Just for kicks: Seattle’s Case-Shiller Home Price Index in the ’90s and the ’00s (through June). Each series is indexed to 100 at the start of the decade. Colored horizontal lines represent the value of the index at the start of each year.
| change | 1990-1999 | 2000-2009 (June) |
| Total | +71.63% | +49.53% |
| 1st Half | +23.18% | +38.61% |
| 2nd Half | +39.35% | +6.67% |
| Avg. Yearly | +5.55% | +4.33% |
| Max 1-Year | +12.54% | +18.46% |
| Min 1-Year | -2.29% | -16.81% |
| Months ≥ +10% YOY | 15 | 33 |
| Months ≤ -5% YOY | 0 | 14 |
Mike Anderson » Sep 17, 2009 at 7:53 am
I’ve been confused. As population grows, and we live in an area with natural boundaries, wouldn’t you anticipate that the cost of house would have a positive derivative? Especially with a shift from young people valuing suburbs to more moving to the city, it would seem that prices near the center would grow at an increasing rate as that area becomes more developed and more people want to move in.
The Tim » Sep 17, 2009 at 8:06 am
By Mike Anderson @ 1:
Yes, with two caveats.
1) Rents would also increase at a similar rate. This has not happened around Seattle.
2) The availability of land is only loosely related to the availability of housing. The latter has been increasing at a rate much faster than population.
Kary L. Krismer » Sep 17, 2009 at 8:08 am
RE: Mike Anderson @ 1 – I think you’d need to add to that the income/assets of a relatively small subgroup of people. The median price in Madison Park isn’t reflective of the median income of everyone in King County.
LeftOverpricedSeattle » Sep 17, 2009 at 8:10 am
These two charts illustrate perfectly why I believe we are headed back to 1996 or 1997 prices before all of this is over.
Cue the “stairstep” theory in 3, 2, 1…
Rojo » Sep 17, 2009 at 8:46 am
By LeftOverpricedSeattle @ 4:
Smoking the same thing as singlet ???
Ira Sacharoff » Sep 17, 2009 at 8:58 am
I’m not going to make any predictions as a result of looking at these charts, but they’re great to see! I’d love to see the 80’s charts too.
What strikes me is the 90’s chart up until around ‘97. That’s what people thought real estate was supposed to do, go up slightly and steadily, it wasn’t something that saw speculative bubbles except for once every few decades.
I think if you went back to every decade since the 40’s, you’d see a lot more years like the early 90’s, and I’m sure we’ll see years like those again. When? That I don’t know, but probably not for the next couple of years at least.
patient » Sep 17, 2009 at 9:02 am
Nice charts, a view to a bubble. It’s interresting to see how seasonality causes signigicant weakness in appreciation more or less every year in the winter except for the extreme bubble buildup years between 2004 and 2006 when appreciation just powers through the winters.
It also looks like we acvtually had two defined bubbole rampus, one between 97 and 2000 and one between 2004 and 2007.A guess based only on these charts would be that we would stabilize ( perhaps after an “undershoot” ) somewhere between the bubble buildups around 2000 – 2003 price level. Now, there are much more macro economic factors to consider outside these charts ( which all are pretty much negative to the price development ) so I see a likely hood that the actual real result could be far lower.
ray pepper » Sep 17, 2009 at 9:12 am
RE: LeftOverpricedSeattle @ 4 –
I do like these 2 charts and one could infer it appears we are going back to the 1990’s.
However, thinking back to the conferenceTim and I listened to with Schiller @ SPU I just kept thinking of the charts Schiller displayed and his proof over the last century that home prices never go up unless you happened to purchase during one of the up cycles of a Bubble.
This particular Bubble, being vastly superior to any of the prior Bubbles, indicates a very long down trend and an even longer flat line.
BUT………effecting this is the Fed throwing tremendous amounts of incentives to “Buy” at this problem. This is surely “softening” the landing but in the end I believe we still meet the same fate as all the prior Bubbles.
Enjoy this upswing sellers and Buying incentives from the FED. Our car dealerships sure did. Sell that home and price it very aggressively. I view this particular time as a gift from the Fed to unload your home ……….
Scotsman » Sep 17, 2009 at 10:04 am
RE: ray pepper @ 8 –
“I view this particular time as a gift from the Fed to unload your home ”
Agreed. Unless you believe Ben B. that the recession is over and everything is back to normal- and if that’s the case you’d better buy now or be priced out forever!
If, on the other hand, you understand that all of the original structural problems are still with us in this economy, and have indeed been “super-sized” over the last year, then hang on because this bear rally will eventually come to a dramatic end!
Ross » Sep 17, 2009 at 10:47 am
Is the data in those graphs inflation adjusted?
softwarengineer » Sep 17, 2009 at 11:56 am
RE: Mike Anderson @ 1 –
Malthus Theory
Mike, have you ever read George Orwell’s 1984? You may be too young, but that used to be required reading to get a high school diploma….its been replaced by our high schools with To Kill a Mockingbird.
Well, assuming you haven’t read it or seen the movie, Orwell predicted in the 30s that by 1984 computers would be watching us, the “newspeak” propaganda would be brainwashing us and man’s freedoms would be taken from him for the public good. I think Orwell was 20-25 years off; we’re living 1984 today. Look at video cameras everywhere, Patriot Act wire tapping into public communications, computers mesmerizing us with brainwashing newspeak [twisted words that make bad things seem good] and freedoms disappearing like the dodo bird, especially as uncontrolled growth mushrooms.
Well, Malthus also made some predictions about how overpopulation would reach an ultimate resource sustainable limit, called “The Malthus Point” about 150 years ago. The basics to Mathus Theory applied: is as Seattle gets more concentrated with population growth the per capita expenditures go down, the wages go down, unemployment and poverty goes way up. Sounds like 2009, doesn’t it; especially considerring both unemployment. [calculated honestly and using 1930 methods] and homelessness has never been so bad in America since the Great Depression.
Today’s economists hate Mathus Theory and so do globalists; as they allege man will continually invent new technology to allow the uncontrolled growth. Yet, when faced with chronic unemployment growth, they have no answer. Sound familiar to 2009 doesn’t it. Hence, the Orwellian newspeak we hear, the recession’s over…LOL
Mike, when per capita wages plummet, as they are today with uncontrolled growth in Seattle, there is no way RE prices can go up; unless we can lower interest rates more, which we can’t. We’ve reached that limit too.
patient » Sep 17, 2009 at 12:48 pm
RE: Scotsman @ 9 –
“If, on the other hand, you understand that all of the original structural problems are still with us in this economy, and have indeed been “super-sized” over the last year, then hang on because this bear rally will eventually come to a dramatic end!”
I believe the upside of the stock market is getting very limited compared to the risk for a major correction. I put my money where my mouth is earlier today when I went from a 90% stock allocation to a 90% stable value allocation in my 401k. I think this fall will be a bit too interresting in the stock market and decided that I want to watch it from the sideline with my 401k close to safe from losses. I stayed in stocks through the crash and managed to re-coupe more or less all losses by consistent buying but now the upside on the Dow at close to 10k in this economy seems questionable to me. It’s an irrational market so who knows for sure but I’m out of it for the rest of the year.
CCG » Sep 17, 2009 at 12:57 pm
By LeftOverpricedSeattle @ 4:
Looks like it’d take until 2017 to do it, too. However, the descent of the U.S. into wholesale socialism will probably render this chart meaningless. It’ll flatten or even blast up again, but no one will be happy about it as the actual quality of life implodes. Oh, wait, maybe socialism will finally work this time. Yeah, that’s the ticket.
Markor » Sep 17, 2009 at 1:01 pm
By CCG @ 13:
What socialism? The health care plan has been bastardized into a boon for insurers. No public option.
Ira Sacharoff » Sep 17, 2009 at 1:40 pm
By Markor @ 14:
I prefer retail socialism. It offers a much greater return on investment:)
The Tim » Sep 17, 2009 at 1:44 pm
By Markor @ 14:
I’m not sure what you mean by “the health care plan.” According to the latest report I read, there are currently no fewer than five different bills floating around Congress. Three from the House and two from the Senate.
alex » Sep 17, 2009 at 1:45 pm
Question for the old timers: what is the reason behind the very pronounced knee in 1997?
Mark » Sep 17, 2009 at 1:49 pm
Beware the socialists in the federal government. Funny, the federal deficit is going to be in excess of $1.8 Trillion this year. It’s fun to think what the economy would be like if the federal government balanced their budget? Reduce the economy by another 13%. I can hear the wingnuts wailing.
The town hall meetings were a nice bit of entertainment. Lots of Medicare recipients screaming that Obama is a socialist and to keep his hands off of their health care. The only problem that I can see is that I’m paying more of their premiums than they are. A bunch of tax and spend big government wingnuts.
The Tim » Sep 17, 2009 at 2:13 pm
By alex @ 17:
Quite a few markets across the country experienced a noticeable increase in the rate of appreciation around 1997. I suspect it was due to A) the eliminination of capital gains tax on primary residences and to a lesser extent B) the inflation of the dot-com bubble.
deejayoh » Sep 17, 2009 at 3:27 pm
RE: The Tim @ 19 – I think in the case of the local market we also had a fairly pronounced spike in income growth in the late nineties. Much of it driven my Microsoft stock. In those days one might reasonably claim we really were “special”
Markor » Sep 17, 2009 at 4:36 pm
By The Tim @ 16:
It’s clear the final plan will have no public option. They’re all backpedaling from it. The co-ops are designed to fail; they won’t have the negotiating power to compete with private insurers. The private insurers will have the green light to floor the accelerator on price increases (comcomitant with doctors and hospitals continuing to enjoy their oligopoly), ending for good any chance the average middle-age-or-younger American had to retire. Instead of 15% per year increases, expect 25% or more. They only thing insurers won’t be able to do is dump people for getting ill. I’m confident that somehow they’ll keep excluding people for pre-existing conditions.
Workers will be paying gigantic health insurance premiums (or else be fined under the new system–might be worth paying). They won’t have much money left over for a mortgage, so I guess house prices will take a big hit in the long run, or the exurbs will become slums faster, with 2 or 3 families per house.
DrShort » Sep 17, 2009 at 5:05 pm
1997 was the year the first subprime loan was securitized….
WestSeattleDave » Sep 17, 2009 at 5:30 pm
Markor@21 — “It’s clear the final plan will have no public option”
I think that it is not at all clear that the public option will be dropped. Out of the five bills currently submitted, four of them include a public option. I think that there is a good possibility that the public option may be jettisoned when the final bill is ironed out, but I in no way think that it is a given. There are strong forces that support the public option, including the president of the United States. There’s still a lot of “sausage making” to go until we get a final bill, and that will be subject to a presidential veto.
patient » Sep 17, 2009 at 5:31 pm
RE: DrShort @ 22 – Is it true or just a really good joke?
Markor » Sep 17, 2009 at 6:10 pm
RE: WestSeattleDave @ 23 –
From NY Times:
In other words, there will not be a public option. There probably was never any true intention to have it. It was probably just to raise campaign funds. (A single “You lie!” raised $1.5 million.) Same ol’ same ol’, only worse & we’re screwed.
David Losh » Sep 17, 2009 at 6:20 pm
RE: Rojo @ 5 – RE: DrShort @ 22 –
You may be correct, but what really happened is that tons of money was being dumped into real estate. After Widows 95 the federal government began sniffing around the software business. They really disliked Microsoft and began buying the Corel Suite for government computers. Tons of stock market and tech dollars were looking for a safe haven and real estate began getting attractive.
By 2000 those who invested in real estate looked like geniuses. By investing I also mean buying Notes then mortgage backed securities. By 2005 it looked like the tech bubble of the 1990s.
To address why prices are returning to 1998 levels; many things are happening in the United States to drive the price of housing units down. Over supply of housing is the number one thing to drive down prices, second is the ability to pay a mortgage, third is that the influx of people to the United States may stagnate and there may be an exodus or people to stronger economies.
When you look at housing separately from the over all economy it makes sense that a roof over your head is really secondary to your income. When we lose the massive appreciation housing is just a place to live, and a lifestyle choice.
alex » Sep 17, 2009 at 6:21 pm
RE: patient @ 24 –
I think it’s a good joke. Subprime loans only became fashionable in 2002/2003, when you see yet another knee in the curve.
David Losh » Sep 17, 2009 at 6:24 pm
RE: The Tim @ 19 –
Absolutely correct on the capital gains. Before people had to constantly trade up in housing units. This also added to the consumer spending.
Chuck Reiling » Sep 17, 2009 at 6:28 pm
I don’t want to get Tim too excited here, but we had a similar run-up in the late 80’s, and one before that in the late 70’s. So that’s four major price advances in four decades. Just for entertainment, one might want to speculate that there is a pattern there. And the current debacle hasn’t even wiped out the fourth set of gains, let alone the first three.
It would be interesting to see what all this looks like if it is inflation adjusted over the 40 years.
Not quite sure how we got off on a healthcare debate in the last few comments, but the original topic and charts were pretty interesting :-)
DrShort » Sep 17, 2009 at 7:25 pm
By alex @ 27:
It’s not a joke.
http://www.montiethco.com/blog/2008/11/10/subprime-loans-and-the-banker’s-god-complex-the-credit-crisis-writing-on-the-wall/
Freddie and Fannie Take the Sub-Plunge, Reeling in Banks
In 1996, Fannie Mae and Freddie Mac followed the electronic banking trend set by JP Morgan, developing computerized underwriting systems to quickly identify subprime borrowers to whom they could lend. They then became guarantors of these loans.
“In May 1997, Freddie Mac agreed to guarantee the securitization of $227.3 million in subprime loans originated by the First Union Home Equity Bank. Freddie Mac and Fannie Mae take a fee, the loans get funneled to a lending company that’s willing to buy them, package them and then sell the securities to investors.”
- NYT, “Giving Credit Where Credit Was Denied,” June 1997
WestSeattleDave » Sep 17, 2009 at 7:44 pm
Markor@25 — From NY Times:
“The House speaker, Nancy Pelosi, released a statement Wednesday about the Baucus health-care proposal. Notably, while she says she still believes a public option is “the best way” to lower costs, she seems to have dropped her insistence that any bill contain a government-run insurance alternative to private coverage.”
The only “quote” from Pelosi in that statement is: the public option is “the best way” to lower costs. The Times theorizes that “she seems” to have dropped her insistence, without providing a quote to that effect.
Here are Ms. Pelosi’s own words, from the statement released by her yesterday:
1) “The House bill clearly does more to make coverage affordable for more Americans and provides more competition to drive insurance companies to charge lower premiums and improve coverage.”
2) “As this proposal evolves, we hope to see modifications that result in the Senate bill better reflecting the work of the House to make health care more affordable for all Americans and promote competition that is key to keeping costs lower.”
As I said earlier, all three bills in the House call for a public option. What Pelosi clearly wants is a public option, as does the president. Has she dropped her “insistence” on it, as the Times infers? Probably. As the legislative factions move into the middle innings of the health care debate, it’s a good idea for EVERYBODY to stop insisting, and start compromising.
I’m not really arguing with your observation that the public option may be dropped, or watered down to irrelevence. But I think that it is too early to call it a sure thing.
Nathan » Sep 17, 2009 at 7:44 pm
I think this might have had something to do with the housing prices here at the end of the 90s.
http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chdet=946674000000&chddm=998070&chls=IntervalBasedLine&q=NASDAQ:MSFT&ntsp=0
Mike2 » Sep 17, 2009 at 7:49 pm
I believe there’s at least one Seattle Realtor that has stated Seattle was an underperforming market between 1997 and 2000.
Markor » Sep 17, 2009 at 8:38 pm
By WestSeattleDave @ 31:
“Dropped her insistence” is politicalspeak for “put another round of dollars in my campaign fund and we can seal this backroom deal tonight”. The public option is all but off the table. If it was still on the table she’d be adamant, not saying “I believe it’s the best” which is a signal to those she’s negotiating with. I’d like to be wrong.
(Sorry to be off-topic, if I am. Many things affect house prices. Seems too narrow to restrict discussion to just numbers that make up a chart. Why not what greatly affects them too?)
Ira Sacharoff » Sep 17, 2009 at 8:58 pm
RE: Markor @ 34 –
Diagree with you here, Markor. I don’t think public option is off the table. The house will be including it in their bill, and polls indicate that most people favor it.
David Losh » Sep 17, 2009 at 9:21 pm
RE: Chuck Reiling @ 29 –
Those run ups were the natural cycle which is exactly what I thought would continue this decade. By 2006 it was obvious something had gone seriously wrong and we dumped early.
The Tim » Sep 17, 2009 at 9:28 pm
By Chuck Reiling @ 29:
Chuck, you’re clearly new around here, and unfortunately the site doesn’t do as good a job highlighting important older content, so here’s a link for you: King County Home Prices & Affordability 1950-2009 Q1
The 1997-2007 boom is pretty obviously unprecedented.
Scotsman » Sep 17, 2009 at 9:37 pm
RE: Chuck Reiling @ 29 –
As the inflation adjusted CS data shows, the run-ups in the ’80’s and ’90’s were nothing compared to the current bubble. they also didn’t take place in the context of the current banking crisis, low interest rates, and excessive total consumer debt, not to mention an insolvent federal government and falling national currency.
Other than that, you’re spot on!
http://www.econ.yale.edu/~shiller/data/Fig2-1.xls
WestSeattleDave » Sep 17, 2009 at 9:54 pm
RE: Markor @ 34 –
There still remains a tremendous amount of “process” before you arrive at the finished product. Both the House and Senate need to take several bills and fashion them into a coherent piece of legislation. They need to be debated on the floor of both chambers, where they are open to amendments. They need to pass each chamber with a majority. The House and Senate bills will need to go to a conference committee, where both bills are combined into one, and then sent back to both chambers, where the final legislation will have to, again, be passed by a majority. The Senate Republicans may mount a filibuster. The Democrats may use parliamentary maneuvers to bypass a filibuster and pass it with a simple majority. Obama may veto the whole thing!
And yet, you can look past all that and state that the public option is dead.
I wish I had your certainty. I’m glad I don’t have your cynicism.
Markor » Sep 17, 2009 at 10:13 pm
RE: Ira Sacharoff @ 35 – WestSeattleDave @ 39
Then it’s a bet. A virtual lunch to you & WestSeattleDave if the public option is passed. (Heck, a real lunch if you’re up to it.) I fancy myself a good reader of the political winds. Then again maybe I’m just pessimistic since I gave the public option a nil chance from the get-go. Gov’t saving each middle class American $100K+ with the corporatocracy hellbent against that would just be a dream, right?
Ira Sacharoff » Sep 17, 2009 at 10:23 pm
The wager is on. I’ll get busy fabricating millions of letters to congress. Whatever it takes.
Jonness » Sep 17, 2009 at 10:48 pm
By Chuck Reiling @ 29:
$1 in 1985 = $2.01 in 2009 when adjusted for CPI. http://www.bls.gov/data/inflation_calculator.htm
Here is a chart of Seattle home prices since 1985 according to Global Insight.
http://housingcorrection.com/misc/SeattleMedianPrice.gif
Note that after the recession from July 1990–March 1991, house prices went sideways in Seattle while inflation caught up. In California, prices dipped during the same period.
Jonness » Sep 17, 2009 at 11:07 pm
Here’s an interesting chart of Seattle median home prices compared to 6.2% annual compound interest.
http://housingcorrection.com/misc/seattlecompoundedinterest.gif
WestSeattleDave » Sep 17, 2009 at 11:58 pm
RE: Ira Sacharoff @ 41 – OK Ira — I’m with you!
What’s a virtual lunch? Do we all separately order takeout , and sit at our computers and eat it?
Markor — My hope is that you are wrong. My fear is that you are not. Failure to pass a public option will mean we get health care reform without the reform.
Anyway, what’s this got to do with houses???
David Losh » Sep 18, 2009 at 7:17 am
RE: WestSeattleDave @ 44 –
Congressional wrangling is important to the direction of the economy. A Health Care Bill, on the table for a vote is an important step.
The largest problem in our economy is our reliance on insurance companies. The biggest stumbling block to Health Care Reform has been that insurance companies wanted to remain the conduit.
Two things have happened this week. Number one there is a Bill, or a series of proposed Bills, floating around in Congress. The second, and most important, is that the primary Bill retains private insurance control of our Health Care system.
Profits are what the stock market is all about. The stock traders are very happy this week. Every one is being forced to buy health insurance, and the missile defense sheild in Eastern Europe is a smaller weapons plan. In the world of corporate profits these are gifts.
I think it’s very amusing that Republicans talk about business friendly legislation, but Clinton, and now Obama, have delivered the larger dividends to a more robust economy.
Markor » Sep 18, 2009 at 9:09 am
By WestSeattleDave @ 44:
Started with CCG @ 13’s socialism comment. If no public option, presumably every American adult will be required by law to buy health insurance from a small group of private companies that can make upwards of 99% profit on each policy. With health insurance prices increasing 15% annually (could be 25% next year), the downward impact on house prices should be big.
one eyed man » Sep 18, 2009 at 10:29 am
RE: Ira Sacharoff @ 41 –
Fabricating letters? "golly", that could work! Is it still mail fraud if you send it by email?
Ah what the heck, I don’t care that much about health care reform but a free lunch for a starving Realtr is worth it. I’m in if you need help with the letters Ira.
Lake Hills Renter » Sep 18, 2009 at 10:43 am
Did I log into Health Care Bubble by mistake?
Chuck Reiling » Sep 18, 2009 at 1:53 pm
“It would be interesting to see what all this looks like if it is inflation adjusted over the 40 years.”
Great chart, Tim, thanks. I missed it in May.