Seattle Bubble

• Forbes: Seattle “Continues its Ascent”
• Forbes: Seattle Has Already “Hit Bottom”
• Seattle’s “Seller’s Market” Status Rapidly Eroding
• Depends on what the meaning of “stable” is…
• Forbes: Seattle Most Likely to Rebound

Jump to the bottom to add your comment. ↓

113 responses so far ↓

• 1 Ira Sacharoff // Jul 15, 2008 at 1:40 pm

  We just might be the fifth best market in the country to invest, if you had a gun pointed to your head and commanded “Invest!”.
  Personally, I think there are better or less risky markets to invest in right now, but there are some really crumby places too. Maybe 5th best is still really bad.

• 2 Bits_of_Real_Panther // Jul 15, 2008 at 1:54 pm

  I guess invest doesn’t mean what I thought it meant. The areas in and around Seattle where you can make money on rental property, or even plan to make money after 5-10 years, are few and far between

• 3 matthew // Jul 15, 2008 at 1:55 pm

  WTF?! Forbes isn’t worth the paper it is printed on. Steve Forbes was arguing in 2005 that there was no housing bubble, he should admit defeat and give it a rest. What an idiot.

  Why would anyone be investing in ANY RE market right now? LA, Vegas, DC, Phoenix? Give me a break….

• 4 unearthly // Jul 15, 2008 at 2:03 pm

  Forbes is an idiot, in 2005 he predicted oil would go from $55 to $35 by the summer of 2006; instead it went up to $75. Forbes Magazine is aligned with Fox News, enough said.

• 5 vboring // Jul 15, 2008 at 2:16 pm

  i’m gonna call bull on this one.

  banks in Oz pay 8% for CDs right now (though they call them Term Deposits, not CDs)

  http://www.commbank.com.au/personal/rates-fees/term-deposit-rates.aspx

  why would you look for risky leveraged investments in the US when you can get an 8% risk-free return at home.

  if you did have an appetite for risk as an australian investor, you’d be looking to china, not the US. there is a huge focus on china in australia today.

• 6 Thomas B. // Jul 15, 2008 at 2:22 pm

  It’s funny that Phoenix is in the top ten. They got crushed in the real estate market.

• 7 Thomas B. // Jul 15, 2008 at 2:25 pm

  Oh… and Orlando. What is this guy thinking? I have friends that have real estate in both those markets and they don’t see a bottom; the economy is weak in both areas; and population growth has slowed if not stopped (especially in Phoenix).

• 8 matthew // Jul 15, 2008 at 2:31 pm

  Take a look at the inventory in Phoenix if you want a (sub;) prime example of a market in absolute collapse. Scary.

• 9 rose-colored-coolaid // Jul 15, 2008 at 2:41 pm

  People are looking at this the wrong way. Of all the real estate markets, it’s entirely possible that Seattle is the 5th best in the nation. While you might have a -30% ROI here, that’s better than the -40% elsewhere.

  That still doesn’t explain Foreclosure Town USA (alias Los Angeles) thought.

• 10 david losh // Jul 15, 2008 at 3:09 pm

  That’s a pretty shakey list there; Las Vegas, Boston, Orlando, Phoenix, Washington D.C.?
  I kind of resent having Seattle lumped in with this group.

• 11 TheHulk // Jul 15, 2008 at 3:09 pm

  I would like Matt Woolsey to put his money where his pen is (that is in the real estate market, not where I imagine his head is, if you know what I mean). Seriously Matt if you have any cojones whatsoever, cash out your 401K and all the money you have saved and invest in in houses that are in your top real estate markets. Why you could still find a *steal* Townhouse in ballard for 450K. And yes, surely that is going to appreciate > 10% for the next 10 years! You will be a gazillionaire!!

• 12 matthew // Jul 15, 2008 at 3:14 pm

  At least the other markets have been somewhat beaten down, Seattle hasn’t barely begun to hit negative territory. I was in DC a few weeks ago and zillowed the surrounding properties where I was staying and most of the units for sale were at 2004 price levels…

• 13 matthew // Jul 15, 2008 at 3:15 pm

  ugh, should say “has barely begun”, I wish you could edit comments on here…

• 14 TC // Jul 15, 2008 at 3:26 pm

  I have read the article from Forbes Magazine. Also I have been following this website for awhile and reading the posts.

  First I find that all the same people post here all the time. If someone gives an opinion about buying a house in this area about 10 people tell him or her that it is a bad time to buy.

  From what I got from this article was that Seattle has probably fared better then other areas. It may drop a little farther in value.

  It has been established by a few others that it is fine if you plan to stay in your house for a few years.

  Also some of the places of the list such as CA, FL and Vegas have been some of the hardest hit areas. These 3 areas have already dropped in value and YES they may drop farther. However they could be great places to buy as houses are lower then they have been been in a few years. I am sure that there are some great deals here. These areas are being seen as potential investment areas.

  The houses in this areas will go back and so will Seattle. It is just a matter of time.

  So for all of you that think buying a house is a crazy idea, that is your idea to keep.

  But why are you all so quick to say that buying right now is so bad? I am not looking for your rationale with numbers, yes I realize that anything can be justified with numbers.

  I am sure that you will give back your opinion and that is fine as I have just given my 2 cents.

• 15 Captain Kirkland // Jul 15, 2008 at 3:27 pm

  I’d buy the discounted Real Estate in San Diego before Seattle right now.

  Sure are some great ‘deals’ in Phoenix!! Maybe this guy can go buy a strip mall in the one of the ghost towns down there. A friend of mine lives in Anthem, AZ…claims that 3 in 10 homes are in foreclosure (yikes).

• 16 The Tim // Jul 15, 2008 at 3:39 pm

  TC, Here’s my problem with Forbes recommending Seattle as a good market to invest in. What’s the #1 rule in investing? Buy low, sell high, right? During the real estate bubble tons of people jumped on the train based on the thought that it was a good idea to buy high, sell higher. That worked great right up until it didn’t.

  I agree that it might be possible to “buy low” in some of the cities on the list that have been hammered hard already (e.g. - Phoenix, Las Vegas). However, declines in Seattle have barely begun. Suggesting that people should invest in Seattle real estate right now is just another example of the buy high, sell higher mentality, and you would think by now that people would have learned the danger of that particular method.

• 17 Bits_of_Real_Panther // Jul 15, 2008 at 3:40 pm

  My take on Seattle real estate (SFHs and townhouses) as an investment is that there are so many at least decent quality rental units (including apartments) out there already that it’s a losing proposition in most neighborhoods at the moment and for the forseeable future. There are undoubtedly exceptions, parts of the City to the south and west perhaps, and parts of Snohomish County come to mind. San Diego is similar in that there is a great supply of rental housing and classic real estate investing isn’t going to happen. In San Francisco on the other hand the math might work, especially for houses that are split up into rental units

• 18 Captain Kirkland // Jul 15, 2008 at 4:06 pm

  TC-

  I respectively disagree that prices in these areas will recover. The irrational exurberance, coupled with the lack of lending standards created a ‘perfect storm’ of real estate speculation that drove prices to levels that we will not see again for a very long time. (Ie. 10+ years)…for a real life example of what can (and probably will) happen, do some research on the Japanese economic crisis of the 90s.

  As you say, numbers can be manipulated, but there are some numbers that must be recognized if you want to make an informed decision. Personally, I will not be buying a home until the Inventory of homes for sale gets back to a reasonable level (ie. 10,000 or less). Until that point, persuant to supply and demand notions, the value of real estate will decrease. Its really that simple. The rest of the numbers are just window dressing.

• 19 WestSideBilly // Jul 15, 2008 at 4:11 pm

  TC, I think you’re mixing up buying a home and buying an investment property.

  If you live in any of the 10 cities on that list, you can argue that you’re getting the best value in the last 3-5 years. Anybody with a decent down payment, a steady income large enough to cover the mortgage at or below 30% of their income, and reasonable job security will be fine if they stay for a while. This has always been true.

  As an investment, the house prices (particularly in Seattle) have to go a fair ways before the homes pencil out as a rental (or, should wage inflation actually occur, rental rates increase). I don’t think buying an investment that’s going to be red for 5+ years is sound investment strategy.

  The last 5 years saw people trying to do both - buy a home, use it as an investment. Worked good for the early adopters, horribly bad for the late comers, and devastating for our economy.

• 20 Scotsman // Jul 15, 2008 at 4:18 pm

  I’m pretty sure Forbes left this planet for another one some time ago. Shortly after they left, I canceled my subscription. What a waste of paper.

  Many years ago when studying investment strategies I locked onto the idea that by only investing in obvious bull markets, as indicated by long term verses short term trend lines, it was possible to earn several multiples of the Dow average over time. The idea that one should always be active and in the market is one of the greatest contributors to lower average returns.

  Articles such as this in Forbes are just plain bad advice, and a product of the buy and hold mentality. Buy and hold is bad advice. Buy low and sell high works every time. And waiting for the opportunities to buy low, and not just when you have the money, can significantly increase returns.

• 21 Richie // Jul 15, 2008 at 4:37 pm

  I looked 15 SFH raning from $440,000 to 920,000 in 98103 and 98115 a month ago. None of them has heen sold. Two were off the market.

• 22 rose-colored-coolaid // Jul 15, 2008 at 4:37 pm

  But why are you all so quick to say that buying right now is so bad? I am not looking for your rationale with numbers, yes I realize that anything can be justified with numbers.

  I don’t know of anyone who said it is bad. Bad is robbing a bank, poisoning a pie, or speeding. Buying real estate right now is rather more foolish than bad. Is that a good enough opinionated/non-numeric explanation?

  FWIW, there is no convincing reason to believe that real estate will ever in your lifetime be as highly priced, when adjusted for inflation, as it is today. There is reason to believe the converse however.

• 23 TC // Jul 15, 2008 at 4:43 pm

  I am going to go against the grain here as well. The article said as an investment, some people might consider their home as an investment and plan to stay in it for quite some time.

  Captian Kirkland, great for you not buying a home. But you can keep renting and not having the tax write.

  Also I don’t think that you can live your life by guessing what the market may or may do. I am not saying that the prices may not drop any father in this area, they may keep going down.

  A few of the areas that he said had some of the biggest run ups in prices and of course when values fall they will fall hard.

  For example in California, I know I just sold a home there last year. The prices have fallen very hard. Southern California has been seeing a pick up in homes sales in the last few months. California will always come back for many reasons.

  Seattle some a great increase in prices but nothing like some of the other areas. Seattle is a very desirable area for many reasons.

  I know that many of you will comment in this. However the prices in this area will come back as well.

  I am guessing that most people here are renters. I have gotten into this forum and have been reading and finally had to comment. People should buy when they are ready.

  I have heard many people say that home prices are expensive only to have missed the boat when prices go back home.

  You have your won philosphy of the site and that is fine. However life is short and you should enjoy it. I am sure that you are thinking at least I have my money in the bank.

  In the long run everything works out. The immediate future of the real estate market may not look good. But you all seem to focus on why not to buy.

  Maybe some people just want to own a house instead of renting all the time.

• 24 uptown // Jul 15, 2008 at 4:54 pm

  I think some are misreading the article. The first paragraph spells it out:
  Rahul Reddy, a dentist from Perth, Australia, has been investing in commercial properties in Western Australia for the last two years. Now, with the Australian dollar growing in strength and the American housing market strained, he’s got his eye on residential and commercial properties in Florida and California, areas he believes will recover over the long term.

  Australia has had a property (housing & commercial) bubble too, as has China and Europe. The key is that these investors are betting on a stronger dollar (against their currency) in the long term, as well as an economic recovery.

• 25 b // Jul 15, 2008 at 4:58 pm

  Maybe some people just want to own a house instead of renting all the time.

  I don’t think anyone is really against that. People should just be prepared to lose money on the transaction for the next 5-7 years. If losing $X of money is worth not renting to you, and you believe your house will lose only that much or less, then its a good time to buy. For many people here that number is far less than for people who are a lot more emotional about their home purchase, or who are buying it with “easy money” (e.g. parents money, bubble equity, etc).

• 26 rent for now // Jul 15, 2008 at 4:58 pm

  Knowing some of the junk that has gone on Wall Street the last few years, real estate will be a taking a long, long trip back to old levels. The boom was directly linked to the securitization process. Simple as that. Loans packaged and sold. But now, that market is gone, no buyers. Well, maybe Fannie. Not sure how much longer they will last in their current form. Will the good ole days return where banks actually hold and service your mortgage? Maybe at some point, but that’s a long way off, right now, much more writedowns will be happening and much more capital will need to be raised. Too many institutions with just awful balance sheets, many more failures to come.

• 27 Ubersalad, Ph.D // Jul 15, 2008 at 5:02 pm

  Orlando? Jesus, has anyone ever been to Orlando? I just got back from Disney World, and that place is depressing. If you think our median income is too low for the housing price here, what is Orlando going to do with their 30k median household income?

• 28 Ira Sacharoff // Jul 15, 2008 at 5:09 pm

  TC,
  You’ve actually made some sense.People have a lot of reasons for wanting to buy a home, and it’s not all about financial pragmatism. Yup, prices are continuing to drop in the Seattle area, and I’m not convinced that the price drops will stop anytime soon,in fact, it wouldn’t surprise me to see prices dropping for another year, but if you plan on living in your house 10 years, and feel strongly that you want to own a house, it’ll likely be a wise move, even now. But if you think buying a house is a good short-medium term investment, you’re probably better off right now investing in gunpowder futures.

• 29 Joel // Jul 15, 2008 at 5:10 pm

  However life is short and you should enjoy it.

  Which is a great reason to rent (assuming you aren’t filthy rich). For example I have friend that moved to this area about a year before I did. He bought a condo on a trip out here before he moved. He pays, pricipal and interest, almost twice as much as I pay for a much bigger SFH. If you include insurance, maintenance and HOA’s (and assume property taxes cancel out the savings from tax deductions) he pays well over double and gets much less. He got married about a year after he moved and his wife has complained more than a few times how she doesn’t like the payments. Just a few weeks ago he mentioned that his wife’s family used to rent out houses for sale because the rent was dirt cheap (being that you can only stay there a short time and never know when you’ll have to move) and was thinking that maybe he should do the same. I can’t imagine considering such a drastic move unless the current payments are hurting a bunch.

  So really if you want to enjoy life (and assuming you aren’t rich) you’re probably better off renting.

  But you can keep renting and not having the tax write.

  The tax write-off doesn’t even come close to compensating for the greater cost of buying. You claim that you read this site regularly, (enough to stereotype the commentors), but you haven’t picked up on this oft-mentioned fact?

• 30 TC // Jul 15, 2008 at 5:19 pm

  It seems that most of the people have a similar view of the market. But it seems whenever anyone posts with a slightly different opinion many people are quick to give their 2 cents.

  I am guessing that is why other people have left this forum or maybe they have come back.

  Whatever plans you have on buying a house all the power to you. I hope that it all works out for you.

  You can justify it anyway that you want. Having a house does some benefit to renting. That is just my opinion. Just like you have yours.

• 31 Bits_of_Real_Panther // Jul 15, 2008 at 5:26 pm

  “The tax write-off doesn’t even come close to compensating for the greater cost of buying.” Depends on the neighborhood and your income. In Ballard/Wallingford/Queen Anne even with a $200k income you’ll get a nice chunk of change back in April every year but it won’t bridge the gap between the cost of renting vs. owning. In one of the rare nice parts of Everett or Burien or … you might do quite well by comparison

• 32 magnolia44 // Jul 15, 2008 at 7:22 pm

  i dont even need to read the posts anymore… Positive news or bullish outlook, all here trounce on it. Bad news, or anything negative… a glimmer of negative…Tim highlights it in all its glory you all rush to cheer and jolt about job losses and how you cant wait.

  Funny stuff…. i have renovations to get back to, yes even in a down market I am putting money into the house. Its called “home” lol

• 33 johnsgonefishin // Jul 15, 2008 at 7:28 pm

  Houses are very overpriced in the entire nation. The problem is buying on credit. If there were no credit we would see just what people are willing to pay for homes. People buy at a price per month not thinking about the overall cost. Most people have never held 400k in cash before their first house purchase. If credit disolves and banks continue to fail we will see just how many houses sell for over 400k in the Seattle area. Without credit and if everyone had to pay for things they bought with there own money I would bet that the average house price would be in the 50k-70k range for the Seattle area. It is very difficult to comprehend how a starter rambler with little to no redeeming qualities besides a roof over the head could be worth 400,000 dollars. With more regulation in lending we will see prices drop to values closer to reality. Credit is the biggest threat to the American economy. People buy too much on credit and when they get behind they default and the rest of us suffer through bailouts and our dollar takes a beating.
  If you are so positive about the market great for you, I admire your positive outlook, and implore you to invest all the money you have in homes in Seattle. After all you can do whatever you want with your money. But if you are here looking for advice then you already have the idea about what is going to happen to this market.

• 34 david losh // Jul 15, 2008 at 7:55 pm

  TC,
  It’s always a great time to buy a house and you should feel good about that. These people always give me a hard time. The thing is that in many ways what’s said here is very correct. We are in a declining Real Estate market.
  These people have put a lot of thought into this. They talk about gobal markets, commodoties, the stock market, and politics, grand things like that.
  Many times the family home is over looked. Many of the numbers are about return on investment. Coming home to a place where you can do what you want when you want is priceless. Me telling my neighbor it’s my house and this is America, land of the free, home of the brave, is a joy.
  The Forbes article is looking for foriegn investment, which is a good thing. People around the world should take advantage of today’s opportunity to buy into the United States. My opinion is that Europe and Asia are the economies that are in big trouble, they just refuse to see it.

• 35 TC // Jul 15, 2008 at 7:56 pm

  Magnolia– Well said

• 36 rose-colored-coolaid // Jul 15, 2008 at 9:25 pm

  Funny stuff…. i have renovations to get back to, yes even in a down market I am putting money into the house. Its called “home” lol

  I actually heard a quote on the radio where the comedian was complaining about people who write a message and then add “lol” to the end. He figured you should know what’s coming, so laughing out loud at the end seems a little creepy.

  On a much more focused note, I don’t get the haters argument right now. Ask pretty much anyone if they would rather own than rent assuming that the price to own were free and they’ll say yes. Now ask if they’d rather own than rent if the cost is 1,000,000x greater to own and they’ll say no.

  So anyone who says “coming home to a place you own is priceless” (I’m looking at you david losh) is exaggerating. The truth is, it’s not priceless, it’s an financial decision, and it’s probably the largest financial decision you will ever make.

  That said, I don’t think anyone on this site has ever claimed that anyone who wants to own a house is a fool. Almost everybody says “here’s the likely financial impact, I don’t know how much you value home-ownership, but weigh the two and make a wise decision”. I take that back, some people who are really pitching homeownership don’t want you to consider the cost as well as the benefits.

  RCC Out!

• 37 The Tim // Jul 15, 2008 at 9:25 pm

  Magnolia, feel free to start your own blog: EverythingsDandyInSeattleAllTheTime.com or something.

• 38 mikal // Jul 15, 2008 at 9:37 pm

  Sure, he could talk a bunch of rubes into giving him”donations.”

• 39 AndyC // Jul 15, 2008 at 9:46 pm

  I think it is important to mention that rental properties are not limited to single family homes and individual condo units. With rents on the rise, multi-unit investment properties could easily pencil. If you can buy on a 6-8 cap and increase your rents over the next year as the rental market tightens, who knows!

  Please don’t label me bullish on the housing market; I think we have a long way to go yet. I look forward to seeing a day soon (2 years?) when a median income family can afford the median valued home!

• 40 Harley Lever // Jul 15, 2008 at 9:50 pm

  TC,

  I agree with you completely.

  This blog continually ignores the fact that Seattle did not come close to having the run up of the infamous bubble markets. Seattle’s foreclosures are a fraction of what San Diego’s are, yet this blog continually tries to compare the two as if San Diego is Seattle’s predictor.

  Seattle went from being ranked 15th to 5th as preferred city for investment by foreign real estate investors in three years. It actually knocked San Diego out of its position. http://www.afire.org/foreign_data/2007/2007_survey_pr.pdf

  With continued weakening of the dollar and record low interest rates it gives foreign investors even more reason to invest in US markets. Buying low can only be determined by Bubbleheads, please ignore those idiots with PhDs and MBA’s.

  You should know the following:

  Many on this blog are fixated solely on price. Do not mention interest rates to them. Even if interest rates go up, bubbleheads can always refinance at a lower rate, regardless of the fact we are near 40-year lows. Do not mention the fact that fees for mortgages have gone up considerably that is not a factor and refinancing is free. Everyone here has an 800+ FICO score, makes 200k/year, can put 20% down on their house, and a stock portfolio that is impervious to economic downturns.

  Many will cite statistical outliers to back up their points. Captain Kirkland uses “Anthem, Arizona” to make his point. If he knew anything about Anthem he would know that it is 35 miles north of Phoenix next to absolutely nothing. Anthem has had to truck in their own water and is constantly impossible to get to because of the numerous accidents on I-17.

  You will hear about “this townhouse in my neighborhood” or “the one they saw on Redfin” that sold for a 50% below asking price. That is the norm and all houses will soon be selling at a 50% discount. The good thing is that nobody will see the value before the bubbleheads do and they will all jump in becoming the next Donalds.

  The city of Seattle is the same as Gold Bar. Do not try to distinguish the two.

  Gas prices have no effect on people’s desire to move closer to job centers, even though 35% of the respondents of the Bubble’s own poll said they would. “They were all real estate agents”.

  All positive news regarding the real estate industry will be followed by “But or however”.

  And never, and I mean never, say that you actually like Seattle and recognize it as a globally diversified technology hub… you will be forever labeled a PINK PONY.

• 41 The Tim // Jul 15, 2008 at 9:56 pm

  For the record, I would love to showcase a greater diversity of opinions in the writing on Seattle Bubble. I even invited Harley to write and created a contributor account for him over a month ago, but have not heard from him since.

• 42 Harley Lever // Jul 15, 2008 at 10:01 pm

  This is true.

  As I mentioned when you first offered the contributor account, I was extremely busy and had spotty availability to contribute articles. I did not think this meant I was not welcomed to comment…

• 43 mikal // Jul 15, 2008 at 10:01 pm

  Well, you heard from him tomight.

• 44 Demersus // Jul 15, 2008 at 10:03 pm

  “Seattle went from being ranked 15th to 5th as preferred city for investment by foreign real estate investors in three years. It actually knocked San Diego out of its position.”

  Dominoes fall one at a time…

• 45 Harley Lever // Jul 15, 2008 at 10:04 pm

  Do they fall up?

• 46 The Tim // Jul 15, 2008 at 10:08 pm

  Harley,

  You’re absolutely welcome to comment any time, as everyone is. I was just addressing the accusations that Seattle Bubble is one-sided. It’s not like I’m going around deleting comments I don’t agree with or anything. I’ve got an opinion and I am up front about it. I guess that’s a crime to some people.

• 47 EconE // Jul 15, 2008 at 10:08 pm

  At least we’ve gotten some of the most ornery trolls (Such as RAL) to admit that 500k 1BR condos are ludicrous.

  That at least gains them some credibility IMO

  A year ago, you couldn’t get a bull to point at any segment of the market as being over-saturated and overpriced.

• 48 Demersus // Jul 15, 2008 at 10:09 pm

  Seattle is at the trailing end of a trend, Harley. Of course it looks better than SD to investors at this point in time. My point is that SD fell before Seattle even began to fall. We’re now at the point where we’re seeing that we’re not imune from a national, or even global, financial crisis. Real estate may be local, but the money is getting tight. Banks are “loosing” money, investors of MBS are “loosing” money. I say, many say, that the money never truly existed in the first place.

• 49 Ray Pepper // Jul 15, 2008 at 10:18 pm

  WOW, Tim! 160 responses…Over a 100 most of the time now. Help Devonna out at the News Tribune. Most of the time I’m talking to myself over there.

  Did you catch me on King 5? I’m a celebrity like you now!!… Not for real estate though. The murder at Arby’s in Kent was near our booth at the Kent Cornocopia days. In the blazing heat I had to watch for bullets, do interviews as a witness, all the while trying to educate the masses.

  Talk about multi-tasking!

  It was truly very sad though. I closed the booth early Saturday night! It all falls into perspective after something like that.

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

• 50 Harley Lever // Jul 15, 2008 at 10:33 pm

  The Tim,

  You are among the most respectful people on this blog and I could never thank you enough for being a gentleman. My comments are directed towards the Bubble as a community, although I have called you out when I thought your analysis was off. You do not delete comments and I appreciate that.

  However, you and a few others are among the few gentlemen and women here. I have been called just about every name in the book and have had my character assassinated for voicing an opinion different from the group think that goes on here.

  Often it is 10 - 20 pro-bubble opinions against 1. I love the debate and when some one lands one on my chin, you can expect that one is coming back. For me, this is fun… most of the time.

  Perhaps the best way to experience what it is like to have a different opinion on this blog is to create an “anti-bubble” persona and argue the opposite of your analysis. I can guarantee it will change your view of the experience on this blog.

  I feel bad for the one’s who do not have the strongest of chins. This place is like the UFC of blogs some times and it is hard not to take some of the attacks personally. If you wonder why you have group think here I recommend experiencing this blog from our side.

• 51 Harley Lever // Jul 15, 2008 at 10:47 pm

  Demerus,

  Seattle never had the run up like San Diego did. You are right, San Diego started falling before Seattle would have truly peaked. I believe San Diego, Maimi, Phoenix, and Las Vegas downturn helped prevent Seattle from reaching the potential peak pricing it could have. Seattle’s foreclosures are a fraction of what San Diego’s are. I am not saying that greater Seattle’s prices will not fall, but do not expect them to fall with the same magnitude as San Diego. We simply did not experience the magnitude of price increase.

  IF, San Diego, Las Vegas, and Phoenix found a bottom today and leveled off, do you think Seattle would continue to decline? I believe the negative market psychology would level off and prices would stop falling.

  For the record, I have always argued that there are opportunities in every market and real estate is different from house to house and street to street.

• 52 EconE // Jul 15, 2008 at 10:51 pm

  Here’s are a couple of examples of how the numbers get thrown out of whack in Los Angeles. You certainly won’t find bargains in areas that you would feel safe living in. Unless of course you are the head of a gang.

  http://www.redfin.com/search#pt=6&max_price=200000&v=3&lat=33.941676990792566&long=-118.24135729096432&zoomLevel=13&region_id=2946&region_type=1&market=socal

  http://www.redfin.com/search#pt=6&max_price=200000&v=3&lat=33.89323379898763&long=-118.22189659447915&zoomLevel=12&region_id=3890&region_type=6&market=socal

  Peruse the listings and you’ll find that 50-75% off is the norm.

  If you feel that 75% off of the original selling price looks attractive…don’t just stop at one…buy two!

• 53 Harley Lever // Jul 15, 2008 at 10:57 pm

  EconE,

  I fully agree that 500k for a one bedroom condo is ridiculous. Not to mention the $800+ a month HOA. However to a foreign investor this is only 350k.

  I still see condos selling for $500 - $1000/sqft and it blows my mind. I am also of the opinion that 50k cars are equally as silly, but people still buy those and far more expensive rides.

• 54 Harley Lever // Jul 15, 2008 at 11:05 pm

  EconE,

  I am pretty sure Compton is a statistical outlier when compared to Los Angeles as a whole. However, this may be a great opportunity to become a slum lord!

• 55 Q // Jul 15, 2008 at 11:09 pm

  “If you wonder why you have group think here I recommend experiencing this blog from our side.”

  I wouldn’t say it’s group think to be of the opinion that with bad credit, falling national prices, core inflation rising and interest rates going up it’s not a great time to buy.

  The issue of buying a house is not as black and white as saying ‘Yes’ or ‘No’.

  For instance, if you have 20% down currently, stellar credit and a great job, increasing interest rates can help you as house prices have to adjust. You’re 20% down becomes more than 20% in a downard trending market. So it depends on whether you believe it goes up, and yes the odds are that if you are the type of person with 20%+ down, stellar credit and a great job, if you purchase a house, you won’t be be affected quite as adversely.

  However, a pretty large segment of the population doesn’t have 20% down. Buying a house without 20% down with a mortgage payment so high any disruption in income puts you at risk of foreclosure isn’t a good move.

  I myself have little money, having gone through plenty of bad decisions and life bumps (wife losing job, company shutting down, etc.). So, I don’t consider taking on a mortgage a good move for me personally at this time. I read and watch because my horizon for being in the market for a house is a year or two in the future at least. And I’ve lost money on both houses I’ve owned, despite the tax breaks and selling for slightly more than I paid, the upkeep, realtor fees and real estate taxes were far more than the appreciation.

  If someone comes here and explains their situation, if its right to buy, I expect some will give a good argument based on facts whether its right or not. If you have 500k and want to buy a house no one is stopping you, but there were a lot of people in the last few years that had 0k and wanted to buy a house that are sure as heck wishing someone had stopped them.

• 56 cutienoua // Jul 15, 2008 at 11:13 pm

  Gang,I must confess:I would buy rather sooner than later.But I am concerned for my job .

• 57 b // Jul 15, 2008 at 11:27 pm

  Harvey -

  That magical foreign investor still has to charge rent in dollars and his appreciation is still denominated in dollars. Unless they are planning on buying somewhere to live, the numbers don’t make any sense no matter the currency you chose to buy the place with.

• 58 Harley Lever // Jul 15, 2008 at 11:44 pm

  Q,

  Stay around a while.

  I agree that very few have 20% to put down. However look at many of the Tim’s theoretical analysis. He often uses 20% down payment scenarios. This is one of my biggest differences in opinions with his examples.

  The analysis here is overly broad. My argument has always been that real estate is hyper local and you can always leverage sweat equity and other tactics to hedge against depreciating prices.

• 59 Demersus // Jul 15, 2008 at 11:45 pm

  Harley, et al,

  We’re on the cusp of what could be the worst economic downturn since the time of my great grandfather. The 3rd largest bank failure in US history just happened days ago. Fannie & Freddie are in bad shape, they will loose hundreds of BILLIONS of dollars. The news just keeps getting worse and worse, and many say we’re nowwhere near knowing the full extent of the problem yet. And, it’s no wonder. If you were a bank, would you gabbing it up about how your balance sheet basically says you’re broke? It sorta like the FBI never really talking about successful bank robberies. They don’t want the public to know there is such a thing.

  Interest rates have no where to go but up or we’re headed for hyper-inflation. Sorry, but that’s not going to help home prices. People who say buy now before rates go up probably don’t have an appreciation for terms like fundementals and revision to the mean. Seattle is not occupied solely by those with high six figure incomes. Most families can barely affort a $250K home, realistically, but the median is over $400K. I’ve had enough math and economics classes to see where this is headed without being a financial genius.

• 60 AndyC // Jul 15, 2008 at 11:45 pm

  b,
  The Australian quoted in the article mentions the resilience of the US economy and USD. If they can buy when the dollar is weak, then it improves, then the argument makes plenty of sense.

• 61 Demersus // Jul 15, 2008 at 11:49 pm

  “I agree that very few have 20% to put down. However look at many of the Tim’s theoretical analysis. He often uses 20% down payment scenarios. This is one of my biggest differences in opinions with his examples”

  I think banks, the ones that remain solvent, will be looking for that 20% down. Call it some skin in the game for the borrower. You think anyone is going to lend Bob $500K these days without a full rectal exam?

• 62 economist // Jul 15, 2008 at 11:52 pm

  But why are you all so quick to say that buying right now is so bad? I am not looking for your rationale with numbers,

  Translation: “I can’t find any facts to support my arguments, so please play fair and don’t use any facts to support yours”.

• 63 Demersus // Jul 16, 2008 at 12:01 am

  I believe those whom are analytical and pragmatic are drawn to this site. It’s not so much that we’re all a bunch of bitter losers who missed out on the big hey day. Albeit, the smug does get pretty thick sometimes. But, I believe in the value of a good “I told you so”.

• 64 Harley Lever // Jul 16, 2008 at 12:04 am

  B,

  With the dollar at an all time low against the euro, any rebound in the value of dollar after the purchase would translate to profit due to the currency exchange.

  350,000 euros buys $500,000 today if the currency ever went even $500,000 = 500,00 euros = +150,000 euros.

  What goes down must go up!

• 65 Demersus // Jul 16, 2008 at 12:07 am

  Sure, I’ll bite. If I were a somewhat wealthy foreign investor I might be looking to buy some fire-sale bargains with my enhanced purchasing power. So, then, besides me, how many million more would be require to keep the national market afloat, in this hypothetical?

• 66 Harley Lever // Jul 16, 2008 at 12:21 am

  There are plenty of 3% down loans for people with full docs and great credit.

  Yes, you are going to get raked over the coals and they will actually determine if you have the ability to pay… I guess they should have done that in the first place.

  If interest rates skyrocket like you predict, it does not mean your monthly payments will be any less. $300,000 @ 6% is not more affordable than $100,000 @ 18%. Historically we have averaged about 10%.

  Seattle’s core will fare much better than the outer areas if gas prices continue to skyrocket. The entire real estate market could very well see a permanent shift towards the urban centers. There is already plenty of evidence suggesting this move including the Seattle Bubble’s own poll.

• 67 Harley Lever // Jul 16, 2008 at 12:36 am

  Demersus,

  Seattle is number 5 out of the 200 or so Metropolitan areas in the United States in ranking by foreign investors capital. We could very well see many areas of the US tumble and be effected by this downturn.

  However Seattle is in a much better position than many locales for many reasons. We have one of the busiest ports in the United States. We are a technology hub close to China, Japan, and Eastern Asia. We are a city with a disproportionate amount of cultural ties to these countries in comparison to other US cities.

  Like it or not we are a globally diversified city that has a better chance of surviving an economic downturn than many cities in the US. Based on the foreign investment here, they think so too. Could we be hurting in a few years, absolutely. However if you give me a choice between Seattle or Oklahoma City, I am staying here!

• 68 Harley Lever // Jul 16, 2008 at 12:43 am

  Demersus,

  Sorry, based on the current level of inventory, we need 3,000 - 6,000 foreign investors to buy homes here in Seattle! Do you speak Mandarin? :)

  Seriously though, Seattle does not need millions of foreign investors. It is hard to deny that we would have a greater number of investors coming here in comparison to other big US cities based on the data provided.

• 69 EconE // Jul 16, 2008 at 12:43 am

  Harley…I agree with you in theory regarding the value of the $ vs the Euro and how our $ denominated assets can be quite attractive to a foreigner.

  However, when you consider the fact that many many many foreigners buying in 03-05 now are not only reaping the consequences of the falling RE prices in many of the places that they bought their 2nd homes (CA, FL, NV etc) and the fact that if they were to sell, they would incur losses on the currency transaction in a big way when converting back to their native currencies. I can only think that they have a sour taste in their mouth that comes from two different angles that aren’t applicable to Americans.

  It also seems that the foreign media is even more bearish on our RE than domestic MSM. It was Credit Suisse after all that put out that Option-ARM reset chart. I also think that many other economies are in a world of hurt also and facing their own slowdowns. There stock markets haven’t done well either and the same cracks that we showed in our markets are showing up in theirs also (Ireland and Spain are good examples) China had a Miami style condo boom so I’m sure that there are many people that are “well to do” are taking it in the shorts on RE too.

  Oh…wrt the high end 1BR condo market…I’ll do a post in the forums that shows what the absorption rates are for 400k+ 1BR’s.

• 70 EconE // Jul 16, 2008 at 1:06 am

  actually, screw the absorption rate thing…it’s easy to see how many are for sale on Redfin (Seattle only)…about 170 (and that doesn’t include the couple hundred or so that the builders don’t have listed on the MLS nor the upcoming flipper inventory from places like Olive8, Gallery, Enso, Rollins etc.). I also ran my search from 400-700k.

  It’s harder to get the true sales data off of Redfin because if you look closely enough, for condos…they have deleted the number of BR’s and baths so you actually have to look at the addresses. You will find that many many sales are commercial spaces, parking spots, storage spots etc. One condo may actually be listed 3 times as there are separate titles to the parking spot and the storage unit in addition to the unit. The sale however is recorded at the complete condo sale price. It would be nice if they would be a little more transparent about that fact without me having to spend hours at the King County Records to see how they are fudging the sold condo stats.

  The 850k+ 2BR’s are in pretty much the same sad shape.

• 71 Joel // Jul 16, 2008 at 1:10 am

  Everyone here has an 800+ FICO score, makes 200k/year, can put 20% down on their house, and a stock portfolio that is impervious to economic downturns.

  Woah, woah, woah. You got that one completely backwards. Everyone here is supposed to be dirty, filthy renters with a terrible jobs (if they even have jobs), living in crappy one bedroom apartments, no friends, no money and no hope of ever advancing into the elite circle of “homeowners”.

• 72 economist // Jul 16, 2008 at 1:57 am

  “If interest rates skyrocket like you predict, it does not mean your monthly payments will be any less.”

  Do we have to go over this yet again?

  1. If you buy at a low rate and rates go up, prices will fall and you will be underwater.
  2. If you buy at a low price and high rate, you will be paying more interest out of your total payment and get a bigger tax deduction.
  3. if the rate on your mortgage is higher you will get a bigger payoff by prepaying.
  4. If the rate on your mortgage is higher, you can reduce your payments in the future by refinancing if rates go down. Plus the price of your house will probably go up.
  5. At high rates you get a bigger advantage from having a big down payment because it reduces your monthly payments more.
  6. A house is like a bond - it gives you a predictable stream of income (rent value) in the future. Anyone with any sense can see that it’s better to buy a bond when rates are low than when they are high.

• 73 Q2 // Jul 16, 2008 at 3:07 am

  I own two houses that I rent out in South Snohomish County - both rented in less than a week last year. One is rented for $1600 and worth $360k. If you put 20% down on the $360k and obtain a 30 year loan at 6.25%, your payment would be $1773. A portion of this is principal, so you would be paying less in interest per month than the rent. So I think it is difficult for someone to make the argument that it is much, much cheaper to rent than to buy right now - and certainly to make the argument that it is half the cost. Housing is a supply and demand problem. There are not going to be HUGE drops in prices unless there are a lot of unoccupied homes that cannot be sold or rented out. For this to happen, there has to be either a large amount of new houses that were built that cannot either be sold or rented out, or there has to be a large population outflux that reduces overall demand for housing. Many of the cities that you talk about with large price depreciations have one of these problems - Seattle has neither. People need a place to live - if interest rates rise and the population remains the same, more people will be looking to rent rather than buy and rents will rise. As rents rise, the number of people that need to sell at lower prices is reduced, thus softening price decreases. Whichever way the economy goes, I believe Seattle is better positioned than most cities, and I wouldn’t personally bet on a large outflux of people that reduces the overall demand for housing.

• 74 Harley Lever // Jul 16, 2008 at 4:12 am

  1. Not if you are in an area where demand is high and people value being close in this might be true in Gold Bar.
  2. No Mortgages are set up where you pay all of your interest up front and the principal is on the back end. Clearly you have never had a mortgage.
  3. You will reduce your total mortgage cost by 1/3 if you make an extra payment each year and you will end up paying it off in 22 years.
  4. IF RATES GO DOWN! What does refinancing cost when you pay a mortgage for 7 years make little to no dent on the principle (see number 2) and then extend your debt for another 30 years.
  5. IF you have a big down payment… very few do.
  6. Interest rates are at a 40 year low and my out of packet payments stop when renters take over. You can get a great deal on a house in any market it just takes work.

• 75 Harley Lever // Jul 16, 2008 at 4:20 am

  I have seen Redfin quotes in this blog many times.

  My problem with an FSBO site is the “Pride Factor” when pricing their homes. FSBO are notorious for overpricing their homes and therefore will stay on the market much longer. By the time they figure out that they will never get the price they are asking for, they are left to reduce their overinflated price below what they could have got a few months earlier if they priced it right in the first place

  Let’s face it, we all take pride and value are possessions more than anyone else does.

• 76 Buceri // Jul 16, 2008 at 4:40 am

  The foreign investor thing does not hold any water. Most foreigners (even the wealthy ones) could not find Seattle in a WA map.

  Sure, 300,000 Euros may buy you a house in Seattle; but 2 in Miami Beach where you actually get to use it, and brag about it at cocktail parties.

  Real Estate investment buys by foreigners are 90% in Miami and NY. I am glad Fortune found the one Australian investor buying in Seattle. I am sure there is a Korean jumping on GEMS in Detroit….

  When the FED uses terms as “the economy faces challenges”, “downturn”, “uphill”, etc. You know that’s the diplomatic way of saying “the crap is about to hit the fan”. These guys can not make the markets panic. We’ll be at 6.5% unemployment by the end of the year.

  This is not a wish. It’s what people educated in economics (that have no interest in making money out of lying) are saying.

• 77 Sniglet // Jul 16, 2008 at 6:53 am

  This blog continually ignores the fact that Seattle did not come close to having the run up of the infamous bubble markets.

  As I’ve mentioned many times before, it’s not the degree of appreciation that determined how far a given market is going to fall. There are plenty of places in the US today that are experiencing massive rates of foreclosures, and price declines, that never saw huge run-ups in prices (e.g. Ohio, Arkansas, Colorado, Georgia, etc).

  The biggest factor that will determine the extent of the decline is the percent of dodgy mortgages that have been issued. And on that scale, Seattle is in the big leagues with the worst markets in the nation. We had masses of 100% finance and negative amortization loans (33% of all new mortgages in 2006 alone). This leaves a large percentage of home-owners in our region vulnerable to a decline in prices (i.e. they have no equity cushion to bail them out if they run into trouble). In short, the Seattle area has been one of the national leaders when it comes to buyers gambling on appreciation to make their purchases work.

  By the way, I am NOT talking about sub-prime. A great deal of these negative amortization loans were prime.

• 78 NotaBull // Jul 16, 2008 at 7:16 am

  “We had masses of 100% finance and negative amortization loans (33% of all new mortgages in 2006 alone).”

  I thought that the 33% figure included neg am loans AND interest only loans, two entirely different beasts when it comes to the likeliness to foreclose in the short term. What portion of that 33% is neg am, and how does that compare to other markets with similar figures (which I know are lots of markets)?

• 79 Sniglet // Jul 16, 2008 at 7:31 am

  I thought that the 33% figure included neg am loans AND interest only loans

  You are correct. The actual stat I am using only included interest only and neg-am loans (at 33%). I must have been thinking about other stats I’ve seen that show how many 100% finance loans have been done in our area. I am certain I’ve seen that it was a high number, but I will have to try and remember where I saw it.

• 80 Captain Kirkland // Jul 16, 2008 at 7:41 am

  I’m glad I live in Seattle. Our economy is immune from the perils that have affected the rest of the nation….just ask one of our biggest companies WAMU.

  TC- I can’t believe you went with the ‘you are missing out on write-off argument’. Enjoy your write-offs and 30% depreciation.

• 81 Demersus // Jul 16, 2008 at 7:47 am

  Harley, I’m not talking just about Seattle. I’m talking about our national housing market.

• 82 TC // Jul 16, 2008 at 7:57 am

  Capitan Kirkland,

  It has shown over that if you stay in your house for a long enough time everything comes back around. In the meantime you pay down your mortgage.

  Houses may go down 30%.

  I am not looking to get into an argument with you.

  I believe that you make the decision that is right for you. I understand the cost benefit anaylsis that you all have used.

  But look the majority of the people who post here seem to have the same general opinion.

  But it seems that others who have a different opinion do not stick around this website for very long.

  I have read the posts and they pretty say they same thing.

• 83 Sniglet // Jul 16, 2008 at 8:12 am

  It has shown over that if you stay in your house for a long enough time everything comes back around. In the meantime you pay down your mortgage.

  That “long enough” can be a pretty lengthy period of time. I had a friend who bought a house in San Jose in 1989 and wasn’t able to sell it (i.e. because he was under-water) until 1997. There are plenty of stories from Japan of people who bought homes in the early ’90s (after they had fallen 30% or 40%) who are still under-water today and unable to move.

• 84 b // Jul 16, 2008 at 8:15 am

  Harvey -

  Why would a foreigner take money out in euros or whatever, paying interest the whole time, to buy an asset thousands of miles away which is depreciating to try and do currency arbitrage? You would have to be betting, on leverage, that the US dollar is going to massively appreciate against the euro to beat the cost and risk of such a silly move. Sorry, I think someone savvy enough to try such an attempt in earnest (e.g. not a moron who will lose his shirt) is going to play a stronger USD in a much simpler and less risky manner.

• 85 b // Jul 16, 2008 at 8:18 am

  TC -

  And if you stay in equities for a long enough time things will always come around. It doesn’t help people who bought in 1999 and had to cash out in 2002. Most people live in their house on average 7 years. I would be willing to bet if you asked most people when they buy how long they will be there, the answer is “forever”. Things change, especially over a 30 year mortgage timespan.

• 86 Sniglet // Jul 16, 2008 at 8:41 am

  if you stay in equities for a long enough time things will always come around

  Just ask people who bought the Dow in 1999 how well their investment is doing. The Dow is now at the same place 9 years later. The time horizons of these buy-and-hold strategies must be in the multi-decade range.

  Someone who bought T-bills 10 years ago would have outperformed almost every market there is.

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