Now that the first quarter is behind us, I thought it might be instructive to give it a little context.
Here’s a look at quarterly closed sales of King County single-family homes from 2000 through 2009 Q1:
And here’s the same view of pending sales:
…and here’s the same view of total new listings:
And lastly, just for fun, here’s a look at the quarter-to-quarter change in the median price for each quarter since Q1 2000:
Summary: It’s a good time to be home shopping.
“Summary: It’s a good time to be home shopping.”
Is it? It seems the common opinion here is home prices will fall 30,40,50% before we’re down. If we’re only down 17 right now, why would buying now be a good idea? We’re actually thinking of selling our Seattle house now and pulling out of the market completely (renting) and waiting for bottom… But who knows, you all might be “doomsday” nuts and be close to bottom now :)
RE: current home owner @ 1 – Note that I said home “shopping” not “buying.”
I think it’s also worth pointing out that with Q1 2009 showing the lowest number of new listings ever in a Q1, I think the “pent-up supply” theory holds even more water…
RE: The Tim @ 2 –
So when do the latest CS numbers come out? I’m curious to see where we stack up. It’s feeling more and more like the time to get out, while the getting is still semi-good.
The latest CS just came out a week ago on the 31st. The release schedule is always on the last Tuesday of the month. So February’s Case-Shiller numbers will be released on April 28th.
If you want to get a sense about where CS is going between releases, you should check the Radarlogic stats for seattle. This index tracks CS pretty closely and comes out daily. There is always a 60 day time lag, but it is more current for most of the month than CS
http://analytics.radarlogic.com/radar-logic-home/historical-data.aspx
Current home owner
If you were planning to get out you should have sold last year, this was coming and there was plenty of signs. Igood luck on selling now, its only getting worse. If you still hav e equity then more power to you.
We are posted up in our cozy home that may have paid too much for but we have no intentions of going anywhere. On our block maybe 3 homes sold in the last 4 years we have lots of people who are long term owners.
Good luck, if we see another 20% not sure that changes how my home lives and feels.
ahhh, for some reason I thought they were quarterly… So 20 down, 15-20% more to go based on your earlier bottom calling post. Hopefully we don’t get there too quickly, need to sell the house first ;)
RE: current home owner @ 1 –
Always be looking my friend. There is no “bottom” It will be long and sustained for many years. If you need to sell then get it on the mkt. Never pay anyone more then 500 to LIST. Take your time in BUYING….I assure you there is no RUSH!
RE: Magnolia44 @ 7 –
Yeah, we still have equity. Bought a fixer upper in greenlake in 04 and did all the work ourselves (except the electrical and kitchen) so we’re all good. I just don’t want to lose it all, and this isn’t where we want to be long term. I agree last year would have been ideal, but right now I’m still up overall all, and I think it’s time to walk away from the blackjack table. Whether we chose to reinvest in another house right now, or wait it out for a while is something we’re trying to reconcile now. Leaning towards renting for now… at the very least it gives us time to find that “perfect” house. The next place would be long term for us, so I’m not too concerned with further minimal declines – but 20% is a show stopper and has me really thinking about renting.
I don’t know folks, my Zip agent sent me a mail last night inviting me out because we ‘may have hit bottom’….
On a more serious note, Tim, I appreciate the graphs, it’s always nice to have a visual representation of where we are at.
RE: The Tim @ 3 – Regarding “pent up supply”: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/08/MNL516UG90.DTL&type=business&tsp=1.
Basically, the article says that a whole bunch of foreclosed homes are being held back by the banks nationally. The article does a local analysis and finds that as much as 80,000 homes in California – and 20,000 just in the Bay Area – could be waiting to be put on the market by the banks that now own them.
RE: Hector @ 11 – Yeah, these types of graphs especially. Some of the other ones, while understandable, are a bit noisy.
Looks like interest rates should stay low for awhile, even if there is the periodic small ups and downs.
Current owner
Sounds like you need to hurry up and sell then. Some homes still going at decent prices if priced right out the gate. Sell take the equity and rent.
My point was more for those who may have found the right house but see it going down in value. My home truly has room to grow, huge basement with high ceilings a true untapped 1000 sq ft tha we can grow into, certainly not to be workd on in these times.
RE: Pankaj @ 12 –
This may also be part of the reason why sales could increase, listings could decrease, and both could happen while prices still drop.
Would there also be something with the number of foreclosure or REO property that leads to a higher number of pending sales? Are they more likely to fall apart or provoke multiple pending offers on a single property or multiple pending offers from a single buyer?
Hey, Seattle is special- it looks like we’re setting new records in all categories.
A picture is indeed worth a thousand words when trying to explain this market.
I just posted Q1 stats for Leavenworth for folks who are interested.
http://iciclecreekrealestate.com/2009/04/05/leavenworth-real-estate-first-quarter-2009-market-update/
Sales Volume is way down, but prices are holding steady.
I still agree with ‘Kary, we are truly setting records because the whole economic picture nation wide has changed. Most of seattles decline started when it kicked in and its in over drive, not unlike the total picture.
Wow- we just passed an important milestone. A Seattle Bubble reader (current owner) has stated that he needs to sell if he wants to hold onto the remaining equity…. and Magnolia 44 agrees! I’m not picking on you guys, just pointing out that the Seattle real estate market has turned a major corner in terms of awareness and expected strategies. Even last fall many would have argued to just hold on, the market will bottom and then return by the end of ‘09.
I’m sticking with my feelings from two years ago- sell now, or own it forever.
I had dinner with a realtor friend of mine last night and he has been slammed recently with appointments. Apparently, at least for him, buyers are starting to come off the sidelines. I’ll be curious to talk with my mortgage broker friend who told me that as of last month only 1 out of every 4 of his deals was going through. I hope for their sake that we don’t drop another 10 percent!
RE: Hector @ 11 –
Do people even use Zip?
Apparently not!
http://finance.yahoo.com/q/bc?s=ZIPR&t=5y&l=on&z=m&q=l&c=
It does seem like the sentiment in Seattle has turned a corner. It’s very difficult now to find anyone who doesn’t think home prices will decline further. That’s a big change from a year and half ago or even 6 months ago when many people didn’t think prices in Seattle would ever significantly decline.
I expect some people need to buy a home and don’t believe they can wait for prices to correct further so those are the sales that we’re seeing now. It’s not unexpected to see home sales increase in the spring especially since interest rates are low and some qualify for the tax credit so they’re buying now.
Many homes over $600K appear to be significantly overpriced and prices need to be adjusted by at least 20% before they’ll sell. I’ve been watching some homes that have been for sale for over a year with no significant decrease in price. The listing expires and then they relist it. I suspect these are the owners who would like to sell but only if they can get 2007 level prices. I think reality needs more time to sink in before those sellers realize that times have changed and their homes will never sell at these wishful prices.
Here’s a link to an article on CNBC today about how economists expect interest rates to fall to 4.2% by year end and interest rates to remain low for the remainder of the year.
http://www.cnbc.com/id/30106560
It might be a good time to shop for a house this fall.
RE: David McManus @ 20 –
David,
The buyers are people like me that will start the bidding at 40-50% below ask + expect closing + cut of the commission, Krug champagne and a thank you very much, Sir Andy – after the closing
Closing 1 of 4 deals = home prices are still vastly higher than the normal 2 to 1 debt to income requirements (historical) in this area – and we have few idiot foriegners to offshore the debt!
Banks cannot crush their capital reserves anymore
RE: Scotsman @ 19 –
That’s what I just told another friend of mine who owns a house in N Seattle. Your time frame is either 2 months or 15 years. If you’re not committed to staying in your house for a long time, get the hell out now. At least that’s the conclusion I’ve come to
David @ 20:
See the pending sales data Tim Ellis posted on Qtr 1 ‘09 vs. closed sales Qtr. 1 ‘09? This tells you pending sale failures (at least in 09 qtr 1) are substantial and it coincides with what our escrow office has experienced. And yes, regarding your mortgage broker friend talking about close ratios….again, the close ratio of refinances opened are what he says, pretty darn poor. A lot of variables are causing this with LTV issues due to current market appraisals probably among the primary reasons.
Technical question about MLS and their definition of a “new listing”. If someone re-lists a home, does that count as “new” or only those properties with a CDOM of 0 at the time of listing count as new?
I ask because, based on my perception, there are a hell of a lot more new listing in the first quarter than there are in the 4th. The MLS data tends to look much more even from quarter to quarter.
RE: S-Crow @ 25 –
This was my immediate reaction. 4,000 pending – 2,000 closed = 2,000….??
It is hard to tell by eyeball whether this gap is unusually large and if it is, what the cause might be.
We started looking for a home again but asking prices are still crazy high IMO. I would expect a lot of people to shop but few to be able to agree on a price.
I dont think enough sellers understand that previous chart of the ratio between income and home price.
It would be very interesting to see the average salary of and profession of the people who are writing about doomsday on this website. My suspicion is that most (except some) are losers who have not been able to buy before, nor will be able to buy ever again – either because they can’t afford it financially or can’t afford it mentally.
The market is improving just a little bit but it is. Do a search in the capitol hill area, there aren’t many houses on sale!
I know you all want market to crash to a point where you can afford the houses that your smarter, more successful friends have.
Just anecdotal, but an acquaintance of mine who is home shopping told me three times now he and his wife visited homes they were interested in, but were told that the homes were pending. In each case, a couple of weeks later they got calls letting them know the homes were again available for offers.
Although they did not appear to be bubbleheads, they did seem to have a healthy degree of skeptism regarding current prices. They were wondering if this was some sort of “marketing” gimmick. Nevertheless, the end result was to make them even more cautious and avoid these properties.
RE: Rojo @ 28 – Comment of the week!
RE: JimN @ 29 – Highly, highly unlikely that this was a marketing gimmick, turning away buyers in this (or any) market with the gamble that they will still be around and eager in a few weeks is not something any agent I can think of would do. There has been a lot more activity from home buyers over the last few weeks, my office had more deals turned in last week than any other week so far this year – what your friends probably saw was the result of fewer people being able to get through the financing process and/or homes not appraising at the offer price, causing the deals to fall through.
RE: Rojo @ 28 – Have to agree with The Tim, It was nice to have something funny to read today.
As for what some of us do, you can find a list of what some of us do (or did) here (from June 2007).
By The Tim @ 30:
Hahaha…Rojo you are a couple of years late, we had quite a few of comments like yours around here at that time. It was kind of cute then now I’m not sure if it’s hilarous or just plain pathetic.
RE: DrShort @ 26 – I think anything new is new, even if it’s old. ;-)
(But I’m not certain of that.)
By silver9 @ 27:
The pendings have been increasing steadily, especially during March. So that’s part of the reason for the difference. The other part is that closing typically take longer than 30 days, and thus are often counted in two or more months, where a closing is only counted once.
Rojo @28
I’ll tell you about myself since you asked.
I’m a 44 year old CPA and MBA who is employed by a private company as a finance controller.
I owned a home on Queen Anne until Feb 2007 when I sold it. I bought the house in 1997 so needless to say, I built a lot of equity. I’ve been renting ever since I sold the house because I could see that the housing market was overpriced and the bubble had already started to deflate in other areas of the US.
I thought I would buy a house by this past February but I’ve decided to wait until I see signs that the market is stabililizing or at least prices are at “realistic” levels.
I wouldn’t have any problem buying a house today if I wanted one and I would get the best interest rate available.
I’ve been watching homes for sale on QA and Magnolia but also some on Capital Hill. I haven’t noticed any shortage of homes for sale on Capital Hill. There seem to be plenty of them in the price range I’m watching that goes up to $1.2M. There’s not much selling that’s priced over $600K.
I’ll also add that my income is too high to qualify for the $8K tax credit too.
We walked through several homes this past weekend, and apparently one of the homes we had been looking at was bid up $72k over the (reduced) asking by six bidders the first week of March. The closing price was still $175k below the last sale in 2007.
The price moves for listed homes still seems uncoordinated. Some targets are dropping the asking by 5% every two weeks, some are holding steady for months at a time, some are lopping 20% all at once. Nearly all are dropping, expect for the signular example on my street – the owner raised the asking from $1.1M to $1.3M.
Rojo@28: I can only offer one data point, but my family made a calculated decision in 2003, when we moved to Seattle from the East coast, not to buy as we felt the market was somewhat overpriced and on an unsustainable arc that would take it far too high before crashing. My wife runs a major fundraising operation for a non-profit, and I’m a senior product planner for a F500 company. We could have bought in 2003, but during 2005-2007 we were, in fact, priced out of all the homes we would seriously consider. Some of the neighborhoods that we were priced out of (Madrona, Snoq Ridge, S. Seattle waterfront) are now back in our range, some aren’t (Queen Anne, Madison Park, Leschi, Beaux Arts, …).
I can afford a home here now, and I don’t want the market to crater into oblivion. I would love to see, however, the greater Seattle market open up to people who make less money than I do – to all the entry level professionals and grey/blue collar workers that have to rent, or commute from Maple Valley or beyond. For that to happen, the market has to drop further.
RE: Rojo @ 28 –
I hope you are serious. It has been a while since there was a dissenting opinion.
Besides a few people predicting social chaos, most opinions expressed have been based on analyzing the numbers. Tim’s charts and methodical packaging of the data seems to have attracted people who are good with numbers.
I suspect that most people here would be given a large mortgage, the difference is they understand that it isn’t affordable.
For a different perspective, I just published these Residential YOY heat maps for March 2007,2008,2009.
http://www.workingforyou.typepad.com//realestate/2009/04/a-walk-down-memory-lane-march-2007-20082009-market-heat-maps.html
I am actually surprised by the cool and relaxed way people have responded to my cry of frustration. Kudos to you all!
Here is a little detail about me. Me and wife both have comfortable jobs and bought a townhouse in Seattle in 2004. When we had our son, we wanted a larger place and started looking early last year (2008). I like most people here was a skeptic about rising home prices. I looked high and low and found a short sale. It took me 3 months to close. I bought this house in Kirkland for a whopping 27% of the price it was sold in 2007.
I thought I was making the right decision at that time but now the prices have caught up to what I thought was a great deal last year. I knew the market was going down but I had not imagined so much. The terrible part was that I got greedy when I tried to sell my older home in Seattle because I did not get what I wanted and also I could rent it for more than what the mortgage was at that time. Rents have of course slid since then.
Right now I am looking any signs that we might be stabilizing so that I sell my old house again.
So, here we go.
By Tyler @ 38:
I think for many here it’s not only about affordability but also about value. If owning is significantly more expensive than the alternative ( renting ) the price of owning is not worth the benefits. On a long run this weekend I passed through several areas of Kirkland and I was struck by the total breakdown of sanity that ruled the passed years. Seeing these 30-40 years old mostly ugly, worn and torn homes that sold for + $500k made me loudly say to myself, wtf was people thinking? These homes are not worth more than $100k. In the 70s and 90s they were brand new with warranties and trouble free owning for several years, today they are old with need of several $100k of renovation to get into good standard. It’s totally insane. Add to that lots without remarkable views, limited light and moss everywhere. The value is just not there yet, not even close.
And before you start saying that if I wait for $100k homes I will never buy, I’m waiting to see where this bubble burst will end and if value of owning vs. renting is reasonable I’ll buy even if the true value of the home might still be far less than the price.
Tim (@ 30), have you ever given any thought to collecting such pearls of wisdom as these drive-by spewers occasionally leave in the comments and aggregating them all in one place? Or setting up that place and then we can do the dirty work? That would be fun.
Checking back in to edit. Because, Rojo, I just saw your @40, and obviously you are not a drive-by spewer after all. Sorry!
Rojo -
Everyone hates it when they find out they grossly overpaid for something, even if its a $20 trinket you bought for $40. That is no reason to come in here and take it out on innocent people, many of whom are likely your economic betters (as they are able to price things properly and not make poor investments).
By patient @ 41:
I actually like houses built in the 60s and 70s, but what I don’t like are the run down neighborhoods you describe. When you see entire streets with no one on the block demonstrating any pride in ownership, that’s not a good situation. And yes, a lot of those people bought for over $500,000, so it’s not like they have nothing to lose.
Fortunately it is possible to find houses of that era in well kept neighborhoods.
RE: Rojo @ 40 –
Stabilizing? Do we get to vote? Maybe we could go with the “consensus” approach- it seems popular when discussing other supposedly scientific endeavors such as the explanations for global warming. The he*l with the facts.
We are not stabilizing. We are teetering on the edge of the precipice, and the amplitude of our oscillations is increasing. There is no doubt how this ends, there is only the question of when.
I’ve learned a number of hard lessons in an eventful life. One of the most valuable has been to stop wishing things were one way or another, and get to work with a plan based on the facts at hand. Let time work for you, not against you. Look for the bigger picture and context.
With the above in mind, remember that Seattle’s real estate bubble is primarily a consequence, not a cause. The adage that real estate is local doesn’t matter when the entire ship is sinking. Sure the aft deck on the Titanic stayed dry longest, but it certainly sank with the rest of the ship. And in the current situation, the world economy is the Titanic while Seattle real estate is little more than a lonely chair on “B” deck.
And yes, I can afford a house. But I may not want to own it forever.
RE: Scotsman @ 46 –
Stabilizing?
Totally Scotsman. Havent you seen how the stock market has “held its own” in spite of all the bad news? This is totally the bottom. All those great people on CNBC are partying like its 1999.
(Takes off the rose colored glasses)
People forget that the profits of the financial companies were juiced up by the AIG default swaps. If there was ever a bear market rally this is it.
Anyways, with regard to housing here, its really funny to see the increased divergence in the list price and sold price. I can almost hear the sellers with fingers in their ears hollering “This is the bottom, this is the bottom”. You wish… Sell now or be priced in forever.
By David McManus @ 20:
Page one in the sales manual: always project success. Is he REALLY slammed with appointments? Or just trying his very best to project success on the edge of bankruptcy? I, for one, would take all such statements with a heavy dose of skepticism.
By Rojo @ 28:
Here is a story that is probably not unusual. My SIL and BIL are a well to do DINK professional couple with a completely remodeled turn of the century home in Queen Anne (assessed at close to $1 million at the peak, but purchased for $180k 20 years ago.) They hang with a crowd of similarly well-to-do friends, and together they take ski trips across the western US, travel abroad, and compete in the remodeling game. It turns out that my in-law’s closest friends are not well to do at all. This couple “owns” a gorgeous historic home on Capitol Hill (completely remodeled of course), but have been living off trust fund money and home equity withdrawals for the past decade… and now the money has all run out. Late 50’s, completely broke and are probably under water on their house.
When the tide goes out, you see who is swimming naked. Some of those smarter, more successful friends…? Well, not so much. My grandfather owned a lot of property in the 1920’s, and then in the 1930’s it turned out that he was only borrowing a lot of property. He eventually had to move his family into a rented house with an open sewer in the basement.
RE: TheHulk @ 47 –
With all due respect Hulk, Rojo @ 40 said he was “looking for any signs that we might be stabilizing” not that prices were stabilizing. If you think that he should sell now because prices will drop another 30% and won’t come back for at least 10 years(if in our lifetime), then say that and present your case. If I recall correctly, it took So Cal prices about 7 years to come back from the decline in 1990 according to Case Schiller and that wasn’t as large a decline as the present, so you may well be right.
But just remember, he’d probably have to price his rental house 5% below last months solds just to get it to sell, assuming it’s immediately ready to sell and doesn’t need to be refurbished and staged to meet the current market. It’s easy to say sell, but there is a lot of inertia that says stay where you are unless you’ve got the immediate ability to go through the process. If the property is rented out and that generally adds to the difficulty in marketing and may decrease the pool of potential buyers. I know i’m not telling you anything you don’t already know, but in fairness to Rojo, there’s a lot more to liquidating real estate than just saying the market’s falling and I’d like to get out.
RE: Groundhogday @ 49 –
My grandfather bought Iowa farm land in the 1930’s for $60/ acre. When he died in the late 1970’s it was worth over $2000/acre. You don’t need an HP 10B to know that’s a good return even without leverage. As the prospectus says, past performance is no guaranty of future results. I think there will be a recovery and people will get rich buying real estate at depressed prices with cheap long term money.
But there might not be any recovery. And even though I think we’ll recover, I believe in diversification. We’re currently 1/3 in cash. But I don’t know any people who got rich sitting on cash. Selling short is a great short term investment strategy in a bear market. But it’s not a long term financial plan unless you think it’s the end of the world as we know it.
Scotsman may tell us that it’s all going to end badly. If he’s right, what’s your exit strategy if there’s no place to go. Mine’s a 40 ft sailboat with plenty of gear to gather food and the fire power to keep the pirates away.
I have been reading this blog for 6 months now. I should have read it when I decided to take my old home off the market and rent 9 months ago.
As One Eyed Man says, there is a lot to liquidate a real estate asset – especially in a declining market. I have however seen that townhouses in Capitol hill are selling for 500-600K. I would be happy to get something in the middle.
The problem is my renters have a year lease till end of July. After they leave, I will need to touchup, replace carpet and do some more work before it is ready.
There are not many townhouses on the market in Capitol hill that are 3 bedrooms, and less than 600. A few that there are selling relatively quickly. I guess what I am trying to figure out is should I try to sell in August or not bother and rent it again because I am able to cover my mortgage.
RE: Rojo @ 52 –
My assumptions for the future are as follows: Home prices bottom in 2014, stay flat for a few years, and finally recover to 2008 levels in 2024. Depression or not, that’ the traditional real estate cycle. Bet on it.
If you hold on, in 15 years you’ll be back where you started. I assume the tax benefits are balanced by the maintenance and rental headaches. Property taxes will likely increase as the city faces revenue shortfalls. Rents will continue to fall, then recover, much like value of the property. It’s hard to envision how owning it will markedly improve your cash flow or lifestyle, but you may get a small positive bump out of it. You can tell your friends you own rental property. That’s the upside potential.
Lets assume the worst. You pay your tenets $8,000 to vacate the lease, spend $4,000 on cheap carpet and paint, then put it on the market where it only brings $475,000 after all expenses. Depending on what you put down originally, I assume that leaves you with $40,000-80,000 in cash. If it’s more, great. Let’s assume it’s less. You are still out from under a non-performing asset and all the fuss that goes with it, plus you don’t have to lay awake nights wondering what it will (won’t) be worth next year.
Here’s the kicker. If you get the minimum or nothing out of it, you can still repurchase the equivalent unit in 3-6 years and ride the appreciation gravy train back up- and you’ll make even more, since you re-established your cost basis at the lower level. If you got some cash out, you can buy two or three at or near the bottom and double or triple your gains on the way back up. And again, you established your cost basis at hundreds of thousands of dollars less than where you are today.
Investors make the vast majority of their money during relatively short growth spurts, then slowly watch their gains drain away through market oscillations. Business cycles are real and predictable. Make them work for you, not against you. We have a rare opportunity coming, a relatively certain period of decline that will be followed by a recovery. Get as liquid as you can. Get out of debt. Have the cash and credit capacity ready to act when the bottom becomes certain, then max yourself out. It’s a once in a lifetime opportunity. Don’t let pride, ego, or a past good deal stop you from positioning to take advantage of a great deal.
If you want to be anal retentive you can sit down and assign probabilities and dollar values to all of the possible outcomes, then do the math. The numbers will prove there is very little upside potential right now, and lots of downside risk. But when it turns around, the certainty will be in your favor. Everybody else will be broke by then though, so the opportunities will belong top those who prepared. Liquidity now is preparation for the future.
OK, I’m done- maybe I’ll see ya all next week. Cheers.
Rojo, if you have positive cash flow why not just keep it and decide it will be a long term rental and eventually it will be paid off. The only downside is you will be a landlord and being one does bring some pains in the A.
My wife and I have been renting ever since moving to the Eastside from Boston 4+ years ago. We’d owned a house and Boston and used the move as an excuse to go back to renting, anticipating a housing tumble. Yay us.
Except.
Except we’ve moved a lot in 4 years, once by our own choice, once because the home owner was Camwest and wanted to tear down the house to build newer bigger ones on the lot. And now we’re getting kicked out again, because our landlord needs to move his son into this house (our lease just expired). Given our bad luck with not being able to stay in a rental for a long time, and with not having as much control over what to do to the house, my wife wants to buy (in Bellevue or South Cove-Issaquah). Today we started seeing houses with a realtor. But I’m still scared stiff of losing a big hunk of money (at least whatever we put as a down payment) if we have our own economic crisis (e.g., job problems) in a year or two and are forced to sell right when the market is down another 20% from where it is now.
So while I don’t think I can avoid us buying (in Bellevue, we really aren’t willing to handle a longer commute for jobs & kids’ schools), I’m wondering if folks here can offer any suggestions or thoughts on how to make the best of buying a house in Bellevue in the next couple of months.
Thanks!
RE: Scotsman @ 53 –
May I also add that our current administration continues to delay the inevitable. It sickens me. It is truly Mtg Cramdown or nothing. Sure some will stay a decade or two. Sure some will have the cash, to bring to close, to maintain their credit. But, I tell you………..with this insane extending terms to 40 years, dropping rates to 2-4%, 50% of people not medically insured, 50% non insured drivers, I can go on and on. Individual credit has been and will continue to deteriorate. Everyone will be in collections! Listen to the CEO of AXP! Bankruptcy’s will absolutely sky rocket. Call it what you like President Obama——–GM is Bankrupt. Change the verbage anyway you like. The “protection” afforded by our Bankruptcy laws is still Bankruptcy!
People will and must sell in coming years. Short sales and foreclosures will go on and on for a decade with the current plan. People will NOT be bringing 25-200k to the table to close on their upside down homes in 2012-2015.
Just as stocks and real estate were the talk of the town in 1997-2007 just watch how fashionable and accepted it will be for Bankruptcy in our new society.
I agree with Scotsman. Free up cash and stay very very liquid. There will be many outstanding Buys coming this next 5 years and they will not be just real estate.
RE: Tom N. @ 55 –
Tom N …What do you want people to tell you here? You already know what you are going to get. Live your life and find a GEM. Search for short sales and foreclosures (or have your realtor do it). Set your offer price. Have him or her submit–if its not accepted move on to the next one.
You have been renting for 4+ years? You seem mobile. Why the “urge” to buy? Because things are cheap? If that is the reason you will lose. Don’t join this mkt of sellers unless you truly find a GEM. I suggest you be very patient and attend the auctions. Educate yourself.
You found the Bubble. This is a great place to start. Just listen and watch. You will NOT miss the bottom. There will not be one. It will be a long flat line with a trend line down.
I’m guessing his “urge” has to do with not having his to move his kids and all his possessions once a year due to the whims of others. Jesus.
Tom, I wish you the best of luck.
Tim, love the graphs…though my first thought is that ALL those rainbows are going to be an irresistible lure for the pink ponies. Just sayin’.
Tom -
Sounds like bad luck renting to me, which sucks. What I would do is figure out the extra costs to yourself over rent in a year, and add in whatever possible loss over the year multiplied by the probability you think you’d be forced to sell. Now imagine that someone comes by and says “I will give you $XYZ in a suitcase right now to move next month”, would you take it? When I do it for myself it comes out to something like $20k and when I think about it in that context, getting paid $10k a day to throw away or haul a bunch of stuff a few miles away is a pretty good deal.
Oh so thats it……………….Moving because of whims of owners?………….We’ll heres a thought………………How about signing an extended Lease greater then a year? Hmmmmmmmmm. Every home owner I know that is seeking a tenant would THANK THE HEAVENS for a 3+ year tenant. 25% of my tenants in Nevada all sign 3 year commitments because of military obligations.
Can they still get you out? Of course but it will be more difficult and you could end up with a nice CASH INCENTIVE to leave if it happens again.
RE: Tom N. @ 55 – Agreed with the others here. I have rented almost all my adult life (i.e., for 20+ years) and have never been required to move due to the needs of an owner. You have just been amazingly unlucky.
You should not hesitate to rent in Bellevue or anywhere else; just do what I do, and look for an owner-managed property where you can chat for awhile about the owner’s situation and long-term goals. If the owner is looking for a short-term tenant, it’s in their interest to say as much. Owners are not used-car salesmen; don’t assume they’re unwilling to put their own cards on the table.
Avoid properties with professional managers (they can only make life more annoying for you as a tenant, not less), and steer clear of inexperienced landlords who don’t sound like they know what they’re doing.
Yes, there are many landlords on the Eastside who aren’t horrible like the ones Tom N. had. My own landlord is very hands-off and was quite happy to hear we wanted to live here for at least 3 years.
My dream house, on 1.5 acres, on the other hand, is being offered at over a million because ‘there’s value in the land’. That has been coming up a lot more on the Eastside, where you are much more likely to find large lots/acreage convenient to shopping and schools and work, etc. We might buy it when the owners wise up for 300-400k. We’ll see how things go the next year or two.
Kirkland in particular is full of homeowners who seriously have talked themselves into believing that Google setting up shop there will result in a new horde of millionaires. (Google is basically there to poach a few hundred top-line microsofties, honestly, and nothing more.)
That is how absurdly in denial Eastsiders can be in some cases about their homes.
We still don’t know if the global economic detonation is going to continue or not. Until that is known, NOONE can say what will happen. If it does turn into hyperinflation, then RE owners will be happy. If they don’t save the economy, then we’re talking 90s prices again, a good 50% further down from here. Plus, if the economy goes down, say goodbye to jobs, and boomers will panic like crazy, and they own the best houses in the best areas. This winter is going to be panic time in this RE market, but yeah I’ve seen a blip up in the best markets, but only for the best prices. Overall, things are coming down, and the glut is enormous everywhere but the best areas, which was not the case at all before. Plus, I’m starting to see a lot of jumping out of condos lately….as far the eastside is concerned, you can have it…that place blows…
I have been a renter off and on for decades. I guess I must be lucky since I have never had a bad landlord nor have I ever had to move on their request. That being said, if having to move my family and possessions on the whim of a landlord saves me hundreds of thousands of dollars, I’LL TAKE IT! Also, don’t forget: mobility is going to be key in this new era of vanishing jobs. Many jobs are gone for good, with even more about to disappear, never to return.
ElPolloLoco is right on with his advice. Many of my landlords actually ended up being becoming good friends of mine.
RE: Ray Pepper @ 60 – Even a 3 year lease would still leave you at risk of the owner being foreclosed. Real control freaks wouldn’t care for that at all.
By Esol Esek @ 63:
I’d agree with that type of thinking. Looking at the past charts and pretending they sell you something about the future is rather naive. The median price of pendings will affect the price of solds two months out, but beyond that it’s going to depend on the economy–inflation, interest rates, unemployment–and also the local economy–Boeing, Microsoft, Starbucks, etc. To some extent past prices will affect foreclosures, which does affect the market once it gets past a threshold level, but that’s about it. Oh, and there’s the thing that the further and longer something goes down (or up) the more likely it is to go in the other direction. But that’s a very poor indicator, especially as to timing.
Two people here have commented about having been renting for 20 years. The median price 20 years ago was about $125,000. Renting being better than owning has only been the situation for about 2 years, and that’s only if you have a very short term outlook. What the future holds is unknown.
The problem is, even owning over those 20 years could have been a bad financial move if you made the wrong decisions. Add in 10 refinances and total debt of $450,000 to that original decision to buy a median home in 1988, and you’d be hurting badly, unless perhaps your life expectancy at this point was very short, in which case using your house as an ATM would have worked out rather well.
why would one shop for a house with no intention of buying?RE: The Tim @ 2 -
Hardly. The cost of renting has been lower than the costs of buying the same property for nearly a decade (if not more) in the Seattle area, and most of the nation. The only thing that made buying pencil out was the unprecedented appreciation that we have seen during the same time-frame. Rents themselves were appreciating at far lower rates.
If you take appreciation out of the picture, purchasing hasn’t made sense in a LONG time. Yes, I know someone is going to comment about how they purchased a property 7 or 8 years ago that they are profitably renting. There were certainly SOME deals to be had all through the boom, but my point is that on average the rent to ownership price ratio has been out of whack for at least a decade.
RE: Tom N. @ 55 –
Tom,
If you think it’s inevitable that you’re going to buy:
1. Think about an FHA loan, that requires a much smaller down payment.
2. Don’t believe your realtor about whether a particular house is a good deal. Have him/her do a CMA or do the research yourself, and make sure to offer something considerably less than current market value.
3. As Ray said, look at foreclosures, real estate owned, and lender owned properties.
4. Think about areas right near Bellevue where houses might cost a little less like Newcastle or Kennydale or those parts of Bellevue that are less trendy like Crossroads or Lake Hills.
RE: Tom N. @ 55 –
This is pretty general advice, but if you are going to buy in a falling market and want to hedge your down side, I would consider the following:
1. Do the opposite of what people do in an appreciating market. When things appreciate, they usually try to buy the biggest most expensive house they can, with all the current upgrades (granite, etc.). I would buy a house just big enough to meet my expected needs, and worry about price and functionality rather than decor. It would probably be a Lake Hills 1960’s 3 or 4 bdrm between 1500 and 2000 sq ft for about 300K or less. I’d be making offers at 20% below current sold prices (and listing prices) unless perhaps the listing price was already 20% below current sales. If a seller didn’t counter at least half way to my offer, I’d probably move on to the next property. The objective would be to buy something that would be functional enough that I could live there for 5 years, but with a price low enough that it would limit my down side if I decided (or had to) sell. When things turn around you will probably want to move up and you will have to eat the transaction costs to get a nicer place that you would want to be in for the long term, But that’s part of the cost of hedging the downside risk. (The above is probably easier for me to say than to put in practice. What I call functional, my wife might call a dump.)
2. I wouldn’t rule any market sector out, but if I wanted to move soon, like by mid summer, I wouldn’t put a lot of hope in getting a short sale. It generally takes about 3 months for the lien holders to approve a short sale unless the first has already provided an approved price they will take, which is unusual. If your time frame is short, you don’t want to be tied up for 3 months only to have the deal fall apart. Also, a short sale with a cheap price is usually just an invitation for a bidding war that will ultimately be judged by a lien holder you have no direct contact with.
3. One of the non-trustees sale auctions might work (people here can give you the advertising sites) but I don’t know anyone who has been successful in buying that way. Investors I know have general been outbid.
4. Trustee’s sales are probably a bad idea. You have to be a cash buyer and the risks can’t always be easily evaluated. I’m not going to give you the short course here. Also, the lender usually ends up buying the property for a credit bid of the outstanding debt they hold because the property is under water.
5. I haven’t looked to see if there are any low priced REO’s in Bellevue. If there were, I’d consider making them a lowball offer because some lenders just want to get the cash and get it off the books
6. If you’re an ass, you could work several full service agents to find you a place (most won’t make you sign a buyer’s agency agreement) and when one finds something you like you can tell them to take 1% or you will go to a discount broker (you can play the same game with mtg brokers as long as you don’t lock in because the last time I checked that ties to your SSI number). But this is cold, cruel, and in my opinion unethical. If you expect them to be fair and upfront, you should be too. I would probably try to find an agent who is experienced enough to do an excellent job, but will also discount their side of the commission to between 1% and 2%. You should be looking your self, but its always good to have a second set of eyes that might see things you missed. And you want to have someone who knows what’s important to you and can move fast to put the deal in play if you find what you want.
By Sniglet @ 69:
By Sniglet @ 69:
Why would anyone base a calculation on rent vs. own on excluding apprecation? Let’s be fair. Appreciation was unprecedented. If you sold at or near the top you made a killing. I tripled my investment in a place that I owned for only 3 years. Just because not everyone got out of the market in 2003 (like you!), doesn’t mean nobody made any money. I for one am "golly" glad I owned from 2003 – 2006. Glad I sold too, mind you…
It’s only been in recent times that landlords counted on asset appreciation to make their investments pencil out. Historically (e.g. before the late ’90s), landlords typically expected to make sure that rental properties were cash-flow positive (i.e. that the rents covered the mortgage AND all taxes and expenses). The very fact that the “new” era of real-estate investing EXPECTS there to be a negative cash-flow (i.e. with the hope that appreciation will make up the difference) shows just how twisted things have become.
Many studies have shown that over the LONG haul, real-estate prices only keep in line with inflation (if that). It is only in recent decades that this old rule has been turned on its head (i.e. with much higher than historic appreciation rates). I believe that the downturn we are going through now is going to reset things back to those older norms (i.e. with very little, if any, appreciation for long periods of time).
RE: Ira sacharoff @ 70 –
I also agree with what Ira said, especially about getting a good CMA. In addition to anything else in the CMA, I’d have the agent provide the listing history, and the sale price history from the tax records, for the subject property and all the comps. I’d also probably have the agent do a CMA for a house in the area before I committed, whether verbally or in writing, to use them. It’s a good way for both of you to gain more specific knowledge about the area and pricing.
It shouldn’t be a problem to get an agent to do it. Most are hungry to find a real buyer these days. You should also look at everything you can on the market in the area and the price range you’re interested in. Don’t count on the pictures being an accurate representation. Good pictures can make a dump look great and bad pictures can make a gem look unimpressive. A lot of times agents won’t invest in good pictures because they are penny wise and pound foolish. In my experience, this seems to be especially true of REO’s.
RE: Sniglet @ 74 – BTW, I’ve always said that renting is cheaper than owning if you’re just looking at the monthly costs–or at least it has been all my adult life.
Precisely. Our entire perspective of what is “normal” has been skewed over the last 20 or 30 years. We have really been living in an incredible economic bubble for a LONG time. It’s no coincidence that we keep hearing people say that they have never before seen the kinds of things happening in our economy today. That’s because our sense of reality has been out of alignment for so long that it’s difficult for us to concieve what normal really is.
RE: Sniglet @ 74 –
Sniglet, while a lot of what you say is true, to some degree I believe you are over stating your case. Rather than going thru an historic rent vs. own analysis here, ponder this: If ownership didn’t provide a significant return, why would relatively sophisticated landlords continue to make the choice to own rental property? Sure, sometimes they make misstakes and to some degree the answer is that there are economies of scale to owning an apartment complex. But part of the answer is that income producing properties, including single family homes, are inflation hedges. Ownership can provide a great long term return. And leverage can be incredibly powerful over the long term.
Of course there are risks to being a capitalist. I’ve seen 200 unit apartment complexes in So Cal go back to the lender and developers with 25 million+ financial statements get wiped out. Risk and timing are important. But inflation is the rule in our economy. Deflation is the deadly exception that seems to only come along very infrequently. And income producing assets like real estate are inflation hedges. And leverage gives one the ability to multiply the limited return above inflation to a significant number. Especially if one has a long term investment horizon and can lock in a long term mtg rate at historic lows.
RE: stephen @ 68 –
Shopping = getting educated on whats out there.
By Kary L. Krismer @ 72:
Another reason a car is a terrible analogy is because renting a car costs far more than buying one.
Inflation has certainly been the primary economic state that most living Americans have ever known. However, we are most likely heading into a new era of long term deflation. Japan has amply demonstrated that prolonged deflation can occur in the modern era of fiat currencies, and the deflation the US has been experiencing in the last year is eerily following the same pattern.
As usual, I would refer people to one of my podcasts for an overview of the case for deflation.
http://surkanstance.blogspot.com/2009/01/deflation-101-podcast.html
By Groundhogday @ 48:
Agreed, but this is one of my lifelong friends, not just another acquaintance, so he doesn’t need to try and sell me a house. Funny, you should bring up the point about teetering on the edge of bankruptcy. He actually IS teetering on the edge of foreclosure and is giving it “one last push” in his words before he gives up and gets another job.
Sorry for not being able to reply sooner. Let’s see if I can catch everyone’s helpful comments:
*Our current landlord is actually a decent guy, and wanted to rent to us for a while. He’s just caught up in family emergencies, and placing his family above his tenant. Our lease has expired, he’s chosen not to renew it, but he’s giving us flexibility on timing for moving out, so that we can find a place we like.
*We are already planning on buying much less house than we “can afford.” Instead of 39% of gross income going towards mortgage payment, we’re aiming closer to 20%.
*The agent we’re working with as well as the other one we interviewed both seem to say that in the last few months, houses are selling for ~5% below the last asking price (which may have been reduced from a higher initial asking price). We’re ethical, so we won’t be playing multiple agents against each other.
Thanks to all for the suggestions on places to look etc. I’ve been a long-time ’skimmer’ of SeattleBubble, but until a couple of weeks ago had been thinking it wasn’t directly relevant to me, because I thought I’d be renting for a couple more years. Now that my wife is pushing hard to buy, I suddenly need to play a bit of catch up.
We also got spoiled when buying our house in Boston 8 years ago, because we had a buyer’s agent who was great at finding problems with houses, giving us great opinions on why we would or would not want a house, and really helping us push to get the lowest price we could get. I haven’t seen or heard of agents out here who are as focused on finding a situation that’s as good as possible for the buyers.
RE: Rojo @ 40 –
Rojo, did you buy in South Rose Hill? Kaitlen Lane???
RE: Rojo @ 40 –
I walked thru one of those houses about 6 months ago during an open house. You came over and we chit-chatted. That builder is so bizzar? He raises and lowers his prices all over the place almost on a weekly basis.
RE: Tom N. @ 83 –
That’s fine to not play agents against each other, but be sure to be very clear with the agent you are using what you want and what you expect him to do for you.
Maybe you got lucky in Boston. I have relatives there who experienced scumbag real estate agents. They’re in Boston and Seattle too.