It’s the people who think they are entitled to sell something for more than it’s worth who are the whiners.

A comment above speaks of selling a $400k rental recently very quickly and easily. I notice the type of loan used to buy the house was a zero down FHA loan. I previously mentioned that this type of loan will help artificially prop up Seattle house prices. However, I would like to expound upon that statement. I’m not arguing that there are not a lot of financially illiterate people in the marketplace who will use easy to get 0-down loans to pay whatever price is asked for a house. Recently history shows that there are a plethora of such individuals. My point is there are less people willing/able to do this than there were a year ago. And the supply/price data I and others have posted bears this assertion out.

Markets are driven largely by the principles of greed and fear. When you see everyone else is doing it and making money, you jump on the bandwagon without a second thought. When you see people doing it and losing money, you are much more hesitant to part with your hard earned money.

One of the problems with 0-down loans is that there is no actual hard-earned money associated with the transaction. The buyer pays $400K for the house and has not put any real investment of time and money into the home. If the price drops, they simply walk away. If the price stays the same or goes up, they happily stay. Everything works fine as long as prices stay flat or continue up. But when prices go down…Well, take a look at the news lately, and you see what happens. It is not a pretty picture and is the reason why housing throughout the nation is in so much trouble.

Some people might argue that recently instituted 0-down govt. loans with increased limits will save the Seattle housing market. IMO, such loans will only prolong the bleeding. It is loans like these that got us into all the trouble in the first place. These loans artificially inflate the value of houses because they increase the demand by allowing people to buy homes that don’t actually have any money. This increases the pool of buyers and makes for a more competitive marketplace, thus prices stay higher than they otherwise would be.

However, it only takes a 5% drop in house prices to force such buyers underwater to the point of desiring to walk away. A slight increase in mortgage rates can cause such a drop as can many other economic fundamentals such as rising unemployment rates etc. All of the sudden you have the same house back on the market at a firesale price. Then the guy down the street trying to sell his home for 5% less than he bought it last year has to sell for a firesale price, and you get a downward run in the market. In the near future rising inflation will force interest rates up. This will force home prices down. Yes, the nice lady who bought the $400K rental will be underwater by the end of the year. When she realizes she owes more than the house is worth and that she can rent a similar home for half the cost, she’ll eventually get her fill, keep the garden tools, and walk away.

There is a sucker born every minute, but when lot’s of suckers start to drown, even the biggest suckers become too scared to enter the water.

To increase house prices:
Lower cost of living
Lower interest rates
Lower supply
Increase demand
Ease credit
Create Jobs
etc.

To lower house prices:
Raise cost of living
Raise interest rates
Increase supply
lower demand
tighten credit
fire people
etc.

I’m really not sure how us “bubbleheads” have gotten the reputation of being poor, unintelligent whiners. Just because I converse about how bad of a decision it is right now to invest in a declining real estate market does not make me unable to do so.

For the record I will be a first time home buyer in the somewhat near future. I have a good, steady job. I rent with a roommate to keep costs down. I have stuck to a savings plan over the past two years and I’m now in a good position to buy (>20% down). I did not rush in to one of the most important financial decisions of my life. Each week I wait 2 things happen; I make/save more money and the market comes further down. There are plenty of people doing the same.

They go from 300k to 500k to 700k to 900k, etc. The guy buying the 1.2m house needs to sell his 900k house. If he can only get 800k for his previously 900k house, he can only buy a 1.1m house now. His income that allows him to jump 300k and afford the mortgage is still the same, but now his price limit has shifted down for the difference of his new sale price. This works similarly with first time buyers with their down payments and financing options. It is rare for a regular homeowner to buy a home with cash and/or not having to sell their previous home first. The market that does support those people is very high and not even worth discussing, it is the top 1% of the market probably.

….Guess what? I’m leaving now…..

No big loss, RAL. My biggest problem with you is that you are not who you say you are. Your BS just cheapens the whole website.

Tim, I am not very internet savvy. Is it possible to inform us about the identity of RAL’s next incarnation?

Nice of you to bring up Ireland and Spain David because both of them are now tanking big time. That’s exactly what happens when huge price increases bring on an avalanche of oversupply.

Helldorado: How expats dream life in the Spanish sunshine has turned into a property nightmare

RAL, a guy once said that if you cannot take the heat, get out of the kitchen.

There is hardly any scarcity in Seattle compared to other metropolitan areas. If there was, those prime locations would have been bulldozed and replaced by $3m+ mansions long ago. Ballard and Fremont, etc, are prime locations for middle class people and they are still middle class neighborhoods. The credit bubble won’t change that. Seattle’s density is nothing like SF for example, where there is true scarcity.

You folks impressed me, even the realitors….pragmatic stuff here.

Do I think SD will slow down in its price collapse and SEA be not as bad? Hey, I’m not a seer, but my tea leafs do see this in our future if we don’t stop the “growth monster” in Seattle prices will drop for years to come…..lower wages, bigger government [more taxes] and no light at the end of the tunnel; one hope for real estate though, we do a “phoenix from the ashes” [real change] and start retraining our own kids from the U of W and Seattle University , etc to be MSFT and Boeing brains, with $50-70K starting salaries going to $70-90K journey level averages [a year or two of college should be fine for most too]. Out sourcing [in sourcing too] just kills real estate with growth kool ade.

I’m looking out my hotel window [just kidding....lol] watching Seattle area’s lease signs go up all over the place, and wondering who they’ll all rent to and what business will work in this energy hampered economy.

I blogged this comment last Friday, enjoy:

“….
GROWTH GASOLINE

Our country is on fire with high gas/food prices, swollen deficits, resource shortages, infrastructures collapsing, etc, etc.

The lame brain method of “growing” out of the fire with more guest worker overpopulation is making it far worse, its putting gasoline on the fire….”

Posted by: Softwarengineer on June 13, 2008 04:22 PM

$100k is not enough for the dynamics to change. More like $500k/yr, or more. As long as the market you are in is based mostly on people buying with financing or buying with financing and proceeds from their old home, it is a bottom up market. I currently live in Silicon Valley, which is even more wealthy than Seattle, its the same here. I don’t know anyone who makes less than 6 figures, and none of them are in the category of putting down full cash or not being dependent on what their old home sells for.

Those neighborhood dynamics were in play before the bubble in 2002 and will be after it. Nothing has changed fundamentally in any of those neighborhoods, or their relative stature between them, since 2002/2003. The only thing that changed was credit availability and bubble mania.

The opposite is true. Prices are set at the bottom because RE is based on “moving up”. The vast majority of purchases require the equity of their sale to buy that bigger home. If prices drop out of the bottom of the market, it will eventually filter all the way up. The only price areas that may not be effected are those which are so high that the buyers typically pay cash or do not have to sell their previous home.

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’m lvng nw.

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Gd lck t y.

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The affect of that is that because so many people bought more than a couple of years ago, there is still plenty of money to keep prices steady over the best locations, which currently covers Seattle and the western parts of the Eastside.

The cost of farther out areas dropping, and that would have an effect on the best areas, but as it happens that the rising cost of gas just offsets that.

The problem with San Diego is they overbid by much more than Seattle, with what appear to be similar demographics. So now they have dropped down to close to prices here, and will likely overshoot going down also because of the foreclosures. Seattle’s 10% drop is pretty insignificant in comparison, unless you happen to be one of the people that bought at the peak.

“When you sell” – Will you then leave this blog and never come back?

ie
Mikal says- “If Queen Anne house dropped even 20 percent off peak the demand would be so much more that it will only drop so much.”

Then says-
“You will never be able to afford the neighborhood you want.”

To me I would likely fall into the first statement. If prices in QA dropped 20 percent I would buy a house there. I sold my house a couple years ago and have been waiting for a time that I believe is appropriate to buy. In my opinion this is more representative of “”bubble heads” than the notion that we are all poor whiners. If I was not in a position to buy, I would not be on this site, or any real estate site.

I could afford to live anywhere in the city right now, unfortunately I am currently in Silicon Valley and won’t be back in the area until later this year. In case you cannot figure it out, I have one of those coveted tech jobs that pays me way too much money. But thanks for being a condescending douche who believes they are richer than everyone else because they made a poor financial decision to buy at the top of a bubble market.

You are right that QA is going to have higher prices than Spanaway. The point that you do not seem to realize is that the desirability of a place like QA, and the premium it can charge in relation to other areas is RELATIVE TO THE PRICES OF THOSE AREAS. It is not an absolute number, it is a relative valuation premium compared to the prices of other areas. Maybe you need to take some more math to understand this type of relationship, but if prices fall in outskirts areas, they will start to fall in the areas that border them, and the areas that border those areas and so on. I see it happening here in the valley right now, Seattle is no different than anywhere else in this respect. If you thought about it for more than 3 seconds you might understand this.

Those people with lots of money do not want to buy "chocolate"boxes in the middle of Ballard, especially if they can rent something twice and nice for half as much. The real estate market is build completely on first time buyers. The entire reason prices moved so high is that first time buyers all of the sudden has an unprecedented amount of financing available to buy and the pool of those buyers was increased a huge amount by lax standards. This worked its way into the system so that the owners of those homes could sell for a lot more and then buy a lot more themselves, and on and on. Without first time buyers, there is no RE market as we have it today.

I stand by the premise there is always someone with more money than you or I, thats why the desirable areas will hold strong. Outlying areas where many first time buyers squeezed to get in only to find those around them foreclosing dropping prices or moving on to the development up the street, I see those places falling in the 20% + range. The areas I listed have no land or new developments, people want to live in those areas. The guy who come from money and has 500k to spend will spend it, the Dr & Lawyer who want to live a jump from downtown will spend it. Like I said before i feel real estate especially in this city is down to neighborhood and some cases street. Maybe I am just focused on a different area then the rest of this site. I have lived here 4 years, I dont know where Kenmore is, I maybe been to Lynwood once, Bothell twice. I dont know the outlying areas nor would i have bought in any of them especially with developments starting up all over the place. I can see those areas dropping by 20 – 30%.

Your point about downpayments is a good one. Do you realize that in your first paragraph you make the case for 50%+ price drops in those type of homes? Then go on to claim the worst case is 10% drops? Where are these magical buyers? People with “move up” equity generally want to actually move up.

BTW most bubbleheads on the sidelines will not have the access to credit to buy the homes. Times and the terms have changed. You say prices will drop? Ok so then do you have the 80k down payment for the $400k starter home? The starter home will be $350k? Ok where is the 70 k in hand as well as reserves to step up and buy? Will you still have a job if there is utter collapse?

Lots to think about slice and dice all you want, there is a premium here (Magnolia, Queen Anne, Green Lake, Ballard) . Yeah they are going to drop 10 – 15% worst case scenario, please exclude townhomes and condo conversions those have been overbuilt and are being slashed. I will let you know how I am sitting in 10 years. Will this site be around? Donors are you there…. donors are you there…. ?

Just be smart and educate everyone there is only one way to Buy in 2008 and beyond. Embrace change!! It will be Good For us ALL.

As Tim says the question of needing a Realtor at all is an important one. For now, however, every property that is listed on the NWMLS has money that is the Buyers. But, the vast majority just DO NOT realize its theirs. Be happy you do!

Its not the Realtors that should be scared of change. Its the MLS’s of this Nation. The big Gorilla is coming and when they combine forces with the Zillows, major banks, and The Zip Realty’s of the World, change will be HUGE!

But, for now, JUST BE SMART!

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

400 people on waiting list
50 show up at Grand Opening to get 5k Bonus
10 sell in 1st Release…(horrible)

2 buyers sign with me ( They both get about 7000.00 at close) since they saw our paid Staff of college Kids holding signs up stating “500 Realty ..Your Only True Friend In Real Estate” Never Call The Name on the Sign” At Nearby Intersections….

Gig Harbor/Tacoma is our Summer test Market for the ” In your face Gorilla Marketing”….Anyway my point is this…….

Quadrant paid far too much the land and these home prices MUST COME DOWN. Even though the Reps say Quadrant does NOT lower prices I see some big 10k Buyer Bonuses coming. I look at these 2400 sq foot boxes for about 330k on 4500 sq foot lots and although I know there are the LEAST expensive homes in the area by 20% they are still overpriced.

Quadrant is NOT offering GEMS at this time. Stay Tuned!

**BTW If you sell 4 of these boxes by the end of the year the Agent gets 10k bonus…It does NOT influence me or AT ALL!

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

I just listed my rental home, which was in great condition, for under $400,000 just north of Greenlake. It got a full price offer in 8 days. The buyer is going FHA, and we’re paying her closing costs. We are happy, she is happy, and we are also giving her the lawn mower and our gardening tools too.

A home isn’t a stock investment. It’s where you live. Live long, enjoy life, and quit bickering over what you cannot control.

If you can’t afford to save up a down payment, give up some of those extras that you think you ‘need’. 5 lattes a week? Add ‘em up. 8 cocktails on Friday night? A bit extreme, don’t you think?

My husband and I worked 2 jobs each during the first couple years we were together, so we could save faster for our down payment and our first home.

I have to agree with another guy I read recently: shut off your computers, get outside and enjoy your life. What you are doing here is not life.

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qt by Grg Srs, cn b pplcbl t Rl stt s wll:

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Scroll up to look at the 10 year return, then tell me how much you throw out the window every month for the 3 bedroom ratrap you live in.

I don’t deny that real estate in the Seattle area has appreciated drastically in the past decade. Still there have been better opportunities: buying GOOG at IPO; buying put options on Bear Stearns a week before their demise; heck, you could have even bought Yahoo ten years ago and still have your money doubled (although you lost out on hge profits if you didn’t sell 8 years ago). Huge profits in real estate, Google, Bear Sterns, and Yahoo all have a similar thing in common — it is hard to predict what they are going to do ahead of time.

As for my rent, I’m paying less monthly than my tax-adjusted interest payment + HOA fees would be if I purchased this place with 20% down.

I owned for nine years before moving here and saw marginal appreciation. As an owner I was a financial loser (but then so were the other owners around me). Honestly, I hate renting but the premium to own in this area is more than I am willing to pay.

You didn’t even demonstrate what (if any) prediction was made in the first place, so how can you claim your evidence invalidates it?

Agreed, elimination of “extras” toward purchasing a home is forefront. Bills I did not have purchasing my first home; cell phone, direct TV, cable, internet, video games (well Atari – I was hooked on Pong). All these siphon a decent down payment for a home, yet today there a must have. Gas at $4 and Apples at $2.50lb, those who want to purchase a first home will need to evaluate their wants vs. needs.

There are neighborhoods in King County that hold there property value and selling power no matter what the economic situation is. Then there is the rest that value change day to day.

Happy Fathers Day!

If it weren’t for Fathers we wouldn’t need homes! Caves, lots of caves! ;)

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I find many here enjoy the debate of the housing market. It’s the discussion and reporting of facts I find most interesting. Personal attacks and mudslinging are uncalled for. Holding one accountable for their opinion to understand where they are coming from can educate everyone. I find these past 5 years of real estate and the economy amazing. We are all Bubbleheads who post here; some have better presentation then others. There are posts I don’t understand and wish they would cut to the chase, and then there are ones I could have written myself in total agreement.

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…………

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Seriously. If you have any guts/cojones/whatever you want to call it. Post your MLS# on this site. Oh wait, I guess your momma will throw you out of your basement if you do so.

I apologize. (Tongue very much in cheek)