Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

36 responses to “Case-Shiller Tiers: Spring Bounce Erased”

  1. Ardell DellaLoggia

    Amazingly, I have had 3 or 4 people call me in the last 10 days who want to sell a house they just bought within the last 12 months, without taking a loss after costs. They agree the market is down…but have all kinds of reasons why THEIR house is not.

    They keep pointing to comps of neighbors…and I keep telling them “you are your own comp”.

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  2. Gary

    Ardell,
    Just tell them that their house is only worth what someone is willing to pay them for it…period.
    Seems simple to me. ;-) ?

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  3. Bits_of_Real_Panther

    The low tier should reach a bottom sooner – there are areas in the PNW where rents are already providing a floor to prices at close to 2005 numbers, areas where the supply of rental stock is not particularly good. Most of Seattle’s neighborhoods are far from that floor

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  4. Cheapseats

    I agree that the the lower tier would bottom faster, or that eventually the higher tiers will accelerate to catch up. I think that in general, higher tiers can sit on a house for salefor longer, but eventually that wont make sense to anyone.

    Lower tiers are more likely to be effected in the short term by bad loans. While in the longer term, I think that lack of credit (conforming loans) and more expensive rates for jumbo loans, will eventually start to weigh heavier against higher end homes. Less people trading up, more inventory etc…

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  5. Cheapseats

    As far as rents providing a price floor, in turn wouldn’t that cause rent prices to decline as well?

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  6. masaba

    I still wonder what % of the over 12,000 homes in King County are in the

    a) Must sell category (foreclosures, job relocations, etc)
    b) Would like to sell category (move uppers)

    I find it interesting that some homes will make huge price drops within the first 1-2 months of being on the market, whereas others will sit at an inflated price forever. Intuitively, it would seem that those who must sell are the ones that end up driving prices down the quickest; with category “b” following suit slowly when they see that the “comps” in their neighborhood are selling for less. I guess some category “b” also just pull off the market.

    Is there any sort of benchmark for this percentage, or does it vary wildly from season to season, city to city, year to year?

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  7. softwarengineer

    WHAT’S LOWER TIER?

    Only the top 1% of Seattle 1st time home-buyer household incomes qualify?

    I read in past blogs that job transfers to Seattle with past home equity will be buying into our local “bad investment” market anyway. There’s some truth there, especially if their company or government covers equity losses on resales to move out of Seattle later. On the other hand, what percentage of the market do they represent, especially with housing construction tanked and all our companies with stock losses and/or just plain butcher axing jobs.

    My take still emphasizes 1st time home buyers, without them, the whole Seattle real estate pyramid scheme crumples to the ground.

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  8. Garth

    Masaba,

    Someone posted these listing numbers on the thread yesterday.

    Approximately 84 Bank Owned properties in King County
    Approximately 680 short sales listed in King County.

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  9. Scotsman

    Masaba, et al.: Clearly there is a predictable mechanism at work in terms of psychology, ever increasing foreclosures, time pressures, etc. that cause the rate of decline to accelerate. If you go back to the previous post and look at the YOY rates of decline for the other cities it’s pretty clear that once the ball gets rolling, and more people become aware of the reality they face as homeowners, the bigger price drops come into play as sellers try to beat the market down. In this regard, Seattle is just getting started, having seen YOY price reductions of 8%. Other cities have seen YOY reductions in the 20-30% range, some for a couple of years in a row.

    I’m sure that once it sinks in, and Ardell’s sellers realize that there will be real losses and it might be a good idea to try and minimize them by pricing down ahead of the market, we’ll see a further acceleration in price declines. Seattle is not so special that it can opt out of the coming severe national, even world-wide, recession.

    You may have the cleanest rubber ducky in the bath tub, but when the plug gets pulled they all head for the drain.

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  10. rose-colored-coolaid

    So, this is a tricky subject and I admit to some small quantity of confusion, but isn’t May one of the months in Spring?

    So uh…is it even a spring bounce if the gains are lost before spring is out?

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  11. Sniglet

    I have had 3 or 4 people call me in the last 10 days who want to sell a house they just bought within the last 12 months, without taking a loss after costs.

    Why are so many people trying to sell after just buying so recently? Is this a new trend, or are there always a lot of people trying to sell within a year of buying?

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  12. deejayoh

    I think that the approval of the Housing Rescue Bill might have unleashed a wave of “Pent up Supply” today. I have two RSS feeds for the types of homes/neighborhoods in which I am interested. For the last week or so of almost no new listings – today they are both overflowing with new properties.

    Seems mighty coincidental.

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  13. Buceri

    “Why are so many people trying to sell after just buying so recently? Is this a new trend, or are there always a lot of people trying to sell within a year of buying?”

    I think it’s been always like that.

    1) Moved to the region and no money can make up for the weather.
    2) Commute proved to be more than expected
    3) Job transfer again, lay-off, divorce, death….just old plain life situation
    4) “Hey, I heard people are flipping home and making a killing!!!!”

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  14. Joel

    A childhood friend just added me today on Facebook. Last I heard he was going to become a realtor, but now his profile says he’s back in college. Under his favorite shows he mentions he likes HGTV, but hates the flipping shows and rants about how basically flippers destroyed the housing market. Guess the market hasn’t been very good in his area.

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  15. Lake Hills Renter

    5) …
    6) Profit!

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  16. jon

    Figure 6 in http://www2.standardandpoors.com/spf/pdf/index/062408_Learning_Housing_Futures.pdf

    shows the market is expecting the CSI to bottom out in 2010, with LA and Miami dropping another 25% from May.

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  17. rose-colored-coolaid

    Lake Hills Renter,

    shouldn’t #5 be “5) ???” ? Just saying, that you’re doing it wrong.

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  18. Lake Hills Renter

    That a lolcats reference? sweet.

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  19. Ray Pepper

    ********Well I went and did it. I offered to a builder my proposal of Leasing his new Home in Gig Harbor. I offered 1600 a month for 3 years. 1000 damage and 500 cleaning deposit. It looks like I pack up the family and move next month back to Gig Harbor. His only request is that I sign a P&S (for bank purposes) and that I would be willing to purchase the property during the term after a fair appraisal. If I choose not to I walk with my fully refundable deposits. If I choose to purchase a credit by seller will be made for each month of leasing (500.00). …Now why would I do this?………..

    1. Its a no brainer..A GEM of a deal. I will rent my home in North Tacoma for 2000 a month and be able to test the waters of the new neighborhood and place my kids in 2 of the best rated schools in the state.
    2. Since I sold 3 years ago in the Harbor we have been itching to move back. Now that the bridge is done ..NO MORE TRAFFIC JAMS!
    3. No place better (in my opinion) in the State to live.
    4. We upgrade from a 1946 Brick Tudor with all its glories to a NEW home. I will not list the HUGE list of comparing the differences.
    *********
    Negatives:
    We have to move and pack up ughhhhhh.
    Bridge toll of 2.75 per day
    If I break my lease and move prior (unless Ok’d by Builder) I will lose my 1500.00 in deposits..(who cares)

    I have not rented for 15 years but being a tenant now with not having to pay taxes, insurance, and upkeep sounds attractive. Upon purchase I estimate my payment will be 2600.00 a month. !!

    ********************

    This market is bringing many opportunites for Buyers. But, finding the GEMS will always be the challenge.

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

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  20. Travis

    I know this is Seattle Bubble but the tide has changed even in Spokane. This is major news. I believe this builder was even part of Extreme Makeover.

    http://www.spokesmanreview.com/breaking/story.asp?ID=15928

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  21. Alan

    @Cheapseats #5

    As far as rents providing a price floor, in turn wouldn’t that cause rent prices to decline as well?

    I’m not so sure. Owning demand and renting demand seem to have an inverse relationship (since they are substitures for one another). If price to own is falling then demand to own is low therefore demand to rent is high so price to rent will rise.

    Although that is assuming supply stays constant on both sides. In truth supply adjusts to reduce the difference. As rents rise, people stop selling (reducing owning supply) and rent out the property (increasing renting supply).

    Theoretically, renting and owning should cost the same for the amount of value received (most people here seem to find some value in the stability owning provides so owning should cost a little more all else being equal). I think that the premium to own in this market has reflected the incredible gains in value that owning has given you. Of course, feedbak like that is self reinforcing and the very definition of a bubble. Now that it is reversing, we should see the reverse effect.

    Which means owning may become irrationally cheapy with respect to renting. That may be because renting becomes much more expensive.

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  22. John

    Emailed my “affordability” concerns to senator murray and got this form letter response back…no mention of “affordability”.

    Dear Mr. [your name]:

    Thank you for writing me about the current downturn in the housing
    market and the federal government’s role in responding. I appreciate
    hearing from you on this important issue.

    As you know, growing losses in subprime mortgage markets have recently
    had a negative effect on the United States economy. Thousands of people
    are on the brink of losing their homes to foreclosure, and as a result
    many financial institutions have been faced with bankruptcy as consumer
    confidence in mortgage-backed securities has decreased. I share many of
    your concerns regarding the appropriate manner for Congress and the
    Administration to respond to this situation.

    Improving the economy is a top priority of mine. There are numerous
    proposals currently pending in Congress designed to strengthen the
    regulation of banking and securities trading in order to prevent this
    kind of economic downturn in the future, as well as various other pieces
    of legislation to address the current downturn in the economy and create
    economic stimulus. One of these bills, H.R. 3221, the Foreclosure
    Prevention Act of 2008, was signed into law by President Bush on July
    30, 2008. This bill contains provisions to help thousands of homeowners
    avoid foreclosure, as well as provisions to stimulate the housing market
    including refundable tax credits to certain first-time home buyers and
    resources to cities to buy foreclosed or abandoned properties.

    Stabilizing the housing market is vital to strengthening the economy and
    getting America’s financial sector back on track. Although I have
    concerns about parts of H.R. 3221, overall I believe it will make
    important reforms to modernize government agencies and help restore
    confidence in the economy. As the 110th Congress continues, I will keep
    your thoughts in mind and continue to work to address these critical
    issues. Thank you for contacting me, and please do not hesitate to write
    me again in the future.

    I hope all is well in [your city].

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  23. Scotsman

    I got the same letter from Senator Murry.

    And here I thought I was special, kind of like Seattle……. ;-)

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  24. Alan

    Ray,

    This listing claims to be a GEM:
    http://www.redfin.com/WA/Renton/1800-NE-40th-St-98056/home/2095278
    1800 NE 40th St
    Renton, WA 98056

    Do you think it is GEM material?

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  25. victorchai

    I am not Ray, but $/Sq. Ft.: $251 in Renton…?! What a Gem…

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  26. Sniglet

    Owning demand and renting demand seem to have an inverse relationship (since they are substitures for one another). If price to own is falling then demand to own is low therefore demand to rent is high so price to rent will rise.

    Certainly not. Rental prices are crashing in places like Miami, Las Vegas, and Phoenix as many struggling home-owners put their properties on the rental market in an attempt to stop the bleeding.

    Rents tend to rise right at the apex of the real-estate cycle, when renters are no longer interested in buying yet home-owners aren’t hurting enough to start turning unsold inventory into rentals.

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  27. Ray Pepper

    ALAN I can safely say that after looking at that for 2 seconds its not a GEM! But, hey knock 100k off and I will look again!

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  28. Alan

    ALAN I can safely say that after looking at that for 2 seconds its not a GEM! But, hey knock 100k off and I will look again!

    But it says GEM right there in the listing! It is even capitalized and everything. Are you saying this may be a faux-GEM? How can they call it a GEM if it isn’t? Have they no shame?

    Actually, I thought you were the only one who used the all-caps term GEM and thought it might have been one of your listings at first?

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  29. Garth

    Certainly not. Rental prices are crashing in places like Miami, Las Vegas, and Phoenix as many struggling home-owners put their properties on the rental market in an attempt to stop the bleeding.

    There has to be a lot of construction and over development to generate the shadow inventory necessary to cause rents and housing prices to decline simultaneously.

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  30. explorer

    [i]Theoretically, renting and owning should cost the same for the amount of value received (most people here seem to find some value in the stability owning provides so owning should cost a little more all else being equal). …Now that it is reversing, we should see the reverse effect.

    Which means owning may become irrationally cheapy with respect to renting. That may be because renting becomes much more expensive.[/i]

    [i]…Rents tend to rise right at the apex of the real-estate cycle, when renters are no longer interested in buying yet home-owners aren’t hurting enough to start turning unsold inventory into rentals.[/i]

    Warning: anecdote ahead:
    As someone who is involuntarily and actively in the rental market right now, the rentals are a very interesting mix. Houses and condos that are not selling are going on Craigs List in big numbers. The rents they are charging are definately in their mortgage range, and they don’t seem to be generating interest at that price. Lots of RE agents putting rentals on CL that I had not noticed before. Beware-they often mis-represent them even worse than sales. They can waste lots of your time.

    The current rentals that were always rentals are up about $200 from last summer, which was up about $200 from the previous summer. I have seen some rental houses on the North End and West Seattle that were a joke for the price they were asking. I looked at one house that the owner had paid off long ago, did not leverage it, and the rent he was asking was based entirely on his perception of the market–no one was interested. In some overpriced rentals, I am seeing slight, but not enough, published price decreases when people are laughing at what they are NOT getting for the money.

    Keep up the good work, and maybe I will find something reasonable, for a reasonable amount. “You get what you pay for” finally seems to be re-asserting itself in renters favor.

    Rents still are still way out of wack for the median or per capita income in Seattle in general. Many people think they can get the same rent for a 1920′s basic house with a wood chip stove, that they can get for newer construction and energy efficency. Resistance is not futile if you have the time.

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  31. Ira Sacharoff

    “Are you saying this may be a faux-GEM? How can they call it a GEM if it isn’t? Have they no shame?”

    Should they advertise it as cubic zirconium?

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  32. Pegasus

    John…This is what Senator Murray was really saying….

    Dear Mr. Lipchocolatez

    Thank you for writing me about the current downturn in the housing market and the federal government’s role in responding. I appreciate hearing from you on this important issue. Also it’s an election year and I am actually responding to emails unless I find out you are a Republican.

    As you know I have been here for a very long time and have done very little if not anything. I look forward to doing that for a few more years. Washington State voters are soooo stupid.

    Improving the economy is a top priority of mine. Haha. That is why I did nothing on the Boeing contract until it was lost. Before that I did nothing to improve jobs in Washington unless you like working at minimum wages along with many other workers who don’t speak English. I also did nothing to keep Boeing Headquarters here. I am very proud that I did nothing to save the Sonics. I am a Greenbay fan. Go Brett…ooops.

    Congress has certainly gotten fat on looking the other way while record scandals and fleecing have occurred until now. We now have to look like we are doing something so we all have these form letters to mail. There are numerous proposals currently pending in Congress designed to fool voters all funded on the backs of the American taxpayer. One of these bills, H.R. 3221, the Foreclosure Prevention Act of 2008, was signed into law by President Bush on July 30, 2008. This bill contains provisions to help thousands of homeowners
    avoid foreclosure, as well as provisions to stimulate the housing including refundable tax credits to certain first-time home buyers and resources to cities to buy foreclosed or abandoned properties. Its a scam but the nation is imploding and I don’t want the mob looking for me when they are hungry. Free money is my new motto.

    I am also in favor of lowering gas prices. I want to stop manipulation. I don’t have a clue what that means but I know voters will thinks its a good thing.

    Stabilizing my personal financial situation is my number one priority. My tennis shoes are worn out. I appreciate your help. We are not allowed to take money from places like ABSCAM anymore and its been tough. I was their highest Democratic recipient. Notice how once the list got to Democrats suddenly the investigation halted?

    As the 110th Congress continues, I will keep your thoughts in mind and continue to work to address these critical issues. Thank you for contacting me, and please do not hesitate to write me again in the future. Enclosing a check insures we will send you a canned response that is used in twenty-seven other states. If you do refer to Form Letter CYA2b

    I hope all is well in Bangladesh

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  33. Lake Hills Renter

    I got the exact same form letter.

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  34. Sniglet

    There has to be a lot of construction and over development to generate the shadow inventory necessary to cause rents and housing prices to decline simultaneously.

    Hmmm… And just what do all those cranes in Seattle and Bellevue tell us about the state of construction in our region? Condo developments have been going up everywhere across the Puget Sound ranging from Bremerton and Tacoma to Bellevue and Seattle. Even single family home construction has been undergoing a major boom. Just head out to Issaquah or Snoqualmie ridge sometime to see new tract homes going off into the horizon. And that’s not even counting the developments in other ex-urbs.

    On top of all that development, there has been an AMAZING amount of in-fill construction occuring in the already denser Seattle and Eastside locales. There have been hundreds of homes torn down on big lots to be replaced by 3 or 4 cheek-by-jowel town-homes. The greater Seattle region has had quite a construction boom in the last 3 or 4 years.

    Any bets as to whether a significant percentage of the people buying these new condos and houses aren’t just hoping to flip them? I know several colleagues who have signed contracts for Bellevue condos under construction with exactly this intent and I doubt they are the only ones.

    I see no reason why our rents won’t tank with the broader real-estate market, just as they have everywhere else in the nation.

    Heck, even Boston is seeing weakness in rents now that their market is turning. I can’t think of a single case where a town has seen real-estate price declines without a drop in rents.

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  35. Garth

    I bet seattle tracks better against unemployment than it does some fictional offset. Probably detroit too.

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  36. deejayoh

    I bet seattle tracks better against unemployment than it does some fictional offset. Probably detroit too.

    Garth – I’ve run regressions for home prices/change in home prices against employment/ change in employment/ unemployment for every MSA in the country. It’s relativey easy to do with the OFHEO and BLS data in a spreadsheet. I have never been able to find any statistical relationship at all between employment stats and home prices. FWIW

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