Nc pst. Thr s n thng fr sr thgh:

Y nly lv nc.
Trt yrslf wll nd njy lf th wy y wnt t.

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Maybe population growth will diminish. Maybe it will go up. Maybe everyone will want to live downtown (b/c of time value or changes in attitudes). Maybe suburban living will become popular again (b/c of rising crime or perception of the city being ugly). Maybe we’ll build awesome light rail. Maybe another city will take away the type of people that would move to Seattle (Portland?)? Maybe the rich will get richer and buy up all the close-in properties, but the suburbs and ex-urbs will languish b/c middle-class incomes go down. Maybe the opposite will happen, b/c we get a growing economy.

Maybe we’ll be in a global depression. WWIII? Maybe the Stock market will keep going up an average of 10%/year (like it has over the last 75 years). Or it will never go up again.

Maybe everyone will face rising costs by cutting back and living with more roomates. Or their incomes will go up and they won’t. Or they will declare bankruptcy and move back in with their families. Or everyone will move out of rural towns and into cities b/c rural life will become unbearable.

I could go on forever, but after reading this blog for a while the only thing that’s clear to me is that armchair economy theory is worth about as much as you pay for it. I think NotaBull has the only sensible viewpoint – things are more complex than anything the extreme bulls or bears claim, and housing is generally overpriced because of a recent unsustainable runup, but not nearly as overpriced as some believe/hope.

And let’s face it, prices are lower than California’s job centers; you can pretty much live cheaper anywhere else (sure Boston, NY are higher).

Also; cold and rain are not good for your joints; I don’t see too many seniors sticking around.

If rents are not high enough for an acceptable rate of return, then no new apartment buildings will be built, and renters will have to wait for older SFHs to be rented out. With population in Washington rising, there would quickly be a shortage of places to rent and thus rents would rise. It is not a matter of expectation, it is a result of growing population. The population is growing because prices here are lower than other growing job centers, except Texas.

There may be a short term supply of apartments now because of condo overbuilding, but the numbers are fairly small compared to the monthly growth in population.

Expecting house prices to come down to meet the needs of renters is like saying earnings will rise to meet the needs to stock owners.

Similarly, expecting renters to pay rent amounts that allow landlords to earn an acceptable rate of return on highly priced real estate is like expecting company earnings to rise to provice an acceptable rate of return for stock owners.

Although in the stock market, prices rise because of an expectation of future earnings growth. That is why Google is trading at 30 P/E. An investor buying property today has one of three theories:
- Higher rents will be supported soon enough to justify the higher price.
- Someone else expects supported rents to rise so I’ll be able to flip this to that sucker.
- 3% rate of return is a great investment.

And sometimes investors are wrong. There are people who bought GOOG around 700 last year using those same theories. Those people have lost around 25% of their capital investment today.

Try 28-38 year old households.
Can’t get the early 20’s crowd to move from the nest these days and people seem to be getting married a little later now.

Chicken or Egg?

I don’t think I’ve ever met a 20-something who wanted to live at home into his or her mid/late 20s. Even with a decent income, moving out from the nest is an expensive proposition in Seattle. So kids end up staying at home with Mom & Dad instead of driving the bottom of the housing market, until they find a significant other to move in with or get kicked out. In cheaper parts of the country, kids still can and do move out as soon as they finish school.

Stock prices are tied to underlying earnings much more directly than rents are tied to incomes.

I hope you’re joking.

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A permanently high plateau perhaps?

Tht xmpl s wy xtrm. Th Nsdq TRPLD frm 1500 t 5200 n 1 1/2 yrs frm lt 98 t Mrch ‘00.

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Now there are an additional 8 new townhomes being constructed on the street, so I don’t see any prayer for existing townhome owners nearby having the ability to sell. I’m not sure why anyone would want to buy where I rent anyway, it’s nothing but EXPENSIVE townhomes (new ones are on sale for $415,000) which means streets packed with cars, very little space between houses, weird garages and car courts that aren’t really accessible from the street, etc. I love renting where I do because it is near Green Lake and not very expensive compared to home prices when we started renting (about 15 months ago), but my wife and I are currently looking to buy a SFH somewhere in Maple Leaf, Lake City, or Wedgewood.

Try 28-38 yr ld hshlds.
Cn’t gt th rly 20’s crwd t mv frm th nst ths dys nd ppl sm t b gttng mrrd lttl ltr nw.

>Wldn’t t mk mr sns t cmpr hstrcl vrgs f mdn ncm t mdn hm prcs n Kng Cnty?
………..

Tht mght wrk f vrythng styd th sm, bt t hsn’t.
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It looks like prices are out of whack from a historical perspective.

Today’s actual value is shown in the graphs in Tim’s post. I think you meant to say the future value. To determine the future value, you need to look at the forces driving the market. Washington has a substantial number of people moving in every month pushing prices up, and a low occurrence of the subprime loans that are pushing prices down elsewhere. The preferences of renters is not a market force on the price of SFHs. As more people move into the area, people will adjust by taking on more roommates, settling for smaller spaces, move out to the burbs, or leave Seattle altogether. Hopefully not the latter, but since other areas of the West coast are more expensive than Seattle, about the only area that is growing faster than Seattle is Texas.

I think this is closer to the point. The whole market is built on first time buyers. Without them, existing home owners can’t “move up” even when their increased salaries allow them to.

So if we could come up with the median income for, say, 20-30 year old households and compare that to the “starter home” median price, then I think we could make a determination as to whether the market as a whole is in a healthy state that would correlate with price stability (stable and slowly increasing with wages).

Perhaps the low tier of the Case Shiller prices could be used?
Perhaps we use the census to find out what 20-30 year old households make?

Tim, any thoughts on doing an “market healthibility” index based on these kinds of statistics?

People can move up after first time buyers buy. And first time buyers don’t make 6 figures; so let’s not discount the $70K median income completely.

RAL – the lack of arguments and constant insults are obvious signs that you have a financial interest in prices going up. Frequenting this site will only have a negative effect on your health. I am really sorry you find yourself in a bad situation.

Why nyn wld wnt t BY n prtmnt s bynd m.

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ls thnk tht Twnhss sck. n Sttl s thy r vrprcd cmprd t Sngl Fmly hms nd hv bsltly n vsl ppl. Bsclly lk byng 3 flr prtmnt. Bt, th mrkt s thr fr th byr tht’s mprssd by th “gltz” r “blng” f brzlln chrry flrs nd grnt cntrtps.

My dvc hs lwys bn th sm. By th bst sngl fmly hm y cn ffrd wth 2 crtr, lctn nd flr pln, (vws r nc t). vrythng ls cn b cstmzd t yr ndvdl prfrnc vr tm.

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There will however properties that will fall further than the median home will. They will ultimately be investment properties that are bought strictly as rentals but usually won’t be properties that you would really want to live in yourself. I think that the ones that will fall the furthest are the low end 1BR apartment to condo conversions. Particularly because they just built to "golly" many 1BR’s.

Surely even RAL wouldn’t recommend purchasing something like that…would you RAL?

xplrr,

Rntng sr snds wndrfl. $18 Grnd yr t th wndw fr “lsy” 2 br 1 bth.

nt rntrs r whnng bt hgh rntl rt ncrss nd nt ngh dcrs n hm prcs.

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Thank you for your excellent accurate comments. You just blew the Bubbleheads argument right out of the water!!!!

There is NO contesting your analysis. Any attempt would just be gassy hot air.”

Please don’t agree with me, it doesn’t help to get my point across. :P

The point I would like to make, again, is that prices are STILL TOO HIGH even with median buyers not being median income earners, and the equity equation. The only thing I wanted to illustrate is that if you’re using some kind of formula to decide when we’ve “reached the fundamentals” then that formula should be a little more complicated then “median income buys median house” because that will give a value that’s too low.

I don’t know what the actual value is, but I strongly believe that it’s higher than the simplistic formula above, and lower than the price of houses today.

NtBll,

Thnk y fr yr xcllnt ccrt cmmnts. Y jst blw th Bbblhds rgmnt rght t f th wtr!!!!

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http://olympiabubble.blogspot.com/

This may be the first article in The Olympian to report price declines. A few days ago they ran an article about how prices were holding steady although sales were declining.

You’re off on this one… you assume that people making the median income should be able to afford the median house. There are several factors that affect the demographics surrounding the median income. For example, what if only 40% of the people in Seattle actually owned a home… that would mean that 60% rent… therefore only the upper 40% of incomes would be expected to have to be able to afford the median home. Furthermore, of that 40%, what if 1/2 of those people bought more than 5-7 years ago.. the price they own at is well below the median house price today and likely to be affordable to someone in the 60th percentile of income… plus retirees who don’t make much income (definitely well below median) who own their homes outright probably take another 10% of the market… probably housing only needs to be affordable to the top 25% of incomes at best.

I don’t think that’s going to happen. It’s true to say that the median house price and the median income are related, just because incomes buy houses. So without funny money, we’re bound to get back to that fundamental.

However, you made the direct relationship between median income and median house price. That is not correct. For one, and like it or not, very poor people don’t buy houses and old people don’t tend to buy houses either, and these people earn less than the median. The median income of the *house buyer* (which is what sets prices) is higher than the median income of the overall population in the region which the house is being bought.

In addition, move up buyers usually bring some equity with them. Not a lot usually, but they do bring some.

I’m not saying that house prices are not going to go down more, just saying you have to be careful with where you expect them to eventually land.

Sales of SFH+Condo in King county went up by 3% in June from May, while pending sales went up by 5%. They usually drop in June.

If you want to get excited, great. I was just speaking for myself. Seems to me that is not really a meaningful shift, as the market is still bouncing along the bottom in terms of demand.

Based on the discussion I had with a mortgage broker this week – my view is that availability of loans remains an huge issue, with most people having significant difficulty qualifying. I don’t see any fundamental improvement in the demand picture until that situation changes.

Much more supply and a little more sales, hmmm, saw today more foreclosures too — where do you think the market is headed?

“Call your realtor before you get priced out again.”

RAL – by now it’s clear that you are a realtor or 14 years old.

$70K is the median household income, RAL – this means half of the households make less, half make more. So the median price of the home should fall around what’s affordable for that median income. That is capitalism.

In fact, capitalism is what will make prices go down. How’s that for a twist???

RAL – the real estate business is drying. Go and get your travel agent certificate. I hear it’s an up and coming career (who will ever buy plane tickets on the internet???)

“Ubersalad
Historically our inventory has gone up in June.
This time it went down to be accurate.”

Was it ever so high in May — come on get a clue.

mukoh // Jul 9, 2008 at 8:43 pm

Ubersalad
Historically our inventory has gone up in June.
This time it went down to be accurate.

I wouldn’t get the least bit excited about a 300 unit drop in inventory until it is accompanied by a sign of increased sales. Doesn’t mean much of anything. It might even be a worse indicator given that it was driven by stale listings coming off the MLS

That’s why it’s likely to be Bye Bye Ballard for me after 18 years.

I thought they would have sold it last year, if they were going to sell. Timing is everything and nothing at all. Some things you cannot predict with the necessary precison. Moving again so soon sucks.

The cap rate when it was sold in May matched the current rents. The selling price was the asking price, which was $200K over the assessed value. The lot is fully developed already, 3750 sq. ft. No room for more unless they tear it all down and build up–extremely unlikely. All the units are 2BD, 1BA. The two upper units have garages for one car. The unit next to mine has more square footage, and is completeley away from the busy street. They are now charging the same rent for both. All they did in the last month was replace the gas furnaces for both upper units, install a digital thermosat, bring the fusebox up to code, install GFI outlets to code, and tiedown the water heaters.

It sounds OK on paper, good bones (but lots of old concrete and brick exterior). You gotta live in my unit to see how ridiculous a 45% increase ($455 a month) is, despite the code work. Street noise, single paned windows, lousy floor plan, no yard, only a narrow walkway, and the stupid decision to remove the carpeting so you can cannot avoid being awakened by the new neighboor’s 3 yr old running in circles on the bare floor at 5:45 AM in the morning. The downstairs occupants are loving that too, I’m sure. I might have expected a 10% increase, but "golly"….

They will not have long term tenants in my unit for that price, if anyone is even foolish enough to pay it.

And how did that work out? Today is a new day and all of yesterdays gains are now gone. Have you taken a look at Fannie Mae and Freddie Mac? They’re down
(-13.11%) and (-23.77%) today alone, not to mention their other massive declines over the past year. Housing related stocks, right up there with WM, CFC, IMB, WB, and BSC. Is the government going to have to bail out FNM & FRE? Life isn’t looking too good for them at this point. Privatize the profits and socialize the risks?

And the dollar is going to rally? It was down again today! Can the Fed raise rates? It doesn’t look like it! The major indices are now in a Bear Market. Wake up and smell the dog "chocolate", RAL.

Small point of contention, taken largely out of context:

something positive in the market happens (prices go up,

The attitude of the last ~5 years has been that rapidly rising house prices is a good thing. When prices were going up, owners were high fiving each other on how much “wealthier” they were, while a few people stood around scratching their heads . Now, when prices are correcting from an irrationally high peak, those who aren’t cheering for a rapid turnaround get crapped on by internet trolls like RentersAreLosers.

I’ve seen several posts whining about how the drop in prices is hurting families. Those same families who made some very poor economic choices and overextended themselves on credit? Nobody seems to acknowledge that Seattle is an EXTREMELY hard place to get started in, because housing prices, even in marginal neighborhoods, are so high. That affects a lot more families in much more real ways than losing a few percentage points of imaginary wealth does for the “Winners”. The truth is that inexpensive housing is a GOOD thing for everyone involved, except for RE agents. Inexpensive housing means young families (and individuals) can get started without mooching off their parents, middle income families can afford to live where they need to (for work/school), and the rich can still afford a bigass mansion.

So, not only do I get the price decline, but if I wait awhile I should have another $50k down up front. How much is that worth in terms of eliminating interest payments, particularly if I buy the home that I need and resist the urge to simply buy as much home as I can qualify for a loan for? (I know, I’m unamerican, unpatriotic and letting the terrorists win…)