The cover story in month’s issue of Seattle Metropolitan Magazine is an in-depth look at current state of the local real estate market, and it’s definitely worth checking out.
Much of the data from the piece can be found online: Buy? Sell? Or Hold on for Dear Life?
You can tell that Matthew Halverson put a lot more effort into this piece than the typical magazine puff pieces that merely repeat the cheerleading lines from local real estate professionals.
Take the time to check out the mini-features, especially Why does the thought of becoming a homeowner make me feel crazy? which contains the following gems:
Homeownership has been compared to a rite of passage, similar to, say, losing your virginity. Why is that? Calling it a rite of passage is a good way of putting it. We have an enormous cultural expectation on homes and what they convey or what they mean. So it’s kind of a litmus test, if you will, of success and what all that means for anybody.
Yes, but we’re in America, where ownership equals success and a rental symbolizes coming up short. Why do people equate houses with success? I think consumerism is a factor, particularly if you’ve got someone who keeps on buying something they can’t afford. But I think it’s almost, first, an unchecked assumption: Unless you’re very poor, you will probably think that being able to buy something and own a piece of ground will be a mark of success in life. And it’s gotten to this point now that some people don’t just expect it, they demand it.
Also be sure to read I’ve outgrown my current home. Should I buy now or should I wait? which includes advice from Seattle Bubble favorite Jillayne Schlicke and yours truly.
If you enjoy the piece, I highly encourage you to go out and actually pick up the physical magazine to show some financial support to level-headed reporting in real estate. Tip: Costco sells Seattle Metropolitan for $3.50, 30% off the regular newsstand price.
Kary L. Krismer » Mar 28, 2009 at 7:10 am
I haven’t checked them out yet, but a couple of comments on what is in your piece.
First, I would expect a magazine to be better because they don’t have the same time constraints as the daily media. The daily media just seems to run around at a frantic pace trying to find someone to say something, then they report that, and then they move on to tomorrow’s topic.
Second, as to why houses are a symbol of success, I’ve often wondered the same thing about cars. In fact, I feel about cars the way many of you feel about real estate. Over-priced, over-rated and not affordable. Both tend to suck money out of what should otherwise be going to retirement, but at least with real estate if you do it right you can have something worth something 30 years down the road. With a car that’s practically impossible, especially if you actually use the vehicle. In fact, I’d view buying a new car every 2-3 years as being similar to refinancing for higher amounts every 2-3 years to finance your lifestyle. Anyway, if you drive up somewhere in a new car, everyone will be excited, when really they should be offering you condolences on your old car.
Chuck Stanger » Mar 28, 2009 at 10:08 am
Here’s something to consider before getting sucked in by the self-serving “industry professional” boosterism. There still exists a lot of downside house price pressure following the 100% price run-up of the past eight years ( a time of stagnant family income growth). Home prices are monthly payment dependent. Monthly payments are interest rate driven and are, of course momentarily low. Within a year or so interest rates are going to skyrocket due to the fiscal and monitary policies of the Obama administration. The Nation intends to deal with it’s crushing domestic and international debt load by inflating it’s way out from under it. Interest rates will again (see data from the 1980’s) hit double digits. Mortgage payments will double for any given house. Prices will collapse. For those who don’t want to be bankrupted now is a GREAT TIME TO RENT. Don’t get sucked in by those whose only real agenda is making themselves some money. Good luck, be prudent, Chuck Stanger
Everett_Tom » Mar 28, 2009 at 10:14 am
Probably a reasonable expectation, but magazines like Forbes have proved that wrong in most cases.. Regardless of the media (Tv / Radio / newspaper/ magazine / Internet) it’s hard to find someone who writes thoughtfully and does good research.
ilea » Mar 28, 2009 at 10:51 am
It is not the thought of becoming a homeowner that makes me crazy, it is the thought of being in debt that makes me crazy.
Besides I find something intrinsically wrong with the question
A home is something that *you* make with your personality and hopefully (a) loved one(s)–it is not something a builder builds. A builder can build a house, not a home. Anyone can buy a house and eventually “own” it, but noone owns a home–because a home is something that exists only in the psychological and spiritual realm.
It is somewhat like the difference between mind and brain.
The Tim » Mar 28, 2009 at 2:26 pm
RE: Kary L. Krismer @ 1 – Hah, I totally agree with you regarding cars. What a colossal money drain. I don’t feel the same way about real estate though. I just don’t see buying a home as a financial investment.
The Tim » Mar 28, 2009 at 2:31 pm
Hah, check out this bit from the mini-feature I’ve never owned a home. Should I buy now?:
I love how Crellin feels the need to add “and then ride it back up” in there. Hilarious.
disbelief » Mar 28, 2009 at 2:53 pm
Exactly! “my condolences on your monthly Hummer payment, and on your, emm, unfortunate anatomical shortcoming”
Scotsman » Mar 28, 2009 at 3:51 pm
You know those puzzels where a dozen match sticks make a pattern, and by moving only only stick you end up with something completely different?
Well… Crellin =Cretin
From the urban dictionary: “cretin: A Person that is: brainless, stupid, child-like, and full of pointless information that makes no sense and appeals only to other cretins. ”
Priceless. Will Glen ever be discredited, or does he get a pass on everything?
pfft » Mar 28, 2009 at 4:00 pm
“First, I would expect a magazine to be better because they don’t have the same time constraints as the daily media.”
that’s no excuse for the media to be the real estate industrial complexes stenographer. blogs seem to do a fine job and they probably has even less time to write up a good story and do some fact checking than the people who should be doing it all day.
Groundhogday » Mar 28, 2009 at 8:23 pm
By The Tim @ 6:
I love how Crellin feels the need to add “and then ride it back up” in there. Hilarious.
How about riding it down another 25% to 2011, then perhaps keeping up with inflation over the next 20 years. Sound like a good investment?
Groundhogday » Mar 28, 2009 at 8:25 pm
By Scotsman @ 8:
He is retiring in a couple of months. Given the state budget scenario, WSU might just shut down the real estate center.
what goes up must come down » Mar 29, 2009 at 2:24 am
Kary, I agree with what you say about cars, but I would suggest if you read some of the posts you will find out this is the general sentiment here. I am curious why you compare cars to real estate though it is almost like you are trying to boost real estate in comparison to a bad purchase — new cars.
Kary L. Krismer » Mar 29, 2009 at 7:56 am
RE: what goes up must come down @ 12 – What I was actually thinking was it’s all about demand–individual demand. Most the people posting here have little interest in houses at the prices that exist today. I think the sentiment in much of the general population is just the opposite–they think the prices are getting to be quite attractive. Personally I’m somewhere in-between when it comes to houses. I don’t like most houses and wouldn’t want to own them for personal use (as opposed to rental) at any price that is realistically possible. On the other hand, I do prefer to own rather than rent, because I’m a control freak.
So what I was trying to indicate is that I feel about cars the same way most of you do here about houses. There’s nothing wrong with either position, or having a different position entirely. It’s individual choice. Some people will stand in line at midnight for a new release of Windows, a game console, tickets to something, etc. There’s nothing wrong with that, and nothing wrong with having zero interest in any of those things. People have different demand tastes.
Kary L. Krismer » Mar 29, 2009 at 8:59 am
On the individual demand issue, and the Internet being different than the real world, look at Mayor Nickels. From reading Internet sites you’d think he was the most unpopular guy in Western Washington. But unfortunately in the real world there seems to be a lot of voter demand for Mayor Nickels. Many serious candidates are apparently afraid to oppose him.
what goes up must come down » Mar 29, 2009 at 8:59 am
Kary,
I started reading this blog about a year and half ago. I used to live in Seattle owned a house in Wedgwood great area IMHO, I sold and relocated — company offer to Germany — where I still live, one day I will come back to Seattle. Is Seattle utopia — no but is it an okay place to live — yes ( I have lived East Coast, South, Hawaii, etc… ) every place has its own set of pluses and minuses — IMHO that is just life.
For those people that think Seattle is the end of the world I would say — TRAVEL. It is a big world.
I find the discussion here illuminating I don’t agree with some people especially when it concerns political topics yes Scotsman I am talking to you, however, I find much of the discussion educational. As I have learned the man who thinks he knows everything knows nothing and for this reason I try to educate myself a little bit more.
Concerning what you said:
“Most the people posting here have little interest in houses at the prices that exist today. I think the sentiment in much of the general population is just the opposite–they think the prices are getting to be quite attractive. ”
I guess that is why people are here because instead of following the lemmings off the cliff the people here want to educate themselves — boy is that a remarkable concept.
Kary L. Krismer » Mar 29, 2009 at 9:10 am
By what goes up must come down @ 15:
But the thing is, you can be right and wrong at the same time. Taking stocks as an example, you might think that a company is facing trouble down the road, but if the general population of traders doesn’t share that belief you’re going to be wrong on direction, at least short term, even though you correctly identified an issue. What most the people think at any given time is what drives the market.
Now stocks have a much faster or more instantaneous trading pattern. Last week I think we were up four days, down 1, right? And within each day there were probably up and down trends. Housing is much slower, and over longer periods of time things can happen that overwhelm what would otherwise be the trend. So just as an example, you might be right that houses are unaffordable (or have many other reasons to think prices will drop), but if inflation rears its head you could be wrong on the price direction long term, especially if most people think a $350,000 median home in King County is a bargain even at today’s dollar values.
pfft » Mar 29, 2009 at 10:00 am
“How about riding it down another 25% to 2011″
on a 300k house that’s $75,000. who doesn’t want to pay interest on an unnecessary $75,000 for 30 years? in san diego compared to 2004 prices it’s buy one get one free!
pfft » Mar 29, 2009 at 10:09 am
Kary you are missing the point about housing and assets in general.
“Obviously the thing to do was to be bullish in a bull market and bearish in a bear market.”
-Jesse Livermore.
We are in a bear market…
Ira sacharoff » Mar 29, 2009 at 11:16 am
RE: what goes up must come down @ 15 –
Great post, Whatgoesup…
I’ve been arguing for years about Seattle’s “specialness”. First they were saying that Seattle home prices wouldn’t go down at all because we’re “special”, and then they were arguing that we would see smaller declines and a quicker recovery because we’re “special”.
Nobody looks at history. Seattle has often had a boom and bust economy, and I see no reason why we’ve evolved past that into an all boom all the time place.
Seattle’s pretty. It’s got nice mountains nearby and lots of green trees and water. Does that make it such a desirable place to live so that it takes 6 times the median household income to buy a house, even with price declines?Should a house cost 250 times monthly rent, when historical averages and many other parts of the country the norm is more like 150 times monthly rent?
We’ve got trees,water, Microsoft and Boeing. Detroit has water and General Motors. I’m not saying that Seattle is ever going to become a Detroit, but the fortunes of a city can and do turn.
I’m also not saying don’t buy a house in Seattle now under any circumstances, why would I, I’m a real estate agent.
There are a lot of beautiful places all over the United States where wages might be 1/3 lower than Seattle’s, but homes cost 2/3 lower. Some of them don’t constantly praise themselves as “World Class”, but they have less traffic, more sunshine, and a lower unemployment rate.
charles » Mar 29, 2009 at 11:27 am
Tim,
I haven’t seen you post the Case Schiller of Seattle versus Los Angelos housing market in several months. I think its about time. What do you think Tim?
I find that Case Schiller of Seattle versus Southern California the most revealing of the housing market along with the year versus year % sales.
Thanks Tim. BTW Great Blog. Very big fan of yours.
b » Mar 29, 2009 at 11:38 am
RE: Kary L. Krismer @ 16 –
I think you are missing that the general populations perception does not matter, the people who are immediately buying a home right now does. Sales volume and continually falling prices show those people do not think the prices today are a bargain. I hear all of the time from people in my life about how now is a super good time to buy, better go shopping for a house soon, etc. All of them are already homeowners…
Jillayne » Mar 29, 2009 at 12:02 pm
“[Crellin] is retiring in a couple of months. Given the state budget scenario, WSU might just shut down the real estate center.”
There’s no indication of this from the las RE Commission Meeting minutes.
http://www.dol.wa.gov/business/realestate/meetingsminutes.html
But the March meeting agenda does show that Crellin’s Wash Center for R.E. Research is up for review.
Jonness » Mar 29, 2009 at 3:22 pm
“So just as an example, you might be right that houses are unaffordable (or have many other reasons to think prices will drop), but if inflation rears its head you could be wrong on the price direction long term…”
IMO, It comes down to this hypothetical syllogism:
It’s financially risky to buy an overpriced home.
Homes are overpriced.
It’s financially risky to buy a home.
Here’s my thinking:
Houses are currently unaffordable compared to rents and incomes. Since there are no more speculators or strawberry pickers to buy the overpriced homes, there is no foreseeble way that the homeownership rate will not fall to a historically normal level. Thus, house prices have nowhere to go but down relative to current incomes.
Let’s say we get inflation. If wages don’t increase along with inflation, house prices will continue to go down so that people can afford them. If wages increase with inflation, then house prices and wages will intersect at historical levels of affordability and loosely track inflation thereafter.
The point is, when houses are priced way above historical levels, it’s not a good time to buy. People who wait are not risking anything, because the worst that can happen is they wait and buy an affordably priced home, which is something that’s currently impossible compared to current levels of income.
It’s the fear of losing investment value compared to inflation that drives most people to recommend buying a home right now. But way better investments exist than buying a house if you want to protect your money against inflation. So why should people risk their life savings on risky leveraged bets during this horrible period of economic uncertainty?
Aaron » Mar 29, 2009 at 3:49 pm
RE: Chuck Stanger @ 2 –
If you foresee double-digit inflation, isn’t this the right time to buy, with < 5% interest rates? Rents and home values will both track inflation (more or less, over the longer term), but your debt doesn’t change.
Put another way, if the government inflates away its debt, it’s helping you inflate away your debt as well.
Groundhogday » Mar 29, 2009 at 4:03 pm
By Kary L. Krismer @ 16:
What kind of inflation? If there is no wage inflation, then rising commodities and consumer prices would only make houses LESS affordable. That is the fundamental problem the Fed is facing. They can certainly pump money into the economy, but if unemployment is rising and wages are falling (and there is evidence supporting both trends) it will be almost impossible to drive up home prices.
So if my salary starts increasing at 7% annually, that $350,000 home certainly starts to look affordable. If my salary is frozen, if my insurance co-pay triples, if my 503B match is cut in half… sorry but that $350k house really is unaffordable, both for me and most other people out there in a similar boat.
Groundhogday » Mar 29, 2009 at 4:05 pm
RE: Jonness @ 23 –
Should have read all the way down the thread. Agree with your point.
Groundhogday » Mar 29, 2009 at 4:09 pm
RE: Jillayne @ 22 –
I know from friends at WSU (including someone employed by the center) that Crellin is unlikely to be replaced when he retires this year. Without a hard money position to anchor the center, it is hard to see how it can continue. But we will know in a few weeks when the WSU cuts are announced.
jon » Mar 29, 2009 at 4:39 pm
“If wages don’t increase along with inflation, house prices will continue to go down so that people can afford them.”
Not really. If there are not enough houses, people will double up, just as they are now doubling up because of falling wages. If wages do not keep up with replacement cost, then there won’t be anymore houses.
Right now there is temporary surplus leftover from overbuilding. That has driven the price to below the cost of replacement. So only the people selling now are selling because they have to, or maybe there are a few who have cash and see some screaming move-up bargain. The price is being driven by the relative number of people desperate to sell vs the number of extremely determined buyers. That will not last, once the economy stabilizes and there are fewer desperate sellers and more confident buyers, or once the 3 million per year growth piles up in the stronger job centers and ends the surplus in those locations. Prices in other locations can go to zero and it won’t have an effect on prices in the places that have the jobs.
S. Marty Pantz » Mar 29, 2009 at 6:32 pm
The one phrase often mouthed that I dislike is that renters are putting their lives on hold. As if getting into extreme debt to “own” a piece of real estate somehow, magically, is something otherwise. I have never understood that philosophy.
Groundhogday » Mar 29, 2009 at 7:53 pm
By jon @ 28:
1) Prices are still above replacement cost.
2) Replacement cost is a function of market value, not fixed.
3) Replacement costs have been falling for several years and will continue to fall. With lower demand, timber costs have plummeted, dry wall, steel, copper, etc… Builders have cut profit margins, framers are paid less per hour, dry wall hangers work for less, plumbers cut their prices, etc…
Prices will as far as necessary to make homes affordable, and to a great extent building costs will fall to match. It is already happening, and it will accelerate. Right now, there are still quite a few folks in the construction industry who are living off the fat from the boom years. Wait until they get a little hungry, then you will see construction costs drop like a rock.
Alan » Mar 29, 2009 at 7:54 pm
When you rent you have to live light. I’ve put off buying furniture because I don’t want to move it in the change of address I see as inevitable in the next year or two. Renting brings uncertainty as to when that move occurs. If you want to negotiate a better rate, you have to be willing to move. Once you buy, you can plan your moves better and feel more comfortable buying large pieces of furniture confident that you probably won’t have to move it in the next two years.
Jonness » Mar 29, 2009 at 8:07 pm
“3) Replacement costs have been falling for several years and will continue to fall. With lower demand, timber costs have plummeted, dry wall, steel, copper, etc… Builders have cut profit margins, framers are paid less per hour, dry wall hangers work for less, plumbers cut their prices, etc…”
And another big factor is falling land prices.
Newly constructed homes are always going to be affordable, just as Hooverville homes were affordable during the Great Depression. But the concept of what we can afford can certainly change.
Jonness » Mar 29, 2009 at 8:19 pm
“When you rent you have to live light. I’ve put off buying furniture because I don’t want to move it in the change of address I see as inevitable in the next year or two.”
This is another great example of how renting saves money and builds wealth. :)
Jim » Mar 29, 2009 at 9:35 pm
RE: Alan @ 31 – Buy a house so you can buy the furniture you always wanted. How stupid is that.
what goes up must come down » Mar 29, 2009 at 10:55 pm
Jim must agree with you of all the hair brain reasons to buy a house the need to get big furniture — and spend more money to buy it — has to be the dumbest post I have seen.
economist » Mar 29, 2009 at 11:42 pm
Well it sure isn’t at today’s prices. At the right price, yes it is.
BTW #7 great avatar. I know where that came from. :-)
Kary L. Krismer » Mar 30, 2009 at 7:07 am
By b @ 21:
I’d agree that it’s a very tiny portion of the population that affects the price of properties today. The same with stock. Even on busy days only a small percentage of stock changes hands.
I wouldn’t agree with the last point however. I don’t think price is that much of a factor when the Secretary of the Treasury announces the possible end of the world. Sales fell off a cliff locally on that announcement because buyers don’t like that uncertainty (and understandably so). Sales in some other areas have increased, but those are largely the result of forced sales and/or investors stepping in. Not your normal arms length resident owner to new resident owner transaction.
Anyway the point is you can have both. Attractive prices and people not buying for reasons other than price. (And yes I know that if you drop price far enough you’ll get a sale, but sellers are not making that decision.)
economist » Mar 30, 2009 at 9:39 am
Yes but with stocks it’s different because everyone can buy or sell at any time and will buy or sell if the price is right. You can even sell a stock you don’t own (short selling). Obviously with houses the great majority of households are not interested in buying or selling at any given price at any given time.
This liquidity is one the reasons why the stock market moves so much faster than RE.
Groundhogday » Mar 30, 2009 at 9:47 am
By Kary L. Krismer @ 37:
Foreclosures are setting the market in many places, because individual homesellers are reluctant to sell at market value. Residential real estate markets are inefficient, so we often see a decade or more of few sales and slowly declining real prices. Foreclosures this time around are a real benefit, if prices drop quickly the market can clear and function with some liquidity. Sellers who hold out will be losing money all the way to the bottom… and to their complete surprise, there will be no bounce off the bottom. In the wake of this collapse, residential housing will be more affordable for decades to come. Why, because people will learn to think of housing as an expense rather than an investment.
Ben » Mar 30, 2009 at 10:26 am
@34, 35
Why is it stupid to want more stability in your life and to increase your ability to plan things?
Not knowing where you will live in 12 months (which is pretty much always the case when you rent) can be very frustrating, especially when you have wife + kids. Moving gets harder with more people in the house, and furniture requirements go up with more people too. Good furniture costs money, and needs to fit in with where you live. If you are moving around a lot, then you end up complicating the house search and the move if you buy furniture.
If you like to live like a pauper and never buy nice stuff because it makes you feel good to be frugal then I won’t judge you for that, but I think that it is absurd to judge people who want to live a little and enjoy their lives.
Groundhogday » Mar 30, 2009 at 11:36 am
RE: Ben @ 40 –
“Why is it stupid to want more stability in your life and to increase your ability to plan things?”
I’m with you on this one. We’ve been renting for 7 years now, but if there was no bubble we would have gladly purchased in 2003. We are very frugal, so probably wouldn’t have purchased nice furniture regardless. BUT as home owners we would have put a lot of time into a garden (it generally takes years to see the full results), additional insulation, home modifications to meet our particular needs, purchased a piano (my wife plays, and we want to teach the kids), etc…
On the plus side, we have saved a few hundred $k and as prices continue to fall, we are starting to envision buying a fairly nice home with cash. But in an ideal world, this bubble never would have occurred and we would have purchased a modest house with space for a big garden in 2003.
k2000k » Mar 30, 2009 at 11:41 am
@ Ben
Agreed, the point of that poster is the added stability a home can, but not necessarily bring, on my own rental; once its up it moves to a month to month unless we renegotiate, however, the landlord has the option to just say I want you by the end of the month. I don’t think a person with a family would like to be in that situation if they feel that they have a relatively stable position of employment. Not to mention buying housing isn’t the ‘worst’ investment if you plan to live in it for a very long time, 15-20 yrs, you get the rate of inflation and maybe a little extra if your in a good neighborhood. Add that to the added sense of security that you get in a home, I could see why someone would want to buy a home.