Let’s check out the three price tiers for the Seattle area, as measured by Case-Shiller. Remember, Case-Shiller’s “Seattle” data is based on single-family home repeat sales in King, Pierce, and Snohomish counties.
First up is the straight graph of the index from January 2000 through September 2008.
Price drops accelerated slightly in September for all three tiers. The low tier and middle tiers are rewound to just below April 2006 values, while the high tier is just above its May 2006 level. The middle tier again took the biggest percentage hit in September, falling 1.8% in a single month.
Here’s a chart of the year-over-year change in the index from August 2002 through September 2008.
The low tier had the biggest year-over-year hit, but not by a large margin. Both the low and the middle tiers fell over 10% YOY in September. Here’s where the tiers sit YOY as of September – Low: -10.5%, Med: -10.2%, Hi: -9.2%.
Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.
The decline frome the peak looks remarkably similar across the three tiers since peak +12. This is interesting, since the low tier reached a considerably higher peak than the middle and high tiers, and it would be reasonable to assume that it will correct further. So far we have not seen that happen to a large degree. It will be interesting to see whether the HPI for the three tiers get closer over the next year.
(Home Price Indices, Standard & Poor’s, 11.25.2008)
I think the problem is that this will soon stop falling. Look at the govt. They started those printers rolling and we are flooded with lots of dollars. People will be able to refinance, get new loans. I thought at some point there would even be a total forgiveness program where the govt will just bailout people. So we are soon looking at housing rebound.
The govt can print money, bailout companies, people at will because it can create money out of nothing. This makes sense. If we had the gold standard this would not be possible. If the govt adopts sensible policy – this will be fine.
Also in a recession there is no problem in printing money because the prices are going down anyways because of the demand. You don’t run risk of starting an inflation.
All the best.
Lets print all these $$$$ and all the Saudis with lots of money buy these worthless paper, while we build nice houses :-)
Wondering are we affecting the whole world , by manipulating the $$$. Still wonder why the world always looks at us for leadership…
Speculation may not have been as rampant in the lower tier. I don’t remember the exact cutoff for low tier but only the dregs of Seattle/Bellevue/Redmond could be in it and that seems like where most of the flipping was happening
Out in the northern exurbs asking prices have drifted back to ‘06 levels and not much is moving but there aren’t many distressed sales either
don’t worry. this won’t be a problem.
but go ahead and start preparing for inflation. I recommend a huge fixed-rate mortgage.
“Speculation may not have been as rampant in the lower tier”
I would argue the opposite; the low tier is where most of the speculation generally happens; easier to get a loan.
Robert,
Please show me how the US Govt has printed any money. Please show me a source that cites there are any more 1,5,10,20,50,100 dollar bills in circulation right now than there were 3 months ago.
The Fed is “lending” not “printing”. There is a huge difference. The mainstream media keeps reporting about all this “printing” when there is none going on. The Fed is issuing credit by utilizing “swaps”. The credit that is being given to the banks is a mere drop in the bucket compared to the holes on their balance sheets. The Fed has expanded their balance sheet to 3 trillion dollars, and this amount is not even enough to offset the losses that the housing market itself has sustained, much less the rest of the economy.
The Fed is still taking collateral (albeit worth less than market value) for debt issuance. They aren’t just firing up the printing press and flooding the markets with USD. If they did start printing, you would see the dollar and the bond market fall of a cliff instantaneously.
Deflation is what is gripping the country. That is why we saw the dollar rally and commodities crash.
deejayoh, why do think that there will be inflation? I am by no means an economist, but with most everyone having less to spend, and with credit markets that are shut down, how can the prices of goods and services increase?
Masaba,
Sarcasm my friend, sarcasm.
Matthew is correct.
It is the velocity of money that is killing us, not the lending base.
As the velocity of money approaches zero, the money supply also approaches zero, regardless of the monetary base. $3T x 0 = 0 (3rd Grade math meets sophomore level economic theory).
The Treas/Fed can’t do a thing about the velocity of money. The only thing all these bailouts are doing is propping up the illusion that US debt can still be wholesaled.
Here’s a good summary of why we all lose in the end.
“So, yesterday the media finally added up all the money and guarantees promised in all the alphabet soup programs in the past year. The tally? More than $7.7 trillion! And this morning we learn we get to add another $800 billion for a new total of $8.5 trillion! ”
http://www.tickerforum.org/cgi-ticker/akcs-www?post=73060
As usual there are a lot of noise that have no impact on the trend. And as usual the bulls jumps on the noise as lower interest rates as a sure sign the market will rebound. Eleua, Matthew, sniglet etc that has been right all along is still right. The economy is in the dumpster and getting worse, home prices are still way out of whack of what is sane, reasonable and sustainable and will continue to fall a long, long way. Don’t fall for the propaganda. It was understandable that many did during the bubble buildup, but if you are thinking of buying into it during the deflation of the bubble do yourself a huge favour and educate yourself in the state of the economy and the concept of risk management and don’t listen to sales people with a stake in the game.
Deflation. I just don’t believe it can happen. The US Gov’t issues US currency. At any time the US Gov’t can simply decide to create more of it, which causes inflation and cancels out the deflation. I’m not talking about borrowing dollars, I’m talking about simply creating it out of thin air (aka printing it).
Perhaps this entire fiasco is in fact a BRILLIANT strategy by our leadership:
They got foreigners to loan us tons of money. Now in order to offset the trillions in deflationary pressure, they can print trillions to pay it back, creating equal and opposite inflationary pressure. The US citizen experiences normal inflation, and the foreign debt gets paid off out of thin air.
Am I missing something, or is this pure genius on the part of our administration?
“Out in the northern exurbs asking prices have drifted back to ‘06 levels and not much is moving but there aren’t many distressed sales either”
I taught an evening class on Short Sales last week. One of the Realtors has a buyer looking in the Everett/North area. He said all of the listings in the 200,000-250 range are short sales except one.
Herman- it doesn’t work that way. By law, every dollar printed is backed by offsetting .gov debt. It isn’t intuitively easy to understand, and I’m too tired to go into the necessary explanation, but trust me- every dollar is backed by a government obligation. On the dollar bill, it even says “federal reserve note”, i.e. essentially a bond with no interest attached.
If, after an act of congress and other structural changes, the government decided to just start printing dollars and handing them out the dollar would immediately become worthless- it would just be a piece of paper, not a debt backed obligation. Capital would flee the USA so quickly you couldn’t keep track. Interest rates would soar in anticipation of falling dollar values and rising inflation. The U.S. government would face bankruptcy because of ever increasing debt/financing costs. Lending and currency based trade would cease as dollars became increasingly worthless.
Bankers hate inflation, since their outstanding loans are always repaid with dollars of lesser value. And while they increase interest rates charged to try and recover some of the lost value, they always find themselves behind the curve, managing what is in effect a shrinking asset base. Who has a major say in how the country is run? Who has gotten the best deal under the current bailout fiasco? Do you really think bankers/pigmen will let inflation rule the day? Under deflation, the opposite is true- bankers benefit. Hmmmm.
We will see deflation. Debt and money are two sides of the same thing. Credit spends just like cash- your visa is just as accepted as your $20 bill. So when credit shrinks or debt defaults, its the same as burning real dollars. As the velocity of money slows, it’s the same as dollars and credit vanishing. Fewer dollars/credit/lower velocity means fewer stores of value chasing the same number of goods- deflation. There has never been a period of inflation during a depression- which is what we’re headed for. The two are essentially mutually exclusive.
Given this, the rules are simple. If you expect a deep recession or depression in the future, get out of debt now, and hoard dollars. They will be worth more (in purchasing power) with every passing day.
Posts like Scotsman’s are what makes this blog great.
So, when $800B in bailout capital is made available to banks, does that mean an equal amount of T-bonds are issued to the public and must be sold?
Deflation. I just don’t believe it can happen
Deflation means things are getting cheaper.
So have houses and stocks gotten more expensive over the last couple of years, or less expensive?
How have oil and other commodities done lately?
It is happening, doofus.
I think we are unlikely to see significant consumer price deflation, but asset price deflation is here in spades. That’s also what happened in Japan post-1990 BTW.
Posts like economists are what makes this blog lame. For him and the other children, I will write my sentiment out longhand.
“Deflation. I just don’t believe that it can happen for a sustained period of time, because our government has unilateral ability to control it by issuing new currency.”
It’s interesting to see the stark contrast between the quality of Scotsman’s reply and the lack of it from economist. I have witnessed the highs and lows of seattlebubble within the span of just a few inches of screen.
Herman- yes, the $800B, and indeed the whole $8+ trillion “bailout” is funded by t-bill sales, at this point mostly to foreign investors, the Chinese and oil producing nations.
While banks hate inflation, the government loves it. A little bit of steady inflation has consistently devalued the dollar since the 1930’s. Inflation lets governments run small deficits which they can finance/pay off with newer dollars of ever lesser value. Essentially, the government hasn’t been able to contain spending since the last depression, always running a deficit. But by fostering a monetary/fiscal policy that favors low but consistent inflation they have, until now, been able to keep a balance. Now, however, the monster has escaped, the deficit exploded to the point it probably can’t be brought back under control, and the government brought to insolvency.
Think of how inflation distorts the economy. The house my mom bought 30 years ago for $23K has turned into a million dollar property. It’s still the same house though. The true value or utility hasn’t changed, just the dollar denomination. What do you think has happened to the taxes? Hmmm.
It’s been estimated that every person- man, woman, and child is now responsible for a cumulative total of $292,233 of government debt, personal debt, and future government obligations. That’s $1.2 million per family of four, with a median household income of about $54,000. A 100% tax rate barely covers the current interest. This country isn’t going to inflate its way out this time– it’s going to deflate, then collapse.
It’s a testament to the American psyche that despite mathematical analysis that proves over and over again how constrained our choices will be, people still think there has to be a way out. And truth be told there are several paths out, but all of them will drastically change our lives, and our expectations for the future in ways most can’t imagine. The next decade will be filled with “interesting times.”
If banks do not loan money and the velocity of money is decreased then – banks create less money in the system. Commercial banks have full ability to create money out of thin air just like the govt does. The difference is that a bank needs a deposit first and then it loans to another guy which deposits money in different bank and so on – and money is created out of thin air or rather almost out of thin air.
So both commercial banks and the US govt have ability to do this.
Because every dollar is owed by sb to sb – and ultimately to the Fed – you need to have more and more money entering the system. If you do not have this – the supply of money would shrink and you would have constant deflation and all kinds of terrible recessions. So you need inflation as a way to manage debt which is part of the system and worked very well for many years.
I am almost sure that if pushed hard enough – they will really start the printing presses. They have good HP machines out there. In fact they do not need to do this – Fed gives out a loan to US govt, US govt deposits to a bank and that gets loaned out again etc etc.
I am almost sure auto makers will be bailed out. And if the US govt chooses they can forgive bad mortgages to people. They can do this all without even causing inflation if done in the right way.
Yes, we are currently in a deflationary environment due to an anticipated long term worldwide recession. Less demand equals a temporary oversupply equals a temporary drop in prices. We’re seeing this. But. After this, we do have the issue of the large amount of dollars that are being printed. And they are being printed regardless of obligation to bondholders. And we would typically look at the M3 money supply to gauge this. But the government has stopped publishing this is 2006. We no longer have any method of tracking how many dollars are out there. See link below for one article on this. Hyper inflation is coming — there will be no way to avoid it. The value of the dollar I feel is near a peak.
http://www.inflationdata.com/inflation/inflation_articles/m3_money_supply.asp