It’s time once again for our monthly update to the Case-Shiller Home Price Index. According to November data,
Down 2.5% October to November.
Down 11.2% YOY.
Down 13.6% from the July 2007 peak
Last year prices fell 1.4% from October to November and year-over-year prices were up 1.8%.
Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. After outperforming Seattle for 11 months, Portland finally turned in a larger YOY drop in November. It is definitely also worth noting that the YOY declines appear to be turning a corner in SoCal, with price drops coming in slightly less negative than the previous month.
Note: This graph is not intended to be predictive. It is for entertainment purposes only.
Here’s the graph of all twenty Case-Shiller-tracked cities:
In November, six of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops than Seattle (one fewer than in October). Dallas at -3.3%, Denver at -4.3%, Cleveland at -5.2, Charlotte at -5.3%, Boston at -7.4%, and New York at -8.4%. Phoenix took the largest year-over-year drop yet again, with prices falling just short of 33% in a single year.
Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.
In the fifteen months since the price peak in Seattle prices have declined approximately 13.6%. Surprisingly, Seattle’s decline has tracked fairly closely to the pattern of price drops in Phoenix for a good seven months now. Eventually this is likely to moderate, unless the local economic news continues to get exceedingly worse.
Here’s the “rewind” chart. The horizontal range is selected to go back just far enough to find the last time that Seattle’s HPI was as low as it is now. This gives us a clean visual of just how far back prices have retreated in terms of months.
Seattle’s Case-Shiller value for November 2008 of 166.23 came in just above its January 2006 value of 165.49. Prices have now “rewound” just one month shy of a full three years.
Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.
(Home Price Indices, Standard & Poor’s, 01.27.2009)
DrShort » Jan 27, 2009 at 8:17 am
It’s amazing how far some of these cities have dropped and there’s still little sign of price stabalization.
Jonny » Jan 27, 2009 at 8:20 am
this is all going to shake out very badly for seattle (if you want chi-chi restaurants and overpriced condos and yuppie hipsters with stupid money).
although i think las vegas and phoenix and miami may fall more in the end, we may not be that far behind them in the end. it is a very bad time to invest in real estate still and i think we are probably not anywhere near halfway through this particular adjustment. for things to turn around they will have to stop getting worse for several months. i don’t see that as a likely possibility before 2012.
The Tim » Jan 27, 2009 at 8:34 am
From a MarketWatch story on the numbers:
Ouch.
darth_z » Jan 27, 2009 at 8:43 am
One more thing to remember – the drop in price last year happened when Boeing still hired ~ 8000 people and MS hired ~9000 people. Now, with these layoffs, I can see the drop is going to accelerate even more this year and next. I just feel really sorry for the folks (some of my friends and relatives) who put their trust in those REALITORS!!!! ALL of them are under water now.
shawn » Jan 27, 2009 at 8:52 am
Is it just me, or is it a GREAT time to buy? And with each passing day a GREATER and GREATER time to sell.
What I would really love is a kill file mechanism for this site.
deejayoh » Jan 27, 2009 at 8:55 am
One thing to note is that inventory growth appears to have petered out. Checking out the year over year numbers (and it is tough to tell be cause the sources are not exactly reliable) it looks like we are slightly below where we were last year.
If this is the case then I think there may be some light at the end of the tunnel. We still have another 10-15 months of falling prices – but if history has any predictive value, that is a good indicator that things will start to pick up.
Of course, history could be bunk and we could be entering the next great depression. Queue Sniglet in 5, 4, 3…
Peckhammer » Jan 27, 2009 at 9:14 am
“One thing to note is that inventory growth appears to have petered out. “
If condos were included, I would have to disagree. There are so many projects coming on-line soon, and there are hundreds of units that are currently available — most of which appear to be unlisted. Here are some numbers from June 2008, taken from Wendy Leung’s blog:
Veer Lofts- 401 9th Ave N (99 units)
Over 50% sold with 5 listed on the MLS
Enso- 820 Blanchard St (135 units)
Over 50% sold with 5 listed on the MLS
Rollin- 120 Westlake Ave N- (208 units)
Over 30% sold with 9 listed on the MLS
I happen to know that the Veer figures are basically unchanged. I am betting the same is true for the others. This inventory, plus all the other condo projects coming on-line, are going to put additional downward pressure on home prices, IMO.
deejayoh » Jan 27, 2009 at 9:23 am
condos are not included in case-shiller. It’s SFH only
Scotsman » Jan 27, 2009 at 9:25 am
I’m not convinced that inventory numbers accurately reflect the total number of owners who would like to sell. At this point the only homes on the market are those who need to sell. Why list your home when it’s obvious that the market is suffering, and adding yours will only make it worse?
While we’re conditioned to think in terms of supply and demand, we may be in a situation where they have decoupled as buyers and seller follow different strategies in their search for housing and mobility.
Hector » Jan 27, 2009 at 9:29 am
I don’t think we can use supply as a singular indicator. Supply is down not because of sales, but because of delistings, non-listings, or they are being converted into rentals. Even builders are now leasing out completed homes because they can’t sell them. One builder I saw on the south end is even offering lease to own on all homes in a development.
At some point these rentals, and all other houses that folks have been holding on to, are all going to make their way back onto the market, and I doubt they will be able to wait until the market recovers, especially if rents continue to trend downward.
I’m curious to see how this spring/summer is going to turn out.
Rob Jellinghaus » Jan 27, 2009 at 9:44 am
My wife and I are renting right now after vacating Northern California in April of last year. We bought in Concord (ground zero for bubble-pop) in Nov. 2002 for $385K, listed in March 2008 at $479K, had to drop the price to $449K four days later (short sale across the street), and took an offer for $425K two days after that. So we sold in six days flat, at the cost of $54,000 price drop! WOW, are we glad we did, because since then Zillow says the price has dropped ANOTHER $75,000!!!!).
We’re just going to keep on renting until the Case-Shiller curve for Seattle has been flat (or almost flat) for two months straight. Figure late 2010 at the absolute earliest for that.
People keep saying “how do you know when you’ve reached the bottom?” Well, gee, how about LOOKING AT THE GRAPH AND WATCHING FOR THE BOTTOM? Is there something I’m missing here? Doesn’t seem that hard to me….
Rob Jellinghaus » Jan 27, 2009 at 9:47 am
Also, why, when you edit a comment, does it become “Anonymous”? Seems like a bug….? The above comment is from me, FWLIW.
Huh, and then I made another comment and now my earlier comment isn’t Anonymous any more! But maybe this one will be now that I’m editing it to add this paragraph… yup, look at that, anonymous as can be. Weird. Tim, what’s the deal?
…final edit: then it’s fine if you refresh. How strange. Oh, well!
Tim » Jan 27, 2009 at 9:51 am
not sure why anyone would be concerned with missing the bottom. It’s very likely appreciation will be flat for a long while after the declines stop.
Hector » Jan 27, 2009 at 10:02 am
Exactly, they are missing the forest for the trees.
softwarengineer » Jan 27, 2009 at 10:08 am
HI ROB J, WELCOME TO SEATTLE BUBBLE
I know what you mean, you edit and its like you lost your handle, but you really didn’t. I posted a picture, then it got replaced with a dog and I can’t get my pic back on for the life of me. I like The Tim’s pic, how old was The Tim, about 5-6 YO in that one?
It sounds like you made some equity [doesn't appear much if any, if you subtract fixing up for sale and those horrifying RE fees] getting rid of the dead horse house you bought, the President of PEMCO insurance did the same thing out here in Seattle, about 2006 I heard….last I heard he’s renting in Bellevue. Thank God you sold before the house became an upside down mortgage [I hope Shawn doesn't have one of those].
Remember the IRS rules, if you made capital gains [minus home improvement costs and horrifying RE fees] and you don’t reinvest in two years…you’ll owe a bunch of income tax on the income growth. I have a box at home where I stash all my home improvement receipts; I hope you kept similar good records. Another tip to legally avoid capital gains: if your home goes up for sale after a divorce and you have kids, get the judge to set up a trust account from the equity gained for the kids daycare, medical, etc……you get stuck paying your share of this money anyway, but the trust account is completely/legally subtracted from the capital gains at tax time [key information that can save you a bundle your attorney doesn't know either].
I hope you never get a divorce with kids, but if you do…..great timing Rob!!!!
anony » Jan 27, 2009 at 10:26 am
The inventory of potential first time buyers who are secure about their jobs is shrinking.
The inventory of people who are getting laid off or who at least have reason to fear they could get laid off soon is skyrocketing. The people most at risk for layoffs are the low end of the totem pole. Those who have had that well paying job for 3 years or less, meaning the first time buyers, or recent buyers with little down will face the brunt of the layoff threat. Not good for those hoping for increasing buyer activity or a slowdown in foreclosures.
kfhoz » Jan 27, 2009 at 10:31 am
Hey, Darth, some of my friends are realitors!
I think most realty agents were genuinely fooled, and some are still not facing reality. If WaMu and Wachovia and countless other institutions could not see the danger of the housing collapse, then it seems to put undue responsibility on individual realitors to expect them to know that they were telling grave untruths.
One realitor we are working with is still holding his properties, and is still trying to pick up the apparent extreme bargains. He has a quick-fix team of about 10 guys who do remodeling and make-overs, but I fear he is going to get stuck in the free-fall at some point with the time between when he picks up a short-sale and when he can fix it up and turn it around.
Another realitor that we had worked with talked us out of putting in an offer on a house this Fall! I think he feels pretty bad about what has happened to his clients He never pushed us to spend more when we bought our current house, and we bought one of the lowest priced houses that we looked at! A few months ago this guy still thought that people who owned real estate would better survive the coming recession/depression . But, he only thought that if you had major equity.
The real-estate big-wigs who present themselves as experts, and pretend they have the knowledge to advise people to “buy! buy! buy!” do deserve our disdain. I also know of a particular listing agent who lied to us and to our agent about existing offers on a short sale house, and I hope she burns in a 5-piece master bath gas fireplace for eternity.
DrShort » Jan 27, 2009 at 10:37 am
You do not have to reinvest capital gains on a primary residence within 2 years. That was changed back in the 1990s. A married couple gets to keep the first $500K tax free ($250K for single).
deejayoh » Jan 27, 2009 at 10:40 am
could be, but I think that is an argument that fits in the “it’s different this time” category. I suspect that sellers were hesitant to list in the last downturn as well – but perhaps given the tone of the times things have changed.
Slumlord » Jan 27, 2009 at 10:41 am
I’ll stand in for our friend Sniglet until he shows up with even more gloom. A recent article in the Telegraph compares the current situation to how the depression started out. Here is a quote: “[the] economy [is] already contracting at an annual rate of 6pc, much like the mid-Depression year of 1931 (-6.4pc)”
Bad news: we’re back to 1931. Good news: it’s not 1933 yet
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4339501/Bad-news-were-back-to-1931.-Good-news-its-not-1933-yet.html
Rob Jellinghaus » Jan 27, 2009 at 10:41 am
Thanks, DrShort. I was pretty sure there was no deadline on reinvestment, and it’s good to hear that confirmed. Two years from April 2008 is NOT enough time for full bubble deflation up here!
We made very little capital gains anyway… it was mainly about getting our down payment (and subsequent mortgage paydowns — we actually paid off some of our secondary loan, what a concept!) back out. Which we, thankfully, did. Now we’ve got $100K sitting in a money market fund waiting for our home purchase up here. PHEW!
Faren8 » Jan 27, 2009 at 10:51 am
The funny part is that when the graph Case Shiller: Decline from Peak (inspired by CrystalBall) started showing in this site, some people (who clearly do not understand graphs) asked for the removal of the graphs because they were “uninformative” and “potentially deceiving”. This was back when data for Seattle had few data points and these people were looking at the still positive YOY from the NAR. My guess is that many realtors are not sophisticated enough to understand a trend. Nor to understand that takes a year of appreciation for a YOY to show gains.
On a side note, this also means that sophisticated investors can detect the upturn (when it arrives) before people still fixated in the YOY could do. House prices will start coming up and the NAR data will be showing negative YOY for a few months.
Scotsman » Jan 27, 2009 at 11:02 am
It’s hard to know. Support for your side comes from the fact that values haven’t fallen as quickly, or as far, as we might expect given the greater economic environment. I know folks say real estate is sticky on the downside, but I would have expected prices to fall faster than they have.
Groundhogday » Jan 27, 2009 at 11:05 am
WA might not have seen the price appreciation of other states, but our economy and state funding are highly cyclical as always. Cuts at Boeing (probably much higher in the future), Microsoft (looking bad for the foreseeable future), and state government will drive our economy into the toilet. Given this bleak economic scenario, it wouldn’t surprise me to see prices fall far below 2000 (pre-bubble) levels.
Dave0 » Jan 27, 2009 at 11:07 am
There are two problems: 1) by the time it shows up on the Case Shiller graph, it ’s already been 2 months, it would be nice to know before that time. 2) It’s hard to tell whether it’s a true bottom or just a false bottom before things drop more.
For example, taking a look at the latest Los Angelese numbers, it appears that October 2008 was the bottom and it would have been best to buy then. Wouldn’t it have been nice to know that in October? However, October 2008 may be similar to the July 2005 bottom that Los Angeles had, in which case it wouldn’t have been a good time to buy in October 2008. With the July 2005 bottom, you didn’t know until a year later that it actually wasn’t a bottom and things started going lower.
Dave0 » Jan 27, 2009 at 11:08 am
agreed. I’d rather buy after the bottom, when I know for sure that it was the real bottom, then buy at what appears to be a bottom at the time and find out later I was wrong.
jon » Jan 27, 2009 at 11:19 am
“latest Los Angelese numbers, it appears that October 2008 was the bottom ”
You are not looking at that graph correctly. That turn-up means the rate of decline is stabilizing. Look at the total decline from peak graph, which more clearly shows that LA is still losing value quickly.
Steve Tytler » Jan 27, 2009 at 11:23 am
Just thought I’d pop in again to say these numbers show that my prediction of a 10-20% average home price drop (depending on neighborhood) by the end of 2008 compared to the 2007 peak price was very accurate.
Come on, Tim. Admit it.
My prediction was closer to than yours! Neener neener! ;-)
BTW, if anybody is counting, I expect another 5-10% average home price drop this year (depending on neighborhood).
Ray Pepper » Jan 27, 2009 at 11:36 am
You will NEVER EVER nail the bottom. Keep trying in the next 6 years. It will be prolonged with very little appreciation. ***HOWEVER***If you find a GEM today, next month, or in 4 years you CAN nail the bottom. Educate yourself and if your offer is not accepted MOVE ON!! They will most likely call you back in 30-60 days anyway. The best part is there will ALWAYS be another one, and another, and……..Renting is EXCELLENT now and lets watch together the stimulus plans that get enacted to increase home buying. Between the stimulus, a 4% loan, and a property down 40% here in the PNW you have a pretty safe bet! In Sacramento and Reno where I travel the homes that came down 50% have been bought up in my target areas. So I conclude 40-45% off here from 2007 highs is a decent target.
cheapseats » Jan 27, 2009 at 11:41 am
So you can NEVER EVER nail the bottom.. unless you do?
Scotsman » Jan 27, 2009 at 12:00 pm
Quite a range there, Steve. And is that a maximum or a minimum? No credit will be given for covering the whole range of possibilities!
Interloper » Jan 27, 2009 at 12:27 pm
Some other Case-Shiller observations/predictions:
- November marks the first time Seattle has declined more month-over-month (2.5%) than both the 10-city or 20-city index.
- Seattle’s index number (reflecting appreciation since Jan 2000) is not 166, identical with the 10-city index.
- We are probably in the steepest phase of Seattle’s decline (aka “free-fall”). December & January are historically very weak months for Seattle pricing, so we can expect more of the same in the upcoming reports.
- Seattle will as usual get a Spring bounce, in ‘09 evidenced by a decrease in the rate of decline. It will not indicate a market bottom.
- Vs. January 2002, Seattle prices are still up 49%, exceeded only by New York (49%) and Portland (50%). I’ll disagree with the Seattle Times who recently called this “good news”; this means we have a long ways to fall.
- The national market has erased most of the 2004-2006 bubble and still plummeting. It will rewind further (note that the Bubble actually began more subtly in 1997).
- Having peaked 10-12+ months later than virtually all of the Bubble markets, Seattle is likely to perform worse the rest of the way.
Now is still a great time to Sell in Seattle.
Interloper » Jan 27, 2009 at 12:31 pm
Seattle’s index number is *now* 166, identical with the 10-city index.
Lamont » Jan 27, 2009 at 12:38 pm
i want to see summer values flat-to-higher than previous summer values and winter values flat-to-higher than previous winter values. that does mean calling the bottom 12 months after it has already occured.
having the y-o-y values return to the zero line would be interesting. however, particularly if that occurs during the summertime i would not make a bottom call until y-o-y values in the winter had also put in a >= 0 reading. i want to see the market hold up when it is weakest (winter) rather than when it is strongest (summer).
and looking at the graphs, i still don’t understand what is happening on the east coast… boston and nyc seem to be refusing to adjust at all…
AndySeattle » Jan 27, 2009 at 12:39 pm
So what? Even if there was a 2 month lag do you think we are more likely to experience drastic appreciation again? Doubtful… Our market will be nice and flat for much much more than two months.
The Tim » Jan 27, 2009 at 12:52 pm
Heh, I should make a new version of the peak-decline graph with arrows pointing to the stand-out lines of Boston and New York < ----SPECIAL
Then one pointing to middle-to-low-end-of-the-pack Seattle <----NOT SPECIAL
Sniglet » Jan 27, 2009 at 1:00 pm
Actually, it is very easy to make sure you nail the bottom. Just wait until median house prices haven’t declines for at least 2 years. When we do hit bottom it will be with a thud, and prices will drag along for many years. It will be a good 5 years or more after we hit bottom before we will see any significant appreciation. Upturns are always very slow.
6, or even 12, months is too short a time frame to be sure a bottom has been reached. Japan saw periods where prices would recover for over a year before they slipped back into their 20 year oddysey with deflation. The first great depression actually saw a noticeable recovery in teh mid-thirties before a second downturn struck.
I would be far more concerned with jumping into the market too early rather than too late.
By the way, I have outlined the case for deflation, and what to expect, on my blog. http://www.surkan.com
The Tim » Jan 27, 2009 at 1:06 pm
I’m still waiting on your response to Rich Toscano’s two-part No Deflationary Spiral Forthcoming article (part 2). Genuinely interested in your counterarguments. He makes some compelling points.
TheHulk » Jan 27, 2009 at 1:09 pm
Real estate is extremely sticky on the downside. Acknowledging the fact that the house you bought in 2005 was a bad decision (sure looked good in 2006 and mid 2007 though!) takes a huge gut check. Worse, its probably the biggest financial decision many people made in their lives, especially if they bought with 10% down.
Today if they try to sell that house, after transaction costs and considering the drop in prices those people are looking at least 15-20% loss on the supposed value of the house. As long as they can keep paying the mortgage though, they don’t really think about all that. They will just list the house hoping that some stupid knife catcher is going to come along. Sadly for these poor folks, if they sell now, they might be able to get out while they can. After a couple of years they will be between 25-30% underwater and things will be much worse, leading to you guessed it… foreclosure.
Ray Pepper » Jan 27, 2009 at 1:11 pm
Snig it seems you dont understand my post. You cannot buy all the homes in a region so nailing the bottom (on a macro level) is a waste of time. Most are looking for just 1 property. To nail just one property I dont care if its 2009 or 2014. If its a true GEM and your clipping it at 40-50% off of highs. and get an interest rate of 4-5% then the trend will be meaningless. Unless you suggest homes are coming down 60% or more across the board. When your only looking for ONE the fact is you MUST ALWAYS BE LOOKING. Bring on the foreclosures and be smart consumers.
Dave0 » Jan 27, 2009 at 1:41 pm
thanks Jon, you are correct. I sometimes forget that the y-axis on that graph is % change and not the actual values. I guess using Boston’s November & March 2008 value would have been a better choice to illustrate my point.
Dave0 » Jan 27, 2009 at 1:44 pm
I agree, getting in a few months after the bottom rather than at the bottom itself won’t make much of a difference. For me it’s just curiosity about what the underlying causes are that would cause the market to bottom out, and wanting to be able to see that coming.
Dave0 » Jan 27, 2009 at 1:52 pm
“- We are probably in the steepest phase of Seattle’s decline (aka “free-fall”). December & January are historically very weak months for Seattle pricing, so we can expect more of the same in the upcoming reports.
- Seattle will as usual get a Spring bounce, in ‘09 evidenced by a decrease in the rate of decline. It will not indicate a market bottom.”
True for month over month numbers, not necessarily for much for year over year figures. Note that the graph Tim posts every month is year over year figures, so these predictions may not show up in those graphs.
Mike2 » Jan 27, 2009 at 1:54 pm
I think most realty agents were genuinely
fooledfoolsFTFY
mukoh » Jan 27, 2009 at 1:57 pm
SoftwareEngineer post two years there is no capital gain up to $500k per couple.
Dave0 » Jan 27, 2009 at 1:59 pm
“Unless you suggest homes are coming down 60% or more across the board.”
Heh, I wouldn’t throw this out right away when talking to Sniglet…
mukoh » Jan 27, 2009 at 2:01 pm
Ray stop kidding yourself and listen to snig, homes are coming down 81.57% as predicted. Unless you think if it happened in japan then it won’t happen here.
I hope everyone reads the Japan story studies it, then overanalizes it and applies to our market here waiting for it to get that low.
cheapseats » Jan 27, 2009 at 2:02 pm
Honestly, that article is the first compelling reason to buy that I have seen in quite a while.
Sniglet » Jan 27, 2009 at 2:05 pm
This is precisely what I am saying. I am on the record for stating that Puget Sound home prices will drop at least 80% by the time we hit bottom. Sure, some neighbourhoods will do a little better, and some a little less. I think it will be exceedingly hard for ANY property purchased to today to maintain it’s value by the time we hit bottom.
Even properties that pencil out as cash flow positive today as rentals (of which there are exceedingly few such deals on offer) likely won’t remain so as rents continue to plumet over the next few years (i.e. rental income will decrease).
About the only case where buying real-estate makes sense (from an investment perspective) today is if you manage to get a significant discount from current market value and are able to flip it relatively quickly. But you will almost certainly lose money if you hang on to an investment property purchased today.
I go back to my examples of people who bought properties in suburban Tokyo in1994 after they had dropped 30% to 40% from their peak ‘89 prices. They thought they were getting a deal. Unfortunately, prices today are now an additional 40% or so lower than they were in 1994. That’s 20 years of price declines! As I explain on my blog (http://www.surkan.com), I think we we will be seeing a similar phenomenon unfold in the US over MANY years.
Scotsman » Jan 27, 2009 at 2:19 pm
I’m sure much of the “stickiness” comes from the fact that with transaction costs many sellers are already underwater. If you didn’t have much more than 5-10% down when you bought, you probably don’t have it now either. And having to put cash on the table to close is a reality for many potential sellers. I bet they don’t have the cash, so even if they wanted to sell they couldn’t. I personally know a couple who are in that situation.
Scotsman » Jan 27, 2009 at 2:29 pm
I’m not sure about 80% off peak, but I do know this: the only way to “miss” the bottom will be by calling it too early.
Scotsman » Jan 27, 2009 at 2:45 pm
What he misses is a recent change in the definition of money. Past analysis has focused on the number of printed dollars in circulation, a factor that the fed has some limited control over. Current thinking views cash, credit, and wealth effects as more or less equal parts of the whole we refer to as “money.” The credit availability and wealth that we have seen curtailed and/or destroyed over the last few years dwarfs the actual cash money supply. For the government to replace all of this lost spending power, they would have to print so much currency that it would essentially be rendered useless. In short, by printing in the quantities required they would make a mockery of the currency, destroying the bond market in the process, and setting the country up for revolution. Like computers, economic thought continues to evolve rapidly in the face of new developments, i.e. CDOs, etc. but not everyone keeps up. Keynesian thought is dying a slow but sure death.
jon » Jan 27, 2009 at 3:01 pm
Both Keynesiasm and Monetarism prescribe the same solution in the current situation: massive government spending. The only disagreement now is what to spend it on.
deejayoh » Jan 27, 2009 at 3:01 pm
actually, I am basing my argument on the analysis of the relationship between price changes and inventory changes. There is a very strong historical correlation
http://seattlebubble.com/blog/wp-content/uploads/2007/06/chart3ez2-tn.png
deejayoh » Jan 27, 2009 at 3:04 pm
I heard Sniglet had a podcast on deflation on his blog!
and Ray has free tee-shirts! ;^)
TheHulk » Jan 27, 2009 at 3:37 pm
People only look at headline job numbers (e.g. MSFT-5000, Caterpillar-15000) etc. With every high paying job that is lost, there are severe local repercussions. Those people immediately cut back on local services they use and discretionary spending. I wonder if there has been a case study on how many dollars are “lost” or “added” for every high paying job that is lost/added to the local economy?
In any case, I fully expect Seattle to continue falling at the same pace throughout this year ending up with another -10% YOY in 2010. Houses locally have been unaffordable for a long time. It was the easy credit bubble that helped maintain the appreciation rate for a number of years. Phoenix, LV and FL were intensely speculative and I believe they have even farther to crash. Its only when we return to inflation indexed values from the mid 90’s that this madness will end.
patient » Jan 27, 2009 at 4:28 pm
Scotsman wrote:
“I’m not sure about 80% off peak, but I do know this: the only way to “miss” the bottom will be by calling it too early.”
Amen to that.
Sarge » Jan 27, 2009 at 4:38 pm
No one can call the bottom. I expect to miss the bottom and will try to avoid the bounce. When people see an up-tick they will run out to buy ‘at the bottom’. This will cause a short term upswing as people gobble up inventory. Specuation will rule once again, prices will rise again, until the frenzy ends again and prices drop again. I expect we will see fluctuations, much like the wild swings the Dow has been going throgh, that will average out to flat growth for several years. On the plus side, speculation will be moderated by better management, and government oversite, of loan portfolios. I’m not watching for the bottom, I’m watching for stability.
anony » Jan 27, 2009 at 4:53 pm
The question is whether they can put money into the economy through the methods he describes faster than money is being destroyed by the debt bubble collapsing. Simply sending everybody checks of “printed” money isn’t going to happen.
Groundhogday » Jan 27, 2009 at 5:08 pm
If the economy was sound, I’d agree with you. As it is, we will pass 5-10% by mid-year.
patient » Jan 27, 2009 at 5:15 pm
“No one can call the bottom”. I disagree, I think the bottom will be very long and easy to call. When the price trend hasn’t moved downwards for a couple of months you will be close enough.
Sniglet » Jan 27, 2009 at 5:32 pm
As I said earlier, you need to see at least 24 months of no downward moves to conclude that we have hit a bottom. There is absolutely NO need to rush to buy at the bottom since price appreciation will be EXCRUCIATINGLY slow for a decade or more after we hit bottom. Be patient…
Groundhogday » Jan 27, 2009 at 5:41 pm
Don’t we need income growth to generate true inflation (vs. currency devaluation)? Hard to see how that happens when unemployment is shooting up.
Groundhogday » Jan 27, 2009 at 5:45 pm
“Even properties that pencil out as cash flow positive today as rentals (of which there are exceedingly few such deals on offer) likely won’t remain so as rents continue to plumet over the next few years (i.e. rental income will decrease).”
I’m with you on this one Sniglet. A friend owns rental properties in Bozeman and didn’t sell when I suggested a couple of years ago because “they are are cash flow positive, I can ride out any downturn.” Fast forward to today, rents have fallen 25%+ and he (1) is losing money every month and (2) can’t even sell the properties at a big loss. If you want to purchase rental investments, pencil in a 25% rent decline, 50% if Boeing goes into the tank.
Groundhogday » Jan 27, 2009 at 5:49 pm
Two months isn’t nearly long enough. We might very well see a spring bounce along the way down to the ultimate bottom.
But why try to find the bottom at all. If you have a stable job, purchase when own vs. rent calculations pencil out on a 5-year horizon. If you don’t have a stable job, you shouldn’t be buying a house. Period.
jon » Jan 27, 2009 at 5:56 pm
Because of the stimulus plan, governments will going around buying up materials, concrete for example. High taxes will drive up the cost of food and fuel. People that do have jobs will look for places to keep their money where the value will also go up so they keep up with government driven inflation. I think housing will be one such area, for several reasons:
The government will be building infrastructure, and that will maintain the cost of building materials and labor, which keeps the cost of replacement high.
Interest rates will be high because of government borrowing and now also the effect of cram downs. That will prevent very much new home construction. The existing inventory of houses in job centers will gradually drop and people will not be able to construct new houses because of interest rates, so there will be a limited supply.
The government sector will grow, and the jobs to build government kind of projects are usually done in population centers so they benefit the greatest number of people (there are obviously special cases like Hoover dam and military test ranges). So houses near such areas will have high value and limited supply, so price there will be strong.
Interloper » Jan 27, 2009 at 6:04 pm
Well, Boston adjusted early if you check it out. New York may be adjusting late.
Mikal » Jan 27, 2009 at 6:12 pm
If inflation hits the way some here suggest, including the article Tim pointed out, what then?
Interloper » Jan 27, 2009 at 6:20 pm
I don’t understand the argument, made more than once in this thread, that prices have to be flat for a long period before trending upward.
Maybe I’m thinking too simplistically, but price valuations (of anything) seem to be a blend of positive and negative feedback, one of which is generally winning out over the other. Perfect equilibrium — exact balancing resulting in perfectly flat price — is not a natural state. Unless you count Seattle and our equilibrium between rain and dry air: called “drizzle”.
Sniglet » Jan 27, 2009 at 7:22 pm
EconE » Jan 27, 2009 at 7:22 pm
What if deflation hits the way some suggest?
Toscano’s article wasn’t very convincing IMO.
wreckingbull » Jan 27, 2009 at 7:33 pm
Sarge is right on.
There will be several bull-traps on the way down.
Here is a thought: Forget about timing the bottom, but rather use cap rates to decide when to buy. I plan on buying when home prices have returned to their historical relationship with rents. We are not even close yet.
As far as the inflation vs. deflation argument, remember there is a new factor in play: global wage arbitrage. The inflationistas never seem to bring that up for some reason…
Mikal » Jan 27, 2009 at 7:39 pm
Thank you Ray, I mean Sniglet. Both points have a value. That is what the Fed is going to do and there is no historical precedent for what is about to happen. That is why when you read both Jon and Matthew they both sound like they both know what they are talking about even if they may both be wrong. Then fed has already pumped billions into the system. What would stop more? Maybe we will become the new Zimbabwe. The losses are mostly all on paper. I bought at the end of 2001 for my current house. I’m planning on dying in this house. I, like everyone else have lost value. But that is only value if I ever sell. Complementing Matthew makes me want to hurl.
b » Jan 27, 2009 at 7:48 pm
I think its too early to talk about inventory due to seasonality. If around March-April we are still not budging up, or have adjusted only by the delta shown in previous years, then I will agree that we have hit some sort of inventory plateau. However, I have a feeling this upcoming season is going to turn into a rush for the exits. There are a lot of people who resisted price drops last year and pulled in October to relist this year “when the market is better”. I doubt they will be pulling their listing this October…
Mikal » Jan 27, 2009 at 7:50 pm
If the dollar is worth less, that would make things produced in the US cheaper to the rest of the world. That would be worse with a strong dollar. What is your point?
EconE » Jan 27, 2009 at 8:05 pm
Perhaps this comment by R. Toscano himself in the comment section might be of interest…you know…in light of housing and all.
Can I interest you in one of those “limited in supply” condos or new homes?
That’s gonna take quite some time.
Think inflation is going to “price you out” again?
LOL!
b » Jan 27, 2009 at 8:05 pm
What would stop more? Perhaps our creditors. The fact we are a reserve currency and depend on the kindness of foreign nations to fund our everyday lifestyle puts some hampers on the old Zimbabwe inflation scenario. Its also pretty hard to stoke inflation in the midst of a recession and severe downward wage/price pressure. The Fed and Treasury are currently vomiting up as much money as they possibly can and we are still looking at deflation. What does that tell you? The only risk of inflation is if, in a few years time, we are still pumping in the money and the economy makes a great turn around they might pull the plug too late. However, considering how politically difficult it is to even get $850b in stimulus for one year when each day there are huge layoff announcements, shows that its much more likely they will pull the plug too early than too late (see Japan for reference).
Jonness » Jan 27, 2009 at 8:18 pm
“I know folks say real estate is sticky on the downside, but I would have expected prices to fall faster than they have.”
I think the decline is perfectly on target. If you look at the decline since peak chart, Seattle is right about in the middle. If you look at Japan’s decline in the heart of its bubble, you see a similar level of stickyness. From my perspective, Seattle house prices are an exact model of what a housing bubble looks like when it pops.
WA historically lags the rest of the country in recessions, so it makes sense it also lags in house price declines. It’s important to note WA also typically lags the nation during recovery. Thus I expect to see other places come closer to historical price:rent/income ratios sooner than Seattle and begin to correct while Seattle continues to take a beating. In the end, the prices must adjust to historical fundamentals, and this will happen at different rates across the country. Many places will overshoot the bottom, and Seattle could very well just touch the bottom through being supported by the leading correction elsewhere.
Although Tim says his charts are not predictive, I believe they are very predictive of the rate prices will decline when a housing bubble pops. Certainly macreconomic fundamantals can influence the rate of decline, but the overall economy is bad enough to be able to somewhat extrapolate a rough line into the future. This means continued downward pressure in Seattle.
Mikal » Jan 27, 2009 at 8:24 pm
Our creditors economies are built on the bubble of us spending money. They have alot at stake. If China’s economy isn’t growing the ruling elite are terriefied of the outcome of that. The Fed doesn’t need a vote to pump money.
b » Jan 27, 2009 at 9:18 pm
Sure, they will just call it a loss and not give us a dime again. Skyrocketing interest rates based on that should really help stoke inflation then, right? Some things are not politically tenable even if it might end up being the best situation for the country. Telling China, Russia and Japan to eat "chocolate" would not really make their people very happy. When you combine such an action with a serious global recession you might as well just launch some ICBM’s and skip the whole lead up to the war that will brew. The Fed does need a vote to pump money, Congress can revoke their charter at any time and make them an actual part of the government as they are in many other countries. We are currently in between a “rock and a hard place” as they say, I think the end game right now is to just keep things at 0% and try to prevent a deflationary spiral, massive inflation is a pipe dream at this point.
Mikal » Jan 27, 2009 at 9:41 pm
Well, congress hasn’t. And neither have the debtor countries. In fact they are embracing the dollar more as this goes on. The only downside to this is that they can’t tame the inflation on the other end.
b » Jan 27, 2009 at 10:11 pm
The Fed also hasn’t started printing yet, but they are close (they keep threatening quantitative easing). China/Japan/Russia are willing to fund a massive federal debt outlay on the altar of economic stimulus (so far). I doubt they will be willing to fund a massive stimulus on top of us devaluing their current and new debt, then they really get nothing out of it. Let me know when they have convinced their populace that what is needed is a new Marshall Plan to rebuild the US, until that happens its not politically tenable to fund our stimulus while allowing our debt to be “liberated”.
Mikal » Jan 27, 2009 at 10:39 pm
Where then is a safe place to put there money? They don’t have a vote. In some ways, they are more tied than we are. The best way in China for the government to remain in control is to promote spending. If that doesn’t work, they will toe the line.
what goes up must come down » Jan 27, 2009 at 10:43 pm
Mikal, simple question how much does gas cost today and how much did it cost last summer?
Mikal » Jan 27, 2009 at 10:56 pm
It is half off. Make your point. If we inflate it will cost a whole lot more. The devil is in the details and who knows what will happen.
b » Jan 27, 2009 at 11:03 pm
A really safe place to put their money would be to buy some assets, perhaps aircraft carriers, tanks, submarines, nuclear weapons, etc. The government can either keep the population in control with violence, money or a galvanizing enemy. They tried violence, they are currently using money, whats next?
hp » Jan 27, 2009 at 11:12 pm
How about watching MSFT, BA, SBUX, AMZN stocks to see if they bottom out. If they start hiring and growing again we have some hope of a housing bottom. Till then forget about it.
Ray Pepper » Jan 27, 2009 at 11:20 pm
Well Snig I just don’t subscribe to 80% off from Highs. In watching how quick homes sell in Sacramento and Reno when clipped 50-55% I have hard time seeing the PNW (with our ports) dropping 80%. **However** I emphasize this and it will greatly influence home buying going forward. The MANTRA of homeownership has gotten very poor. The sense of pride in owning a home has taken a serious hit. The foreclosures people are dealing with make owning a home a weight around the neck of many new Buyers. In the past it seemed everyone wanted to BUY. Now, I find many content with just renting. This will greatly affect homeownership negatively going forward in the next decade.
Mikal » Jan 27, 2009 at 11:25 pm
Perhaps, but you are guessing. The Fed is adding money to the system right now.
Scotsman » Jan 27, 2009 at 11:38 pm
It bears repeating that you can’t get inflation over the long term without rapidly rising wages. And you don’t get rapidly rising wages while you have high/increasing unemployment. All of you who think we’ll be seeing significant inflation can relax at least until we see unemployment headed down. Given what’s happened over the last month or so, I personally don’t think that’s anywhere on the horizon.
Price increases are not the same as inflation. Price increases and stable wages just mean decreases in lifestyle for a lot of unhappy consumers.
Andy » Jan 27, 2009 at 11:48 pm
Hey Guys,
Take a look at Peter Schiff’s Mortgage Banker speech in Nov 2006 – amazing how accurate this guy is. Basically, he tells 1000 mortgage brokers to find other work…
http://www.youtube.com/results?search_query=peter+schiff+mortgage+bankers&search_type
It might take time, but I would watch all eight segments…
b » Jan 27, 2009 at 11:58 pm
everyone is just guessing. so far, most guesses (and logic) point towards deflation… http://krugman.blogs.nytimes.com/2009/01/16/the-tips-spread/
patient » Jan 28, 2009 at 12:04 am
I wouldn’t worry to much about false bottoms at this stage. Look at Crystal Ball’s chart. Seattle has passed the “Event Horizon” of home values. There is not a single market who has a single plot higher than the last one after hitting Seattle’s current decline from peak. From where we are now it’s seems like prices bounces as well as a laser guided bunker buster on an Al Qaida training camp, even in spring or summer.
And I think you can forget a quick return to appreciation when we finally bottom out. Consider that americans are broke, they have no money ( the average credit card balance is something like $3000 and the avergae savings rate is negative ) and banks do no longer lend money to broke people. There is no horse power that can power any rapid appreciation. And it’s not going to change quickly during a recession/depression. Companies will not start hiring in numbers just becuase the housing market hits bottom. Housing will be limping for many, many years.
TheHulk » Jan 28, 2009 at 12:12 am
Today’s time article mentions the Case Schiller drops (http://www.time.com/time/business/article/0,8599,1874368,00.html). What I found particularly interesting was the following:
I wonder what Zelman is saying about Seattle. It would be nice to get some analysis from some other sources. (Not saying Tim isnt doing a great job by any means, but its always nice to have independent confirmation).
Angie » Jan 28, 2009 at 6:50 am
That’s not true anymore either–the rules changed last year.
Sarge » Jan 28, 2009 at 7:12 am
Thank you WreckingBull. I agree with patient. Housing prices have been driven by the Stock Market Runup, appreciating home values (the investor feedback loop) and the easy loan debacle. Prices will stabilize to what people can afford and will rise or fall with incomes unless another ‘economic engine’ drives prices up again. Which means relatively stable prices (once the bounce settles down). We need true ‘economic engines’ that drives long term growth. Innovations like electricity, automobiles, aircraft, electronics, and computers. Until we stop looking for the quick buck and start looking for innovations that provide long term growth opportunities this country will flounder and the ‘housing market’ will founder with it. As it has been said before; it is time to stop thinking of housing as a ‘market’ and start thinking of housing as a place to live.
BanteringBear » Jan 28, 2009 at 8:24 am
This just in:
“Boeing to cut 10,000 jobs.”
Sniglet » Jan 28, 2009 at 8:35 am
http://seattlebubble.com/forum/viewtopic.php?f=5&t=2014&p=18122#p18122
Scotsman » Jan 28, 2009 at 8:39 am
Bloomberg link:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8iAOfphtXQU&refer=home
Groundhogday » Jan 28, 2009 at 8:54 am
Bingo. That is also why central banks around the world were able to loosen money supply for the past 10 years without suffering significant inflation. Globalization held labor, an hence incomes, in check. We saw assets and commodities shoot up in price, but didn’t see inflation expectations grow.
Groundhogday » Jan 28, 2009 at 8:57 am
Ouch. That hurts. I wonder if any machinists lost their jobs?
casey1167 » Jan 28, 2009 at 9:10 am
The “offset” chart is just amazing…. I remember in the summer of 2007 looking at that chart and thinking Tim was a bit off on his theory, and a year and a half later the chart is spot on.
Buceri » Jan 28, 2009 at 9:16 am
2009 will be brutal. No doubt.
jon » Jan 28, 2009 at 9:48 am
So the latest news of the stimulus is $335 million for STD education. Most of the so called stimulus is a random grab bag of giveaways that will create massive entrenched interest groups that will scream bloody murder if they try to not renew those in coming years. The first half of the TARP is mostly sitting in bank vaults keeping banks from going under. That can easily be undone. The second half of TARP hasn’t gone out yet, and who knows what that will be spent on. But the stimulus bill is going to create a massive army of entitled people who, when they are not teaching sex-ed, will go straight to the malls and realtors’ offices to start spending their money. Zero new production and lots of easy money. How is that not inflationary?
Yes as prices on houses continue to fall, that is destroying money. However, in the past 6 months, housing inventory has dropped by 1 million units. When another 1,000,000 houses are taken off the market by the $800B stimulus, house price will no longer be falling, and we will have enormous deficits and lots of people demanding these spending programs continue. The result will be years of massive deficits funded by printing of treasury bills.
sf_boomerang » Jan 28, 2009 at 9:51 am
Just as another perspective on the job cuts affecting Seattle home sales..
My wife and I are currently living in San Francisco, saving aggressively for a down payment on a home. The plan was to stay in our rent-controlled apartment for a couple years, sock away money, and then move back to Seattle and buy a place.
But, part of that assumption was that I’d be able to get my old job back with Microsoft (and yes, I actually liked working there.)
The original plan was to move back to Seattle sometime in late 2009, but now that looks far less likely. Our savings isn’t the problem (knock on wood), but I need to be able to find a good job to make the move feasible.
No job, no move. No move, no home purchase. Just one story, I know… just throwing it out there.
Scotsman » Jan 28, 2009 at 9:54 am
Biggest lie about the stimulus? It looks like less than 10% of the money is for real infrastructure items and rebuilding. The majority is a cornucopia of social program pork and subsidies.
But the related debt is very real, and will be with us for a generation … or two… or three…
Scotsman » Jan 28, 2009 at 10:07 am
The money won’t be easy, because the deficit will force interest rates higher and people still won’t be able to buy a house for less than they can rent it for.
The money won’t be easy, because taxes and fees will have to be increased to pay the higher interest on the increasing federal and state debt.
The money won’t be easy, because higher unemployment will suppress wage increases and benefits.
All of the above will lead only to less freedom, less security, and less lifestyle.
Email or call your senators/congressman and tell them to vote NO!
softwarengineer » Jan 28, 2009 at 10:27 am
I KNOW WHAT YOU MEAN ANGIE
Assuming our tax laws are unchanged year to year is a good bet, but not a for sure….best check the 2008 1040 book [it keeps getting thicker every year] for today’s or last years info.
Keeping a box of receipts is a good idea now matter what, you never know what our wiley government has in store for us in bailout tax increases, any of us too, irrespective of incomes.
softwarengineer » Jan 28, 2009 at 10:31 am
10,000 BOEING LAYOFFS ANNOUNCED TODAY
Is this on top of the 4500? I hear the 7X7 is getting order cancellations today too, just as Seattle Bubble predicted.
We need more lower paid H-1Bs to rid ourselves of Seattle’s vanishing Middle Class….lol…..
Sniglet » Jan 28, 2009 at 10:42 am
I am not so sure. US deficits have been increasing for almost a decade yet the continued growing demand for (the ever more plentiful) treasuries has kept driving interest rates lower. Look at Japan. Their deficits have kept rising consistently for 20 years, yet Japanese interest rates are at all time lows.
We could wind up with a situation where interest rates are incredibly low, but the economy still tanks, with job losses and asset price declines.
I have spelled out how this can happen in my podcast on deflation. http://www.surkan.com
mukoh » Jan 28, 2009 at 11:00 am
Scotsman who said that buying a home was EVER cheaper then renting?
TheHulk » Jan 28, 2009 at 11:28 am
I see your 5500 and raise to 10000?
Roger » Jan 28, 2009 at 11:36 am
So is “social program pork” better or worse than the even more costly “wall street pork” or “military pork” we’ve been handing out for the past eight years?
Scotsman » Jan 28, 2009 at 11:39 am
Japan is dying- in part because they do have more debt than us, 160% of GNP verses 80% for the USA. Here are the growth rates by decade for Japan:
’60s…. 10%
’70s…. 5
’80s…. 4
’90s…. 1.5
’00s…. -2 All adjusted for inflation
Once the bottom is thought to be in, the money in treasuries will leave them for hard assets as an inflation hedge, even if the inflation doesn’t materialize. Japan has been able to finance its deficit at essentially zero interest during its recent deflationary past. Eventually the deflation will end, and interest rates will ramp up to the more traditional levels of 3-4%. With a national debt of over 1.5 times its GNP, what do you think happens when interest goes from zero to even 2%? What happens to the government and its budget?
Japan goes “BOOM.” Do we want the same result?
Scotsman » Jan 28, 2009 at 11:49 am
During inflationary times buying can easily be cheaper than renting as the home (asset) appreciation significantly mitigates, and in some cases can even erase, the monthly cash cost of ownership. Even J6P figured this out during the last decade. What he didn’t figure out was that it couldn’t go on forever. ;-)
Markor » Jan 28, 2009 at 12:30 pm
I’ve been looking wistfully at Hawaii rents, which in one area I like are half what they are here. When people are out of work and willing to take lower pay, they may move more readily. Add that to the mix of prediction criteria.
Scotsman » Jan 28, 2009 at 5:11 pm
Update- IMF 2009 predictions:
Eurozone -2.0%
U.S -1.6%
Japan -2.6%
Matthew Gardner Predictions vs. Reality | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area. » Feb 2, 2009 at 6:01 am
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