realize that interest rates rising will just push down prices further. If you are planning on selling any of your places then you should certainly hope interest rates go no where. The fact that you believe they will rise to incredible heights and yet are purchasing property for high prices right now makes me think you probably don’t actually know WTF you are doing. Good luck selling them down the road unless you are planning to finance potential purchasers yourself. Also, you should probably look into other areas which have shown rental rates FALL in a declining housing market. High inflation with little or no wage inflation is certainly not going to help push up the amount landlords will be able to charge, combined with a glut of new rentals coming into the market makes now a terrible time to become a landlord.
mikal » Jun 7, 2008 at 5:46 pm
Thank you Peter Taylor. Am I going to own the utility outright in thirty years? Next time make a comparison that makes sense. I completely agree with anyone who thinks it idiotic to waste $1800 a month in rent or feels the need to drive a Mercedes because they have no esteem and or manhood.
Harley Lever » Jun 7, 2008 at 5:46 pm
Everett_Tom,
Thanks again for being a gentleman about this. I appreciate your views and I actually do agree with many points being made here as well.
Harley Lever » Jun 7, 2008 at 5:56 pm
The Tim,
My point is I am not sure if any of the bubble people will ever be of the mindset that it is “an affordable time to buy”. Savings on price will likely be offset by higher interest rates. The key would be to lock at a “best of both worlds scenario” which no one can truly predict.
Financing is more expensive when you only put 3% – 5% down. Often this forces you to get a piggy-back loan at 2 – 3% higher interest rate on a 10-year note. Your calculations do not account for the higher interest rates and the higher monthly payment on the 10-year Piggyback loan.
[troll] » Jun 7, 2008 at 5:59 pm
Hrly,
Y nd thnk lk bt crtng prsnl wlth, lvng blw ns mns nd nt shwng ff wth fncy dprctng crs. wll rndd prtfl shld LWYS ncld th HM y lv n, s wll s stcks, cd’s tc..
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Th rntrs hr r gng t b lng trm fnncl lsrs.
Hrly, rs yr rnts!
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TheHulk » Jun 7, 2008 at 5:59 pm
Apologies to other people, but if someone says I dont know Tempe, I have to respond :)
I was a student at good ol’ ASU (go devils!!) and worked there for 5 years before moving to Seattle last year. I know Tempe and the surrounding areas really well. Please go to dos gringos, have a corona and maybe a burrito at Filiberto’s amigo. I remember those half a million condos selling in 2005. Btw, wasn’t that the peak of the bubble. I have about 5 friends I know really well who can’t wait to get out of the valley. Its unfortunate that 2 of them decided to buy houses just before the bubble popped. These days the valley is foreclosure central only next to Nevada.
The valley of the sun had its golden age in the 90s, when Intel had huge profit margins on every chip they churned out AND people were buying new computers every 3 years. The laptop on which I am writing this is 9 years old and still works fine. Doesn’t bode too well for Intel. Motorola hasn’t designed anything of any significance since the Razr. Oh and did you hear about the antitrust issues facing intel down the road?
I can say with conviction that besides the employers I mentioned above (Honeywell also has a significant presence in the valley, but we all know the doldrums facing the aerospace industry) the Valley has nothing going for it. Pray tell me who are coming into the valley to generate significant jobs and growth? I heard rumors of Google and ebay setting up centers thinking that it was low cost compared to the Bay Area. As it turns out, those are not jobs on the mainstream products of both companies, and they pay significantly less than in the Bay Area. Add to this the fact that you cant do anything in the valley of the sun (we used to have 100 days of 100 plus) and pray tell me who wants to live there.
Finally, its a telling sign that even though you have a lovely place in tempe beside the lovely Tempe town lake, you are staying in Seattle. Doesn’t seem like you want to stay there do you? Good decision though I must say ;^)
Harley Lever » Jun 7, 2008 at 6:03 pm
b,
Read the posts. I buy depressed properties, fix them up, and rent them out. Considering I am cashflow positive, I think I might know what I am doing or I have huge golden horse shoe glistening from my butt.
Lastly B, there are opportunities everywhere. Assuming everything is the same and you have no ability to make smart decisions and influence your own outcomes is pathetic. Yeah, I might have to work harder at it, but it has paid off so far.
[troll] » Jun 7, 2008 at 6:07 pm
80 Mtthw // Jn 7, 2008 t 10:10 m
RL,
dn’t thnk y hv ny ltrr mtvs, thnk y r mddl gd lsr tht lvs n hs mm’s bsmnt nd spnds ll dy n Sttlbbbl.cm!
……………………..
Mtthw,
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Cougar » Jun 7, 2008 at 6:09 pm
RAL-
“The Bubbleheads are not stupid, the problem here is this new generation wants everything NOW,”
I am probably your age.
“The renters here are going to be long term financial losers.”
No, I’m the Millionaire next door you don’t know about and I rent.
Have you sold your “home” yet?
[troll] » Jun 7, 2008 at 6:17 pm
N, ’m th Mllnr nxt dr y dn’t knw bt nd rnt.
…………………….
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mikal » Jun 7, 2008 at 6:18 pm
RAL, Do you mean being an a$$hole is having issues then you are completely correct.
Harley Lever » Jun 7, 2008 at 6:20 pm
Hulk,
My fellow alum! Go Devils!!!
As you well know the travel industry is the largest industry in the world. Much like Florida, each and ever year snowbirds, from Canada, Chicago, Minnesota, and yes Washington come down and inundate the valley of the sun for the entire winter. With baby boomers nearing retirement I would expect the trend to increase significantly.
Travel and tourism has always been Arizona’s bread and butter. 300 days of sunshine, golf courses, the Cactus League, and other vacation related activities will always make Arizona a go to destination for people. You have Sedona, The Grand Canyon (the most visited Nation Park), Lake Powell, and old Western Towns like Tombstone and Bisbee.
I love Arizona and plan on living there part time. I have extensive amount of family there. I too love Seattle (Pink Pony Here!!!). It is a beautiful city, with a great infusion of culture, and wonderful landscapes for me to explore and photograph.
Filibertos??? How are your tucks medicated pads treating you? Viva Dos Gringos!!! Although I prefer Case Moore’s.
I am glad you had me all figured out! ;>)
Cougar » Jun 7, 2008 at 6:25 pm
RAL
“And I am the Millionaire but not next door to you, I am in a much better neighborhood.”
Yup, I lived in one too, for 20 years. My friends thought I was crazy to leave but the smile on my face tells all.
Have you sold your “home”. You keep dodging the question. Or do I have to ring your security gate and stare in the camera.
[troll] » Jun 7, 2008 at 6:30 pm
Cgr,
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Cougar » Jun 7, 2008 at 6:43 pm
RAL
I totally agree with more sunshine. This year I have come to the conclusion to split my time, Oct-April down south, May-Sept here.
I like the conversation SB has as a real estate investor and I am never to old to learn something new. Renting allows me the freedom to go where ever I want and not be tied down. Investing comes in many forms. Most important, have a plan
[troll] » Jun 7, 2008 at 6:56 pm
Cgr,
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m plnnng t by thgh. Whl m nt ctchng th tp f th mrkt n Sttl, wll mk t p n th thr nd whn by.. t wll vn t.
lk lng trm n ll my hm prchss nd trly dslk hvng t pck p nd mv frqntly. My by, by th wy wll b ll csh, n mrtgg.
Lf s gd.
TheHulk » Jun 7, 2008 at 7:08 pm
Hey harley,
Go devils bud, Fork em’ Mildcats.
Lets just agree that we have a difference of opinion.
I would agree that tempe and phoenix are fabulous around dec/jan (especially with the tostitos fiesta bowl right near mill ave) too bad they moved it to that alien structure in glendale.
FYI filibertos never necessitated any tucks :) and I truly miss the kiltlifter from four peaks than the corona from dos gringos (i have to admit knockin back a 2 bucks corona between classes was a treat :), too bad even they moved away from campus )
Cougar » Jun 7, 2008 at 7:08 pm
RAL
I be driving the Hot Pink scooter, I’ll be sure to beep ya! ;) If you have an extra room to rent let me know!
Harley Lever » Jun 7, 2008 at 7:43 pm
Hulk, did you see the new one???
You must have. It is over on 8th, where the Thirsty Beaver used to be. It has two floors and a huge open courtyard. Man, the views of those beautiful ASU girls are second to none.
It is probably one of the best outdoor bars in Tempe, besides Casey Moore’s.
I know it has been there for almost 4 years now.
When did you leave?
Joel » Jun 7, 2008 at 7:58 pm
- Interest rates go up
- Affordability goes down
- Fewer people buy (Yipee! Dirty renters are still priced out forever!)
- Sales go down
- Inventory builds
I’ll leave it as an exercise for the reader to figure out what happens when sales go down and supply goes up.
(Hint: It’s happening right now.)
Alan » Jun 7, 2008 at 9:12 pm
Heh, so now RAL is a millionaire who comes here to gloat over those less fortunate than he is. I predict the next revelation is that he is a high school drop out and never went to college.
b » Jun 7, 2008 at 9:32 pm
Harley,
No response to my comments on interest rates? When they increase, the prices will decrease to compensate. Gloating about buying at high prices because you think interest rates will rise is idiocy. You are right there are other factors, and guess what? They are reflected in the price of the property!
faster » Jun 7, 2008 at 9:33 pm
Harley…Interbay is walking distance to Queen Anne?
What’s that like…a 2 mile walk up hill?
Or do you mean, you can walk to the edge of the neighborhood known as Queen Anne – not to any of the places on the top of the hill that people would actually want to walk to? You’d be a sweaty, tired mess by the time you got to your dinner reservations at Opal, but yeah, I suppose it’s walkable. Not exactly a selling point though.
At least Ballard isn’t uphill, although walking 1 and 1/2 miles to the places most people would want to go in Ballard isn’t much to brag about either. Fred Meyer is kind of close – that’s something.
[troll] » Jun 7, 2008 at 9:41 pm
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Peter Taylor » Jun 7, 2008 at 9:44 pm
I think you’re right Alan – he didn’t go to college.
The Tim » Jun 7, 2008 at 9:49 pm
Hmm, so RAL, according to your logic, the people that aren’t willing to jump in and buy a house right now, but are content to wait while prices continue to drop… these people “have no patience”?
Fascinating.
[troll] » Jun 7, 2008 at 9:54 pm
Tm,
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The Tim » Jun 7, 2008 at 9:57 pm
I look at listings multiple times a week.
I cannot decipher what you mean by that.
Harley Lever » Jun 7, 2008 at 11:03 pm
b,
Tell me what your combination of price and interest rate will be before you feel comfortable jumping in?
Let me guess a 70% drop in price and interest rates at 1%.
Inflation has another factor that you seem to forget… it sucks your savings and discretionary income dry. If the economy turns for the worst and you lose your job guess what? You can’t buy a house anyway and you will be forced to live with your mom.
“Hello Mr. Banker, I have no job, I have extremely high living expenses, but houses are at an all time low, can I have a loan?”.
Alan » Jun 7, 2008 at 11:06 pm
Isn’t feeling the need to buy property now the opposite of patience? I am one of the most patient people I have ever known. Honestly, I am patient to a fault. I think housing prices are going to fall and I’m willing to wait for that to happen. If it doesn’t then so be it, but I’m not in a rush.
Patient… RAL is the one who is impatient thinking he needs to buy right now or else he won’t join the ranks of rich owners.
Alan » Jun 7, 2008 at 11:08 pm
Harvey,
35%;+3% interest rate increase.
LUC » Jun 7, 2008 at 11:12 pm
“…The townhomes you are talking about on the corner of Boston and Thorndyke have all sold. Just North of that is a complete set of newly gutted apartments that are being gutted and sold as condos.”
Harley Letter,
Those Townhouses on the corner of Boston and Thorndyke are not sold-out There is currently a sale sign for one of them. The condo conversion just by townhouses is nothing to brag about. They have been working on that since last summer as well as the other project close by. If you want I can give you other examples of condos and townhouses that sit empty in Magnoila.
Here’s a little history lesson of one condos complexes on Thorndyke. The Baywatch condos were originally built in 1988 as condos. They couldn’t sell them during the early ’90’s because the market was poor at the time. The condos reverted back to apts until 2005 when a builder brought the complex to revert them again to condos. They started selling units in late ‘06. Within the first year, one owner foreclosed. Fast-forward to ‘08, several units are still empty and I met one owner who had to move back to Az and is currently trying to rent out his place.
The condo market is dead in the water. My realtor ,who works for Keller Williams Realty, told me that.
Harley Lever » Jun 7, 2008 at 11:13 pm
Faster,
I walked up to Queen Anne last night. Yeah, the first hill is a bit of a climb, but I am not lazy and it keeps me in shape for hiking around the Olympics and Cascades.
There are buses for people like you.
I know those mile walks are killer. QFC is down the street about a quarter mile. Soon there will be a Whole Foods. Then there is always Thrift way in Magnolia… that might be too much for you.
The Ballard locks are a great and scenic “short cut”. I ride my bike down there a lot. The good part for you is it is pretty much downhill. Although you might have to hitch hike back.
LUC » Jun 7, 2008 at 11:14 pm
Sorry I meant “Harley Lever”.
Harley Lever » Jun 7, 2008 at 11:26 pm
LUC,
Seattle condo prices are up 4.1% YOY. Interbay is supposedly up 7.2% (Zillow :) ).
Maybe the ones you are talking about are priced too high? Everything around here has sold for $365/sqft. I have seen some as high as $490/sqft. My condo was bought for $292/sqft and I have been renovating it on the cheap. Like I said, I plan to rent mine when I am done.
How much is your rental property up? When will you rent go up next? How nice is it to pay first months, last months, security deposit, application fee, rental trucks, etc.
Harley Lever » Jun 7, 2008 at 11:33 pm
Alan,
I don’t think that a 3% interest rate ever existed. I could be wrong, but if that were to happen, I would certainly be the happiest man alive. Pink Ponies might fly out of my butt before then.
Granted, if we were to see 3% interest rates, I doubt many of us would have jobs. It would have to be a time as bad if not worse than the Great Depression.
patient » Jun 7, 2008 at 11:35 pm
A few things worth commenting on:
- The Tim is not objective which willl hurt his business down the line.
I call BS. We’ve heard this one before, when putting some pressure on the author he/she always turns out to be a real estate “professional” of some kind. The Tim’s comments and debuncing of real estate spin is one of the biggest reason I visit this site. Data is available elesewhere raw or accompanied by realtor propaganda. If The Tim just stayed quite or objective the sum of available reporting would be unchanged, i.e strong real estate agent propaganda bias. By adding comments The Tim adds some balance. When the market turns I think The Tim will change his comments and focus to address what he sees as the market reality at that time.
- The irritation with the time offset graph for the C/S markets.
What’s the big deal? I agree with The Tim that it’s very interresting to see if the scenario will be the similar for Seattle as the other markets with just a delay. So far it looks like it could be. It’s not a predicition it’s a visual on how well the theory holds. I haven’t seen The Tim really supporting this theory it’s nevertheless interresting to follow and if someone would use it as a prediction it’s their own choice ( it would probably be far more accurate than many other predictions out there from the NAR or the local realtor community )
LUC » Jun 7, 2008 at 11:42 pm
Harvey Lever,
Oh please! I can have you talk to my realtor, she could provide you recent comps of the area.
By the way, what’s with the wise-ass crack ? Talk to me in about 2 years and tell me how the condo market is doing.
Harley Lever » Jun 7, 2008 at 11:48 pm
LUC,
It’s “Harley” like the “Motorcycle”.
If the market is so dead why is she a real estate agent?
If you aren’t buying, then why do you have a real estate agent?
2-Years does not effect me, I am in it for 30 and beyond.
JimN » Jun 8, 2008 at 6:53 am
Wow, 153 posts! Is this getting close to record territory? I’ve been motivated for my quarterly posting.
As many bubbleheads know, historically residential real estate has been a poor investment. Please refer to multiple H. Shiller articles and the nyt article on renting v. buying. Nevertheless, people (and I am one of them) are willing to sacrifice some return for the intangibles of home ownership.
Investing on the other hand is a different matter. Clearly, after an unprecedented run up in real estate and with current conditions, it is a very poor time to buy. This is not to say the next microsoft or starbucks opportunity does not exist – they do. It has been shown that we (average investors) are quite poor at picking individual stocks. Although, I haven’t seen any studies, I would venture to say we would have equal difficulty in picking the “gems” out of the current market. (except ray of course). If you buy and are able to hang on, you probably won’t lose too much in the long run, unfortunately, the margin of error for many is small, and with leverage, can be catastrophic. Outsize returns on residential real estate over the next decade are very unlikely.
So to the investors out there, don’t forget the general principle, or should I say principal :), buy low, sell high. To those who have recently sold, congratulations on you luck (or skill). Now onto a beaten down asset class for similar returns over the next decade. financials anyone? Or course, it’s all very easy in retrospect. Time will tell. Good luck on your investment choices. Non-investor, buy a home you would be happy in and can afford or “sleep at night,” no matter what the market does.
btw, i’m up so early because I just returned from europe. 5 euros (~$7.50) for a latte in the touristy areas truly made me feel like the poor american in a sea of european and asian tourists.
Affluent Bitter Renter » Jun 8, 2008 at 8:41 am
I’m apparently late to this particular party, but we really have a poster willing to tout the wonders of the **Arizona** real estate market? Wow, just wow. I mean – I think that the Seattle market is going to drop some, but I would be very surprised if a Tempe condo recovers its 2006 value (in real terms) by 2016. The Valley of the Sun is currently a smoking crater real-estate wise. Talk about a terrible investment.
If you really believe that Arizona is a good place to buy RE, I have a luxury condo on the Las Vegas Strip I’d like to sell you – or perhaps a townhome in Bend…
Please Buy My House, Idiot Renters! » Jun 8, 2008 at 9:07 am
Test.
Captain Kirkland » Jun 8, 2008 at 11:23 am
Some of you needs lives.
Tim, you are the man. Love this site.
I’d likely quickly set a few dim-wits in their place over a couple of issues:
1) Interest Rates will not be even close to 18% ever again…think of the debt service on the ave home…80k to 100k per year!!!…no house would ever sell!!
2) Home prices are clearing going to fall in Seattle..significantly!!…its all about the inventory on the market (up almost 50% yoy)…simple econ 101 forces will take force!! Additonally, the banks are taking it up the ‘youknowwhere’. They are going to be amazingly adverse to take risk on anyone until prices do come down. Unless you have 100k cash to put down on an AVERAGE home…good luck qualifiying for a mortgage.
3) Look for foreclosures to increase in Seattle too…as prices come down, its actually a smart move for some to foreclose if they are underwater.
Thanks again Tim.
Harley Lever » Jun 8, 2008 at 11:58 am
Affluent Bitter Renter,
I think you like many others on this blog cherry picks the information they want to read and retain. Moreover, you are blinded by the notion that “everything is the same”. Real estate is local. It changes from neighborhood to neighborhood.
I don’t think anyone said “buy a place in Arizona”. You are picking out what you want to hear. The outskirts of the Phoenix metropolitan areas have been crushed. Builders moronically bladed the desert and put up cookie-cutter homes 50 and 60 miles outside of Phoenix’s core.
My place in Tempe has stayed at it’s highs. Why, because my condo is 3/4 of a mile from ASU, the school is adding 30,000 more students to it’s main campus, there are and have been pricey half-million dollar condos popping up for the last 5 years, and many want to live near the light rail system which connects Mesa, Tempe, and Phoenix and avoid pricey gas. In addition there are dozens of restaurants, shops, and grocery stores within a mile. If you go 3 miles south, it is a different story.
The same holds true for downtown Scottsdale’s “Old Town Area”. Crane after crane lines the street with new high-price condos. The amount of money they are getting for them is ridiculous. However if you travel 3 miles in either direction it is not the same story.
I should mention that my Tempe place has doubled in price since 2000 and I receive twice my mortgage in rent. GEEZ what a poor investment.
To be quite honest, when I purchased the condo I was extremely nervous. At the time, prices were at a record high and the previous owner paid half of what I did. I knew however that I would always keep this condo and would always have a constant source of renters with ASU down the street. Obviously looking back, I am extremely happy that I bought the place.
I think you are right it will take until 2016 for the homes in the outskirts of the Phoenix Metropolitan area to recover. However, I wouldn’t be surprised if Tempe’s downtown area leads the trend in price increase for the state.
TheHulk » Jun 8, 2008 at 12:42 pm
Hey Harley,
If you purchased your condo in 2000, no wonder its working out so well for you. For us here in the sound it would be equivalent to a house purchased on the eastside around 95. In pure dollar terms prices have supposedly doubled since then (based on current list prices). Of course that isn’t the sale price and we certainly havent seen the bottom yet.
On a personal account, I was in AZ all through the boom. It really took off around 2002 when the equity locusts flew in from California. And no wonder, since brand new 2500 sq ft homes on 10000 sq ft lots were selling for around 200K. I was working at that time, didn’t have any money towards a down payment. Another couple of years and all my friends were calling me stupid for not having bought a house. In ‘04 I looked seriously at buying a house in that area. However, I always asked myself this: Who can afford these houses? What was 150K a year ago was selling for 300K (admittedly in better areas, closer to well paid employers).
I did the math. None of the good employers in the area were really “growing”. If anything Intel had a huge hiring freeze in place and Motorola was spinning off stuff from its “core”. I reasoned that people were only buying homes for investment. One of my friends had bought a house around that time. When I went to visit him I saw that on the whole street only 3 houses out of around 20 actually had lights inside. He said all the others had been purchased by people from California. Thats when I decided not to purchase at all. Today my friend is looking at a loss of at least 50K on his 220K house IF he finds a buyer at all. Many of my friends spent 30-50K on “house improvements” to improve the resale values of their newly built houses. They are all staring down the barrel of the gun right now.
All that said, Harley does have something going for him. He bought his condo in 2000 well before the “boom” happened. I testify that it is in a slightly better area than all those developments 40 miles away from the valley center. Doubtless he is going to make money. Especially since he must have refinanced into a FRM when interest rates were low. However, if he is looking at the half million condos for comps, he sure is smoking something. Harley, things worked out well for you and they would have for each of us “loser-renters” had we bought in 2000. I would be extremely surprised if you can sell your condo for anything more than 200K no matter the location. All those half-a-million condos are severe competition for you AND they are brand new. You can still rent out the place though and have net positive cash flow.
Most of the bubbleheads here don’t mind people the fact that some people just got lucky in real estate. Heck if you bought anything around 2000 and sold it off around 2005 you would have made money. What we resent the most is the mantra “Its a great time to buy ANYTIME”. Most often this is delivered by owners who have seen their paper values rise in the past 10 years or so.
I would ask each of these owners. Assume that you have enough money for 20% down right now (I certainly do). Most importantly, assume that you have zero equity from your current house (in other words you can only sell it for the price you bought it). Would you still buy a house at todays prices, considering all the information out there? I would really be interested in knowing how RAL, Nostra and Harley respond to my question.
Aaron Smothers » Jun 8, 2008 at 12:44 pm
From Political Buzz’s blog:
> “Need more evidence that residential real estate is slumping?
> Check your mailbox after June 13.
> That’s when the Pierce County Assessor-Treasurer’s Office will mail this year’s > residential property assessment notices. According to the assessor’s office,
> 85 percent of those notices will show a decrease in value.”
It will be useful if a separate thread is devoted to info on current and near-future property tax trends in the Puget Sound area.
Over the past week, I read (in this blog) about a lower reckoning of property values in Snohomish and Pierce counties. Last night, I read e letter in one of the Seattle papers written by someone who knows his house value is falling, yet has received an assessment from King County showing an *increase* in value over the past year!
AS
James » Jun 8, 2008 at 12:53 pm
Wow, amazing postings. All of which have some truth. I have seen a definate trend in the last couple of weeks. Our office has seen a significant shift from “buy now,” to “get these seller’s to reduce the price!” All of which is favorable to…the realtors. I spoke to my Father the other day about the Great Depression. He lived through it, and has some amazing stories to tell. It makes me realize that the older I get, the smarter he becomes. If you are looking for a quick investment, don’t buy real estate. If you are looking for a home…wait a bit to get a better deal.
Harley Lever » Jun 8, 2008 at 1:38 pm
Hey Hulk,
The answer is yes.
Right now there are many people approaching foreclosure and are desperate to get out. Banks are considering short sales and there are many vulture investors out their offering 60cents on the dollar. Some people are biting.
You have an opportunity to leverage low interest rates with desperation. If I were you, I would be actively looking and soliciting offers. Yeah 9 out of 10 times they will say no, but all you need is 1. I recently photographed a house that was listed for almost 700k an offer from a vulture investor came in at 400k and they are considering it.
If you can find a combination of a person desperately looking to leave and a low interest rate then it is the perfect combination. Historically we have averaged roughly 9% interest rates and have gone as high as 18.1%. If a home drops 50% in price, but the interest rate doubles you are not in a much better position when it comes to “Affordability”. The Bubbleheads will be crying about the interest rate instead.
If you wait until everyone says “OKAY NOW IS THE TIME TO BUY” then you are back in the sellers market. You have a lot more influence on your financial outcome than everyone is telling you. You can leverage sweat equity, you can leverage other people’s desperations, you can look for the dump surrounded by nice homes, you can buy in a neighborhood in transition.
Hulk you must also realize that you are the exception when it comes to having 20% down. Most people will look for piggy back loans to make up the 20%. Ad 3% interest on top of the the current rates and spread them out over a 10-year period. Do the same for future rates. It is not any more “affordable”.
Lastly, a home should be a longterm investment. If you plan flipping the house or leaving in 2 – 5 years, then it is not the best of ideas. If you plan on keeping the house and/or renting it later, it is a great way to have someone else pay your mortgage, earn income, and at the end of 30 years have an asset that has appreciated greatly.
faster » Jun 8, 2008 at 1:47 pm
Harley…people like me? You don’t know me, so how do you know what I’m like?
I rent a house on the top of Queen Anne, and really am in walking distance to the restaurants up here…a couple minutes at most. I’ve walked to downtown too, but I’d never try to BS other people that I lived within walking distance. Given time you can walk anywhere, but that doesn’t mean you’re in “walking distance” to everywhere.
I’m glad you enjoy your condo, but stop trying to convince the rest of us of how great it is. You’ll notice no one ever lies about being within walking distance to Inerbay. There’s a reason for that.
shawn » Jun 8, 2008 at 1:54 pm
RAL, you come here and call people here losers, and then you complain that we are not nice to you. Do you know how to play nice? Calling us losers is both rude and lacks any kind of intellectualism. Often times one who acts a buffoon, is treated like a buffoon.
Additionally, there are many views held here by many people that do believe there is no bubble. Your hardship is that there has been a shift from a few that believe there is a bubble to everyone knowing the bubble has burst.
You must learn to accept that your view is out of step, that you will encounter many opposing views here and else where. That does not mean you are wrong, nor right, just that you are now where we were a while ago.
Accept it, because if you relax and really think about it, you will realize that you cannot change the views of another. One can only try to politely state their views and then polite people can agree to disagree.
EconE » Jun 8, 2008 at 2:18 pm
I love the “pay your landlords mortgage” statements.
LOVE EM!
After my LL pays taxes and HOD for the condo”tel” I’m renting, there is less than $800 left to pay his mortgage. (if he has one)
He bought the place for over 500k.
Some renters in the building are getting even better deals.
2 year lease…rent won’t be going up for me any time soon.
And…I get to take an elevator down to Whole Foods, not dream of future possible (improbable) appreciation from a store that may or may not come.
And when I decide where I want to park my tired, lazy ass…it will be an all cash purchase. So…once again…bring on the high interest rates.
And when RAL describes our rentals…it sounds more like he’s describing *your* condo Harley Leverage.
b » Jun 8, 2008 at 2:20 pm
Harley -
I am looking for a home which is priced similarly to 2002 prices, e.g. fairly valued without the market distortion of the credit bubble. I think that is what most people are expecting. The fact that interest rates will go up just means that prices will correct downward even more, which is fine with me. 95% of people buy the monthly price, which is why the credit bubble distorted the price so much in the first place. Buying a high price with the belief that interest rates will go up further is foolish. Your monthly outlay may remain the same, but if you want to sell you are screwed because buyers cannot afford the price at financing costs. There are going to be a lot of people underwater for a very long time if interest rates move significantly higher than they are now.
Your non-sequeter about the economy makes no difference. If you lose your job you will lose your house. If you renters lose their jobs you will lose those houses. By all accounts, inflation in other areas like commodity prices will just harm your ability to collect rent that much more. You are currently playing in a game where the large majority of your competition has a much lower “break even” price than you do and can lower their prices much easier than you can. I hope when you say you are breaking even you are including maintenance, taxes and 1-2 months of vacancy in those calculations. If you just mean breaking even on the mortgage you are going to be bankrupt in a few years time.
Harley Lever » Jun 8, 2008 at 3:16 pm
b,
Again, what is your jump in price and interest rate? You keep on avoiding the question. I got the 2002 price thing down, what is the interest rate you expect to have? It’s not all about price! You base your assumption on 1 theoretical, when you need to consider dozens of other factors.
I will repeat this one more time for you please listen carefully. I am a longterm investor in this home. I will not sell it in two years, four years, or 10 years.
If you are a short term investor do not buy a house.
Harley Lever » Jun 8, 2008 at 3:49 pm
Faster,
Agreed, I know nothing about you, nor you of me.
You assume that a 1 mile bike ride to Ballard is prohibitive to me or any of the other hundred bikers I see riding everyday to Ballard. You assume that the 3-mile bike ride to the waterfront of downtown is prohibitive. You assume I would shop at Fred Meyer when there is a QFC a 1/4 mile down the street and soon a Whole Foods.
Within walking distance we have Palisades, Chinooks, Szimanias, Cafe Mondella, Red Mill Burger (Great Burgers), and a bunch of other little cafes and shops. Magnolia is a sleepy little village that most of Seattle turns a nose up to. I am glad for that. It keeps the crowds down and allows us walkers to enjoy it without being inundated by the rest of Seattle.
What you fail to see is the future. 15th Ave has several plans for restaurants and shops. The owner of Opal and Orrapin is already looking for retail space along that corridor. As she sees it, it will be a gold mine.
I did not buy my place for today, I bought it for 10 years from now.
I guess that is what plagues most of the people here. They are fixated on price alone and are incapable of seeing the future.
The Tim » Jun 8, 2008 at 4:07 pm
Alan said:
Harley said:
Sorry Harley, but I think you need to work on your reading comprehension. Alan was pretty clear that he was talking about interest rates 3% higher than they are today, not a 3% rate.
TheHulk » Jun 8, 2008 at 4:19 pm
Harley,
I counter with the following:
1. Real estate is not my profession. I don’t want to deal with the hassle of buying a “dump” and putting in sweat equity to transform it in a neighborhood in transition. This may work for some people like you, but not for me. I want to get a house in a good condition and maintain it well, no fancy upgrades for me. A house is NOT an investment for me. It is just a nice place to live.
2. Those desperate people that you talk about may exist. That 700K, the seller may be willing to let it go for 400K. Will the bank or the lender accept the loss? Again this is not my profession and that is why I would pay a good realtor 3% IF he can make a deal like that come true for me. (He might lose a few hundred, but he will have gained a client for life, Ira might chime in :) ).
3. My priority is buying a house close to work in a good neighborhood with good schools. In fact the current downturn will distill out the most stable neighborhoods. I don’t mind paying a premium for that.
4. Rising higher rates vs. falling prices. Currently a house at 400K and I have 80K ready for downpayment. 1 year later… That house is at 300K and believe me I will have 120K ready for downpayment. The reason: I save a lot of money. Unlike what RAL believes I dont have the need for instant gratification. Additionally the higher interest rate doesnt bother me, since each month I will put more money towards the mortgage (unless I am getting better returns somewhere else of course).
5. Higher interest rates. Hmm you always potray that as a counterpoint to everything that has been discussed above. I just plugged in the values to the mortgage professors website. Not much difference in the monthly payment between a 400K loan at 6% vs. 300K loan at 9%. Which means house prices would have to drop by roughly 33K per % increase in mortgage. I think they will drop that much and maybe interest rates might move up a single point. If they do go from 6% to 9% all those ARM reset mortgages would really be in deep deep crap if that were to happen. Take a look at the CR blog today. That would mean even more foreclosures and even lower prices for everyone. Forget the ARM resets for a minute. You are always telling me I am the exception since I actually have 20% down. Everyone else has to get piggy back loans. That would mean even higher unaffordability for everyone else bringing house prices even lower.
You have to come up with something better to convince me to buy in this market. Provide me with an effective rebuttal and I will concede.
b » Jun 8, 2008 at 4:22 pm
Harley -
You are not listening to me. I do not care what the interest rate is, because it will make little difference. Homes, especially those in my price range (e.g. not 1m+) are purchased with financing. If the cost financing goes up, the price of homes will go down, especially when the market is already trending down for other reasons. There are plenty of people who purchased before 2003 and wish to sell which will have plenty of equity to sell to me at a lower price when financing costs increase. You seem to forget that for there to be a sale there must be a buyer. Just because you want to sell for $x and does not mean you can get it if your potential buyers can only afford less because of financing. It is a very competitive market and those who cannot adjust downward when financing costs increase just won’t sell or will foreclose.
Harley Lever » Jun 8, 2008 at 4:32 pm
The Tim,
Thanks for the clarification. It is a case of reading dozens of responses. I appreciate the jab at my comprehensive abilities.
Harley Lever » Jun 8, 2008 at 4:33 pm
B,
I am glad that interest rates are of no consideration to you. It highlights your savvy in financing.
Harley Lever » Jun 8, 2008 at 4:45 pm
Hulk,
If your not willing to work, search, upgrade, or do anything else to find a house maybe you should keep on renting. You have to also consider that you will likely need to mow the lawn, address maintenance issues, and other chores that require some work and effort.
So let me get this straight. You are able to save 40K a year and you are like everyone else?
Hulk, come on now. If everyone was able to save 40K a year do you think America would have any issues. You save more than what most earn. You are being slightly ridiculous if you think your are representative of the norm.
b » Jun 8, 2008 at 4:48 pm
Harley -
Nice rebuttal, your choice of buying “investment” properties at very high prices, especially in Arizona, shows your investment savvy. Housing is driven by affordability of the buyers, just like any other market. Housing affordability is driven basically by three things: buyers income, financing cost, price of house. Over the last seven years of economic expansion, real wages have actually decreased (first time ever). The price of housing ballooned as the cost of financing (cost including both interest rates and qualifying) decreased. Unless you believe we are in for a bout of incredible wage inflation, then increased financing costs will be offset by home price declines.
b » Jun 8, 2008 at 4:49 pm
Harley -
I forgot to add, please explain to me exactly why you think that increased financing costs for buyers will not have a detrimental effect on housing prices.
TheHulk » Jun 8, 2008 at 5:21 pm
Harley,
If your not willing to work, search, upgrade…
Whoa there buddy. I am willing to search for a house, but then what am I paying a realtor for if I do all the research? Regular maintenance for any house is necessary. Odd jobs like mowing, plumbing/heating issues etc. If you are thinking I am not handy with tools you are mistaken. Its just that I dont want to spend my time “upgrading” my house. I don’t care about granite countertops and the latest appliances.
As far as work, hmm I would rather work at my job and earn a nice bonus, because get this… its what I do best and that is where I can leverage my knowledge and education the best. If I want to earn more money, I can and do devote time to stock market research and invest money there. Real estate doesn’t interest me as much and its heavily heavily leveraged. Its just not for me.
Oh yeah, saving 40K a year. Have you considered that I could be earning more than average AND not have any frivolous expenses? I don’t have a new car or the latest gadget on the market. I don’t miss them and it’s not as if I am compromising since I am indifferent towards such things. I am saving money towards the future and investing money so I can buy a nice house in a good location, send my kids to a nice school and (gasp maybe even pay for their college) and plan for my retirement.
A simple question: what is your monthly expense. Mine work out to around 2000$ a month. That includes rent and all my bills including one off things like car insurance.
Harley Lever » Jun 8, 2008 at 6:21 pm
b,
My house has doubled in price in Arizona and remains there because I knew that Tempe and ASU were planning a massive expansion, brining in a light rail system, and adding Tempe Town Lake where they have put in high-end condo towers.
I am renting it for double what my mortgage is. I can write off my mortgage interest, HOA dues, and maintenance. Man am I stupid.
I agree whole heartedly that higher interest rates will put downward pressure on houses, but it does not make the house more affordable from a financing perspective. A 50% drop in price and a doubling of the interest rates negate themselves.
Yeah you would be in a better position IF the market went up from the low, but the trick is trying to time it perfectly. You could very well find yourself purchasing a home with no appreciation for years, and then being forced to move and sell at a loss due to transaction fees.
I choose to hedge my bet by purchasing a condo on the far lower end of the spectrum of a neighborhood in transition which is smack dab in the middle of some of Seattle’s best neighborhoods. I upgrade the home through sweat equity and trading web site, SEO, and photography services with tradesman and supply companies. Most importantly I am in the home for 30 years + either as my primary residence or as a rental.
Harley Lever » Jun 8, 2008 at 6:36 pm
Hulk,
Including HOA, Taxes, and Insurance and utilities, I am at $2100. I own my car, have no kids, and don’t have Cable TV.
I write off $1400/month in interest. In addtion, I was able to write off my moving expenses and closing costs.
How much of your rent can you write off? How much of the first month, last month, and your security deposit can you write off?
A guy making as much money as you would seem to benefit from a tax shelter. I think you should talk to a financial adviser.
Please Buy My House Idiot Renters » Jun 8, 2008 at 6:48 pm
” A 50% drop in price and a doubling of the interest rates negate themselves.”
As has been noted repeatedly here, you can refinance out of a high interest rate if rates drop in the future, but you can’t do anything about the price you originally paid. Heck, you could even go wild and crazy and pay extra every month towards retiring your mortgage early, thereby further reducing the impact of high interest rates.
To claim that the lower price and higher interest rates offset each other is just a variant of the typical used car purchaser “howmuchamonth” strategy – being only concerned about the monthly payment, and not being concerned about the underlying purchase price, when it is the underlying purchase price which is truly important.
Sorin » Jun 8, 2008 at 7:05 pm
TheHulk,
I’m in a very similar position to you financially. I guess we’re two exceptions to the “American’s don’t save” rule. Not to mention the people mortgage brokers and real estate agents are salivating over right now.
Harley,
Personally, I like the idea of interest rates going up. It *will* force prices down, unless incomes also go up. Either way, each month that goes by while I rent increases my potential down payment, which in this market with depreciating prices means a smaller loan amount. In this case, increasing interest rates are unlikely to have a significant negative effect, and seem just as likely to provide a benefit to people in a position like TheHulk and I relative to the majority of folks only putting 3-5% down.
Sorin » Jun 8, 2008 at 7:31 pm
Harley,
I’m assuming that $2100 is your housing expense, not total monthly expense. Otherwise, if you are also writing off $1400 a month in interest, you must be living on Ramen.
You make a good point that the tax deduction does offset some of the mortgage and ownership costs. When I ran the numbers, I was somewhat surprised by the potential benefit, but it is still a net negative vs my current position renting at $900 a month. (I should add for a nice condo-like apartment in Magnolia, not a POS rat hole.)
It’s also worth factoring in that my down payment savings are providing additional income. Depending on how you want to look at it, it’s compounding into savings, or reducing the cost of my rent. When I buy, I loose that additional income into a non-liquid asset (the house). I don’t like the idea of buying an asset that I’m pretty sure is going to depreciate in the next year. Not when I can be in an even better position to buy it for cheaper next year using less leverage.
Anyway, for my position, I find it makes sense to hold off for a while yet.
TheHulk » Jun 8, 2008 at 7:34 pm
Hey Sorin,
I agree with you with one caveat. I don’t want to put all my life’s savings into my house. In the long term stocks in good companies will perform better than real estate especially after this bubble burst.
Harley,
Regarding writing my rent off. People (read realtors) make too much of the writing off concept on interest. I will have to make a significant housing purchase I dont need right now, to deduct a significant amount of money to make it worth my while. I don’t remember the exact math but it was something like I have to spend an additional 66 cents to save something like 30 cents in tax. That probably only made sense when houses were appreciating like crazy in az. Not in todays market. Please provide me with exact figures how it will help me exceed the standard deductions I take on my 1040.
b » Jun 8, 2008 at 7:47 pm
Harley -
Again, homes are valued by the price of the house and financing from the buyer. If interest rates rising were the sole cause of price declines, then you would be right, it would make little difference to buy now or later. However, the premise of the bubble is that things have become disconnected from their proper valuation to the upside. This means that prices will continue to decline until they reach their fundamental support levels. Since housing is generally valued by both price and financing, prices will simply decline by an even further amount to compensate for any increase in financing cost. The point is, prices are going to decline a significant amount back to pre-bubble valuation levels. If interest rates rise during that decline timeframe, then prices will simply decline even more to support them.
Sorin » Jun 8, 2008 at 8:01 pm
“I don’t want to put all my life’s savings into my house. In the long term stocks in good companies will perform better than real estate especially after this bubble burst.”
TheHulk,
Absolutely agree. Never said I would put everything into a house; probably why I’m still renting ;)
I view a house as a place to live first and foremost, and only as an investment relative to renting. It needs to be a reasonable price, and if I can purchase it such that it retains its value relative to inflation if I ever do need to for whatever reason sell it, that’s quite enough for me.
TheHulk » Jun 8, 2008 at 8:20 pm
Sorin, Amen to #183!
TJ_98370 » Jun 8, 2008 at 8:43 pm
Harley said -
…Hulk, come on now. If everyone was able to save 40K a year do you think America would have any issues. You save more than what most earn. You are being slightly ridiculous if you think your are representative of the norm….
Harley, maybe you are touching on a unique demographic characteristic of the readers of this blog. Maybe we are different from the norm. I personally am able to save 29% of my earned salary (excluding mandatory retirement contributions), live on $2500 a month (two adults), have zero debt (other than occasional credit card charges), and my very conservative investments are generating income at a rate of about 14% of my earned salary.
I once knew a co-worker who was a lot like the way you describe yourself. He was a landlord / owner of several dozen local rental properties (Kitsap County). It seemed like he was always bolting out the door at quitting time, racing over to one of his properties to fix the plumbing, install window shades, fix a leaking roof, paint the bathroom, etc. I admired the guy. He was a hard worker and he really was an expert at finding and buying “distressed” properties and turning most of them into cash flow positive investments. He was able to retire early in the mid 1990’s and is now living in Hawaii. I don’t know if he would have been as successful in a depreciating market.
Harley Lever » Jun 8, 2008 at 8:45 pm
Hey Bubbleheads,
I guess where we all depart on strategy and opinion is we are different kinds of investors. My goal is not to stay here for ever, but to move on and rent it afterwards. At that point I stop having out of pocket expense for the mortgage and renters begin to take over.
Even if I were able to only get half of my cost for this place in rent (which would likely not happen), it would mean that my cost of owning this place is half of what it is now. However, I am still able to reap the full benefits of tax write offs and deductions. Actually, I can write off the entire mortgage, HOA, and maintenance.
The Tempe place costs me absolutely nothing. I lived in it for 5 years and actually had roommates which paid for a good portion of my mortgage. Now that I have left my out of pocket expenses have stopped. Now it is generating income for me and my mortgage is being paid off.
Because you do not intend to rent your places, your exposure is greater and I appreciate that.
However, back to my original point. THERE IS OPPORTUNITY IN EVERY MARKET. You need to be intelligent about your purchase. If you are willing and able, put some good old fashion sweat equity into the place. Look for emerging neighborhoods. Maybe renting would be a good backup plan to consider should you be forced to move. You can hedge your exposure to declining markets and be able to reap the benefits of low interest rates. I think you need to be flexible and adapt to every situation.
Alan » Jun 8, 2008 at 8:59 pm
Harvey, I meant +3% above today’s rates.
I think double digits rates are about as likely as negative rates which are both more likley than rates staying constant.
Harley Lever » Jun 8, 2008 at 9:21 pm
Hey Alan,
The Tim had pointed out my error. After blogging and defending my position to a dozen or so people, I misread your post. I apologize.
I agree, I see rates moving up too. How much and how much pressure it puts on the housing market remains to be seen. Obviously the outskirts will take more of a beating than Seattle proper.
I think there will be a push to move towards Seattle. High gas prices, people being foreclosed on and having to rent, the public transportation system, and other factors will provide some cushion to Seattle as opposed to the outlying areas.
mikal » Jun 8, 2008 at 9:43 pm
Harley I completely agree about the cushion to the prices in Seattle. The outlying areas are screwed. This country will begin to resemble Europe more over the next thirty years.
Harley Lever » Jun 8, 2008 at 10:38 pm
Here is an interesting article that supports the idea of people moving towards Seattle. It discusses the Generation Y mindset.
http://seattletimes.nwsource.com/html/realestate/2004463026_geny08.html
TJ_98370 » Jun 8, 2008 at 10:45 pm
Harley said -
….Actually, I can write off the entire mortgage…..
Harley, I’m curious – How are you able to write off the entire mortgage? Are you claiming depreciation on your rentals?
jon » Jun 8, 2008 at 11:12 pm
That’s not the Generation Y mindset, that’s the same old 20’s mindset. They will want a yard as soon as it dawns on them that their kid wants to toss a ball around. And they will appreciate what “getting away from it all” means when they are a little older also.
Harley Lever » Jun 8, 2008 at 11:41 pm
TJ,
I have to ask my accountant for the specifics. I remember it was significantly more than just my interest. I think, but don’t quote me on this, that you can depreciate the structure over 27 years.
I know the appliances were depreciated. In addition, I am able to write off my trips to Arizona when I work on the place. I had to take care of some roof damage in February and will be able to write off travel expenses and the cost of the roof.
I’ll get back to you on the specifics.
economist » Jun 9, 2008 at 12:44 am
If the economy turns for the worst and you lose your job guess what? You can’t buy a house anyway and you will be forced to live with your mom.
Hey Harley, so what happens if you buy a house and then you lose your job and your house is worth less than you paid for it?
Harley Lever » Jun 9, 2008 at 2:56 pm
I have 8 months of savings.
If I absolutely had to pull equity out of my other properties, but that would be a worst case scenario.
Like real estate I think you need to be extremely flexible about what you would do for work should you be faced with job loss. I have no limits to the jobs I would take on. I have seen it in economic downturns in the past and people would say “I would never do that job”. I would bartend, as a laborer in a ship yard, or clean bathrooms if it meant I could earn some money.
Cougar » Jun 9, 2008 at 3:40 pm
Harley,
Are you single with no children? Whole different ball game of risk.
TheHulk » Jun 9, 2008 at 4:29 pm
Economist and Cougar,
Valid points, but I think you are stretching it a little here. If nothing else Harley at least knows the risks. And that my dear fellow bubbleheads is precisely the point of this blog (at least for me).
It is to discuss different points of view and maybe help some people understand risks they hadn’t considered before. Just maybe, Harley had not considered the worst case scenario of losing a job, having multiple mortgages AND kids and a family to support all at the same time. At least now, he knows about this and can plan for it and maybe reduce exposure if he wants to.
Really, would your Realtor/mortgage financier openly discuss such issues with you when their whole livelihood depends on you completing the same transaction? I think not.