By The Tim on November 20, 2009
Here is your open thread for the weekend beginning Friday November 20th, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.
Be sure to also check out the forums, and get your word in the user-driven discussions there!
Posted in Open Thread | Tagged open_thread
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.
On the question of unemployment or under employment my question is what the number of small businesses looks like in this and other areas around the country.
If I were on unemployment and there were no jobs in my field I would spend my time building a business model. Maybe I would find another small business who could use help and build on that.
The reliance on corporate jobs, or finding a good job rather than creating a good job is one of the problems America is facing.
This site is an example of a guy who did something.
There are thousands of opportunities today in times when people want to pay less, or have to pay less.
RE: David Losh @ 1 – I think a large part of the reason the economy cycles back up after a downfall is you have thousands of little people out there looking to improve their situation. If you just left it to the big companies, we might not ever recover.
On the continuing topic of health care, here’s my experience with my hearing. About 10 years ago or so, during a physical, I mentioned to my doctor that the alarm clock sounded different in my right ear than in my left. That lead to a hearing test. Fine. That lead to a cat scan (or MRI) to rule out a possible physical cause, such as a tumor. Okay, probably prudent, but perhaps overkill. They also tried to get me to go to a hearing aid. I didn’t want it.
Fast forward to last month. I was at a get together in a bar, and I couldn’t understand the sentences of this one woman, even though my wife could. That got me to go to a hearing aid place. They tested my hearing. They told me I did have hearing issues, more pronounced in my right ear, but that they weren’t so significant that they thought a hearing aid would be a good solution.
The difference? The first place gets paid no matter what, and to a large extent I didn’t care what things cost because of insurance (although I never checked into coverage on a hearing aid–I didn’t want one back then). The second place has a 75 day return policy, and they probably thought it likely I wouldn’t wear the thing(s) much and return them, leaving them with nothing but used equipment.
BTW, for those who complained about this week’s poll being “bait,” allow me a moment to explain why I bring up the comparison to New York again.
Consider Seattle’s 98103 (Green Lake, Fremont).
Redfin search for 3-4 bed, 2+ bath homes under $1M shows 34 homes, average list price ~$600,000 for 2,312 sqft.
According to the 2000 Census, 28.5% of households in 98103 have incomes of $75,000 or higher.
Now consider a relatively comparable zip in New York: Long Island’s 11001 (Floral Park, Bellerose).
Redfin search for 3-4 bed, 2+ bath homes under $1M shows 34 homes, average list price ~$500,000 for 1,964 sqft.
According to the 2000 Census, 47.4% of households in 11001 have incomes of $75,000 or higher.
If Seattle’s not comparable to New York (a statement 94% of poll voters seem to agree with), why are home prices higher here in neighborhoods where people are making less money?
I don’t post here a lot, but greatly enjoy reading the comments, and I have a few economic questions that I’m curious what some of the more active commenters think (David and Kary above amongst them).
So the government/fed is printing a lot of money and they’re keeping interest rates at 0%. This is driving down the value of the dollar against other currencies, and banks and other investing entities are borrowing money, then investing it in the market, which is driving the market up… the “recovery”.
I’ve seen discussions that this devaluation of the dollar is an attempt to offset China keeping it’s currency artifically low, as well as allowing us the opportunity to not pay them back completely on their investments. Further, if our currency is worth less against theirs, I’ve seen the arguement that we’d be able to export more (of course that assumes they’d ever buy our products and that the Chinese government wouldn’t Tariff the hell of them).
What I don’t understand is, how printing more money is distinctly bad. And I mean bad beyond the whole “golden rule” that we’ve long since given up. I understand how the devaluation of the currency effects the price of imports, driving them up, but isn’t that a good thing? Wouldn’t it be good to A. not have to pay China back in full on their investments and B. encourage the American consumer to buy American products that now aren’t much more than their foreign counterparts?
I have a feeling I’m missing something, and I’m admittedly new to economics and finance, so I’m hoping you all can help me out. Thanks in advance for any thoughts.
RE: Matsayswhat @ 5 –
First, China’s currency is pegged to ours, so at this time the relationship between the two never changes- as our dollar goes up or down, their’s tracks right along with it. Unless they chose to let their’s float on world markets, there is no advantage/disadvantage to either China or the U.S. in terms of debt repayment or trade. We are far and away China’s largest customer, and they ours.
A second consideration is that some folks think that as our dollar falls and U.S. goods become cheaper on the world market we will see a major expansion in U.S. exports. This growth in exports will then fuel a huge recovery in, and rebuilding of, our economy. The problem is that exports currently account for only 7% of U.S. GNP. So even if they jumped up by 50%, a huge unprecedented increase, that would still only translate to a 3.5% increase in GNP. That would be enough to bring us back to traditionally normal growth rates but wouldn’t lead to a strong recovery or restructuring of the economy. This increase would likely be negated by decreases in import related business. Another issue is that we face serious challenges on a 10 year time line when it might take two to three times as long to restructure/retain our economy. And even then, are Americans willing to do repetitive, boring assembly line and production work? Probably not now, maybe in the future is there aren’t any other choices.
RE: Kary L. Krismer @ 3 – Kary – the difference is if your doctor “misses” a 1 in 1000 accoustic neuroma or some such neoplasm, you could sue for malpractice and recover missed earnings + “general damages.” In the second case, you probably would have difficulty finding a personal injury attorney to even look at the case, in the event you won the audiologist would likely just close up shop.
Just think if you went to your car mechanic and told him/her that should your car get stuck somewhere, you could be sued for millions of dollars plus have your livelihood taken away when the Washington State Medical Quality Assurance Board considers pulling your license over the case. Oh and by the way, somebody else is paying the car repair bill so go to town…..
Coming from the mid-week thread…Holy moly Scotsman, have you checked out the rates at SCDS now? $17k/yr for K-3, up to $21k for 6-8. You’d have to rent a shack on the Duwamish to save up for that.
Education tuition…talk about a bubble. The WA GET program is up to $101/credit this year. I think it started at $45/credit 10 years ago.
RE: Scotsman @ 6 –
Ahhh ok. I had heard the term “pegged” before in relation to China’s currency, but didn’t realize that is what it means. Now that I understand that, I understand even more why so many are frustrated, especially regarding our lack of doing much about it.
Why don’t we just tariff all Chinese made goods to put domestic goods on equal footing? I mean, if we do and they Tariff our goods, our exports would go down, but as you said it’s only 7% of the GNP. If we could make up for any loss in exports with domestic consumption, wouldn’t we be much better off?
Or are ideas like that about as likely to happen as an end to corporate lobbying (or other citizen empowering actions)?
It seems like unless there is some kind of windfall, say in terms of a fantastic new technology that drives a massive improvement in our economy (which is probably unlikely), you’re right about the next 10 years. I suppose I should be glad I’m still pretty young (29).
Thanks for the great response. I think I got the Market Ticker link from you, which has been a helpful source of information, so thanks for that too.
RE: Matsayswhat @ 9 – As far as tariffs go, take a look at what is currently happening with Chinese tires. Also look at US chicken feet.
RE: laterite @ 8 – Using the rule of 72, a double in 10 years is approximately 7.2% per year.
RE: laterite @ 8 –
Just Like Citi Bank’s Minimum 22.9% Interest This Christmas, Inflation is Alive
If you pay interest on credit card debt [IMO, you have to be desparate to go that route today].
College tuition is another good example too, but IMO colleges are going to be facing a big student decrease too, even though laidoff folks go back to college during recessions in the past….this time its TOTALLY different IMO…the horrifying wage deterioration [I hear re-hires after a layoff get 40% less pay on avg] and the approx 20-25% depression method of calculating unemployment [BTW, it was done by simple Zogby type polls back then, not govenment interference/mesmerization like we weasle it today] we have today has TOTALLY upset the college planning house of cards.
Couple that with broke parents/students not wanting to sign that 30% increase in the MASSIVE college loan with an 80% chance of unemployment [not tracked today...LOL] after graduation….you get the picture, mainstream media can’t put lipstick on the college pig forever.
RE: laterite @ 8 –
Unreal, eh? We didn’t pay that- it was more reasonable in the past and our savings from renting made up the difference.
RE: laterite @ 8 – Also did you notice that Oregon settled with Oppenheimer Funds:
“SALEM — Thousands of investors in Oregon’s hard-hit college savings plan will recoup some of their losses under the terms of a $20 million legal settlement approved Thursday. ”
…
“The settlement amounts to 56 percent of the $36 million the state estimated was lost in the meltdown of the Core Bond Fund, which was the focus of the state’s lawsuit.”
…
“Of the $36 million Oregon estimates it lost in the Core Bond Fund, $5 million was attributed to the overall decline in the bond market, Kroger said. The remaining $31 million resulted from OppenheimerFunds’ actions, he said.”
http://www.oregonlive.com/business/index.ssf/2009/11/oregon_oks_20_million_settleme.html
RE: AMS @ 10 –
So basically they’re now not buying as much of something we don’t want as revenge?
RE: Matsayswhat @ 15 – Well that ‘revenge’ conclusion is not mine, but I am not going to disagree.
Soylent Green is people.
RE: softwarengineer @ 12 –
I have recent First Hand info on college enrollment during this recession. I went to walk the local community college campus with my smart daughter to see where she hangs out and meet some of her friends.
She stated that students are given appointments to register for next quarters’ classes online…… When her time came she was able to register 3 minutes before the appointed time and classes already had waiting lists as she attempted to sign up for them.
I recently rented a room to a student moving to Tacoma from Walla Walla, He stated that classes are all full in that CC and he hoped to find more opportunity in the larger metropolitan area.
RE: Haybaler @ 17 –
Bear in Mind They are Likely Cutting Classes Too From a Year Ago
Green River CC now offers special time extentions book refunds for 2010, if your class is cancelled.
Saw that on airlines too the last several years….planes looked full to the brim, but truth be known….the airline companies were combining half full flights with cancellations to save costs/fuel.
RE: softwarengineer @ 18 –
Because of the Class Cancellations Register ASAP
Trouble is, a lot of folks don’t want to plunk down even the $1200-1500 for books/tuition in a CC for a fulltime student Qtr until the last minute, then find out all the classes are gone.
RE: softwarengineer @ 19 –
Or You Could Register Early With a Student Loan if Your Money’s Tight
And hope and pray, there’s a job after graduation to make the loan payments.
If someone posted this already, oh well. My friends keep sending this to me.
Sign of the times, perhaps? The Detroit Silverdome sells for 583k.
Sure puts the 2100 sq foot 4 bedroom down the street (asking price: 600k) in perspective.
Perhaps the subject of this article has already been discussed and I missed it but I think it’s an iInteresting look from Bloomberg and Jakarta Globe at the Dollar Carry Trade from the emerging economy side. It sounds kind of like the BRICK’s are now saying “Don’t bring that bubble sh__ over here!” I wonder if that’s part of the reason the dollar seems to be finding a bit of a bottom currently.
http://thejakartaglobe.com/business/asia-looks-at-ways-to-cool-flow-of-hot-money/342866
On the inflation/deflation issue, it seems like these events might have two opposing effects. Our cheap dollars will stop leaking into foreign economies so quickly, thus keeping dollars here to invest and spend (and fight deflation). But at the same time, it would seem to mean that the dollar may stabilize, at least to some extent, and stop the potential inflation in foreign goods.
Is the Fed’s war on deflation now being fought by surrogates on foreign soil for their own interests in avoiding bubbles in their economies? Obviously, the article doesn’t present any quantatative info that one can plug into an economic theorem to obtain an estimate of policy impact. But in my mind it’s an interesting development in the struggle not to be the next Japan while avoiding a second GD. (I know Softwarengineer that you think we’ve effectively got GD#2 based upon the magnitude of unemployment, and Sniglet, and to perhaps a slightly lesser degree Scotsman, think a deflationary spiral is unavoidable.)
So for those who think that inflation/deflation is beyond the scope of Seattle Bubble, what’s this got to do with Seattle real estate? As I think many here would agree, the inflation/deflation debate is to at least some degree at the core of determining economic value of what are commonly long term leveraged investments like real estate. If inflation drives the value of leveraged real estate, then to some extent, the value in buying a house rests in the resolution of the inflation v. deflation struggle.
The rest of this comment is an unrelated side comment to AMS’s and David’s exchange of a day or two ago:
I loved the Tycho Brahe/Newton/Leibnitz reference a day or two ago AMS. It brings in other disciplines in kind of a renaissance (yes I looked it up Ira) man approach. But it also cracked me up. It’s a little like criticizing Michelson and Morley for not being Einstein.
The reference to Tycho Brahe et al was also arguably esoteric and pretentious, and exactly what David complains about in you’re comments. Sometimes certain things in your comments are probably not easily accessible for many (including me), unless they are willing to do a little homework.
Ironically David, the Tycho Brahe reference could be viewed as a compliment (though perhaps unintended). It’s a little like complaining about Jay Buhner because he wasn’t Ken Griffey Jr. Buhner still hit 300+ career home runs and had a heck of an arm in right field.
With regard to “filters,” I’m sure someone with your level of intellect (AMS) has the ability to skim and ignore that which they may not want to evaluate in greater depth. I’m sure many people probably skim or skip my comments based upon their length and other factors. I often find my own comments both verbose and self indulgent and sometimes erase them without posting. But as Ray oftens says, there are Gems out there. And you never know where they might be found.
Nothing in this comment is intended to be snarky or sarcastic toward either AMS or David. But I guess I’d like both of you to know that I value the breadth of comments allowed by The Tim and the sort of intellectual democracy fostered on Seattle Bubble. My apologies to those who desire to see comments limited to issues perhaps more directly related to near term purchase and sale decisions in the Seattle real estate market.
RE: Scotsman @ 6 –
ref “We are far and away China’s largest customer, and they ours.”
I may be mistaken, but I do not believe that China is the top receiver of our exports.
http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf
see pg. 19
Year to date (in millions)
Canada – 148,808
China – 47,029
Unless I am interpreting that incorrectly.
Although if we include the debt we sell them, then I would agree on China!
RE: cheapseats @ 23 –
You’re right- I just don’t think of Canada as another country even though it obviously is. And my guess is that some of the accounting you reference might impact us differently from trade with China. For example, I know that the American car companies have production facilities up north that sell both to Canada and back to the US. I’m not sure how they count that…
RE: Scotsman @ 24 – Especially automotive parts traveling between Detroit and Windsor, or through the Port Huron Rail Tunnel.
Matty Moroun, owner of the Ambassador Bridge and Central Transport, keeps many customs agents busy.
“In 1946, during Matty’s sophomore year, his dad bought the Central Cartage Company from its two owners, probably due to the fact that they owed him money. The company went through several evolutions to become what is known today as Central Transport, headquartered in Warren, Mich. According to the company Web site, Central Transport is a full-service, transportation services provider offering supply chain solutions across North America and is part of a group of transportation-related companies owned by privately-held CenTra, Inc., in turn owned by Moroun and his son, Matthew and ranked by Forbes as among the largest 500 private companies in America.”
…
“‘The bridge was on the New York Stock Exchange and shares were traded. So, we bought a few shares. [In the 1970s] Warren Buffett was going to buy the bridge and he put out tender offer for more than the current stock price,’ says Moroun. ‘We made a calculated decision to bid against the tender and said we’d buy any shares that were available right now. A lot of people who had tendered their shares withdrew them so they could get their money right away. That technique was successful. So I bought 24 percent of the shares, Warren got 25 percent and then there were holdouts.’
Buffett’s right hand man, Charlie Munger, contacted Moroun, offering an opportunity to buy Buffett’s shares. This move, along with the Moroun’s purchase of the remaining shares, led to the July 31, 1979 purchase by Central Cartage Company of the Ambassador Bridge, which is owned and operated by the Detroit International Bridge Company. Today, the bridge handles 26 percent of trade between the U.S. and Canada, according to company sources.”
http://www.corpmagazine.com/Departments/CoverStories/tabid/54/itemid/701/Default.aspx
RE: Mariner22 @ 7 – That would explain the cat scan, but not the push to get me to get a hearing aid.
RE: Matsayswhat @ 5 – All I’m going to say on that topic is that part of the decline in the value of the dollar is because a year ago the economic situation was such that other currencies looked even worse. So this is unwinding that. Also, imports being more expensive is probably good, but with the oil being pegged to the dollar oil will become cheaper elsewhere, meaning more of it will be used elsewhere, driving up the cost further.
RE: The Tim @ 4 –
And when the 2010 Census data comes out it will be much worse.
RE: AMS @ 25 –
Remember the idea that interest rates could go below zero?
Look at this.
http://www.calculatedriskblog.com/2009/11/on-negative-t-bills.html
RE: The Tim @ 4 – I hadn’t noticed this until David commented on it, but is doing a mean (or median) of properties under $1,000,000 all that relevant? That could be skewed if the one with the lower restricted mean has the higher total mean.
For example, even though over the last six months Clyde Hill and Median have had relatively close total sales and number of sales under $1,000,000, Clyde Hill has a much higher mean under $1,000,000 than Media, even though Media as a much higher mean for all sales. Using your area, perhaps under $1,000,000 sales make up a much larger percentage of Greenlake sales than would Long Island sales.
Also, your stat focuses on income, and people do not buy houses, especially expensive houses, just with income. They do it with wealth too.
RE: Haybaler @ 29 – This has happened in the past, even prior to a year ago. The rates only go below zero for short periods of time, historically speaking. If we enter a period of high deflation, negative rates could remain for longer.
RE: Kary L. Krismer @ 30 – Where does the wealth come from?
By AMS @ 32:
Past income. In the case of some people it could have all been earned over a small number of years. Also, you can have very wealthy people that have relatively little income, such as those with large amounts of depreciation or who have their assets invested in low interest tax exempt bonds.
This point usually comes up in the context of higher priced houses. People who spend over $1,000,000 tend to make rather significant down payments, presumably to avoid having large monthly payments.
http://seattlebubble.com/blog/2009/02/25/case-shiller-tiers-low-tier-falls-over-15-in-a-year/#comment-67108
RE: Kary L. Krismer @ 33 – “Also, you can have very wealthy people that have relatively little income, such as those with large amounts of depreciation or who have their assets invested in low interest tax exempt bonds.”
You cannot build equity without income. Maybe what you are suggesting is that the depreciation, which is an expense, really shouldn’t be an expense?
RE: AMS @ 34 –
“You cannot build equity without income.”
How about unrealized capital gain. It can make you the richest man in the world.
RE: One Eyed Man @ 35 – Two comments:
1. You are separating the book value, purchase price less accumulated depreciation, from market value.
It’s true that book value and market value often have differences. The difference can be positive or negative. Many people, especially those who purchased a home in 2005-2008, today have what would be considered, “Unrealized capital loss.”
It seems that the claims shift around depending on the loss versus gain cases.
2. An unrealized capital gain does not increase equity unless there is some reason to mark-to-market (value at market). This may be contrasted with held-to-maturity. Something that is valued at market also could have losses.
Take the 100 richest men in the world. How many made it by unrealized capital gains?
When I worked in banking we went to audit the closed account of an orchard in Wenatchee. It was an eye opening experience for me. There were 40 years of files, all summed up on the last statement page: Assets: $6.5 million in cash, personal real estate of about $100,00 and two cars. Liabilities were zero. After a lifetime of farming, the old guy had sold the family orchard to a corporate group keeping only the family home and the two cars. Here’s the kicker- he never showed more than $30,000 in income for any year. Years and years of scrimping and a big win at the end. I’ve always wondered if I could live the same way, for the same result, so late in life.
Global warming proved a farce by hacked emails? Lots of fun reading here:
http://hotair.com/archives/2009/11/20/do-hacked-e-mails-show-global-warming-fraud/
RE: AMS @ 34 – The data Tim was using was current income. I’m saying wealth can come from past income. Take say a famous retired athlete, one that doesn’t go on to be a sportscaster. No significant current income, but if they played their cards right, significant wealth. Or just an inheritance situation.
As to depreciation, often it’s not a real expense, such as when you depreciate a building when it’s actually appreciating in value. But if you break even for tax purposes (Tim’s census data), but have $200,000 of depreciation, you have $200,000 of cash. This ignores the eventual recapture though.
RE: Kary L. Krismer @ 39 – Key West, Florida and other communities where the economy is heavily rooted in past accumulations of wealth is a good example of bringing wealth in.
There is also the question of if there are shifts in the wealth of a community. I’d suggest that MicroSoft brought many dollars to the area, and thus prices are pushed up based on income rather than wealth accumulation. I note, however, that ghost towns usually have very low property values, no matter how much past wealth has been accumulated.
Finally, with credit markets funds can be borrowed based on future cash flows.
Jim TV:
An interview of Schahrzad Berkland a California real estate bear and Jim. Jim discusses REO.
http://www.youtube.com/watch?v=2kHfsi-iP4w
RE: AMS @ 36 -
“Take the 100 richest men in the world. How many made it by unrealized capital gains? ”
If you look at the top 20 of the Forbes list, I only recognize 11, but they all probably accumulated their wealth primarily in unrealized capital gain of stock in corporations they or their families helped found. That’s over 50% without looking into the 9 that I didn’t recognize.
RE: AMS @ 41 – RE: AMS @ 40 – RE: AMS @ 36 – RE: AMS @ 34 – RE: AMS @ 32 – RE: AMS @ 31 –
See what happens?
In comment 36 when your are talking about book value; do you mean Blue Book Value? Because that’s all that it could be.
Wealth usually has more to do with preservation rather than income. Income is best left over there in the black hole of accounting magic away from the IRS.
Florida is an interesting place because the wealth is usually kept in some other state, such as New York, or Delaware. Very little of the property value there has to do with income.
Most of the property value in the past, let’s say ten years, along with Nevada, and California, had to do with perceived demand for housing units. Lenders lent millions and maybe billions of dollars for the creation of housing units in places considered retirement destinations. It was the baby boomer demographic.
Building equity can be by losses and heavy losses at that. Trammell Crow can buy a building and take years of losses while building equity. They renovate possibly for future income. You referenced this in your comment number 40.
You see it’s all over the board with the comments. I’m not kicking because like I said it builds comment count, but I’m just saying.
As an aside I asked one time how some one finances a million dollar home purchase and the agent looked at me quizzically then said, first they get the check book and write One Millions Dollars, then sign it.
By AMS @ 40:
I’d call that wealth accumulation since most of the people we’re talking about have large holdings of stock. Their salaries might be relatively low, but because their “income” included being given lots of stock (or options) years ago, they now have wealth.
The biggest example is probably Bill Gates himself, although there the stock isn’t the result of it being “income” since he created the company. There’s no way he could have built his house based on his salary, even assuming someone would have given him a 30 year mortgage to build it.
By One Eyed Man @ 42:
Speaking of Microsoft and Bill Gates, Washington’s tax system has been very very good to him. Even his realized capital gains don’t get taxed here on the state or local level.
RE: David Losh @ 43 – I suspect he means book value for accounting purposes, which is typically the value something was bought at, although often there are other adjustments. For tax purposes you could substitute the word basis.
RE: One Eyed Man @ 22 – Wildly complimentary you are – steady drip of boorish content is just that.
RE: Kary L. Krismer @ 45 –
I think Microsoft is a Delaware corporation.
RE: Kary L. Krismer @ 46 –
I understand. It was a reference to the Cash For Clunkers program.
RE: David Losh @ 43 – You’re too funny!
RE: David Losh @ 28 –
Hi David:
Pick up a copy of “Five Short Blasts” by Pete Murphy [BTW, he's a retired Mech Engr friend of mine from Detroit]; its clear. The avg household income amounts are way overly inflated and any increases over the last ten years totally exagerated, this occurs because elites like Bill Gates saw huge stock wealth increases [BTW, not any more...LOL] and they average in the top 1% household incomes’ massive wealth increases to overinflate both actual avg incomes and their alleged increases for the bottom 90% of household incomes, that he proves have been flat or lost value since 1999 [excluding the elites]….that’s why mainstream white/blue collar employees feel their inflation adjusted wealth decreasing, it is.
Pete proves in his book that as overpopulation density increases its gonna get far worse. He shows with actual proof that the population density in NE America now compares to Japan/China/India…..wowsa!
By Kary L. Krismer @ 30:
Fine, re-do the search with $1M+ houses included. I gave you the links right there. When you do that the Seattle mean goes up to $645k (3 homes over $1M), while the NY mean stays the same at $500k (none over $1M), so the two are even more skewed.
So, you’re saying you have reason to believe that lots of millionaires with low incomes live in Greenlake, but not in Floral Park? If we were talking about Medina or Chelsea (Manhattan), I could see your point. But I quite intentionally chose more generic family neighborhoods, a little ways outside the city center, not exactly the type of neighborhoods that tend to be a magnet for the fabulously wealthy.
RE: The Tim @ 52 – I’m not familiar with the NY area you reference, but seemingly Greenlake would be a relatively more desirable area.
As to the income/wealth issue, there can be lots of reason income is a misleading stat. One additional one would be the age of the population, and another would be how long they’ve been there on average. I know someone who lives in a $1,000,000 plus house only because they bought there so long ago. At current prices they wouldn’t have the income to support it (so they claim). An area with longer term ownership could likely have lower income levels relative to an area with shorter ownership. Or even within a neighborhood, say Madison Park, I would guess that the longer term owners have a lower average income than the owners there who are under 40 and have lived there less than 10 years.
By Kary L. Krismer @ 53:
Click the Census links in my post @4 and you can see that the Seattle neighborhood has a lower median age.
Median age
Seattle’s 98103 = 33.7
New York’s 11001 = 39.4
Wouldn’t a younger population presumably be one where people are more dependent on income vs. accumulated wealth?
Also available from the Census data.
Same home 5+ yrs
Seattle’s 98103 = 39.4%
New York’s 11001 = 74.3%
Floral Park, Bellerose are rent controlled areas. The same house 5+ yrs statistic gave it away.
This is exactly the problem with trying to make a case about Real Estate by statistical analysis. All the numbers may be there but you have to have the information to be able to figure out what the data means.
By David Losh @ 55:
Considering that 80% of the housing units in 11001 are owner-occupied (Census source), I’m not really clear on how rent control would affect the price of homes on the market.
RE: The Tim @ 56 –
It impacts the value of the home. It limits your buyer pool.
RE: David Losh @ 57 – Rent controls usually implies lower rent, and thus lower market value, and thus a larger buyer pool.
Why would potentially lower selling prices limit the buyer pool?
“The economy is so bad….”
The economy is so bad… I got a pre-declined credit card in the mail.
The economy is so bad… I ordered a burger at McDonalds and the kid behind the counter asked, “Can you afford fries with that?”
The economy is so bad… That CEOs are now playing miniature golf.
The economy is so bad… If the bank returns your check marked “Insufficient Funds,” you call them and ask if they meant you or them.
The economy is so bad… Parents in Beverly Hills fired their nannies and learned their children’s names.
The economy is so bad… Motel Six won’t leave the light on anymore.
The economy is so bad… The Mafia is laying off judges.
The economy is so bad… Exxon-Mobil laid off 25 Congressmen.
And finally…
Congress says they are looking into this Bernard Madoff scandal. Oh Great!! The guy who made $50 Billion disappear is being investigated by the people who made $1.5 Trillion disappear!
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RE: AMS @ 58 –
If I remember correctly, New York’s rent control applies only to buildings built before WWII, and when an apartment becomes vacant the rent can rise to market value, which is why there are legendary stories of landlords intimidating and threatening tenants in order to get them to leave.
So…over time there are less and less rent controlled units.
If you were a tenant in a rent controlled unit, why would you want to leave?
Also, I’m not sure if the rent control applies to single family homes or not.
What do I make of all this? I don’t know. Maybe places with a higher median age are valued less because they’re not thought of as hip, cool, and the places of the future?
Maybe a more apt comparison would be to find a place in NY which was considered hip and cool and full of educated younger folks…I’d wager that those areas would be much pricier than Greenlake.
RE: Scotsman @ 59 –
You might want to hang on to that day job:)
RE: Ira Sacharoff @ 60 – Is there any buyer restriction on the rent controlled units?
Tim @4
I was one of the folks that you are probably talking about.
Personally, I think that it is a leap to go from the fact that the searches you pasted there show some correlation to the question of Seattle being a world class city.
There are all sorts of factors that we have observed around here that impact prices:
a) Overall desirability
b) Banks throwing money at people based on pulse
c) Money density in an area
d) Population growth
e) Local ordinances affecting land and construction costs
f) Local bubble timing
g) Quantity of flipping
The world class thing is a factor that closely aligns with (a). This is something that is not really significant IMO. Besides, not all world class cities are desirable to everybody. They can be a pain to raise a family in because of higher crime, and they are hard for the non-elite to afford to live in. But some people can only find work in these places so they are forced to live there. I feel fortunate that my work forces me to live here rather than almost any other place in the country.
I think that (b) made house prices everywhere grow incredibly. But the higher average income around here meant that it was not as egregious as other places.
There is a lot of money in NY, but it concentrates in some places more than others. When I was there I definitely noticed a big difference between the east and west side.
Seattle has been growing very steadily since I moved here 9 years ago. And a very large number of the people who move here are folks who are bringing money from cali or being moved here for work in very good paying jobs. This causes more churn in the market and makes prices bubble more.
I highly doubt that NY has the crazy laws that drive RE prices up like we do. Around here the government imposes a limit on how big your lots can be, makes minimum wages very high, won’t let you build in places because of CAO, etc. This is a big factor in driving prices up around here. Nobody really complained when money grew on trees but now it just makes things too expensive to buy.
As you yourself have shown many times Tim, Seattle is 18 months late on price drops. This makes us compare very badly to other cities that traditionally were more expensive.
There are loads of reasons why prices in these two places would be somewhat equivalent.
RE: The Tim @ 54 – I’m just pointing out that there can be a lot of different reasons for the discrepancy in the numbers you posted (besides the Seattle numbers being a significantly larger property on average).
Another one would be real estate taxes. I looked up the taxes on a $500,000 listing in the NY area, and they were about $8,600 which is probably at least $2,000 higher than what they would typically be here. That would account for at least $40,000 of price difference.
Also, assuming your stats are from the same area as the Redfin link, it includes most of Wallingford, which is a popular area for UW students and people looking to buy rental housing. If there isn’t a similar attraction in NY, that too would be a difference.
RE: @ – When I wrote that I was just estimating the tax on a $500,000 listing in Seattle. When I looked up one of the listings, the difference in tax was almost $5,000, which would take the price difference to over $80,000.
But I was using too low of an interest rate, so that would take the numbers back a bit the other way. But we’re probably still looking at over $60,000.
By AMS @ 58:
Because investors would have no interest in the area. See my reference to the Seattle area being close to the UW.
Let’s stick with Seattle and Green Lake.
I worked with a gentleman for several years who bought properties around Green Lake. He says it’s like joining a club. Some people have to live there. It’s close to the lake for exercises and socializing. You can rent to a wide variety of demographic, but people do pay a premium for living in certain neighborhoods. It’s close to the University, down town, Fremont, South Lake Union, and Wallingford. It’s every place the youngest professional with high income can be.
Green Lake is a unique mix of neighborhood amenities that is hard to compare to any place.
This same guy who bought around Green Lake has another formula that is kind of cool. It has to do with concentric circles around a University campus. He will pay more for a property within the first quarter mile of the campus, less for the next quarter mile, and less for the next quarter mile. When you get beyond that it’s kind of useless to consider.
There is an investment group out of Connecticut who uses this same type of formula. What they do is buy run down houses, then put in top of the line finishes, upgrade all systems to code, and has an on site house manager. There is a central kitchen with the gas range, glass doors on the refrigerator, study alcoves, meeting area/living room, and nice furniture. Mom and dad pay whatever it takes to have kids stay there. Can you put a value on that?
RE: Kary L. Krismer @ 66 – Investors are willing to buy anything for the right price. It wasn’t that long ago that just about everything was being bought by investors for any price.
I will agree that a person who is not an investor generally is willing to pay more, but investors are not out of the market.
RE: Kary L. Krismer @ 64 – “Another one would be real estate taxes. I looked up the taxes on a $500,000 listing in the NY area, and they were about $8,600 which is probably at least $2,000 higher than what they would typically be here. That would account for at least $40,000 of price difference.”
You are suggesting that an increase in taxes reduces the selling price by a factor of 20?
RE: David Losh @ 67 – “This same guy who bought around Green Lake has another formula that is kind of cool. It has to do with concentric circles around a University campus.”
Take a look at the work of Johann Heinrich Von Thunen’s “The Isolated State” written close to 200 years ago (Der Isolierte Staat, 1826; translated to English: Peter Hall, “Von Thunen’s Isolated State,” London, 1966). Von Thunen’s work laid the foundation for Ernest W. Burgess’ concentric ring model. Burgess analyzed Chicago in the early 1920s.
RE: AMS @ 69 – That’s the one where I was using too low of an interest rate. But at 6% interest a payment of $168 a month would finance $28,000. 168×12 is just over $2000 a year.
So if you want to compare NY to Greenlake, where the difference is closer to $5,000, that would mean that the extra taxes would raise the monthly payment the same as a price increase of $70,000.
RE: Kary L. Krismer @ 71 – Oh, you are using an affordability analysis. If the taxes are $2,000 more, then that $2,000 comes from the interest, which reduces the price by the same value as a perpetuity that pays that same rate as the interest.
What about those who have lower expectations? If you expect 2% on your money, then it would take a reduction of $250,000 in price to equal that $5,000 tax difference.
RE: AMS @ 70 –
You found me out we were actually talking about Mecklenburg in 1826 rather than university properties.
RE: AMS @ 72 –
The perpetuity is taxes which go on forever and in most cases go up.
Please try to follow along here.
RE: David Losh @ 74 – Hopefully this will help you: http://en.wikipedia.org/wiki/Perpetuity
RE: David Losh @ 73 – You wrote about a “concentric circles” model, right?
RE: AMS @ 72 – That’s the “mistake” I was doing when I first ran the analysis. I was using 2.9% interest because the last thing I had done was a promotional car loan.
But the 6% makes it roughly equivalent for monthly payments for the house, assuming insurance is about the same in the two locations.
RE: Kary L. Krismer @ 77 – Part of the weakness with this is that there is an expectation about market value changes. Not that long ago taxes, an other operating costs, were not that important. All that mattered was high price appreciation. Even if the taxes were going up with market value increases, that was not that important. In fact, I’d guess some people considered higher taxes to imply higher market value, although the logic generally goes the other way.
The end is near? Good summary and discussion.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=118678