Posted by: Timothy Ellis (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.

86 responses to “King County Home Prices & Affordability 1950-2009 Q1”

  1. David Losh

    Happy Birthday!

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  2. td

    Happy Birthday & thanks for the charts!

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  3. softwarengineer

    SO THE TIM IS A YEAR OLDER NOW

    May your birthday be a joyous one and many more to you too!

    Affordability is an issue that is understandably ambiguous and just as loan requirements vary from 30-50% of net pay from banks over the decades; its obvious there’s buyers out there that would sign the escrow and live on boxed noodle mix, rather than save for a decent down payment or pay for it with cash.

    A young man asked me at a Toastmasters meeting if he should buy a home now and I told him, “rent on the cheap and save your house payment, you’ll own the house with cash in 5-10 years instead of 30″. He replied he couldn’t save a house payment each month and rent too. I told him, “then save half a house payment each month, you’ll have that house in cash in 10-15 years that way”.

    Being frugal and savy doesn’t take brains, it just takes common sense. Its something besides math and science our schools don’t teach…LOL

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  4. NoMoreWork

    Thanks for the update! Happy Birthday. Take er easy today.

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  5. johnnybigspenda

    I am struck by the 33% YOY increases in home prices around 1975-1980. I know we were in a period of MASSIVE inflation at that time. If you look a the second graph, it shows the corresponding interest rates… again during 1975-1980 the rates (meant to control inflation) were SUPER high.

    I wonder if this may be the end game for this popped housing bubble problem of ours? What if we see 33% YOY increases in home prices? That would sure change the game as far as home owners being under water. It would also make their debt seem a lot more manageable since money would be worth less. I suppose that would mean we would need to see 33% wage increases? I won’t hold my breath for that one… but who knows? Its happened before.

    ps.happy b-day Tim

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  6. waitingforseattletocool

    The Tim,

    What is the issue surrounding the stairstep theory?

    At a glance, it looks like a stairstep from the 1970′s until the credit / housing bubble of this decade.

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  7. Ray Pepper

    Hey………I worked on my birthday!! Go to Azteca, Old Spaghetti Factory, or Red Robin…Listen to them sing…..Clap along………..Then get your butt back in the chair with more substantive posts.

    Happy B Day!

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  8. deejayoh

    By waitingforseattletocool @ 6:

    The Tim,

    What is the issue surrounding the stairstep theory?

    At a glance, it looks like a stairstep from the 1970′s until the credit / housing bubble of this decade.

    If it is a stairs, that last step down is a doozy

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  9. waitingforseattletocool

    RE: deejayoh @ 8

    Steve Tytler acknowledged the last step was out of step as late as July 2008.

    What particular aspect of Mr. Tytler’s position is The Tim taking issue with?

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  10. Joel

    Have you ever seen a staircase that went on infinitely? No, of course not. They all lead somewhere even if it is straight into a ceiling like at the Winchester Mystery House. So it makes total sense that Seattle’s stairs lead to, guess what, a slide! What fun!

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  11. softwarengineer

    HI JOHNNYBIGSPENDA

    I lived through the 1970-80 inflation fiasco, as the massive population of older baby boomers grabbed up the $40K Seattle homes, leaving the left-over crumbs for the younger baby boomers by 1978; like $80K homes at 15% interest [it took one whole college income to buy a Seattle house and another to eat].

    The big difference between the 70s and 2000s is demography and wage growth. We had about 1/2 as many people and our wages were going up on 5-10% COLAs [these were real COLAs back then that included housing and energy costs]. Union blue collar workers made more than engineers back then. We also had a strong industrial base and a BIG DIFFERENCE today:

    Total US debt rose from 163 % of GDP in 1980 to 346 % in 2007. Its probably more like 500% today with all the recent $trillions of bailout debt added in. Even Dr. Roubini admits the very cure [massive federal debt] is the dollar devaluation inflation snake that will bite us in the future, like around 2010. He’s ambiguous too, calling an “U” recession to maybe a “W” recession; it get’s better then much worse. The Great Depression did that too. Ask someone graduating with a college degree today if wages are going up [what wages?].

    Nope, in my humble opinion the dollar will collapse with massive federal debt and oil/food will sky-rocket in price, but not show up in the CPI. New wages will continue to collapse with horrifying competition for a dwindling job market with massive uncontrolled growth. The older workers like me have more seniority pay; but WSJ reports today that seasoned workers have half the layoff rate of the 20-35 YO workers….I wonder if that skews the average household income artificially upward, when chronic younger worker “less paid unemployed” are permanently off the unemployment statistics due to giveup or underemployment?

    The bottom line, home loans and home prices can’t go up without wage increases. Its simply impossible. Home prices can continue to deteriorate to 3rd world country home prices with our recent wage decreases and uncontrolled population growth; as they have been.

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  12. what goes up must come down

    waiting for seattle to cool — did you actually look at the whole chart or just the last third?

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  13. what goes up must come down

    oh wait it was the last third when Seattle became SPECIAL

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  14. Scotsman

    Happy Birthday Tim!! Have a great day!

    Maybe that’s just a dead cat on the stairs. Step over, then continue up!

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  15. Steve Tytler

    Hi Tim,

    Happy Birthday and thanks for all your hardcore number crunching on this site.

    While I don’t always agree with your theories I know that a LOT of work goes into making these charts and graphs.

    It’s funny that you called me out on my infamous “stair step” theory because when I first saw this chart I thought
    that this was the best illustration of my stair step theory I had ever seen.

    Then when I read the text under the chart you said it proved me wrong.

    So I was confused.

    I think the chart very clearly shows the two stair steps I have referenced in the past as well as the beginning of
    one that was overtaken by the credit bubble.

    Also, I want to make it clear that I have always used the late 1960′s as the baseline for my theory, I never went back further than that.

    In short, my theory is that home prices in the Puget Sound region have traditionally (over the last 40 years) followed a pattern of a sharp spike upwards over a brief period of 1-3 years, followed by a brief pull-back, followed by several years of a “flat” market with relatively little appreciation or depreciation.

    The chart above clearly shows this to be the case.

    The first “step” starts in the late 1960′s when home prices were booming, we had the “Boeing Bust” of 1970 which caused home prices to fall back and stay “flat” until the late 1970′s. This was a very small “step” in relation to th later ones.

    The second step is formed by the upward spike in home prices during the late 70′s housing boom, peaking out in about 1980, falling back a little and then going flat for until the late 80′s when we had …

    The third step is formed by the 1989-90 housing boom, with a price pull back in late 1990-91 followed by several “flat” years through the mid 1990′s.

    The fourth step is formed by the late 1990′s housing boom which peaked around 2000-2001 (hard to tell from your chart). We started into the normal “flat” period which typically would have lasted for a few years, but then something very unusual happened …

    Banks started GIVING AWAY MONEY!

    There was a massive drop in mortgage interest rates in 2003 and for the first time in 40 years you could get a 30-year fixed rate loan for only 5%. Suddenly a $300,000 wasn’t so expensive and a LOT more people could
    afford to buy — so they did.

    It was a great time for the mortgage companies because we couldn’t keep up with the demand for refinancing and home buying with historically low rates.

    By 2004-2005, most people had already refinanced and rates were moving up, but the mortgage industry wanted to keep the good times going so they came up with the crazy idea to start letting EVERYBODY buy homes with zero down payment and no income verification!

    It was crazy! I remember one bank offerered to purchase money loans for borrowers with FICO scores as low as 500 with ZERO down payment, no income verification on an INTEREST-ONLY loan!

    At the time we were shaking our heads thinking this was insane and my mortgage company never participated in the “sub-prime” mortgage market or any of those “liar loan” programs that put people into houses that they had no right buying becuase they could not afford the payments.

    This opened up the housing market to a huge number of people who had never thought they could buy a home, and so they ran out and did it.

    Even INVESTORS were given zero down loans with no income verificiation!

    So what we had was an artificial demand cause by crazy “free money” policies that fueled a real estate boom that probably never would have happened under “normal” mortgage lending conditions (like we have today).

    So the credit bubble blew my stair step theory out the window for this decade because of that artificial demand messing with the normal supply-demand economics of the housing market.

    I maintain that once the foreclosures and short sales clean out that mess, we will return to a more traditional stair step pattern in the next decade.

    Tim recently pointed out an email I sent to him where I said we would NOT experience a severe “crash” in home prices like San Diego, Las Vegas, Phoenix and other traditional “boom-bust” housing markets and I stick by that prediction. I believe at that time I thought those markets would fall 20%+ the “plus” turned out to be pretty big because they have fallen about 50% from their peak value.

    I still say we will NOT follow those markets that low based on past history. Those markets have always had bigger booms and bigger busts than the Puget Sound housing market. For example, San Diego home prices fell 50% in many areas during the 1990′s and you can see from the chart above that King County home prices did not fall anywhere near that much.

    The same goes for foreclosures. We have traditionally had a lower foreclosure rate than the national average and I believe that will continue to be the case.

    They always say that “past results are not a prediction of future returns” but I feel confident that even though our
    housing market has just experienced its worst “crash” ever, we will not be as bad off as San Diego, Las Vegas, Phoenix and other markets that were really crushed.

    BTW, the Phoenix housing market is really bouncing back. Lower priced homes are selling fast. I know this from personal experience because my wife’s father died and we are selling his home right now. We had 3 offers on it in the first 3 weeks. We held out for the best offer closest to our asking price. It looks like the low end of that housing market may be near “bottom” … it will take a while for the mid to higher priced homes to bottom out.

    So draw your own conclusions … I think there are fairly predictable patterns in the Puget Sound real estate market … this is really more of a “credit bubble” than a “real estate bubble” because many of those home buyers never would have qualified for a loan under normal mortgage underwriting guidelines and we would not have had an articial spike in demand to throw the traditional supply-deman ratios out of whack.

    This is a very long post, but I don’t post here often, so when I do I get my money’s worth. ;-)

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  16. waitingforseattletocool

    RE: what goes up must come down @ 13

    with my crooked eyes, it looks like a stair step from 1970-ish to 2003-ish, then the credit implosion.

    4 steps and then the balloon

    i don’t think Steve is contending any more than this that real estate appreciation since the 60′s and 70′s have gone in roughly 10 year cycles with the great anomoly of this decade.

    What else should I be getting from these charts? That The Tim proved there was a real estate bubble in Seattle?

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  17. Scotsman

    The contention in Tytler’s original comments back at the beginning of this site was that real estate always goes up in value, and does so in a cyclical stair step fashion.

    He is about to be proven spectacularly wrong. But it will take another 5 years of data to do so.

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  18. waitingforseattletocool

    RE: Scotsman @ 17

    Since you say it with so much conviction … I’ll go back to building my bomb shelter before the end of the world occurs.

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  19. Steve Tytler

    By Scotsman @ 17:

    The contention in Tytler’s original comments back at the beginning of this site was that real estate always goes up in value, and does so in a cyclical stair step fashion.

    He is about to be proven spectacularly wrong. But it will take another 5 years of data to do so.

    Apparently you missed my published predictions over the past couple of years where I said that home prices in the Puget Sound region will end this year as much as 30% below their peak market values. Specifically, I predicted a 10-20% drop in 2008 and an additional 5-10% drop in 2009 — depening on the neighborhood because there are very wide variations from area to area.

    So that hardly puts me in the “real estate always goes up in value” camp.

    Now if you want to say “real estate always goes up over a period of 10 years or more,” I think that’s true.

    Believe it or not, I think you will see home prices in this area exceed their peak values of 2007 sometime in the next decade. I’m not sure exactly when the next “boom” will happen, but I’m very confident that by the end of that decade (2020) home prices in this area will have regained and surpassed the price levels set during the credit bubble (I’m not calling it a “real estate bubble” any more).

    The reason I believe that is because people were ready willing and able to buy homes at those prices in 2007 and therefore they should be ready willing and able to do so again in the future, once income levels catch up to
    amount needed to qualify for a mortgage.

    And keep in mind that if the credit bubble hadn’t mucked things up, we’d be due for another step UP on the “stairstep pattern” about now — notice that they tend to happen toward the end of each decade — so that further reinforces my belief that better times are ahead once all the bad loans are washed out of the system.

    Also, I expect inflation to come roaring back over the next few years because of the enormous amount of government spending flooding the economy with dollars. If nothing else, inflation alone may cause home prices to regain their 2007 values and beyond.

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  20. Scotsman

    RE: Steve Tytler @ 19

    “Believe it or not, I think you will see home prices in this area exceed their peak values of 2007 sometime in the next decade. ”

    From a previous post of mine:

    “What the inflationists and stimulus crowd miss is that the nature of our money supply has slowly changed over the last 50 years and no longer fits the tidy fractional banking/hard currency model. The concept of velocity remains valid, as do the basic definitions of inflation and deflation. But what passes for money these days is very different from 50, let alone 80 years ago. But old ideas die hard.

    Today, credit and money are essentially the same. And public credit is controlled not by the FED or the government, but by the size of the collateral base- the value of all assets in public and private hands that can serve as collateral. Given this, when we have an asset bubble, the money supply grows. And when that collateral shrinks, as in the current housing crisis, the monetary base shrinks with it. While the FED may pump trillions into the economy, that “pump” is dwarfed by the contraction of the real monetary base- available credit.

    We won’t experience inflation because the supporting asset bubble will not be coming back, and that bubble exceeded everything the FED or government can do. But the debt is real and will remain, a mis-allocation of capital and a drain on the economy, both through the required increase in taxes and interest. The deflating bubble exceeds by a factor of 4-5 the total GNP of the country, while the government runs “inflationary” deficits that are a fraction of GNP. Let’s not even mention the global nature of the problem. This economy will continue to contract into a black hole until only real productive assets are left, and then bump along on the bottom for years and years.”

    I repeat, you are about to be proven spectacularly wrong. But it will take another 5 years of data to do so.

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  21. softwarengineer

    RE: Scotsman @ 20

    GREAT TAKE SCOTSMAN

    We hum basically the same tune. We’ve ran out interest reduction dial down by the Feds, and as the debt get’s harder and harder to sell, there’s only one way for interest rates to go to attract capital.

    We’ve been living in an artificial fantasy world for the last 10-12 years with low mortgage interest rates. This low rate bubble dream hope is about to realistically pop.

    I hear mortgage rates should be at least 7.5% right now to attract capital properly, likely much higher ever since we borrowed more debt to keep it well below a banker’s reasonable 7.5%.

    Imagine what direction a normal banker’s interest rate profit on mortgage will have on future home prices.

    Simultaneously, imagine what a massively devalued dollar will do to the cost of our imports.

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  22. David Losh

    RE: Scotsman @ 20RE: Steve Tytler @ 15RE: softwarengineer @ 11

    I also remember the 1970s and 1980s. It is nothing like what we have today. Steve going back to the 1960s is also, or more so, ridiculous when talking about housing prices. In the 1960s one wage earner could buy a nice house, car, beer, and cigarettes while working Monday through Friday 9 to 5.

    Today it takes two paychecks and three credit cards to make ends meet. A lot of people work 50 hours per week, some people work more than that.

    The second part of the equation is the collapse of the global credit market. That credit was actually improving emerging and developing economies. We may forget being ripped off by lenders, but the Third World takes money very seriously.

    Home prices won’t be stepping anywhere any time soon. They will settle down to where you can rent or buy for about the same payment. Many people will chose to rent.

    In the 1970s and 1980s land lords worked for a living. They bought, fixed, made extra payments, covered the vacancies, and sweated to make equity. To compare what “Investors” do today to those brave people is an insult.

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  23. Jillayne

    Happy Birthday Tim! Thanks for all you do for your readers. :)

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  24. TheHulk

    Happy Birthday Tim! Thanks for the great graphs.

    I can maybe justify the last “Microsoft climb” in that graph from 1995 to 2000, but the asset evaluation/credit bubble after that is simply ridiculous. A couple of years more and we will be in 2000 territory (after adjusting for inflation).

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  25. Greg Perry

    Birthday wishes, Tim.

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  26. ElPolloLoco

    Any chance of getting this graph rendered with a logarithmic vertical scale? IMHO it distorts the picture somewhat to put the $50K-$100K increment in a single vertical division while the $200K-$400K octave occupies four divisions.

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  27. Alan

    RE: ElPolloLoco @ 26

    Care to elaborate why?

    I could see a log base graph making more sense if the data were not inflation adjusted, but since it is inflation adjusted those huge jumps seem like an accurate representation to me.

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  28. jon

    RE: Alan @ 27 – A log plot would make it more clear that the drop around 1980 and the recent drop are both just about 20%.

    Adjusting inflation is only part of the picture. The average house size has gone up over time, ceilings are higher, more wiring, etc. Also living in close proximity to Seattle circa 1980 for example is simply not as valuable as living close to Seattle in 2009.

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  29. Racket

    “Adjusting inflation is only part of the picture. The average house size has gone up over time, ceilings are higher, more wiring, etc. Also living in close proximity to Seattle circa 1980 for example is simply not as valuable as living close to Seattle in 2009. ”

    Finally someone who gets it.

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  30. deejayoh

    By Steve Tytler @ 19:

    Apparently you missed my published predictions over the past couple of years where I said that home prices in the Puget Sound region will end this year as much as 30% below their peak market values. Specifically, I predicted a 10-20% drop in 2008 and an additional 5-10% drop in 2009 — depening on the neighborhood because there are very wide variations from area to area.

    Apparently I did miss those Steve, but here is what I did read. Right here on this blog…

    Here is what you said in May 2007, 2 months before prices peaked:

    I expect the housing market to be flat for the next few years. I do NOT expect to see 20%+ price drops as we have seen in other previously housing markets around the country. People who bought at the very peak of the market last year will probably see the values of their homes drop somewhat, but most homeowners who have owned their house for one year or more will be fine.

    And here is what you said in July 2008, a year after prices peaked:

    I have predicted home prices would fall about 10-20% from the peak value (depending on neighborhood) and then flatten out.

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  31. Scotsman

    If ya throw enough mud, some will stick to the wall. The rest we write off as outliers.

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  32. Racket

    Steve,

    If you have learned anything from this it should be this.

    DO NOT PREDICT ANYTHING ON THE INTERNET!!!>

    It’s a losing proposition. You won’t look like a genius when are are right, but will look like an incredible fool when wrong.

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  33. deejayoh

    RE: Racket @ 32 – or just don’t brag continually about how accurate you were when you left a trail…

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  34. Racket

    Yeah that too, but I wanted to get to the root of the problem.

    =)

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  35. Herman

    Since Tytler has predicted every possible permutation of the future at one time or another, it is always possible to find a quote from his past that is right. It is also always possible to find a quote from his past that is wrong.

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  36. TheHulk

    RE: deejayoh @ 30

    Good sleuthing DJO. I just think Tytler is trying to cover all his bases at the same moment while trying to hit a home run. Not gonna happen.

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  37. Gene

    Happy Birthday Tim! (woo, in under the wire) Thank you for all the hard work you put into this site, it is appreciated!

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  38. Lake Hills Landlord

    I’m in the doom and gloom camp along with Scotsman. Everything I’ve seen indicates that massive debt destruction over the coming years will lead to large scale deflation. Unless of course we blow up the dollar through mutually assured destruction (i.e. print dollars). Either way, trouble lies ahead.

    On a separate note, how can anyone look at the first chart and think housing increases in value over time? From 1945 to 1975 (30 years!) the median price was flat or declining. How does that make a case for housing increasing in value? After 1980 we entered an era of personal and government deficit spending, which I suspect lead to the artificial increases in median price. What will happen to the median price when (not if) the deficit spending comes undone? All of a sudden, Sniglet’s call for $100k median prices in 2009 dollars seems downright intuitive.

    Counter arguments?

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  39. Ardell DellaLoggia

    Happy Birthday Tim!

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  40. Ardell DellaLoggia

    Deejayoh,

    Can you explain “adusted for inflation”? If the “real” price was $500,000, what would “adjusted for inflation” change the price to? I’m not good at “not real” stuff.

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  41. Scotsman

    It’s interesting to look at the three distinct jumps up on the chart. The first, 1975, is largely the result of inflation driving through to wages, the last time real wages rose in this country. The second, 1987 or so, is probably Microsoft. MS went public in 1986 @$20.00/share, and within a year had quadrupled to $80.00 giving thousands of employees with stock options hundreds of thousands, if not millions of dollars of new wealth. The Seattle economy blossomed as a result. The third leg up is the beginning of the bubble- low interest rates, deficit spending on all levels, and regulatory changes that pushed housing as a driving factor in the economy.

    Here’s the kicker- none of these events are likely to occur again. As housing prices slowly drift back to the inflation adjusted norm or trend line a median price of something under $200,000 doesn’t look that far outside the realm of possibility. This assumes a somewhat normal economy, not what we have on the horizon.

    Everything considered, I have to agree Sniglet’s $100K median (inflation adjusted) home may be a possibility.

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  42. DaveP

    Am I crazy for thinking it’s not a coincidence that the ‘stair steps’ started when we went off the gold standard?

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  43. wreckingbull

    RE: Steve Tytler @ 19

    Also, I expect inflation to come roaring back over the next few years because of the enormous amount of government spending flooding the economy with dollars. If nothing else, inflation alone may cause home prices to regain their 2007 values and beyond.

    Can you elaborate on the mechanics of this? How is this money making it into my paycheck? My company froze all wages last month. A flood only happens if the spigot is bigger than the drain. I’ll tell you one thing, if the market wage for my job doubled, my company would offshore it so fast it would make my head spin. I have yet to see anyone describe this, only make the claim.

    Everywhere I look I see wage deflation. (4-day work weeks, shrinking benefits, layoffs, hiring freezes). All the reckless government spending WILL succeed in destroying our paper currency. I won’t argue with that. That will cause some price inflation in things like oil. How do home prices inflate when it costs $200 each time you fill your gas tank? To add insult to injury, you are now doing this three times per week, since you are driving 100 miles/day to your lower-paying ‘backup’ job. As software engineer pointed out, this is a very different situation than the 70′s.

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  44. Racket

    “How do home prices inflate when it costs $200 each time you fill your gas tank? ”

    When the prices of oil goes up I’d imagine housing will follow it up, not down like you suggest. Especially close to job centers.

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  45. Kary L. Krismer

    RE: Racket @ 45 – Prices did drop more significantly in the extreme southern portions of King County when the gas prices were high, so it’s not a stretch to think that would be the cause. But on the other hand, I still question how much damage those prices did to the overall economy. So I see high gas prices affecting prices both directions simultaneously.

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  46. tomtom

    By The Tim @ 37:

    Now he’s saying he always predicted prices 20% down.

    No, Tim. Read his latest post. He always predicted prices would decrease 30%.

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  47. David Losh

    RE: DaveP @ 43

    It is the beginning of the fiat money debate.

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  48. deejayoh

    RE: Scotsman @ 42 – My problem with the doom and gloom/$100k scenario is that the wages supporting the prices up until the 3rd “jump” are real, and are still available to fund home purchases. Yes we saw an artificial jump in home prices fueled by lax lending standards. Yes those standards have now retightened to where they were (for the most part) before the boom.

    But at the end of the day, you are still left with a HHI of something like $60k per year in King County. There is no way that home prices drop to $100k based on that level of income.

    If you are predicting $100k home prices, then you have to bring in assumptions around massive wage deflation and economic collapse – not saying that can’t happen, but I don’t draw that conclusion from looking at that chart.

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  49. Ray Pepper

    RE: deejayoh @ 30

    Spot on! Steve Tytler is like my group of 60 investor buddies who consistently “adjust” their views based on market performance of their holdings. BTW Steve, markets in Nevada have greatly exceeded your 50% prediction and reached 72% in regions of Vegas and Reno.

    Steve I offer this same opinion to you as I have stated on the Bubble many times:

    *We are no where near a bottom.
    *The “mantra” of home ownership has greatly changed and is now a “lead weight” around the neck of millions of homeowners. This is caustic to home appreciation.
    *All these upsidedown homes are coming back. Maybe not this year but I assure you in this mobile society over this next decade you will see short sale after short sale and foreclosure after foreclosure. People are not stupid and will make decisions that in the past were unheard of.
    *Personal bankruptcy’s will soar to historic levels greatly beyond predictions set forth and consumer credit will continue to deteriorate in epic parameters.

    There will be GEMS that will be scooped up over the next decade. I have witnessed a few last week in Puyallup bought at auction for 130k for a quick flip at 179k-199k. As many investors state to me now..”Ray, I won’t buy anything that I cannot sell tomorrow for a profit….There is no holding anymore.”

    We are all in this together and we must educate the masses about the truth of real estate. I have become very bearish on real estate going forward even after these 20% declines. Buyers need to make their offers and resist any bidding wars in this temporary blip up. Place your offers on these short sales, stick to them, and keep looking for other GEMS while you wait for bank responses. There will be thousands of them.

    I continue to refer people to the bubble for a “glimpse” of another perspective. So many rushing out to buy because of the low interest rates and sellers thinking next year or the year after will be better. Agents stating NOW is the time to buy everywhere I travel. Its a shame.

    As my favorite analyst states…”keep your powder dry for the next decade and acquire CASH..you have seen nothing yet”

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  50. Magnolia44

    Cheers to the 5 to 10 doom and gloomers who visit the bubble regularly. People, they should be taken with a grain of salt. 100′k priced homes, come on now… Reallly?

    Anyway this place has probablly less than 100 regular visitors, there is always room for a few guys to be “way out there”. Gubment aint gonna let it hapen, Fed aint gonna let it happen, global economy aint gonna let it happen

    But because softwareengineer and sniglet spout some rhetoric, its gonna happen. Who’s side would you be on?

    I called government intervention a long time ago and there has been program after program, is it right? No but there are more things down the hatch.

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  51. deejayoh

    RE: Magnolia44 @ 51

    Anyway this place has probablly less than 100 regular visitors, there is always room for a few guys to be “way out there”.

    http://www.quantcast.com/seattlebubble.com

    500 addicts
    6,600 regular visitors
    10,000 passers-by

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  52. Magnolia44

    Maybe I should have said regular posters. Didn’t mean to discredit it that much, don’t take offense Tim.

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  53. softwarengineer

    RE: Magnolia44 @ 53

    I NEVER ONCE SAID SEATTLE HOMES WILL GO TO $100K

    But…..its clear to me that if we keep adding 600K a week to unemployment [excluding the millions of college kids or those working on contract we don't count as unemployed; let alone the underemployed or giveups] chronically and continuously…the sky is the limit on home price decreases.

    You and I may not want it that way, but wage deterioration will clearly call it anyway.

    I hear families are moving in together more; and one lame-brained solution to fill vacant housing/rental units is bring in more uncontrolled growth population….LOL….where will the excess population work?

    Magnolia44, do you have a solution to this economic mess we’re in besides overpopulation control? Do you suggest going back to the status quo of borrowing and borrowing that’s just making it worse? I know you come up nada.

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  54. Scotsman

    RE: deejayoh @ 49

    Agreed- I think we’re heading for a $175-200K mean. I only said Snig’s $100K was a real possibility. But you’re right, it would take serious wage deflation or massive unemployment to get there.

    After making the original post I went and pulled up Shiller’s graph again- it also shows three steps up. The difference is that the first two fully return to the trend, and only the last bubble step has yet to resolve. So it looks like the middle step had more to do with a national tech boom, not just MS. I’m not sure all of that money is still around. I’m not up to speed on current tech wages, but haven’t they been flat or falling with outsourcing, etc?

    http://www.econ.yale.edu/~shiller/data/Fig2-1.xls

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  55. Scotsman

    RE: Magnolia44 @ 51

    Can I borrow your rose-colored glasses for the weekend? I need a break from reality.

    Doom and gloom isn’t a religion- it’s a probable outcome. That government intervention you rely on is coming next week, in the form of over $100B in bond sales, all at once. The problem is we’ve been buying $5-10B a week and interest rates have still crept up to 3.35% on the 10 year bond. The government’s target was 2.5% in an effort to keep mortgage rates low. That hasn’t been working out, and is about to get blown out of the water by dumping a huge amount of debt on the market. You can bet much of the money will come from a stock market that many feel has run it’s course for this rally.

    So, in the next couple of weeks we can look for lower stock indicies and higher interest rates. Both will hurt home sales and the vaunted “spring bounce.” Your home’s value will probably drop some more. That’s not “doom and gloom,” it’s open ended analysis with probabilities assigned to a range of outcomes. I’ve never had much luck fighting reality, but YMMV. Good luck!

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  56. deejayoh

    RE: Scotsman @ 55 – I’ve got some income/house price data that I will try to work into a post over the weekend. Should at least generate interesting discussion

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  57. silver9

    RE: deejayoh @ 57

    Please do! Housing is always about affordability (eventually) so I find the income/price data the most relevant to look at.

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  58. kfhoz

    By Magnolia44 @ 51:

    100′k priced homes, come on now… Reallly?

    I admit this isn’t a great house, but it is SFH, 2br, 2ba, 20 mins from downtown Seattle or Bellevue, current asking price $118k. Sold for $250k at peak. Ad says “fixer” but I happened to talk to the owner before the house was foreclosed on and it is livable now. I will not be surprised if it goes for less than 100k.

    http://www.redfin.com/search#lat=47.4851929512123&long=-122.2049617767334&market=seattle&status=1&uipt=1&v=4&zoomLevel=14

    I am not saying that there will be lots of livable houses near Seattle for almost as low as $100k, but your disbelief that it is possible perhaps bears more careful thought. Plenty of houses in Detroit are that cheap and it is surprisingly easy to move software development offshore. Our company now has more of our software development done out of Russia than here at HQ in Bellevue.

    My take is that $100k houses in King County are not likely, but not as remote a possibility as your comment seems to suggest!

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  59. One Eyed Man

    RE: Scotsman @ 56

    The average 30 yr rate for last week dropped again. So far they’ve been able to de-couple the 30 yr mtg rate from the 10 yr rate over the last couple of months. I know you probably don’t think they can do it for long, but in the short term it looks like they can control the mtg rate by keeping the discount rate at near zero, perhaps manipulating the price at which the GSE’s will buy (and making sure they have the cash to do it) and buying some treasuries now and then. And don’t forget, average 30 yr rates over the last 40 yrs are probably north of 8%. If you’re talking about real estate prices reverting to the long term trend line, I think it’s reasonable to factor in a mortgage rate closer to the average historic 30 yr rate. Even if the 30 year mortgage rate goes back in step with the 10 yr, the 10 year rate can probably go to around 6% before the 30 yr mtg rate hits 8%. I still think that we won’t go below 2003 median real estate prices in King County. That’s when I thought the local real estate market would top in Tytler’s next stair step. But stopping price declines at near 300K median in King Co assumes a lot, probably including that they can save GM and most of the jobs related to it, to say nothing about the local economy.

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  60. wreckingbull

    RE: Racket @ 45 – You are proving my point about baseless inflation claims. If you are spending $600/month on fuel instead of $200/month on fuel, that leaves $400/month less you have for other expenses (read: mortgage).

    How does this put inflationary pressure on home prices?

    Before you say ‘it will cost more to build a home’, remember we have close to 20 million vacant homes in the country now. The inventory overhang is massive. We could stop building for a half decade and still be fine.

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  61. Scotsman

    RE: One Eyed Man @ 60

    I think the whole concept of “decoupling” is somewhat of a myth. The interactions and structural relationships still exist. Most of the “disconnects” are pretty short lived or the result of some atypical manipulation, but the math rules in the end.

    This whole situation reminds me of the .com bust in the 80′s. You look at these failing companies burning through their initial capitalization while the stock continues to soar on hope and a prayer, and wonder when reality is coming. You figure it must be soon, but it refuses to show up. About the time you figure everything you know is wrong, boom- there goes the market and some semblance of sanity returns.

    Everything I read is negative. Today, OMB said, for example, unemployment will continue to climb through the end of 2010 and (gasp!) may reach 9.5% by the end of the year. Ummm- it will hit that by July at the rate we’re going. British bonds were downgraded to something slightly better than junk. But rally on! I really think we’ll start to see some consequences in a week or so- too much debt is hitting the market. But if not now, certainly at some point in the future. Mortgage rates and all borrowing costs will jump, triggering a slew of consequences.

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  62. Racket

    By wreckingbull @ 61:

    RE: Racket @ 45 – You are proving my point about baseless inflation claims. If you are spending $600/month on fuel instead of $200/month on fuel, that leaves $400/month less you have for other expenses (read: mortgage).

    How does this put inflationary pressure on home prices?

    When fuel prices went up the price of all goods and services went up along with it. When the price of all goods and services go up things can happen.

    1. Lower consumption.
    2. Inflation.

    Housing near job centers will go up in price because you can justify spending more on your mortgage and less on your commute. Just like the hybrid car surcharges, now they are giving away rebates on them.

    I wont argue with you about a market that is saturated in excess inventory. It’s really not fair for you to tag this on your rebuttal when I was simply responding. To the increase caused by fuel prices.

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  63. wreckingbull

    RE: Racket @ 63 When fuel prices went up the price of all goods and services went up along with it.

    If by ‘all goods and services’ you mean ‘all goods and services, not including real estate’ then I agree. $5/gas is what turned a hiss into a pop for our housing bubble, remember?

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  64. Racket

    “. $5/gas is what turned a hiss into a pop for our housing bubble, remember? ”

    Is it really?

    Not the market being flooded with forclosures as a by-product of bad loans?

    Not the fact that the banks would give few people financing?

    Not the house factories stamping out houses by the 10′s of thousands?

    Construction costs go up tremendously with fuel costs. If the price of new construction goes up, and their market prices have to go up to compensate, woudlnt this drive all real estate up?

    Building material prices jumped 20% in 2005.

    I think the price of fuel lowering the price of housing was co-incidence.

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  65. Liquidcrash

    Thanks Tim! I was going to try to do the affordability calcs myself until I stumbled across your chart! Awesome! What a timesaver. Have a fantastic Birthday!

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  66. Lake Hills Landlord

    RE: Racket @ 65

    Wages. It all comes down to wages. With U3 unemployment above 9% and U6 heading to the sky (currently 16%, 17%, higher?), how will people pay for any of this?

    The reality is short term massive deflation, including fuel. Demand will go down as unemployment soars, leading to more unemployment, and so on. In the 5-10 year period, we might see inflation on fuel, food, and some other core products due to lack of supply, but that will only result in a further lowering of our standard of living. It will not drive wages, and thus not drive inflation.

    I’m still waiting for a single credible counter-argument to deflation to be posted on this site (or heck, anywhere on the Interwebs). We are living through the largest destruction of credit in history and that will destroy asset valuations and standards of living. It was never a housing bubble, just another face to a 30 year credit bubble.

    The only possible case for inflation is…print money and hand it out through programs. I’ll leave it to you to figure out why that can’t work (hint – how do we finance government spending and what happens to that if you print money?). Look at the success of the recent QA efforts by Ben Co. if you have doubts.

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  67. waitingforseattletocool

    RE: The Tim @ 37

    Here is a quote from The Tim, recorded right here on this blog in 2007.

    “Most Likely Case
    The way things are headed as of right now, I expect we’ll see a Japan-style housing downturn. Prices declining 2-5% per year for 7-15 years”

    This was given 50% chance to occur.

    It is fair to say you have changed your outlook as the correction has played out, correct?

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  68. waitingforseattletocool

    RE: The Tim @ 69

    “Best Case
    Prices flat to +3% for ten or more years”

    10% chance

    “Worst Case
    Prices drop to 1997-1998 values over the span of approximately 5 years”

    20% chance

    Seems like you periodically compare how right you are to local prognosticators

    http://seattlebubble.com/blog/category/opinion/page/4/

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  69. waitingforseattletocool

    RE: The Tim @ 69

    The Tim,

    Please summarize here how your predictions for 2007 and 2008 compared to Steve Tytler.

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  70. Everett_Tom

    RE: waitingforseattletocool @ 71
    While I’m sure the Tim can answer for himself, I would like to point out that what your asking for is basically summarized in the second item in the link you posted… you know that right?

    ( Link to 2007 summary, 2008 predictions) This is one of the links the Tim has on his post up at 69 as well…

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  71. deejayoh

    By waitingforseattletocool @ 71:

    RE: The Tim @ 69

    The Tim,

    Please summarize here how your predictions for 2007 and 2008 compared to Steve Tytler.

    Did you even read the posts that you linked? You are displaying some trollish behavior

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  72. waitingforseattletocool

    RE: deejayoh @ 73

    Sorry to be so naive, but what is trollish?

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  73. waitingforseattletocool

    RE: Everett_Tom @ 72

    So I’ll summarize myself,

    Tytler Ellis King Co. SFH
    Listings 0% >15% +51%
    Sales: <0% <-5 to -10% -14.5%
    Prices: + <=0% -5% to +3% -1.14%

    Both Ellis and Tytler way off on listings

    Both off, The Tim less than Tytler on sales.

    Both about right on prices.

    Point is, why are we on a Steve Tytler witch hunt?

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  74. Everett_Tom

    RE: waitingforseattletocool @ 75

    I don’t think it’s a Steve Tyler which hunt. Steve has had some good insights, and pointed the Tim to data that he otherwise might not have known existed. (I believe the stair step data used above came from a source that Steve pointed out to the Tim)

    However, when Steve shows up, and claims he made accurate predictions, when he didn’t. He got called on it. That’s all.

    The difference is not as to how close the predictions are, the issue folks have is how the predictor owned up to their predictions at a later date… It’s no fair changing your predictions after the outcome, and then claiming your were right all along.

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  75. waitingforseattletocool

    RE: deejayoh @ 73

    so now that I know the meaning of “trollish” thanks to Wiki…

    How is getting The Tim to own up to his predictions compared to Steve Tytler “inflammatory” or “off-topic”?

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  76. patient

    RE: waitingforseattletocool @ 77 – I think Everett_Tom explained that well. I think everyone here; bulls and bears have been wrong by underestimating the destruction of the bubble, except for the commenters with a deeper understanding of the economy like Eleua, synthetik and sniglet. Scotsman and Mathew are also clued up on this but I can’t recall their history of predictions. I have a lot of respect for these guys and as them think we have a long way to go and 50% off peak now seems more likely than not but I still haven’t digested the idea of 80% off, perhaps next year ;-)

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  77. deejayoh

    RE: waitingforseattletocool @ 77 – why does someone need to respond here when the answer to your question was plainly laid out in a post that if you linked, had you take the time to read it?

    It seems to me that you are being argumentative for the sake of being argumentative.

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  78. waitingforseattletocool

    RE: deejayoh @ 79

    fine, end of my argument on this.

    keep the predictions going, both The Tim and Steve. They both have insight that is worthy of consideration, not always right, not always wrong.

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  79. waitingforseattletocool

    “good-natured hard time” is not obvious to me as a reader of this post. Maybe Steve takes it that way.

    “So much for Steve Tytler’s” and “espousing” in the heading of this post seems as “trollish” as I have been titled.

    The point … cut Steve some slack, IMHO.

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  80. Aldreth

    I’d never conceived there was a controversy over the bankrupt consumer causing massive inflation, however, it was quite entertaining if only for a wink.

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  81. What the Heck is the Affordability Index, Anyway? | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] Long-term affordability index back through 1950 [...]

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  82. Seattle Bubble • King County Home Prices & Affordability 1950 – Q2 2012

    [...] reader pointed out to me this week that it has been three years since I updated the long-term chart of King County home prices back to 1950. So, by request, here [...]

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