Is there any better way to estimate this price-supporting income? One method would seem to be to take the number of owner-occupied properties and simply integrate down along the income histogram until this number of households is reached, and take the median income of that population as the median home buyer.

I suppose this has many naive assumptions. Feel free to point them out or provide links. I’m fairly new to this blog, so missed it if this has been shot down before.

I love the headlines, but your last comment doesn’t make any sense. Depopulation would reduce the demand for housing and would cause prices to fall further.

“History does not repeat itself, but it does rhyme.”

Particularly since WaMu is toast and Boeing may be packing up and leaving.

I predict no end to home price and household income decreases without an immediate depopulation of America.

You can take my prediction to the bank.

The decline won’t be “L” shaped, it will be “I” shaped [continuously decreasing without end], without American depopulation ASAP.

If you believe that the bubble began earlier, such as 1999-98, then 97 seems logical. (adjusted for inflation of course)

Houses as well as commercial property prices went up way beyond reason. Saying a property is worth what some one will pay for it is ridiculous.

The numbers are the numbers. Many people over paid for properties. Many people always have over paid and continue to over pay today. Many people don’t care what they pay, it’s just money.

This blog has introduced the idea of price into a sales game. It has also introduced the idea that there is a Real Estate sales game out there. What I think is worse is that Loan Originators sold mortgages based on that sales game.

The lender, the bank, or the investor is supposed to be the stop gap in Real Estate prices. Lenders are supposed to look at value. Just because a few thousand idiots drove up prices does not mean every one should pay the difference.

To determine value depends on your goal. There is a need to clean up the Real Estate business so you can get the advice to make an informed decision.

I’m surprised by how little information there is about Real Estate especially on the internet. This repeated question about how far the market will fall just shows that people are misinformed about how to make an offer, or determine Real Estate value.

Yes you do need a person to guide you in the process, we all do. I ask for advice all the time about Real Estate, about houses, or value. My fortune is that I know who to ask and what to ask.

How did the Seattle economy do during the last recession, better or worse than the rest of the nation?

It sounds like you’re trying to say that houses are selling for less that what they’re “really worth.” The selling price of a house is EXACTLY what it is worth. It is the SALE prices which determine the market, not the asking prices, and I don’t see any reason for buyers to start paying significantly more than comps anytime soon.

Prices still have a long, long way to fall before renting out a home doesn’t incur a substantial loss each month. I think as the reality sets in that 2007 price levels won’t be seen again for a LONG time, more and more sellers will accept taking the loss now rather than over an indefinite time period, or worse selling for an even bigger loss later on.

Obviously, if the economic giants in Seattle crash, it’ll be very bad, maybe another Detriot – though at least we have the pretty surroundings (yeah, and the rain) ;-). But what if the local economy stays stronger than most other parts of the country? Call me naive, but I would expect more people to move here. As renters of course, because who wants to buy a house in this economy? If that were to happen, owners would have even less incentive to sell, because they can make money renting out. Which in turn of course would start the selling prices to go up again.

We’ll see what happens… if there’s anything that 2008 shows us, it is that anything is possible!

1) A house started with a price of 200,000$ in 1998.

2) In 2007 (or whenever it was at peak), the price was 400,000$ (it went up 100%). A price decrease of 50% would take the house back down to 1998 prices assuming no inflation.

3) 200,000$ adjusted for the 29% cumulative inflation would be 260,000$. 260,000/400,000 is 65% – this is what we’d expect the house to retain. That means price drop of 35% to revert to the inflation adjusted value from 1998.

I’m running off of the numbers you supplied – I have no idea how valid they are. Can you spot where my math went bad?

Yes, unemployment is going to go up significantly over the next year or two. And yes, we have deflation by some definitions at the moment (lots of reasons – not going to get into that debate), but houses dropping to nearly 1 years pay? That seems far fetched.

That being said we saw a 14% to 17% price increase between 2006 to 2007. It was double digits for two years before that. Let’s be fair and say the run up was 40% from 2003 to 2007.

Next let’s take into account that money moved from tech stocks into Real Estate from 1998 to 2001. That process started, and the Fed finished, by giving Real Estate a return of 10% for those three years.

That’s a total of 70% increase in the rpice of Real Estate. Then if you figure Real Estate experts are spouting Real Estate doubles every ten years then that would be a 100% increase since 1998.

Realistically Real estate appreciates at about the rate of inflation, or 4%.

Cumulative U.S. Retail Price Inflation (Annual Average)
1998-2008 = 29.23%

So if we deduct 30% or 40% from the 100% that’s proclaimed we end up with a need for a 60% to 70% reduction in the price of Real Estate.

Let me be real clear that this is the reasonable rate of reduction. I am thinking we are going to lose, as Sniglet has been saying, the 80% from peak and that is just a reality.

An economy based on easy credit, with us borrowing money that we cannot pay back to china and oil producing states (deficit $800Trillion) has the potential to bankrupt the US and lead to hyperinflation.

Enough said

Unfortunatley, our region won’t be immune from this depression. I still point to the fact that we have a higher portion of home-owners without equity than at any time in the past. This leaves our real-estate market extremely fragile as these home-owners have nothing to fall back on when the economy goes south (i.e. they can’t sell if they lose a job, etc).

“Quentin Soanes, managing director of Braemar Seascope, a London shipbroker, said that, for the worst-hit sizes of dry-bulk carriers, 40-50 per cent of existing orders could be cancelled.”

http://www.nakedcapitalism.com/2008/11/shipowners-starting-to-cancel-orders.html

That doesn’t portend well for the airplane industry. Seattle and Tacoma are port cities, so that aspect of international trade may affect us as well.

Pierce Co. SFH Median
Peak: $291,500 (Aug. ‘07)
Latest: $249,000
Drop: 14.8%

Snohomish Co. SFH Median
Peak: $381,719 (July ‘07)
Latest: $333,760
Drop: 12.6%

Sorry, I should have been more clear. I was referring to the median price as reported by the NWMLS, which is just barely shy of 20% as of the October numbers.

FWIW – here is the translation (base on the earliest time that price level was comparable)
10% = June 2006
20% = August 2005
30% = October 2004
40% = June 2002
50% = July 1999