Thanks all, for that extra point or two I’m not going to be paying but should! I appreciate you subsidizing my next house.

It’s little bits like the above quote that signal the end of housing. Without Freddie/Fannie, any mortgage but the standard 20%down, 28/36% ratio loan that a bank is willing to hold will be near impossible to find. There goes the entry level buyer. Not to mention the unemployment, depressed wages, etc. that come along with such an economy.

The government can’t afford to save everything- your house, your health, your retirement, etc. How people can look past all this escapes me. It has to be the ultimate expression of denial.

If you take what you point out in your comment @30 and apply it to the pendings vs. closed…maybe there are people out there still shopping for homes and still “think they can afford it”, however, when the rubber hits the road, reality sets in when the lender throws that cold glass of water in their face.

It’s like the old “Suzanne” commercial.

The couple is still saying “We can do it!”

but the bank seems to be saying “Oh no you can’t”

There is a barrier to keep properties somewhat inside their pricing tier…….the MORTGAGE. Those who WANT to sell battle their personal pucker factor against their equity. For those who HAVE to sell, those holding big equity and are willing to sacrifice it can reduce to sell. The others have to play within the confines of the mortgage, or come to the closing table with money…..or sell short out of hardship. If the bank takes the property back, they make the decision on where to position the house in the marketplace.

And you’re correct. If a house does lower in a tier, it becomes a part of that tier’s AR which does affect supply/ demand and then price.

Changes in prices follow absorption (supply and demand). We saw the legs taken out of the market last year in the 3rd quarter 2007……. and prices did soften…….but not at first if you remember. I’ve observed that prices are slow to fall, at first.

When inventory tightens, prices seem to rise more quickly as buyers compete for available inventory.

In the Seattle seller’s markets, I would not expect prices to fall. If ARs remain where they are, prices should trend up. In the balanced markets, prices should remain flat to a slight trend downward.

We often see several markets within a market. Post dot.com bomb and 9/11 was another time where the high end prices pulled back severely, and the low end appreciated. Simple supply and demand –within price ranges.

Resellers in new construction zones are getting absolutely HAMMERED as they are competing with their builders now who are sitting on too much inventory.

I know an agent that just took a $300k price reduction on an area 550 home that he started at $2.1 mil. He’s now right at $1.6 mil and in my mind an incredible deal. The Seller asked what it would take to sell by the end of the year. The movement is showing us that we can expect 3 homes to sell (out of 24 currently) in his price range before the end of the year. The questions was, did he want to be one of them?

Silver9 @ 38: Look up “the power of delusion” and/or “how advertising works” (eyes firmly rolled). They’re looking at one narrow slice that presents the tale they want to tell – they being the advertisers. Trying to not be doom and gloom, and all that.

“Crellin said the measure should provide some help to the market. He also said he’s seeing more buildup of listings in higher price ranges.”

“The entry-level part of the market is much closer to being balanced than people expect,” Crellin said. “That part of the market is probably not going to see much in the way of price declines.”

Here’s what I have for Seattle (All other price ranges are Buyer’s Markets):
Area 140 West Seattle 0-$500k Balanced
Area 380 Central 0-$500K Balanced
Area 390 Central 0-$900K Balanced
Area 700 Queen Anne 0-$400k Sellers $400K – $500k Balanced
Area 705 Ballard/Greenlake 0-$400k Sellers / $400k-$700k Balanced // Overall 705 as a whole is a Balanced market
Area 710 North Seattle 0-$500k Sellers Market. // Overall 710 as a whole is a Balanced Market
Area 715 Richmond Beach 0-$500k Balanced Market. // Overall 715 is a Balanced Market.
Area 710 North Seattle 0-$500k Sellers

As usual, 705 and 710 are the best performing areas in Seattle. Prices $500k and under in 710 are showing Sellers market.

Inventory is building and sales ratios are falling in outlying areas at a much faster rate than the core.

Rate of sale in the high end sucks.

The builders inability to get financing would explain the dormant half-finished development I saw.

There is a large amount of building still proceeding in Pullman, but building permits went over a cliff two months ago. Builders are complaining that they can’t get financing. We have 5 major SFH developments ongoing, a couple of condo developments and two new SFH developments just getting started. That is a lot of building for a town with just 9000 permanent residents and 1% annual population growth. 145 developed lots on the market with ~5 sales in 2008, none since April. 200 homes on the market including townhomes and condos, with about 4 sales a month. Rental vacancy rates are up over 10% with rents falling.

Asking price for a decent 2100 sq ft 3/2 new home? $400k. For a run down 1950’s 3/2 ranch in the worst neighborhood the asking prices are still approaching $200k. With a median household income of $50k, there just aren’t any takers at those prices.

Pullman is a real train wreck right now, a small market but probably falling harder than Seattle.

“the median selling price for single family homes and condominiums (combined) was $340,070, slightly more than June when the price was $340,000.”

$70? $70 justifies a headline like that? sheesh.

I was in Pullman about three weeks ago. I was amazed to see construction continuing in a new development on the west side of town. These places had asking of upper $300k to lower $400k. Most lots were empty and many of the recently completed homes were vacant.

Thank God I rent.

A house located in the more desirable part of Pullman just came on the MLS at $249k after selling for $270k back in 2006. This house was purchased by a Realtor who rented it out at a loss for the last two years. Apparently, just one of many spec properties that this Realtor is trying to unload.

http://tinyurl.com/59hoa5

So in response to the question above, I’m guessing that at least some Realtors know that the housing market is crashing, though few would provide honest advice to buyers.

40% of U.S. homeowners say their houses have risen in value

…..a national survey finds that 40 percent of U.S. homeowners think their house is worth more than it was a year ago. And 22 percent more believe their home price is unchanged, according to the poll by online real estate site Zillow……

……In reality, the real estate Web site folks estimate, more than 75 percent of U.S. homeowners have seen their values decline since last year – whether they are willing to admit it or not.

Three-quarters of them said they expect their home values to rise or at least stay the same between now and early 2009.

Strangely, 42 percent said they expect overall values in their local market to drop.

“Our survey reveals a wide gap between the perception homeowners have about their own home’s value and the realities of a market in which three-quarters of homes declined in value in the past year,” Stan Humphries, Zillow vice president, said in a statement…..

So 70% is strong, but I don’t know if it is good. maybe it should be 90%

I’m not sure how you could define the correlation, but I definitely see a strong correlation, and it seems pretty “good” to me ( but I may well be overlooking something).

Although I’m definitely looking at these graphs from a laymans’ perspective, I think they often paint a clear picture. So, “causal” or not, I think we can safely expect to see Seattle move closer to the trendline and speculate that this correlation is playing a significant role in that movement.

Thanks for posting that graph. Amazing how you do that so quickly!

I would expect that this gap will narrow back down to historical proportions over time. I actually expected that there would be even more of a gap in the 2007 quarters as the realities of financing changed abruptly during that time.

Yet that is also why I would expect it to narrow back down in the future – as lenders and other parties adjust to new realities and people are back to scrutinizing the basics of the transaction (i.e., are forced to be more realistic).

But, I wonder if it would make sense to “zoom in” on this pending vs. closing gap in the quarters following the removal of unrealistic financing and compare it to other locales/markets? My thinking is: is this gap a good reflection of the percentage of sub-prime or “stretched” borrowers present in (and effecting) a particular market? (would it be a good indicator of the “fragility” of a particular market)

Long-term they track eachother. Recently, they’ve diverged.

Great point Tim.

I’d add to support your worsening data rate(s) the fact that tighter bank requirements and increased unemployment are hand and hand; i.e., root causes.

The longterm outlook for RE improved with a 330 point DOW surge yesterday; kiss it good-bye today? See the proof below, i.e., Yahoo’s finance states in part:

“…Key Indexes Turn Negative- AP
Wall Street retreated Thursday after weekly unemployment claims jumped to a six-year high and Wal-Mart Stores Inc. and other retailers reported disappointing sales, touching off renewed fears that a pullback in consumer spending will damage the economy….”

The post on 7/31 by dejayoh (below) could offer support to your statement. I beleive the r-sqaured of .47 indicates that 47% of the decreases in prices experienced thusfar can be explained by the % increase in price.

I think that may be a leap, as it implies a causative relationship. I’d say it is safer to talk about “r” (correlation). There is a roughly -70% correlation between “boom” and “bust” – which is consider a “large” correlation but not necessarily good.

The post on 7/31 by dejayoh (below) could offer support to your statement. I beleive the r-sqaured of .47 indicates that 47% of the decreases in prices experienced thusfar can be explained by the % increase in price.

http://seattlebubble.com/blog/2008/07/31/comparing-boom-and-bust-cycles-across-markets/

While pending sales were “only” off 24% YOY in July, closed sales were down 38%. It’s a trend we probably shouldn’t ignore.

My buddy who is a mortgage broker is the tell. He can’t qualify half the buyers he used to.

Eastside SFH got hammered this month though.

My brother moved to Seattle last year…so I need to keep an eye on the market for him.

Cool. I enjoy your posts on HBB. Welcome to the site.

Had the June number not been so unusually strong, the surprise in this months results would have been how strong July pending sales are for this point in the season.

Jon –
One of us needs to get our eyes checked, I am not sure how any month this year could be characterized as “unusually strong” relative to any comparative month in the last 5 years. June is always one of the strongest months of the year. If you take the period in Tim’s spreadsheet – June is the second strongest month of the year, right after May.

Strong in a weak year, perhaps – but that is a tallest midget argument.

actual sales are what matters. The above graphs paint a pretty clear picture- for one sales have been, and still are trending downward, while inventory is trending upwards rather steeply. The two are diverging noticeably, and that can’t be good for the RE market.

If there is any doubt as to what this means, then the second graph which shows price in a free-fall during the last year should clear up that doubt.

Looking at these graphs makes the belief that we may continue a steep downward trend in the same fashion as the worst affected locales a distinct possibility.

I personally think that the decline of each market is / will be in proportion to it’s previous rise. If that’s accurate, then Seattle will still have substantial losses in the future. Even though decline may not be as drastic as some other locales, I believe more (and substantial) decline is still in the cards.

I haven’t seen a graph of monthly prices so see if the same pattern is there also.

AndyMiami brought up a good local media denial point, but believe me, the national media’s still in denial to on the housing bubble crisis worsening this summer [when sales historically should be improving too]. See the proof:

http://news.yahoo.com/s/ap/20080807/ap_on_bi_ge/pending_home_sales

The national media makes a big deal about “pending” sales improving 5.3%, yet admits “final” sales will worsen from last month because banks are harshly tightening loan requirements lately [read the whole article]. I predict loan requirements will tighten for the next two years worse and worse, the winners are the small minority that saved money.

Let’s face the pragmatic facts [and not be in media denial], with harsh loan requirements [getting worse] in a fragile Seattle RE market, that was already running on gas fumes years ago with lax bank requirements; I predict more hefty price collapses in Seattle and very soon too. Does anyone disagree with my logic?

Great charts Tim, I like the “pending” sales YOY at -24%. you posted…lol

You guys are 1 year behind California. This is playing out the same way in every market. Prices get sticky…then inventory builds…then prices come down…then forclosures go throught the roof and inventory builds even more…then prices come down even more…

This whole situation is like watching a train wreck in slow motion. You focus on a flying piece here, a small crunch there, and in an odd way, for a moment, you forget the big picture. But it’s still a train wreck.

Would it really destroy our economy if people started printing, on a daily basis, the ratio of rents to wage as compared to mortgages to wages?

By the way, as an informal question, has your income stagnated over the past 6 years? I can attest that I have experienced this problem.

Well, thank goodness!

Tim, please do an analysis of the local market re setting ARM’s..look at default rates and increases in default rates and project..then throw in the fact that Seattle is NOT immune from a deep recession…

You can print that on Weyerhauser paper from the trees they chop down..and the paper they save from today’s layoff announcement..

Sell all assets they are deflating…your BMW lost 10% of it’s value in the last three months…and it has nothing to do with oil..which will FALL, and may provide some relief, mostly to those who cannot afford to buy a place to live…let alone a fancy car…..the image status will finally DIE..thank GOD

There is a lot of recently subdivided land in the suburbs and not much construction happening. How long will it be before the market absorbs all those extra building lots? How steeply are developers discounting those buildings lots when the sell them to homebuilders?