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.

42 responses to “Still Searching for the Home Price Bottom Around Seattle”

  1. Scotsman

    While I used to think the bottom would come somewhere between early 2011 and 2014 I now think it will be even further out, well into the mid 20-teens. Ironically, the high level of government intervention, all of it funded by deficit financing, has only insured that our long slow decline will continue. Our situation is becoming more like Japan’s with every passing day.

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  2. softwarengineer

    RE: Scotsman @ 1

    We’re Becoming More Like Japan Too

    Subtracting the parts of our country for “bread basket” water table, deserts, mountains, etc., i.e., inadequate for population density growth or insane for more population density [like bread basket water/food source]; we’re turning into another China/Japan.

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  3. Dave0

    Looking at the bottom calling posts again, I think it’s safe to say that we’re not going to be hitting 30% off peak in December ’09 considering we’ve been holding pretty steady at 22.5%. At most I think we could drop into the upper 20s.

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  4. ARDELL

    Dave,

    It really depends on the mix of distressed properties in any given area. The bottom prices of distressed properties will stay at 30% to 37% under peak and non-distressed property will stay at a bottom of 20% or so under peak.

    If 2009 sales of a given area were 40% distressed properties and that grows to 60% distressed properties, the median price for that area will go down, even though the “bottom” prices for the two categories has not changed. The reverse however is not necessarily true. If an area had mostly distressed sales in 2009 and that changes to fewer in 2010, those distressed property comps will keep the prices low, even if the mix of distressed properties improves.

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  5. Ray Pepper

    RE: Scotsman @ 1

    Investing 101…Never underestimate the FED. People claim they are out of bullets (Meredith Whitney) I think not………This has been an amazing market rally combined with multiple offer scenarios in real estate. They not only “softened” the landing they BOUNCED it from the grave.

    This will be a very long flat line with a very trend line down value in home values. They remain toxic and the banks know this. Would YOU lend money to anyone buying a residential property?? Short sales galore for the next decade along with foreclosures and bankruptcy.

    Our “bottom” is many years out. We have entered the 2nd inning, however, we must live our lives and Buyers will find GEM after GEM in the coming years.

    But, wait there is a chance for the coming 10 years:

    Bring on the Mtg Cramdown or a variance of it and watch this market stabilize for this decade. This is ONE LARGE BULLET the FED will FIRE at some point.

    People will NOT continue to pay on these upside down MTG’s. Its just a matter of time. They are all coming back.

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  6. Scotsman

    We’re looking at four main issues that will continue to depress home prices for years.

    Continued high unemployment will reduce the home buyer pool, leading to a supply/demand imbalance, reducing prices. The same unemployment will also lead to rising defaults as buyers run through their reserves or decide the fight to maintain ownership isn’t worth the cost and strategically bail, again increasing supply over demand.

    Higher taxes, whether income, FICA, VAT, or other will eventually pass on both the national and local levels. This will reduce the amount of discretionary income available for home purchases, reducing demand for homes that increasingly appear out of reach for many. Unless you can realistically see government at all levels defaulting on both future and existing debt, higher taxes are a certainty. The public, especially during hard times, is not ready to accept reduced levels of services or safety net type support programs.

    Rising interest rates will also dampen home values– and rates will have to rise. The Fed/Treasury are finding themselves at the end of their options list. For example, in last weeks auction China bought zero bills. The light is going on- no more purchases until rates rise to more historically acceptable levels… or even higher. Rising interest rates will feed back into both of the issues discussed above, making them even worse.

    No inflation is on the horizon, and won’t be for some time. I know there are those who think it’s immanent, and will be significant. But it won’t. the Fed will not be able to replace all of the lost asset value affecting our and the world economies. Our current situation has taken us well beyond the range where traditional Keynesian theory operates. And we never really met some of the criteria for the theory to operate- high savings and investment rates- anyway.

    It bums me out, but while my disposition and heart say “we’ll be on our way to better times soon,” my head says we’re headed for a long, slow decline that will not be easy to turn around without significant political change. And while some may be calling for such change, the general population isn’t anywhere close to accepting it.

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  7. Scotsman

    RE: Ray Pepper @ 5

    There won’t be cramdowns in the future- they go against our entire history of private property and contract law. If cramdowns do become the norm, the US will have become socialized to such an extent that no contract can be trusted, and no private property protected. There will be no “investment” without protection and control.

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  8. Scotsman

    RE: Ray Pepper @ 5

    The Fed is saving a couple of bullets… for themselves. Other than that, you might want to read more- their options are severely limited at this point. Extend and pretend are about all that’s left. Any hopes for them to “stimulate” a real recovery are just about done. The country, from top to bottom, is just about broke, and certainly will be in another 20 years unless there are significant changes on many levels.

    Just because we got a new credit card in the mail back in June, making for a better than expected summer, doesn’t mean any of the underlying problems have gone away. In fact, they are now worse, with yet one more balance to try and pay off.

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  9. David Losh

    Let’s take Real Estate and put it in a corner over there with the tech bubble. Real Estate is done being the big money maker it has been in the past ten years. Prices will continue to decline and no one is going to care.

    In my opinion, if you were building a Real Estate portfolio these past ten years plan on paying it off, selling for a loss, or giving it back to the bank. The foreclosure process is just starting. It won’t be a big thing any more, just the course of doing business. Some win, some lose, it’s a natural order.

    In other words, if you buy, buy cheap, and buy what you can afford to pay off quickly.

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  10. ARDELL

    It depends where you are trying to “turn around” to get to. If that is back to peak pricing, so that no one is upside down…may never happen. If it does, it won’t be for 9 years or more. We have to move forward from here. Only those people who bought at or near peak will be worked through gradually. Some will stay in their homes indefinitely. Some will sell short. Some will go back to the bank and be sold by the bank. Many are renting them out now, and paying the shortfall between mortgage payment and rental income.

    Still, the # of people who bought during those loose lending years will eventually get dragged through…down…and out of the system.

    What is the ratio of homes bought in 2005 through 2007, and total residences in King County? I can tell you the former, but I don’t know the total number of residences in King County. Anyone have that number?

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  11. ARDELL

    I agree, David, that no one is going to care as the market moves in a range of 5% this way or that for some time to come. Some will scream “the market went up 2%!! …as if that’s “a movement” at all. But then this post said something like “down $1.00 per sf”. So some will apparently care if the market moves a buck or two this way or that.

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  12. Ray Pepper

    RE: Scotsman @ 7

    “they go against our entire history of private property and contract law. If cramdowns do become the norm”

    Scotsman dont be so sure. There are many ways to work a cramdown with penalties for early sale etc. Watch and Learn. The rule books of the PAST are out the window and we are establishing NEW ways to play the game from health care to foreclosures to bankruptcy.

    We are simply students at this point all in the same class watching together how this will play out.

    Never bet against the MTG CRAMDOWN and our current administration!

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  13. Dave0

    RE: ARDELL @ 4 – I was talking about the Case Shiller Index for the Seattle area, which looks at repeat sales of homes rather than median prices in order to avoid that skewing of the numbers from sales mix.

    However, you bring up a good point: if one can hold out long enough that distressed properties are no longer driving prices down, one can get a non-distressed house at distressed prices because people will be looking at those distressed sales as comps. Just have to be patient and wait it out…

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  14. ARDELL

    DaveO,

    Ray Pepper had one recently where the comps pushed the appraisal WAY down from the offer prices. But the buyer paid the difference in cash to the tune of a 5% increase. So the new comp of 5% higher is improving the mix for the next appraisal nearby. Heard from someone else last night in CA about the same thing. The comps will hold down the appraised value, but in CA they are removing the “must appraise” clauses, so the sold prices are moving up by buyers coming up with the cash difference.

    That is usually how a market goes up after a recession. Slowly and only as cash from buyers vs lenders permits.

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  15. Kary L. Krismer

    By Scotsman @ 7:

    <There won't be cramdowns in the future- they go against our entire history of private property and contract law. If cramdowns do become the norm, the US will have become socialized to such an extent that no contract can be trusted, and no private property protected. There will be no "investment" without protection and control.

    Properties in which the debtor resides are the only properties that cannot be “crammed down” in Chapter 13. Anything else the debtor owns, including rental houses and cars, can be.

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  16. ARDELL

    The only place for cramdowns (legitimately) IMO is where the borrower’s income is the same, and the lender failed by lending them more than they should have. Simply being upside down or lower income than when you took out the loan, is not a good reason.

    If borrower revealed all pertinent facts to the lender, and those facts have not changed, for example. Lender chose to lend an amount to them that represented 50% of gross as to monthly payment, but should have stopped say at 33% of gross income. Then a penalty to the lender forcing a cramdown until the loan is 33% of gross could be warranted.

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  17. patient

    Bernanke, the Times: “Person of the Year” what a laugh. However reading the latest fed statement you gotta give some credit to someone who proclaims:

    1. The economy is recovering,growing and employment is improving
    2. We need to keep interest rates at zero for the forseeable future because 1. isn’t true

    in a way that people in general believe that both 1 and 2 is true. Things are truly in a sad state in Washington and their outlets, i.e MSM when it comes to the economy..

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  18. patient

    Sorry the comment above was meant for the open thread. When it comes to the bottom it’s a moving target and impossible to predict until the government is done with their special programs. When they are phased out we can have a meaningful discussion about the true bottom again. I would regard it as very risky to invest in anything longterm until the gov. loosen their grip on things and we know more about how the economy really is doing and where the deficit is heading and where it will take us.

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  19. Kevin

    I am not good with history – is there any period of time in US history where the housing prices stays flat for more than 5 years? 10 years?

    The history will not be able to predict the future, but I am just curious.

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  20. matt

    So, how does this account for the fact that larger houses are being sold now? larger houses sell for less per sq ft, and that’s what’s providing the downward pressure on the average. Look at the same figure sales price/ft for those houses under 1500 ft, those from 1500 to 2000 ft, 2000 to 3000sq ft and 3000+. Have they each made the turn, but when aggregated, it appears not?

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  21. ARDELL

    Kevin,

    Not necessarily the U.S. in unison. But I know in Philly-Jersey and much of the Country, after the 100% or more value run up from 1984ish to 1989, prices dropped 30% to 50% from peak by 1991..stayed pretty flat until 1995, got back up to peak around 1998 and then went straight up again to 2005. (Seattle did not follow this course.)

    Cycle is supposed to be rougly 2 years down then 3 years flat then 7 years up, then 2 years down – rinse and repeat. It comes down faster than it goes up due to appraisal issues. It’s easier to get a low appraisal in a down market than a high one when the market swings around. That’s why recovery periods (as to housing vs. general economy) are always slower.

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  22. wreckingbull
  23. Ira Sacharoff

    RE: Kevin @ 19

    There are some parts of the US that have declined very little( 5%ish) from the peak a few years ago, and other parts of the US that have declined by more than 50%. Seattle was pretty flat between around 1970-1976, and again in the early 90’s, though I’m not sure it was flat for five years.
    You’re right, history will not predict the future, but shouldn’t be ignored.

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  24. shawn

    RE: softwarengineer @ 2 – Wow, you have determined that a falling TPFR (one that is < 2.0) will result in population growth! My suggestion is that you find some books on your pet topic and read them. Start with Malthus and Godwin. Then read about the carrying capacity and regulating factors to learn why all dire over population predictions have never come true (note others have been saying the same thing you say for thousands of years). Or keep tossing out your xenophobic posts.

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  25. mukoh

    RE: shawn @ 24 – Shawn you hit the nail on the head right there.

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  26. meadows

    Scotsman@ 6: “And while some may be calling for such change, the general population isn’t anywhere close to accepting it.”

    Therein is the key with which I have to agree. And don’t forget the general population is easily propagandized, distracted. With the true unemployment at around 16% average perhaps it still isn’t enough pain. Where is the tipping point?

    After all, elite businessmen commute by helicopter over the vast slums of Sao Paulo, population nearly 20 million. Capitalism and an economy can still function w/out democracy, without equality, without a middle class.

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  27. Kary L. Krismer

    By matt @ 20:

    So, how does this account for the fact that larger houses are being sold now? larger houses sell for less per sq ft, and that’s what’s providing the downward pressure on the average. Look at the same figure sales price/ft for those houses under 1500 ft, those from 1500 to 2000 ft, 2000 to 3000sq ft and 3000+. Have they each made the turn, but when aggregated, it appears not?

    Over the period of time we’re talking about, that wouldn’t make a great deal of difference. But when you look at longer periods of time, say back to the 50s, the larger size of houses has affected the median (and mean) price of houses. People wanted more house, and were willing to pay more for it.

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  28. Jonness

    By mukoh @ 25:

    RE: shawn @ 24 – Shawn you hit the nail on the head right there.

    “Read some books, I’m right. You’re wrong. You are an idiot. I’m a genius. You’re a xenophobic whackjob. I’m cool.”

    I suggest Shawn start by explaining the main points of SoftwareEngineer’s flawed logic and then providing an alternative explanation that addresses each point. A real debate provides the opponent an opportunity to defend his views.

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  29. David Losh

    RE: shawn @ 24RE: Jonness @ 28

    Population has been constantly expanding territorially. New worlds have been constantly discovered in those thousands of years. Now we are looking at space. Can humans survive in space? Space travel, yeah, that’s the ticket.

    Global population is at the heart of economies, and survival. Read a book.

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  30. shawn

    RE: David Losh @ 29 – you make the claim, so please tell me why for over a thousand years your claim has repeatedly been made and yet not come true? Why today, why now, what factors are now different? Which new ones are present and which old ones are now absent. What is one of the current main cause for population growth that was not present 200 years ago?

    And you want me to read a book to prove why your false claim is true?! Gosh. Let me repeat, reading books shows your claim is silly. BTW, what book? Which ones shows that our carrying capacity is at a level that will cause our population to become unsustainable? Which university study?

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  31. shawn

    Jonness,

    I admit to coming down hard on him. I don’t make it a practice to be hard on less intelligent people. Some, um, people want to project themselves as being smart and again I give them a pass. However, if they repeatedly say very rude things about where my family comes from, well, the kid gloves come off.

    The flaw in his argument is that he has no argument! He states his opinion and then says “look here is the proof” and points to a URL of someone else’s opinion, or a book that again is someone’s opinion. Further, the URL and book are not from any source that an educated community (right or left) respects. I pointed him to authors of books that are respected and have opposing views so that he could gain a “full” understanding of his pet topic.

    His argument is a prediction, how can one prove a prediction? Further, the same prediction has been made for thousands of years and never came true. From that we can, and have, gained insight into what does happen when a population becomes unsustainable, it decreases.

    Additionally, he has never spouted his rhetoric and then made a snide comment about any white culture, nope, he is always making some rude comment about Asia or some other non-white people. Hence, the xenophobic comment.

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  32. Kary L. Krismer

    By patient @ 17:

    Bernanke, the Times: “Person of the Year” what a laugh. However reading the latest fed statement you gotta give some credit to someone who proclaims:

    1. The economy is recovering,growing and employment is improving
    2. We need to keep interest rates at zero for the forseeable future because 1. isn’t true..

    1. I’d trust the opinion of Benanke on economic issues over anyone posting here.
    2. The Person of the Year isn’t necessarily a good person. Stalin won twice and Putin more recently.
    3. If I falsely stated your proclamations you’d look pretty silly too!

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  33. patient

    RE: Kary L. Krismer @ 32 – Kary, as you see i did not quote Bernanke, I read his statements and that’s how I interpreted them. The thing is that actions speaks louder than talk. As long as they keep interest rates at zero and continue monetary and fiscal stimuli all talk about things improving rings hollow. Anyone can borrow funds from one source X ( T-bills ) and add to another fund Y ( “The economy” ). Source Y will look “healthier” but the lack of funds is still there now with an interest penalty on them. You trust Bernanke? Good luck with that.

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  34. CCG

    By Scotsman @ 7:

    RE: Ray Pepper @ 5

    There won’t be cramdowns in the future- they go against our entire history of private property and contract law. If cramdowns do become the norm, the US will have become socialized to such an extent that no contract can be trusted, and no private property protected. There will be no “investment” without protection and control.

    You just described exactly where we’re going. Believe it.

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  35. Kary L. Krismer

    RE: patient @ 33 – I didn’t say you mis-quoted him, I said you have falsely stated what he’s saying. What he’s saying basically is that the economy is still fragile and that we’re not out of the woods yet, therefore it’s unlikely interest rates will rise in the near future.

    I know the average person thinks that the economy should go from being in a free fall and near total collapse in 6 months, but in reality it will probably take years (depending on what factors you’re looking at).

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  36. CCG

    By Kary L. Krismer @ 32:

    By patient @ 17:
    Bernanke, the Times: “Person of the Year” what a laugh. However reading the latest fed statement you gotta give some credit to someone who proclaims:

    1. The economy is recovering,growing and employment is improving
    2. We need to keep interest rates at zero for the forseeable future because 1. isn’t true..

    1. I’d trust the opinion of Benanke on economic issues over anyone posting here.
    2. The Person of the Year isn’t necessarily a good person. Stalin won twice and Putin more recently.
    3. If I falsely stated your proclamations you’d look pretty silly too!

    http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html
    “Thursday, October 27, 2005
    Bernanke: There’s No Housing Bubble to Go Bust”

    http://www.youtube.com/watch?v=HQ79Pt2GNJo

    I could go on, but unlike Bernanke I have to actually produce something today.

    I’ve made (and likely saved) into the 6 figures betting against Bernanke’s statements on housing and inflation, and I’d trust someone like Tim, Scotsman, or Eleua over him in a New York minute.

    Not that I think Bernanke is stupid. To the contrary, I’d bet he’s a sight smarter than I am. And as I once said about Bush, he’s doing a fantastic job. The people he works for are very pleased with him.

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  37. patient

    RE: Kary L. Krismer @ 35

    ” I didn’t say you mis-quoted him, I said you have falsely stated what he’s saying.

    I’m not that far off imo. From the FED statement, I just added 1. and 2. to relate to my interpretations:

    1. Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating.
    The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate.

    2. The Committee will maintain the target range for the federal funds rate at 0 to .25% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

    “Businesses are still cutting back on fixed investment”

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  38. David Losh

    RE: shawn @ 30

    Let me address this simply. 200 years ago this was a great sparsely populated continent. It’s populated now, completely, along with South America and all of the “New World.” China and India have billions of people, billions, and we have millions.

    War and plague used to kill off population. We had Hiroshima, and AIDS. Hiroshima pretty much cut every bodies large scale war lust, now we have more like police actions. AIDS could have killed billions of people, but it didn’t, not yet, maybe never, and the population keeps growing.

    During the AIDS crisis the idea of using condoms was promoted heavily. Governments and religions don’t like that idea. Lower population is lower revenue.

    Population control will have to be a willful government sanctioned action. In the mean time our resources are stretched. We all suffer because of population so I don’t see the point in disputing that.

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  39. shawn

    RE: David Losh @ 38 – We now have the ability to stop famine, etc. We can get supplies to people across the world in time to save nations that in the past would have perished. That coupled with our human kindness and respect for human life, because just having the ability to save a life is not enough, one must care and want to.

    If you are going to talk about population, it is important to know some of the “real” causes of our current world’s population. I learned this in my college Environmental Psychology course nearly 10 years ago.

    Now, because you say we all suffer due to population, well, that just does not make it so. It is not population, but misuse of resources. You can have 10 people sharing a field, and all rely on it to survive in comfort. One day one person destroys it, and the rest suffer as a result. Is it really the fact that 10 were sharing the field that caused the suffering?

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  40. David Losh

    RE: shawn @ 39

    You’re right about the Environmental Psychology. It’s the number one reason for over population.

    We can all share, leave a smaller foor print, live within our means, stop having violent love. We can mange.

    We are however brutal people. Governments only contain the chaos. In the mean time the oceans are polluted, the air is fouled, and water is in shorter supply while men get rich from it.

    War and plague are selective. Greed is all consuming.

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  41. Kary L. Krismer

    By David Losh @ 40:

    - We can all share, leave a smaller foor print, live within our means, stop having violent love. .

    Good luck selling that plan! ;-)

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  42. David Losh

    RE: Kary L. Krismer @ 41

    Exactly.

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