Q13: Now is a Once in a Lifetime Buying Experience

I filmed a brief interview for Q13 News a few weeks ago. Below is the resulting story they’re running today. If you’re a new reader that saw me on TV, welcome. Please take a few minutes to read our about page to learn more about this site.

Not too surprisingly, they put a pretty positive spin on the whole thing. The word they were getting from all the real estate “professionals” that they spoke with was essentially “buy now, look how low rates are!”

I didn’t say that now was a bad time to buy, because it isn’t. However, I also didn’t say that everyone should just jump in now and buy buy buy. Prices are still falling in Seattle, and will likely continue to fall for the next 6-12 months (at least). If getting the lowest price is important to you, now is probably a good time to take a “wait and see” approach.

I also gave the reporter the following examples of the monthly payment math based on low interest rates vs. falling home prices. The payment below refers to the total monthly payment of PITI (Principal, Interest, Tax and Insurance).

  • $400,000 home, $40,000 down, 5% interest: $2,366 payment
  • $400,000 home, $40,000 down, 4% interest: $2,152 payment
  • $360,000 home (10% price drop), $40,000 down, 5% interest: $2,113 payment
  • $360,000 home (10% price drop), $40,000 down, 6% interest: $2,314 payment (still lower than the first scenario)

In short, jumping into the home buying decision primarily because of low interest rates does not make any sense. Refer again to my five self-examination questions:

  • Do you like the home well enough to stay there for at least 5-10 years?
  • Do you feel that the home is priced fairly?
  • Can you afford it using a conventional 30-year fixed-rate loan?
  • Do you have a minimum 3-month emergency fund that is not part of your down payment?
  • Would you be able to handle it both financially and emotionally if the value of your home dropped considerably after purchase?

If the answers to all of these are yes, then maybe now is the time to buy for you. Note that interest rates only factor in to one of the above questions.

Addendum: Jillayne makes an excellent point in the comments below:

I’d like to lobby hard to add one more thing to Tim’s list: What’s your plan B if you decide that you need to sell the home (for a million different reasons) but cannot sell.

Can you RENT it out for enough to cover the payment so you can move someplace else?

Having a plan B helps a person sleep at night but maybe I’m just too fiscally conservative.

I don’t think that’s too conservative at all. You should definitely have a “Plan B.” Again, keep in mind that my five questions are a minimum. Ideally, my personal preference is to plan on stay ten years or more, have 6-12 months of cash reserves, and even be able to afford the house on a 15-year mortgage.

  

About 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.

73 comments:

  1. 1
    Buy My House, Idiot Renters! says:

    “Can you afford it using a conventional 30-year fixed-rate loan?”

    Or do you think that the Federal government will inflate the currency so much that you will get to pay the loan off in very depreciated dollars?

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  2. 2
    Ray Pepper says:

    Tim you are becoming a GOD here in Seattle. You are the next Ken Schram. You are always on TV and in the paper. BTW I think that dog is going to scratch the hardwoods. I hope he has a good finish on the floors.

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  3. 3
    Jillayne says:

    I’d like to lobby hard to add one more thing to Tim’s list: What’s your plan B if you decide that you need to sell the home (for a million different reasons) but cannot sell.

    Can you RENT it out for enough to cover the payment so you can move someplace else?

    Having a plan B helps a person sleep at night but maybe I’m just too fiscally conservative.

    Also, I didn’t know that Dean Dardzinski moved to SMBA as a staff member. Last time I saw him, he was working for MGIC, the mortgage insurance company. Oh. I now see that the reporter got it wrong.

    http://www.seattlemba.org/

    Dean is still with MGIC, he’s just President of SMBA this year.

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  4. 4
    deejayoh says:

    I think the thing people ignore with the “rates are so low” argument is the that the impact of rates going higher will likely be to suppress increases in home prices

    the fact that rates are so low today and home prices are still falling is not a good sign

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  5. 5
    michael says:

    Here is my math for the housing market. 1,400 Trillion in derivatives covered by 15 Trillion in US GDP. A house, car, or dollar is going to have any value in the near future. The banks are exponentially insolvent and no one gets it. Everybody is trying to reinflate toxic assets but it is the banks that are toxic not the assets. The losses are in SIVs so most of the Fortune 500 would be bankrupt if they had to create real financial statements not just the fiction that passes as accounting. The FDIC can not and will not cover a bank the size of Citigroup.

    It is ONLY a great time to buy Gold, Guns and Grain. Get off the grid.

    But then again I am probably a little too optimistic.

    We paid 10 Trillion to throw another bandaid on the problem. Don’t be fooled.

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  6. 6
    Sniglet says:

    Would you be able to handle it both financially and emotionally if the value of your home dropped considerably after purchase?

    This point that Tim raises is the most critical of all. In fact, I would go so far as to say that you should feel comfortable with a possible 50% drop in the value of your home (from today’s purchase price). If such an eventuality would cause you undue hardship, then you really shouldn’t be buying real-estate. Particularly NOT in a market like we have today, where the odds greatly favour significantly greater devaluation over the coming years.

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  7. 7
    Kary L. Krismer says:

    By Ray Pepper @ 2:

    Tim you are becoming a GOD here in Seattle. You are the next Ken Schram. You are always on TV and in the paper.

    God=Ken Schram. :-)

    I’d caution Tim about this exposure. Reporters are often not the brightest people (no reflection on the Q13 reporter who I’m not familiar with), and might have an agenda. The chance of being mis-quoted or quoted out of context is very high.

    I think the only piece I’ve ever been quoted on, even going back into my attorney days, is Aubrey’s piece on Ardell’s bottom call. I have an attorney former colleague that was once very upset about a piece Elizabeth Rhodes did where she was quoted. Generally my standard response to a reporter inquiry would be “no comment.”

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  8. 8
    Ray Pepper says:

    Sniglet—-50% from todays 15% drop? At the town hall meeting 2 nights ago in Gig Harbor I was admonished for being so bearish on real estate in Gig Harbor by the CEO of Venture Bank. In fact I was cut off. I wish you were there so I wasn’t the only dark horse in the room.

    The fact is this and will remain this. 4%, 3%, 2%, no %..It doesn’t matter. People will NOT stay in their upside down homes. We are a mobile society. Delaying the inevitable will not work. It remains a bandaide on a gaping wound. Sure, people feel better getting 3.25% and their payment drops. But, each and every month they make that payment knowing they are upside down 50-500k it will hurt until finally they run into one of lifes events.

    New Job, transfer, layoff, divorce, better deal, ——————-eventually it will be come a short sale or foreclosure. We are travelling down a very poor path. But another 65%? Come on Snig. Boeing closing up shop? Tech leaving the area? A calamity at the ports?

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  9. 9
    David McManus says:

    Would you be able to handle it both financially and emotionally if the value of your home dropped considerably after purchase?

    David scoffs….”Uhh…noooo…….I’d just walk away! Easy question!”

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  10. 10
    tomtom says:

    By deejayoh @ 4:

    the fact that rates are so low today and home prices are still falling is not a good sign

    Works for me.

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  11. 11
    Jillayne says:

    Hi Kary,

    I’ve had the opposite experience with reporters. All of them have been open and eager to learn what I had to share. Most journalists don’t know the ins and outs of mortgage lending and real estate and are charged with squeezing all the facts into a small space and doing it on a deadline. The things in my mind are so easy to give to another person to help them do their job. I’ve never been misquoted or had my words used in a way that I was not happy with. In fact, one magazine even had a fact checker call me a month after the interview to confirm what was quoted for the story.

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  12. 12
    bob says:

    RE: Sniglet @ 6

    Sniglet

    I know, I know…Japan did this, Japan did that…but 50% further down?

    I like this post from Scotsman:

    It’s great to use simplified relationships as a teaching tool, or when seeking to understand a part of how pricing mechanisms work. But it’s foolish to assume that any one factor dominates a model. In short, although they make for great blog posts, there aren’t any easy answers that are likely to be accurate.
    One way to improve the accuracy of predictions is to focus on changes over time instead of only for a given point in time. This forces one to ask questions about the deltas in employment, supply, regulations, and future expectations, all factors that tend to get overlooked in short time analysis.

    Even these folks at UCLA realize it all a hunch at this point…how can you me so convinced?

    http://marketplace.publicradio.org/display/web/2009/03/25/pm_forecasting_q/

    (I think I just need to listen to a podcast)

    Cheers

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  13. 13
    Lake Hills Renter says:

    “We hear all the experts saying it — now is a great time to buy.”

    What experts? Real estate agents are not experts, they’re salesmen (not that there’s anything wrong with that). I was surprised to hear “good news” and “home prices dropping” in the same sentence, though. I think that’s a first.

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  14. 14
    Ray Pepper says:

    RE: Jillayne @ 11

    My experience is the reporters all have a set agenda. They know what they want to hear and ask the questions that pertain to the goals of the story. They edit the rest out.

    I’m always eager to tell them what they want to hear. But, its just so sad……………….They always edit out what I WANT TO BE HEARD……………….not for long though……….

    Lake Hills trust me when i say this….I AM AN EXPERT…Just ask me, my wife, or my parents….Wait a sec………..not my wife….

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  15. 15
    tomtom says:

    Experts say you’re probably not going to see a buying experience like this again in your lifetime.

    Buy now or be priced out of the market, forever!

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  16. 16
    Herman says:

    Tim – great press for the blog – but please flex your style for the sound-bite format of TV news. Your nuanced and thoughtful arguments are great for the blog format, but TV calls for simpler and more pointed messages. On the occasions I’ve been on TV and radio, I write down my key messages and rehearse them until I can wrap them into any sentence.

    I think your message was:

    (1) Low interest rates don’t automatically mean it’s a great time to buy.
    (2) Even with the declines, we’re still at historically high prices and they have plenty of room to fall.
    (3) You don’t want to lock in an inflated home price just to get a low interest rate.
    (4) Remember, you can refinance if interest rates fall but you can’t change the price you paid.

    The host led with the point (1), and you got the last point in (4) but not clearly, and not tied in with the “so what?” of (2) and (3).

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  17. 17
    what goes up must come down says:

    Oh now that is rich Kary: Reporters are often not the brightest people (no reflection on the Q13 reporter who I’m not familiar with), and might have an agenda

    Hmmm, who else might have an agenda? Would it be sales people?

    Kary I know I seem to be giving you a hard time but I am not trying to you seem to be a little to much buy now. Can I ask you the last time you bought a car did you research it, I mean Consumers Report, online search for recalls, National Transportation Safety report, JD Powers, etc….. or did you just go in to the show room and have the Professional the man in the know — car salesman say hey this is the model for you, you look like a convertible guy?

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  18. 18
    Kary L. Krismer says:

    By what goes up must come down @ 17:

    Kary I know I seem to be giving you a hard time but I am not trying to you seem to be a little to much buy now. Can I ask you the last time you bought a car did you research it, I mean Consumers Report, online search for recalls, National Transportation Safety report, JD Powers, etc….. or did you just go in to the show room and have the Professional the man in the know — car salesman say hey this is the model for you, you look like a convertible guy?

    I guess I missed the Internet site that does independent reviews of individual houses. ;-)

    I think you’re missing my point, or assuming the wrong point. I’m not saying buy now. What I’ve always said is buy when other factors in your life lead you to that decision. I don’t really view the individual house as being primarily an investment decision as much as a lifestyle choice. Different people will have different opinions on whether prices are going up or going down, and that undoubtedly affects their decision. I don’t try to change their opinion on whether the market will be headed up or down because I don’t know which way it will head. I don’t think anyone does.

    But on the topic of cars, there are buyer’s services, where someone will for a fee negotiate the terms on a car purchase for you. I’ve never used one, but maybe I should. They could probably get a better deal for me, because my goal is to get out of the dealership as quickly as possible. Even if their price was $500 more than what I could negotiate, that would probably be worth it to me simply to avoid the dealership experience.

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  19. 19
    Kary L. Krismer says:

    By Jillayne @ 11:

    I’ve never been misquoted or had my words used in a way that I was not happy with. In fact, one magazine even had a fact checker call me a month after the interview to confirm what was quoted for the story.

    I would think that risk would be less with a magazine. Part of the problem with the daily media is they’re working constantly against deadlines, and that results in a lot of errors.

    Just yesterday the Times had a Washington Post article that claimed that under current bankruptcy law you couldn’t discharge credit card debt in Chapter 7 or Chapter 13. That’s a fairly respected source, but they were completely wrong.

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  20. 20
    BubbleBuyer says:

    I have a hard time with people that ask a real estate agent whether now is a good time to buy and by extension, tv or newspaper bits that make this claim. After all, you wouldn’t go to a car dealership and ask the salesman whether you should buy a car. You go to a Realtor (should you elect to use one) once you have made the decision to buy a home.

    The only advice you would consider from the agent is whether the house you are interested in is fairly priced based on comparables. And this advice should be weighed against your own comparable research and several valuation approaches. Since the comparables are backward looking, your decision to buy now is driven by your view on interest rates and real estate price trends. If you are not comfortable with or do not have a view you should not buy. The other point I will make is that I think it is very hard to find a SFR in a desirable Seattle neighborhood that comes close to cash flowing based on 20% or less down even at today’s low interest rates.

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  21. 21
    CCG says:

    “At the town hall meeting 2 nights ago in Gig Harbor I was admonished for being so bearish on real estate in Gig Harbor by the CEO of Venture Bank. In fact I was cut off.”

    ‘The masses have never thirsted after truth. Whoever supplies them with lies is their master; whoever supplies them with truth is their victim.’ – Gustav Le Bon

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  22. 22
    DavidB says:

    I’d like to see a follow up on this story in 6 months when prices will be lower and interest rates will likely still be low.

    Why is there always so much talk about missing the bottom in real estate prices? Homes don’t rise and fall like stocks. I expect when we hit bottom prices will stay flat or fluctuate within a 1 – 3 % range. Missing the bottom is simply another technique the realtors are using to say “buy now”.

    We’ve been hearing for quite a while now that we should buy now or we’ll miss the great selection of homes, low interest rates, etc. This sales technique is really getting old! Those of us that have waited have been rewarded with lower home prices and lower interest rates.

    Why should we think that home prices won’t be lower in 6 months and we’ll still get a low interest rate?

    If interest rates increase then I expect home prices will fall even further. I agree with Tim’s comment that I’d rather pay a fair price and have the opportunity to refinance at a later date then to pay too much for a home now simply to get a “low” interest rate.

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  23. 23
    Scotsman says:

    Hey, if you’re new to this blog- welcome!

    Don’t by a house now. No matter what your “good reasons” are, there are dozens more not to buy right now.
    Search this site and discover some of them. I’ll promise you this: there is absolutely no chance that house you think you need today will be worth more in a year. But there is an excellent chance it will be worth less. And there is a great chance that in two years, if you still have a good job or business, that you’ll be able to buy a house you never thought you could afford. It’s basic risk/return analysis. There is zero risk you’ll miss out on a once in a lifetime deal if you don’t buy now, as there will be ever more great deals available soon. And there is the possibility, as I stated earlier, that you may be able to buy something you previously only dreamed of.

    Study, learn, and wait.

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  24. 24
    mukoh says:

    This all stems to WHAT you are buying. If you are buying a new condo for 10% off its 07 price. Yeah, good luck. If you are buying a house or investment at 1999 price then everyone has to do their own D&D and come up with an answer.

    People who make blanket assessment of when is a good time, and likewise not a good time need to do it on CASE BY CASE. My friend just bought 54 residential lots in California for $11k a lot.
    These were $120k in the peak. Bad idea or not? Who knows. His holding costs are 0.

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  25. 25
    mukoh says:

    By Scotsman @ 23:

    Hey, if you’re new to this blog- welcome!

    Don’t by a house now. No matter what your “good reasons” are, there are dozens more not to buy right now.
    Search this site and discover some of them. I’ll promise you this: there is absolutely no chance that house you think you need today will be worth more in a year. But there is an excellent chance it will be worth less. And there is a great chance that in two years, if you still have a good job or business, that you’ll be able to buy a house you never thought you could afford. It’s basic risk/return analysis. There is zero risk you’ll miss out on a once in a lifetime deal if you don’t buy now, as there will be ever more great deals available soon. And there is the possibility, as I stated earlier, that you may be able to buy something you previously only dreamed of.

    Study, learn, and wait.

    Scotsman DEPENDS ON WHAT YOU ARE BUYING. Once again.

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  26. 26
    Scotsman says:

    RE: mukoh @ 25

    No, I don’t think it does, and certainly not if it’s my money.

    I truly believe there is zero chance any of this will cost more by next year. And there is a decent chance many can’t even imagine the world we will live in two years from now. If I’m wrong, I win, because the worst didn’t happen and the world is a healthy place. If I’m right, I win, because I’m prepared while most are not.

    Who should I listen to? God gave me an unusually capable brain, and circumstance allowed me a top flight education. Both lead me to believe our current situation will not end well. There’s saying that “good is the enemy of great”, the idea being that folks settle too soon or accept less than could be because of impatience and short-sightedness. I speak up and encourage people to wait because as I see it there is nothing to lose and much to gain. But to each their own, we’re all adults, and I respect every individual’s right to do as they please. Cheers.

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  27. 27
    PublicEnemy#1 says:

    We are in a bear trap right now, IMHO!

    Come this Fall, these early Spring buyers (Who are buying because they like the way the home is/was “staged”?????) are going to be wishing they hadn’t

    I am in the Sniglet camp, we still have a LONG way to drop…

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  28. 28
    David Losh says:

    Tim, you did a great job. It was a clear message, very much to the point.

    Now about the agent with the big hair saying it is a great time to buy. Come on, nobody going to jump on that? She certainly sold that guy a town house and no matter how much money they threw at him, he got screwed.

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  29. 29
    mukoh says:

    By Scotsman @ 26:

    RE: mukoh @ 25

    Who should I listen to? God gave me an unusually capable brain, and circumstance allowed me a top flight education. Both lead me to believe our current situation will not end well. There’s saying that “good is the enemy of great”, the idea being that folks settle too soon or accept less than could be because of impatience and short-sightedness. I speak up and encourage people to wait because as I see it there is nothing to lose and much to gain. But to each their own, we’re all adults, and I respect every individual’s right to do as they please. Cheers.

    Well of course since you bring up the “G” word you gotta be capable. However I was referring to not buying just about anything, but depending on WHAT the person is buying.

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  30. 30
    mukoh says:

    By David Losh @ 28:

    Tim, you did a great job. It was a clear message, very much to the point.

    Now about the agent with the big hair saying it is a great time to buy. Come on, nobody going to jump on that? She certainly sold that guy a town house and no matter how much money they threw at him, he got screwed.

    David,
    If that 1940s teardown fixed up and pretty you have listed for the last few months for a whopping $900k gets sold is it a good deal?

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  31. 31
    Objectivity says:

    Tim-

    You don’t have to be unbias. The name of your site ‘seatlle bubble’ for gosh sakes!!

    So long as your opinion is backed by credible data, you will not be discredited.

    In fact, the more bearish you are in these interviews, the more legendary you will become when your logic proves to be true.

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  32. 32
    Objectivity says:

    Sniglet-

    Are you still arguing deflation after we continue to print insane amounts of money?

    I was in your camp, but now I’m not so sure. I’m thinking we may be headed for intense stagflation.

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  33. 33
    Sniglet says:

    Are you still arguing deflation after we continue to print insane amounts of money?

    Yes, I still believe in the deflation scenario. Keep in mind that the VAST majority of the money the governments are spending are coming from debt issuance. Only a very small portion is being created “from thin air”. The Fed has announced they are starting to buy T-bills, but the sum of what they are creating is less than $2 trillion. That is nothing compared to the more than $52 trillion in outstanding US private debt, or the greater than $50 trillion in annual global private debt creation that had been common up until 2006.

    The world’s governments will have to do a LOT more to turn the deflation corner.

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  34. 34
    alex says:

    RE: Buy My House, Idiot Renters! @ 1

    I like looking at it this way!

    “Should I buy those cool new Nikeys, or should I pay off my house?” :)

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  35. 35
    tomtom says:

    By David Losh @ 28:

    Now about the agent with the big hair saying it is a great time to buy. Come on, nobody going to jump on that?

    I’d jump on that.

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  36. 36
    sead97 says:

    By mukoh @ 24:

    My friend just bought 54 residential lots in California for $11k a lot.
    These were $120k in the peak. Bad idea or not? Who knows. His holding costs are 0.

    I’d say your friend’s holding costs are the costs of capital on $600K (call it $30K), plus taxes (?). I’m not saying it’s not a smart move… time will tell. At a minimum he can grow food there when our society falls apart.

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  37. 37
    Ray Pepper says:

    RE: tomtom @ 35

    too funny!

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  38. 38
    sead97 says:

    By PublicEnemy#1 @ 27:

    We are in a bear trap right now, IMHO!

    Come this Fall, these early Spring buyers (Who are buying because they like the way the home is/was “staged”?????) are going to be wishing they hadn’t

    I am in the Sniglet camp, we still have a LONG way to drop…

    Past bubbles have taken 6 years to fully deflate. Now, a mere 2 years after the Seattle peak (in the biggest bubble in history) it’s all over? There’s certainly lots of wishful thinking out there…but I’m hard pressed to find facts that support it.

    Frustrating that it takes so long to work out…. if only it were like the stock market where no sane person can believe their share of MSFT is worth $50 when you can see the current price printed in the newspaper. People’s ability to delude themselves never ceases to amaze.

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  39. 39

    @Sead97

    I believe your right about the the bubble, and there’s is little doubt that Seattle’s housing prices are going to continue to fall. Trying to guess the bottom is fruitless in my opinion. What makes sense to me you is to make clear your “Home Buying Profile”. How much you make, how stable your job is, what you’re currently paying in rent, how your assets are divided, etc. Once you’ve taken these things into consideration you can begin to decide whether or not now is the right time to buy.

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  40. 40
    deejayoh says:

    I got a Polident ad to kick off the video. Nice targeting. Thanks, but I have all my teeth.

    It was about as useful as the advice about market timing: “Data won’t show the bottom until 9 to 12 months after it occurs”

    WTF?

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  41. 41
    patient says:

    “I didn’t say that now was a bad time to buy, because it isn’t”

    Hmmm…I respect you Tim but I sometimes think that you are trying to hard to be accepted by the very industry whose propaganda this blog is a counter part to. A voice of reason in the swamp of lies and dirty sales tactics.

    Imo there might not have been a worse time to buy a home in Seattle. If you bought at the top of bubble you could still get out pretty unharmed when you realized your mistake, the deflation started slowly. Now however the pace is higher than ever and the volume is lower than ever. The chance to unload a home now and not take a severe loss ( could easily be 10% or more ) is close to zero. It even questionable if a home bough today will be worth more in 10 years time. It’s a terrible time to buy, really.

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  42. 42
    Dave0 says:

    By michael @ 5:

    It is ONLY a great time to buy Gold, Guns and Grain. Get off the grid.

    But then again I am probably a little too optimistic.

    We paid 10 Trillion to throw another bandaid on the problem. Don’t be fooled.

    Always got to make sure there is one good dose of crazy in each post’s comments. I wouldn’t want to go into withdrawl.

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  43. 43
    Tim McB says:

    So not to be a contrarian but I’ve been looking at the numbers and I’d like to throw out a couple ideas. My wife and I are sitting on the fence right now. I ran the numbers for a $350,000 loan 30 year fixed loan at 4.5% and it comes out to $1773.40 per month. At 6.5% interest the mortgage loan would have to be roughly $280,500 to get the same payment. At 7.5% per month the loan would have to be approx. $253,500. My point? I think the “bottom” for some people (my wife and I) won’t be the true bottom (price) but where the lowest rate and the lowest price intersect. Its almost impossible to predict, but it shows me that rates do matter especially for my wife and I who want to purchase a home and live in it for 30 years like both of our parents have. I believe that rates now and for the next 6-12 months will be the lowest for a while and then spike up. The federal gov’t can’t artificially keep buying down the rate forever. Or can they?

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  44. 44
    sead97 says:

    By Real Estate Raj @ 39:

    @Sead97

    Trying to guess the bottom is fruitless in my opinion.

    If people were truly “guessing” I’d agree with you. But I think there’s plenty of data, history and other resources that allow all of us to make informed, educated assessments. Tim detailed 5 methods recently of identifying a bottom, or at least when pricing is back in line with historical norms.

    I’d assert that most people buying today know there is likely significant downside, but are too impatient to wait (for good or bad reasons). Or maybe I’m too optimisic – the financial illiteracy in this country is truly breathtaking.

    I could buy today. I could afford a 20% hit. But why? Not buying does not equal homelessness.

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  45. 45
    Colin says:

    That’s why Question 1 of Tim’s 5 questions is there, Patient!

    Nor is it all that easy to get out at the top of bubbles, especially the top is no easier to call than the bottom — plenty of places are now on offer at prices 25% below 2005/06 selling prices, suggesting owners failed to perceive their situation. A liquid asset real estate is not.

    So yeah, if you’re buying as a speculative asset you’d better be really good at spotting value. But just as a place to live … if you do the rent/own calculations,and if you qualify, the lower mortgage rates make a real difference.

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  46. 46
    patient says:

    ” if you do the rent/own calculations,and if you qualify, the lower mortgage rates make a real difference”

    Prices are most likely still very much set from what people can afford, today that ain’t much and that’s why you see prices falling. The enlightened people who wait due to having done some homework are probably still very much in minority. That’s why the low interest rates or high interest doesn’t matter much. As long as people buy what they can afford it pretty much evens out, low interest rates higher prices, high interest rates lower prices. And a lower price is nomrally better than a low interest rate since interest rates are changing but you are stuck with the price. Be patient, it will pay off.

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  47. 47

    RE: Tim McB @ 43

    I think as long as home sales are in the tank, the federal Gov will continue to artificially buy down the mortgage rates. They have to be seen as helping the housing industry and to help create jobs. So I don’t think in the next 9 months at least there’s going to be a lot of changes in the 30 yr fixed mortgage rates…But you’re right: interest rates absolutely are a big factor in determining your monthly payment and also the loan amount you’ll get.
    Often there is also a relationship between home prices and interest rates: Home prices often rise when interest rates are low, and shrink when they’re high, although right now home prices are dropping and interest rates are low.
    But back to your question: A robust economy includes a robust housing industry, and governments don’t tend to stay uninvolved. Interest rate drops will help pick up the housing market, but prices probably haven’t dropped enough to make much of a difference.
    Also, people are fearful right now and uncertain: They’re not buying personal computers or flat screen TVs or cars, so even with low interest rates, people still see a house as a big commitment in scary times.

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  48. 48
    Tim McB says:

    Patient,

    Yes, that’s true if interest rates go up then prices will come down but at some point people won’t be able to sell their property at all because it will be for a loss. So they’ll be forced to hold onto it. Probably for every one short sale or foreclosed property there’s 2 or 3 owners on the sidelines who want to sell but are “waiting ’til next year (or 2 years) to sell”. Plus there’s a good chance rates will go back up when the market picks back up. Money magazine is calling a bottom Seattle’s market by Q4 2009.

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  49. 49
    Tim McB says:

    Ira,

    Good point about fear a part in this, but I wonder how long the fed can hold down rates before they are politically/economically unable to do so. Wasn’t it in the ’70’s that interest rates on homes and other types of loans went through the roof and we had very little recourse to do much about it? (I was born after the 70’s so I don’t know) Can we keep injecting $750 billion just to buy down rates? I’m just not sure. Plus, since many have pointed out we seem to be a year behind the curve is it possible that when the national market turns the corner on this and rates inch back up that our market “bottom” will see higher interest rates at that time? It could be. I’d be curious to see a graph with today’s home prices and how far interest rates would need to fall to make a house affordable in the King County area. Or Conversely, if rates rise (say to 5, 5.5, 6, 6.5 … 8.5 percent) how far prices would have to fall to make up the difference and keep the payment and end price the same.

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  50. 50
    The Tim says:

    By Tim McB @ 48:

    Money magazine is calling a bottom Seattle’s market by Q4 2009.

    You may want to reconsider how much faith you’re putting in any kind of predictions from Money Magazine.

    In June 2007, one month before Seattle’s housing market peaked (in prices—sales volume was already sliding), they published this piece: Bust? What Bust? — Where the housing boom goes on:

    In the middle of a nationwide housing slump, a few markets have held their ground – and then some.

    So what have they get that other markets don’t?

    The main ingredient is a set of positive fundamentals, including strong job and population growth, which then fuel demand for houses.

    In Seattle, many residents can find high-paying work in the tech industry in an area with an unemployment rate recently under 4 percent. A hot job market has drawn workers from outside, adding to housing demand.

    Again, at the time they published that article, housing demand (as measured by pending sales) in King County had been steadily declining for 20 months.

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  51. 51
    Tim McB says:

    The Tim,

    Touchet. You must have an article like that for every major newsource. What I find funny about it is that it says “In Seattle, for example, the median home sale price was $380,200 during the first three months of 2007.” If that were true than we haven’t had hardly any price declines at all. Correct me if I’m wrong here but in your most recent post you list $375,000 ($-4,800) as the current price of a home in King County and I bet its even higher now in Seattle. So the credability of that author went right out the window. Don’t get me wrong my wife and I are waiting another 6-12 months but I think that there might be some on the blog who have a “doomsday” perspective who probably will miss a good opportunity. Its certainly doesn’t hurt to wait but at some point rates will climb, not drop.

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  52. 52
    The Tim says:

    RE: Tim McB @ 51 – You bring up another issue I have with the CNN/Money Magazine articles: they never specify exactly what data they’re talking about. I consistently quote median King County single-family stats, unless specifically stated otherwise. The number in that article may have been single-family + condo, it may have been county-wide or just the Seattle city limits… who knows? They don’t say.

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  53. 53
    David Losh says:

    RE: tomtom @ 35

    Exactly.

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  54. 54
    David Losh says:

    RE: mukoh @ 30

    Thank you,

    That is a 1920s classic. It was listed for $1.2 million dollars when it was referred to me. It had a pending sale in 2004 for $800K. It sits on 8000 sq ft of dirt on a peninsula lot. To the south is a power line easement that allowed the property to be built to the property line to the south.
    That addition which contains the commercial kitchen was built as a mother in law, but not permitted as one. There is a second full kitchen on the lower level with western exposure. The wiring has been fully updated within the original plaster walls. Those arched windows are wrapped with the original mahogany trim.

    All said and done the experience of the house is where the value is. I can count about two dozen of these stucco 1920 houses in the North end. This is by far the biggest and best preserved. It has all the features of the coved ceilings, plaster fireplace, large dining room, and the mahogany I already mentioned. All has been tastefully updated in a common sense practical way.

    Look at the landscaping, deck and patio. The indoor outdoor privacy makes this an entertainment dream. The house has been exhaustively photographed for both architecture and fashion.

    These are reasonable people who did the work to keep the house intact. The last house they sold the person who bought it gutted it and left it. They want a buyer who will appreciate the house or they will just keep it.

    No one has objected to the price. Once you see the house you either love it or hate it.

    To help make the point: some properties are priceless, others are numbers. I don’t like town house and think they are a number purchase that makes no sense. I have buddies who build em and there are people who buy them.

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  55. 55
    Kary L. Krismer says:

    RE: The Tim @ 50 – And as I like to point out, Money Magazine in October 2002 picked Seattle as a city likely to be “ready to burst.” In May 2008 they predicted we’d be off 9% in May 2009.

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  56. 56
    Kary L. Krismer says:

    By The Tim @ 52:

    RE: Tim McB @ 51 – You bring up another issue I have with the CNN/Money Magazine articles: they never specify exactly what data they’re talking about. I consistently quote median King County single-family stats, unless specifically stated otherwise. The number in that article may have been single-family + condo, it may have been county-wide or just the Seattle city limits… who knows? They don’t say.

    I remember a couple of years ago Elizabeth Rhodes highlighted condo+residential because that was down, even though both condo and residential each separately were up. The combination was down because there were more condos in the mix, and condos tend to have lower prices.

    So the media bias goes both ways. It just depends on what their agenda happens to be at the moment.

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  57. 57
    sead97 says:

    By Tim McB @ 43:

    My point? I think the “bottom” for some people (my wife and I) won’t be the true bottom (price) but where the lowest rate and the lowest price intersect. Its almost impossible to predict, but it shows me that rates do matter especially for my wife and I who want to purchase a home and live in it for 30 years like both of our parents have. I believe that rates now and for the next 6-12 months will be the lowest for a while and then spike up.

    If you think only in terms of monthly payment….stop reading here.

    I did some quick back-of-the-envelope breakeven math on higher interest rates v. lower prices (though I believe rates will be low until housing stabilizes). That said, the breakeven points (based on 33% marginal tax rate) relative to a current 4.75% fixed rate:

    If you own the home 30 years: 5.5% if another 10% drop in prices, 6.4% if 20% drop

    15 years: 6.0% if 10% drop, 7.6% if 20% drop

    5 years: 8.2% if 10% drop, 12.6% if 20% drop

    In other words, if you believe prices will drop another 20% and you’ll own the home 5 years (or pay off the mortgage within 5 years), you really shouldn’t care a lick about interest rates. On the other hand, if you really believe you’ll own the home 30 years and will not pay it off early, then you will probably want to watch rates pretty closely and be able to act quickly if they start pointing up.

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  58. 58
    deejayoh says:

    RE: David Losh @ 54

    wait – you mean this one? http://www.redfin.com/WA/Seattle/2717-11th-Ave-W-98119/home/129169

    No one has objected to price?

    C’mon. Pull the other one. You listed it, what – more than a year ago? And the original (and still valid, according to the site) list price was $1.1mm. Then you relist it on MLS (is that ok by the rules, BTW? tsk tsk) at $950k, and now it is further reduced on MLS to $919k and on Zillow to $900k.

    If anyone has figured out the price, they sure aren’t paying it.

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  59. 59
    Scotsman says:

    RE: deejayoh @ 58

    I dunno, $699,000 would still be over $200 per square foot AND leave some money for redecorating. After all, not everyone is up for guacamole 24/7.

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  60. 60
    Tim McB says:

    By sead97 @ 57:

    On the other hand, if you really believe you’ll own the home 30 years and will not pay it off early, then you will probably want to watch rates pretty closely and be able to act quickly if they start pointing up.

    Exactly, many people will miss out on this opportunity. For us its living in-city in a house that’s big enough for children and a mortgage that doesn’t abliterate the budget. For others its that condo, or waterfront property, etc. Now more than ever is the time to as Ray says it go find that “gem”. If we don’t then we could be upside down 5 years in when we are trying to sell or at least trying to break even. Most people are advising purchasers to stay in a home 7-10 years minumum in this environment so 5 years doesn’t seem on the table unless you can pay for it in 5 years and if you can do that you probably shouldn’t have taken out the mortgage anyway, since you could have paid for it in cash after saving for a few years. But I’d guess most people can’t do that with median prices at $375,000. Even with prices dropping another 30% thats $262,500 an amount most couldn’t save or pay out in 5 years. I think those who have a long term perspective on things are going to be the winners (both in the housing and stock market) in these new state of affairs.

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  61. 61
    Groundhogday says:

    By Real Estate Raj @ 39:

    @Sead97
    Trying to guess the bottom is fruitless in my opinion.

    RE: Real Estate Raj @ 39RE: Lake Hills Renter @ 13

    I agree with the general thrust of your argument–go ahead a buy if it makes financial and personal sense to do so (regardless of whether prices have hit bottom). But let me also suggest that as Chris Thornberg has said repeatedly, when housing prices hit bottom they splat. So no one has to worry about prices bouncing off the bottom.

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  62. 62
    David Losh says:

    RE: deejayoh @ 58

    What they want is an offer.

    I’ve explained agents only write offers when the price is lowered. The house up the street used that tactic and sold for $865K, 2927 11th Avenue West. This is a better house and lot, in my opinion.

    The price per sq ft in the quarter mile radius at 3000 sq ft of house is $293 per and my client is at $270 per.

    So they have agreed to the price reductions we are in the process of making.

    Here is an interesting point. If you like the house as people have liked the house, why would the agents resist making a written offer?

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  63. 63
    Scotsman says:

    Back to basics! Home prices are all about affordability, a function of income and interest rates. With the demise of lax financing standards and shrinking pools of both income and qualified buyers, prices are under significant pressure to fall. When interest rates do increase as a response to our government’s excessive indebtedness this will only accelerate the drop in home prices. Rates may be low, but home prices are still much too high. Any increase in rates can only force prices down. And under current circumstances, I personally think the reaction in prices will be out of proportion to the rate increases- you’ll save much more in price than the higher rates may cost you.

    That said, I can see the government working to subsidize or buy down future mortgage rates even though rates as a whole may have risen throughout the economy. Housing, especially new construction, is so central to a healthy economy that it would be easy to justify such intervention even if it represents a huge distortion to the market as a whole. I expect buy-down options, whether through sellers, financiers, or the government will become much more common. But the rent verses own calculation will still rule the day, and prices must continue to fall until the cost to own more closely approximates the cost to rent. That happy juxaposition of bottomed prices and record low rates will happen when both factors are lying dead on the floor…

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  64. 64
    Jonness says:

    First of all, I would like to thank and congratulate Tim for a job well done. The reporter put the typical BS spin on the article, but Tim injected some logic into the scene. Not all of his thoughts were used, but at least some of them made it in the story. On that note, I have to thank the reporter for showing a broader story thant he typical NAR-only viewpoint. That’s much appreciated.

    Now on to Ray Pepper, my fellow American with a mutual interest in the Gig Harbor RE scene.

    “Sniglet—-50% from todays 15% drop? At the town hall meeting 2 nights ago in Gig Harbor I was admonished for being so bearish on real estate in Gig Harbor by the CEO of Venture Bank.”

    My question to you Ray is, how much would this house have gone for at the peak of the bubble? I love the house. Unfortunately, I can’t afford it, but out of curiosity I’m wondering how far off the peak price it is.

    http://www.redfin.com/WA/Gig-Harbor/1125-Aqua-Vista-Dr-NW-98335/home/2722652

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  65. 65
    mukoh says:

    RE: deejayoh @ 58 – LOL David is just trying to fuzz it up with these fancy realtor terms like one of a kind, on a whole whopping 8000 sq ft lot, and its a classic. Which in terms means old. I am sure a house that has been on the market for 300+ days is fairly priced as the market shows. LOL

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  66. 66
    mukoh says:

    By David Losh @ 62:

    RE: deejayoh @ 58

    What they want is an offer.

    I’ve explained agents only write offers when the price is lowered. The house up the street used that tactic and sold for $865K, 2927 11th Avenue West. This is a better house and lot, in my opinion.

    The price per sq ft in the quarter mile radius at 3000 sq ft of house is $293 per and my client is at $270 per.

    So they have agreed to the price reductions we are in the process of making.

    Here is an interesting point. If you like the house as people have liked the house, why would the agents resist making a written offer?

    David you have two different prices on the freaking house, one on website and one on MLS. LOLz. The MLS history peeking in through my friends ID is hilarious. Thats why there are no offers, everyone is waiting for the court house steps sale.
    A house surrounded on three sides by streets is not exactly private, escape for $900k.
    I can get an Innis Arden on foreclosure for $700k right now on the bluffs.

    And at the same time you are the one that yells that the whole industry is fraud, mortgage, realtor, EVERYONE and you work for Windermere? Does your broker know that?

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  67. 67

    David Losh said:

    “Here is an interesting point. If you like the house as people have liked the house, why would the agents resist making a written offer? ”

    Maybe because they’ve heard the stories about the listing agent? :)

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  68. 68
    David Losh says:

    RE: mukoh @ 66

    You make absolutely no sense. Does my broker know what?

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  69. 69
    David Losh says:

    RE: Ira sacharoff @ 67

    They have.

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  70. 70
    mukoh says:

    By David Losh @ 68:

    RE: mukoh @ 66

    You make absolutely no sense. Does my broker know what?

    David, does your broker Edie Pew know that you are on multiple posts on seattle blogs posting that mortgages are fraud, industry is fraud, and so on? Its not sense. I was raised around people like Will Mcmahon and new owner of M2 who would have some whiner signed off by morning. Or has Windermere adjusted to the tough times that much?

    You ramble for days about how industry is flawed and fraudulent, yet you are the same part time agent that makes it look like a game for most agents, and at the same time you have a Windermere Broker approving your transactions?

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  71. 71
    David Losh says:

    RE: mukoh @ 70

    Again you make absolutely no sense.

    Rate this comment: Thumb up 0

  72. 72
    David Losh says:

    RE: deejayoh @ 58

    You were probably referring to the photo web site that had the incorrect price on it. I changed that. Thanks

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  73. 73
    Jonness says:

    Sniglet—-50% from todays 15% drop? At the town hall meeting 2 nights ago in Gig Harbor I was admonished for being so bearish on real estate in Gig Harbor by the CEO of Venture Bank.”

    If you think he’s ticked off now, just wait a month. His stock in the bank will have gone to zero, and he’ll be looking for a job wrapping hamburgers at McDonalds. Only one more month, and he’s going to get a lesson in the reality of realty.

    http://www.theolympian.com/southsound/story/802193.html

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