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.

82 responses to “Is the “home as a profit engine” paradigm finally dying?”

  1. Kary L. Krismer

    Strange. At 9:41 this story is showing up with my FF browser, but not my IE browser.

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  2. David S

    Host: So, as opposed to the biggest and most important investment for the family, maybe houses should be regarded as something like a giant car? Something that is a durable good, that eventually you use up.

    Humphries: That’s right. I don’t think that’s a bad analogy. Essentially housing is a utility that you consume like electricity. We consume housing as a utility. It’s a shelter for us.

    And how. I’m witness to this. Wifey and I have been looking to buy since December 2009. We are looking up to $500k. I am sad to report that most all of what we have seen has been quite well used up. You name it. Roofs, HVAC, appliances, paint, carpets, landscapes, windows. Either used up or hideous unprofessional remodels and incomplete patches and improvements.

    I am quite competent at home maintenance and improvements, but most of the inventory we have previewed would be passed off as a contractors dream due to the magnitude of the deference. So while the prices remain ridiculously high, I would be left to contend with retail contractor priced renovations. No thank you, we’ll pass on that.

    Good thing I am a fisherman and blessed with patience for the game.

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  3. An Onyx Mousse

    To be fair, real estate is an asset class like any other. The *house* and fixtures are durable goods that get consumed and must be renovated periodically. The land is an asset, just like stocks, gold, iron, oil, and other commodities and assets. Their value goes up and down based on market dynamics. If you wouldn’t speculate on stocks, oil or gold with your life savings, you shouldn’t speculate in real estate either. A diversified portfolio can minimize the risk of a total wipeout, as always, but you won’t get rich quick.

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  4. JoJo

    Must be getting close to time to buy !!

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  5. redmondjp

    Yup. My own house and cars are falling apart as fast as I can fix them. In the past six months on the house (not enough space or relevance to go into the cars):

    Dug up sewer line to get roots out, added a proper cleanout, removed improper cleanout (a hole cut in the top of the pipe with duct tape over it) . . .

    Fixed broken garage door spring (some “tense” moments while winding up those new springs, you replace them in pairs BTW) . . .

    Fixed shorting light socket in can light in vaulted ceiling 11′ above the floor . . .

    Cleaned out the gutters at least twice (year-round for me, due to the neighbor’s poplar trees) . . .

    Sprayed moss killer on the roof, still need to pressure-wash the dead moss off . . .

    Still haven’t repaired the fireplace mantle that actually fell off, due to the clay soil underneath the fireplace drying up and shrinking, allowing the entire fireplace to settle 1/4″. Mantle was construction-adhesived to both the wall and the top of the fireplace, so as the fireplace settled and the wall didn’t, the mantle tipped down, dumping everything off of it while we were sitting there watching TV. I wonder what will happen next?

    Anybody that has owned an older house knows what I am talking about! The land may have some intrinsic value, but again, only because other people want to live in this same area. Anybody who lives in Detroit or Flint knows that very well.

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  6. HappyRenter

    “What about your social circle? Are your friends and family still believers in the “your home is your best investment” cliche?”

    Yes, I still hear from friends and family that you need to build equity and in 10 years you will be able to sell your house for a much higher price and make money. Why through away 1500$ in rent when you could put it into a mortgage and build equity?

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  7. Kary L. Krismer

    RE: redmondjp @ 5 – After watching it done, replacing the garage door springs is a job I’m glad I paid to have done. It looked like it would have been a lot of trial and error, not to mention slightly dangerous.

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  8. Scotsman

    Housing is an expense, nothing more.

    Owning a home, for the foreseeable future, is an expensive luxury.

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  9. HappyRenter

    By Scotsman @ 8:

    Housing is an expense, nothing more.

    Owning a home, for the foreseeable future, is an expensive luxury.

    What’s the alternative? Owning a condo? Renting a house or condo/apartment? Recently, we have been hunting for a 2 bedroom house/condo/apartment for rent in NE Seattle no more than 1500$/month. We have not found yet something really convincing for this price, i.e., spacious, away from main roads, nice view, bright, not too old. We are picky and I guess we have not looked hard enough but we are also not in a hurry.

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  10. Cheap South

    I think this NPR piece is the same in which they interview a developer in Denver that bought a 1000 sq.ft. condo,, mountain views, 3rd story (top), for $44K.

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  11. Scotsman

    RE: HappyRenter @ 9

    It’s frustrating, but the only alternative for many is to wait out the transition period until prices and incomes normalize. I’m in the worst situation, living in a rental that should have been foreclosed on months ago, but still nothing. I’d like to buy it, but know that if the bank ever responded to us and gave us the option we would probably lose close to $100,000 over the next few years as prices continue down. What is there to do but wait? I’m not willing to throw money down a hole as I close on retirement and 5 more years of college costs for kids. Sure, I’d like to get started on fixing it up, making it “ours,” but that just isn’t a realistic option at this time.

    This is as good a time as any to bring up a discussion of what to expect going forward. As deflation in home prices and other assets takes root people with jobs will feel like they’ve won the lottery- everything is cheaper and their existing income goes further than ever before, like getting a giant raise. But eventually the second part of the cycle will kick in and incomes too will start to deflate. New hires will be paid less, older employees will see benefit cuts and layoffs as the opportunity to replace them at lower cost takes hold. At this time there will likely be a second wave down in home prices to match up with the now lower national incomes. At some point inflation may resume, but I would guess that is a decade or more out. While everybody was talking and thinking about “the new world economy’ it actually happened and is no longer theory. The restraints this fact places on U.S. monetary and fiscal policy shouldn’t be underestimated.

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  12. 2kt

    We are not falling in love with our own investment ideas and views, are not we?

    Although since the dear teacher’s picture treats us to its pleasing view at the top of every post, it’s a question with an obvious answer.

    Real estate is investment for 15-20 year time horizon, not a get-rich-quick scheme. For people who buy what they can comfortably afford and have good cash reserves, it is still a good investment.

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  13. Lake Hills Renter

    Everything is the same in my circle — housing is the path the wealth, renting is throwing your money away. But then, my circle made up of homeowners. Except me.

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  14. Kary L. Krismer

    RE: 2kt @ 12 – Part of this depends on an issue The Tim raised a while ago: Whether you own to buy, as opposed to own to get an ATM. Renting is throwing your money away, but so is buying and refinancing every two years. Buying on a 30 year mortgage is different than buying on a 15 year mortgage, and both are different than buying with cash.

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  15. Scotsman

    RE: Kary L. Krismer @ 14

    What would you call buying an asset that depreciates 30% over the next ten years and then takes a second 10 years to recover to it’s original purchase price? Are you familiar with NPV calculations and how brutally they account for a negative hit early on in the cash flow stream? Hint: that 30% will never be recovered in real terms. That’s a loss, not an investment.

    I repeat- home ownership, for the foreseeable future, is an expensive luxury.

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  16. Kary L. Krismer

    By Scotsman @ 15:

    RE: Kary L. Krismer @ 14 – What would you call buying an asset that depreciates 30% over the next ten years and then takes a second 10 years to recover to it’s original purchase price?

    I forgot that you can see the future with 20/20 vision.

    Since you can’t, I’ll counter your argument with another that I can pull out of my ass: What would you call buying an asset that doubles in value in ten years and then quadruples in value in another 10?

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  17. deejayoh

    RE: Scotsman @ 15
    your view is that it is an expensive luxury. 30% decline is your prediction. It may not be everyone’s reality.

    most people on this blog were spectactularly bad at predicting the boom. I suspect they will just as poorly on view of the timing on the end of the crash

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  18. Kary L. Krismer

    Here’s a poll of SB readers from September of last year. We don’t yet know the answer, but so far it appears the better answer is about the same, which came in second, but not a close second.

    http://seattlebubble.com/blog/2009/09/06/poll-a-year-from-now-seattle-area-homes-will-cost/

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  19. joe dirt

    The alternative is structures built to last longer and more mass production so there is less reliance on hand craftmanship . The materials being used are shoddy and short lived. The housing industry is still like 70′ era GM – planned obsolesence.

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  20. 2kt

    RE: Kary L. Krismer @ 14

    This is besides the point. You can overleverage and overborrow on any investment. Be it margin account for stocks/bonds or equity line against the house.

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  21. Scotsman

    RE: Kary L. Krismer @ 16

    “What would you call buying an asset that doubles in value in ten years and then quadruples in value in another 10?”

    Ummmm- how about a bubble that has now burst with prices reverting to the mean in the face of a pending depression (or even world-wide economic collapse) the likes of which haven’t been seen in almost 100 years, perhaps never?

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

    You and deejayoh are both smart guys. Show me the math for how we get out of this. Where does the income come from to pay the debt and fund new technology and productivity improvements? How do we continue to justify our current wage structure in the U.S. in the face of often technologically equivalent competition with a cost structure that’s a fraction of ours?

    No wage growth, no home price growth. No wage stabilization, no price stabilization. Change takes time, like the old boiling frog analogy, but it still happens. and it’s not always positive.

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  22. 2kt

    RE: Scotsman @ 15

    Repeating something many times over does not make it true. It’s only your point of view. It remains to be seen whether it holds any water.

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  23. Kary L. Krismer

    Here’s a poll where the SB readers were too optimistic (based on the 2nd place answer–the correct answer was picked).

    http://seattlebubble.com/blog/2008/10/19/poll-januarys-case-shiller-index-for-seattle-will-be-___-off-peak/

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  24. Jerdobi

    By joe dirt @ 19:

    The alternative is structures built to last longer and more mass production so there is less reliance on hand craftmanship . The materials being used are shoddy and short lived. The housing industry is still like 70′ era GM – planned obsolesence.

    Another topic for another column. But, that said I come from an era and another part of the country where the craftsmanship and materials used for home construction wasn’t based on particle board and staples wrapped with plastic. I’ve noticed the new home construction in the Seattle area generally is using the minimum quality and quantity of materials to just get by. Then, a few years later after the dry rot creeps in, they need to be wrapped in plastic and outside exterior walls reconstructed and some of the base foundation replaced. I’d actually say a GM car today may outlast a new Seattle home.

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  25. Kary L. Krismer

    RE: Scotsman @ 21 – You do realize I wasn’t serious about the double in 10 years argument? That would require about 7% appreciation a year, which would only likely happen if we have significant inflation. Ten years is a long time, and inflation could occur in that time frame, but so could a lot of other things.

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  26. Scotsman

    RE: 2kt @ 22

    “It’s only your point of view.”

    Well, me and a host of others. And while it may seem like just an opinion, I would like to think it’s closer to a researched and very educated prediction, or as Kary would call it- “guess.” I really don’t have a dog in this fight- I don’t sell or buy real estate, and my income in no way depends on anything to do with real estate. I do have some money to invest, a lot of history with economics, and a pretty good track record of calling major events. . . much too early. But I do get the events right.

    Got a different take that isn’t just denial, wishful thinking, or emotion? Show me the math. Love ya.

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  27. Scotsman

    RE: Kary L. Krismer @ 25

    You said you pulled it out of your ass. I assumed it was golden. Sorry. ;-)

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  28. HappyRenter

    By Kary L. Krismer @ 14:

    RE: 2kt @ 12 – Part of this depends on an issue The Tim raised a while ago: Whether you own to buy, as opposed to own to get an ATM. Renting is throwing your money away, but so is buying and refinancing every two years. Buying on a 30 year mortgage is different than buying on a 15 year mortgage, and both are different than buying with cash.

    What you are saying is that it’s a good investment if you buy a home where you live for a long period of time and you even manage to pay off the mortgage? I’m still afraid of the high maintenance costs and property taxes. I have no clue how to fix things, so I would have to always call somebody to fix the stuff. That can get expensive. On the other hand, rent can go up, too.

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  29. D. in Ballard

    There’s only 1 in my social circle who thinks prices are going down further. Everyone else asks me why I’m not buying with so many deals around. I’m so tired of having the conversation. I was treated recently to: “I can’t even imagine how much you’re paying in taxes.”

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  30. HappyRenter

    By Jerdobi @ 24:

    By joe dirt @ 19:
    Another topic for another column. But, that said I come from an era and another part of the country where the craftsmanship and materials used for home construction wasn’t based on particle board and staples wrapped with plastic. I’ve noticed the new home construction in the Seattle area generally is using the minimum quality and quantity of materials to just get by. Then, a few years later after the dry rot creeps in, they need to be wrapped in plastic and outside exterior walls reconstructed and some of the base foundation replaced. I’d actually say a GM car today may outlast a new Seattle home.

    How often do you need to replace a roof and how much does it cost for an average Seattle house?

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  31. David Losh

    Fortunately my business is home renovation. We have the cleaning business which I am surprised does very well.

    People who bought in the past ten years seem to be confused about home ownership. We have done very few projects that are of value. That kitchen or bathroom remuddle really won’t get you a return. Spending $50K on landscaping is kind of a waste also.

    Practical projects, that enhance the livability seems to be lost.

    What I think is, that the price of housing will continue to decline. Town Houses, Row Houses, or whatever you want to call them will be a problem to maintain. New construction in general will depend on the builder, but pretty much most that I have looked at need work, paint especially, and reconfiguring to make more usable spaces.

    So I think the price of housing will go down, while the price of land, good houses on good lots, that are constructed well, will hold value after the initial declines. The initial declines over the next year should be at least 10%, but a lot of what I look at seems $100K over priced. So on a $350K that looks like a $250K that’s a big drop, but on a $500K that could be a $400K it’s less of a decline.

    What I have been saying is that Real Estate doesn’t change. The last market that seemed reasonable to me was in the late 1990s. I think if you are smart, well informed, and willing to work the market, and the property, that Real Estate is an excellent investment.

    However, sweat equity, means sweat. Real Estate is a hands on business.

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  32. One Eyed Man

    The average American homebuyer is a capitalist that can’t ( or won’t) do the math. They’ll buy a lottery ticket that has a million to one odds like it was a reasonable thing to do and then complain about taxes after willingly paying the state to get in on the lottery sucker bet.

    For much the same reasons, they will get wide eyed if you tell them that a 3% per year price increase for 7 yrs will triple their 15K down payment for a 300K condo. Then ask them if they know any other investment that can triple their money in 7 yrs with only a 3% per yr increase in its price all while allowing them to live in the home. Obviously they don’t and the concept of finance leverage is a licking miracle to them just like Jesus turning water into wine.

    But unfortunately most of them can’t (or won’t) do the math for a price v rent analysis to determine the true estimated cost of ownership of the house so they can’t evaluate the real investment return. And most of them have no clue if 3% per year price increase is a reasonable estimate. As often as not they’ll question your credibility because they thought it was more like 10% per year.

    If I recall correctly, if you believe you will average 3% per year price appreciation and buy a house with a Gross Rent Multiplier of under 200, and you have limited maintenance and repair costs (say .5% per yr) you would theoretically turn positive on the investment in 10 yrs or less. But as Scotsman says, if you have to wait 10 yrs to start that 3% per yr, your investment will likely never turn positive due to the effect on net present value.

    But then again where else can the average Joe get 300K of capital to gamble with at under 5%, unless of course, they buys a house.

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  33. Kary L. Krismer

    By Scotsman @ 27:

    RE: Kary L. Krismer @ 25

    You said you pulled it out of your ass. I assumed it was golden. Sorry. ;-)

    You should have assumed it was a Gem! ;-)

    (Reference Ray Pepper and a line from Ferris Buehler’s (sp?) Day Off where he mentions shoving a lump of coal up his friend’s ass and getting a diamond.)

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  34. HappyRenter

    RE: David Losh @ 31
    We have been looking recently at houses for rent in NE Seattle, 1500$/month and below. Really, really old stuff, for example built in 1910. It must have been a nice and romantic house back then. But now, all you would like to do is tear it down and completely rebuild it. Instead, the owner has spent a lot of money in replacing the windows, repainting the exterior, putting in a new stove. But it still remains an old house. Probably the owner tried to sell it first but decided to pull if off the market and give it for rent instead? Where is this leading to?? A bunch of useless houses which are not worth existing. A lot of people seem to be dreaming that those shacks might be worth a lot just because they are near Greenlake or in Mapleleaf. But who wants to live in there?

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  35. Kary L. Krismer

    RE: HappyRenter @ 34 – Just because it’s old doesn’t mean it can’t be renovated. Assuming you can add a second bathroom to the original design, the architecture (floor plans) of the old houses is often excellent. And if it was never neglected, the original construction can be excellent. I’d rather own a house built in 1910 than 2010.

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  36. Scotsman

    RE: One Eyed Man @ 32

    I don’t always agree with you politically, but I always read your posts. The writing is entertaining, and the perspective priceless. It’s good to wander out of the “ivory tower” and get an honest take (reality check) on that “man in the street” perspective. ;-)

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  37. HappyRenter

    By Kary L. Krismer @ 35:

    RE: HappyRenter @ 34 – Just because it’s old doesn’t mean it can’t be renovated. Assuming you can add a second bathroom to the original design, the architecture (floor plans) of the old houses is often excellent.

    I usually find the bedrooms way too small. Cracking wood floors. At least those we have seen. There might be nice old houses which once fixed look beautiful. The few we have seen, we had to run away.

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  38. B&W Nikes

    A couple of things I still have a hard time wrapping my head around: If you bought seven or more years ago and didn’t refi to holy hell you are probably still far ahead in home value.

    The other thing is that over our history the relative puchasing power of a dollar has steadily declined and what we buy with it has changed dramatically. It’s hard to see what that indicates for the future. (For example, a new Ford in the 1920s cost you about $290 which is ~$3,300 today).

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  39. 2kt

    RE: Scotsman @ 26

    So, you got the car…

    I am always impressed with you, market timers. Then again, look at your friend Roubini. The guy makes a macro call of a lifetime. Next thing you know, he starts advising Brevan Howard in UK. On his advice, Brevan Howard stays short most of 2009 and loses 30%. I remember many on this board bragged how great they are doing with their energy picks in 2008. Don’t hear much about these days.

    I bought my real estate many years ago and intend to hold it. Willing to bet you in 20 years I’ll see more for my buck that you will see for yours.

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  40. Updog

    By HappyRenter @ 34:

    A bunch of useless houses which are not worth existing. A lot of people seem to be dreaming that those shacks might be worth a lot just because they are near Greenlake or in Mapleleaf. But who wants to live in there?

    Tangent here. I can understand the appeal of Greenlake, having a lake and all. Whats the appeal to Mapleleaf? Seems like a bunch of so-so houses on roads that may or may not have sidewalks.

    And I agree, most of the houses in Greenlake/MapleLeaf I’ve seen look haunted, with half the square footage in dank watery smelling basements with 6 foot ceilings. Most of these need a solid $80k drop before I’d begin to consider.

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  41. Tim McB

    RE: HappyRenter @ 37

    The difference between rentals and owned homes. When we were home shopping in that area we deliberately avoided homes that were former rental homes. My opinion is that they aren’t cared for in the same way.
    Also, to way in on home age issue I’d agree with Kary, I’d rather own old than new. Old has been tested and stood the test of time. My bet is that anything from 2002-2010 has a shelf life of about 30 years if that. Planned obsolescence has hit housing; over-construction is out, under-construction is in. Not to mention that much the high quality wood (Douglas Fir 1 for example) in older homes couldn’t even be purchased today at any price due to current logging practices and environmental regulations. That said an old home with new amenities is a win-win combo.

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  42. Blurtman

    Off topic: Restaurant recommendation: The Stone House in Redmond. Go after rush hour if you are sitting outside. Fine food which is not too common in the Issaquah, Sammamish area.

    16244 Cleveland St
    Redmond, WA 98052

    Website MIA

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  43. Tim McB

    RE: Updog @ 40

    1.) Schools
    2.) Location to lake (half the neighborhood is less than a half mile from the lake.)
    3.) Central location. This is a minus for me but a big plus for my wife and others. I’d rather be in a far flung corner of Seattle (i.e. Sunset Hill or Magnolia) than next to a freeway, but 10 minutes by bus to downtown on the express lanes beats Ballard, Wallingford, even the north side of Queen Anne (all places I’ve lived BTW)
    4.) Neighborhood community. Other areas have this too, but Maple Leaf prides itself on it.
    5.) Future item: Maple Leaf Reservoir Park.
    http://www.mapleleaflife.com/2010/06/16/highlights-of-the-new-maple-leaf-reservoir-park/

    PS In case you haven’t noticed we live in ML.

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  44. HappyRenter

    RE: Tim McB @ 41

    I guess it strongly depends on the house. How much can you change to the floor plan? It has less to do with care. If the person who built them created a huge living room and ultra tiny bedrooms, there is little you can change unless you are willing to spend money to move the walls or transform part of the backyard into an extra room. I agree that good quality wood is nice but that doesn’t help me much if I feel claustrophobic or the ceiling is so low that my arms will make a hole in the roof when I try to stretch in the morning.

    That said, a cousin of my wife is carpenter. He bought an old house in Portland, remodeled it himself and now it looks enviable. So, it does depend on the house itself. But I don’t have the time and skills to do that remodeling (assuming the floor plan is decent).

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  45. HappyRenter

    RE: Tim McB @ 43

    I would add that it’s not too far from the Burke Gilman. You can probably take side roads down to the Metropolitan Market and avoid car traffic. And being higher, you will get more snow in the winter (if you like snow).

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  46. Tim McB

    RE: HappyRenter @ 44

    Actually the most common issue I’ve seen is tiny bathrooms and kitchens. Its seems like it was built to get in, get out, and get on with it. I will admit that old homes definitely aren’t for everyone; that said per our tax assessment the land is worth almost 2 times the house anyway so that as they say is where the value is anyway. As to improvements pre-house I never thought of myself as a handyman either but a bathroom remodel later I’ve picked up some good skills. I just finished adding two electrical circuits upstairs and will be drywalling this weekend. After the upstairs bedroom remodel, on to the kitchen this fall and winter. It just takes time, education, and patience.

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  47. Tim McB

    RE: HappyRenter @ 45

    Too true about the snow, but I think that would be a minus for a lot of people (not me though).

    Oh, forgot two other things to add the the list: Snappy Dragon and Ace Hardware. One of the best hardware stores in the city.

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  48. Scotsman

    RE: 2kt @ 39

    That’s nice. But like I said, show me the math, the path out. Everything else is just blather.

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  49. One Eyed Man

    RE: Scotsman @ 36

    Scotsman, in comment #11 you implied you may have contacted the landlord’s lender regarding your house. If you feel you can talk about it, I’m curious, did you try to buy the Note and Deed of Trust? I tried to buy a note from Chase for a client a few years ago and they wouldn’t even sell it for the full balance and all foreclosure costs. The house was worth much more than the mortgage at the time. It was pre-2007 and we were trying to save a disabled guy’s house from foreclosure and want to get Chase’s priority on title. They wouldn’t say, but I assume that Chase had sold the paper and was just the servicer and the administrative hacks just didn’t want to take the time to figure out how to get permission to sell it.

    Hope you had a good time on the boat!

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  50. David Losh

    RE: HappyRenter @ 44RE: HappyRenter @ 34

    We completely tore a house down to the studs, inside, and out in Maple Leaf. I had lived there for twenty some odd years. The Northgate transit center changed the neighborhood.

    What you said about the windows, paint, crappy kitchen remuddles, and tiny bath rooms really is the point I was making.

    There is a house near Green Lake that I thought was a steal of a deal until it got a make over. What a waste. The house can still be salvaged by jacking it up and adding a first floor. You laugh, but it’s cheaper than you think.

    As a matter of fact a lot of what I do is done for far, far less than contractors charge. I use a lot of casual labor, speak Spanish badly, and have a couple of beat up old trucks.

    It’s not a plug, just a simple statement of fact that many, many new home owners get star struck, and suckered in home improvement.

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  51. hoary

    All of my friends but one think owning a home is still a good investment in the long run. Of course the one dissenter is a PhD economist =/

    I think most my friends bought because they wanted to live in their houses, and not just make a quick buck though.

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  52. Scotsman

    RE: One Eyed Man @ 49

    No response at all. They are about $225K upside down at this point. I think part of the issue is the loan documents may not be completely in order. The original loan was through a local high risk lender (it’s a negative amortization loan) that went bankrupt two months after the loan was made. I remember reading about them in the Times, and how their records and financial affairs were a shambles. It’s pretty much the poster boy story for everything that could have gone wrong at the end of the boom.

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  53. joe dirt

    The same thing that drives down costs and provides high quality of other consumer goods needs to be brought to housing. IE mass production. Take a look at these from Ikea and Toyota:

    http://www.boklok.com/

    http://www.toyota.co.jp/en/more_than_cars/housing/

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  54. S-Crow

    Report from the trenches: I’ve never seen so many refi’s with 15 yr and 20 yr fixed rates. This refi boom is feeling very reminiscent of 2005-2006 in terms of volume. We’re not working till midnight or later, yet, but very long exhausting days.

    I got a chance to read Bill Gross comments on his recent trip to the Treasury. Some pretty funny tongue-in-cheek comments but also some interesting analysis on what his take is on salvaging the housing market. The other potential solution that he didn’t touch on is longer amortizing loans which would make handling loans more affordable vs. larger down payments.

    S-crow

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  55. Jonness

    By Kary L. Krismer @ 16:

    What would you call buying an asset that doubles in value in ten years and then quadruples in value in another 10?

    The past.

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  56. Kary L. Krismer

    RE: S-Crow @ 54 – Knock it off! It’s actually starting to affect our resale appraisals.

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  57. Jonness

    By deejayoh @ 17:

    most people on this blog were spectactularly bad at predicting the boom. I suspect they will just as poorly on view of the timing on the end of the crash

    Many things about the future are obvious. For instance, anyone who couldn’t see hitting a brick wall in housing when the tax credit expired is either a shill or was just flat out not paying attention. Now that we are here, it provides additional insight into the next phase of the journey.

    And there’s always MV=PQ, which tells the story of a society amidst deleveraging its debt at a time when high-paying jobs are bleeding from the seams.

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  58. deejayoh

    RE: Jonness @ 57 – great. what’s the money making strategy?

    My view is that housing has rarely followed macro-economic trends (ex income) in the past. There is much talk of macro economics here but not really so relevant to housing.

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  59. Mikel

    Nope! Plenty of people I know in other parts of the country are still doing bubble things right out of 2005:

    - Bragging how much their home has supposedly appreciated in the short time they’ve owned it.
    - Telling me that rent is throwing money away.
    - Getting mortgages for homes they can’t really afford, in large part because “it’s a good investment.”
    - Attempting the renovation/flipping game.

    Even in Seattle, in the past couple months, one realtor I know says she’s very busy because “things are picking up again,” and another young couple just bought a house they probably can’t afford after selling one they bought less than 2 years ago.

    It’s funny because I know this is the biggest housing crash perhaps in American history, but if I just listened to those around me and didn’t read any news, I wouldn’t know it.

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  60. 2kt

    RE: Scotsman @ 48

    It’s been about 25+ years since I took economics and stats, so I pass on your “challenge”.

    There were some very smart and highly educated people at AIG that built models that brought their company and many others to the edge abyss. You probably think that you and your models are god’s gift. I doubt they are, since otherwise you’d be doing something else in life other than exchanging snarky remarks with strangers on some obscure local blog forum, pal. Wake up.

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  61. Scotsman

    RE: 2kt @ 60

    Plenty of assumptions on your part. Who says I’m not doing lots of other things? Perhaps I can do more things at once than most people? But thanks for admitting you’re not up for the challenge.

    And by the way- I do look like Brad Pitt. ;-)

    Catch ya’ll later- I’m back to the boat.

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  62. Cheap South

    By D. in Ballard @ 29:

    There’s only 1 in my social circle who thinks prices are going down further. Everyone else asks me why I’m not buying with so many deals around. I’m so tired of having the conversation. I was treated recently to: “I can’t even imagine how much you’re paying in taxes.”

    I hope you replied: “much less than what you are paying in interest to your bank”

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  63. David S

    RE: S-Crow @ 54 – All these people refinancing are out of the market now for at least a decade. If they are refinancing, they have no intentions to list sell or move.

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  64. ElPolloLoco

    By Mikel @ 59:

    Getting mortgages for homes they can’t really afford, in large part because “it’s a good investment.” .

    Best response to that: “If your house were really such a great investment, the bank would’ve bought it and rented it to you, instead of lending you the money to buy it.”

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  65. Kary L. Krismer

    By David S @ 63:

    RE: S-Crow @ 54 – All these people refinancing are out of the market now for at least a decade. If they are refinancing, they have no intentions to list sell or move.

    You’re assuming people refinance in a rational manner. That would be something completely new.

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  66. Kary L. Krismer

    By ElPolloLoco @ 64:

    By Mikel @ 59:
    Getting mortgages for homes they can’t really afford, in large part because “it’s a good investment.” .

    Best response to that: “If your house were really such a great investment, the bank would’ve bought it and rented it to you, instead of lending you the money to buy it.”

    But it would be a false response. Even during the go-go years banks didn’t want to own the property. Their business was loaning money. They would often make a lot of concessions to avoid taking the property back.

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  67. chico

    RE: Scotsman @ 11

    “What is there to do but wait? I’m not willing to throw money down a hole as I close on retirement and 5 more years of college costs for kids. Sure, I’d like to get started on fixing it up, making it “ours,” but that just isn’t a realistic option at this time.”

    Closing on retirement and the kids have 5 years of college costs?

    Dude, you should have bought decades ago!

    You sound like you are in my age range, probably in your 50′s and still renting? I bought back in the 80′s, why didn’t you? You should be set up for life by now. Looking in the rear view mirror is 20/20, why weren’t you smart enough to look into the future?

    I own my home free and clear, I also own a couple of rentals free and clear. None of them are worth what they were at the peak of the bubble, but they are all cash flow positive!

    Still a renter at your age?

    I’ll say the same thing to you that you said to pffft:

    Hahahahahahahahaha!

    You’re a legend in your own mind!

    You can’t even run your own life, keep your advice to yourself!

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  68. ray pepper

    Homes will always be an investment when you choose to buy. Like any investment when it sours it must be released from your portfolio before it causes further damage. The investor groups I belong to have released many properties back to the banks over the last 5 years and have began replacing these toxic ones with high income producing units of at least 15%.

    I took my lumps in this downturn but hey I’m only 44 and actually continue to be fascinated on how this is all panning out. As a huge supporter of short sales and strategic default for families I continue to offer my support to everyone out there that is contemplating letting there home go.

    I would never tell anyone to do anything I wouldn’t do myself. This is why the Spencer Radcliff’s of Zillow, Steve Tytler, and Larry Winget (a buffoon) remain on my list of 50 Biggest Idiots of The Housing Collapse who continue to not tell the truth to families and either dodge the questions, talk about friends who “do the right thing”, or simply give HORRENDOUS ADVICE.

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  69. Kary L. Krismer

    By Mikel @ 59:

    Even in Seattle, in the past couple months, one realtor I know says she’s very busy because “things are picking up again,” . . ..

    She’s very busy because she’s very busy. A single agent’s current business level is not a very good indication of the overall market. We are often busy when the market is slower.

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  70. Greenwoodian

    I’d add that real estate, of course, is hyper-local. Ray’s incessant recitation of marketing taglines gets old, but one thing I agree with is that there really are GEMS out there, if buyers are willing to spend the time and effort to find them.

    I think to be successful in purchasing real estate, it requires an ability to look past the minutiae and recognize the big picture. What neighborhoods are “in transition”, and which whey are they going? Are there imminent developments, infrastructure improvements, public-private initiatives, incoming retail etc. that will affect a particular area/neighborhood/street? What are the general cultural shifts in terms of where people want to live? Those are all issues that obviously have a great effect on individual housing prices, but I think a lot of people–even smart ones–never get past “running the numbers”. Even in a general downturn, there will be specific properties that increase in value based on factors unique to that place and time–the trick is finding them.

    I’m not claiming that smart buying will make anyone rich in this day and age, but I do think its possible to avoid financial catastrophe and achieve individual goals (whatever they may be) with patience and research. Looking at 20 properties picked out by a random realtor (based on who knows what criteria) and picking one of them, imho, is NOT the way make that happen…

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  71. Dirty_Renter

    RE: Blurtman @ 42
    With all due respect Blurt, if that’s you in your avatar, then you might want to look into a healthfood or organic restaurant.

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  72. Dirty_Renter

    RE: Greenwoodian @ 70
    That is good advice.
    My brother just retired and he said he thought it would be easy to pick up a travel trailer on the cheap. I told him it will be hard work and take time to find a good deal on an Airstream. Even in these difficult times, it takes time and effort to find a deal, whether it be a house, a vehicle or an equity.

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  73. Scotsman

    RE: chico @ 67

    Um, who said I haven’t owned in the past? Maybe I expected a downturn in the economy and liquidated almost everything I owned knowing that I would be able to buy it all back for pennies on the dollar in the coming years. May I have $m sitting in t-bills, who knows. . . But to assume, based on what? Someone here is an idiot though.

    I hate rain.

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  74. chico

    RE: Scotsman @ 73

    And “maybe” I’m the King of Upper Butt Crack!

    Continue to throw your money down the rent hole, you should have had a place paid off by now. And good luck with those college expenses. For a tard looking at retirement, sounds like you have some pretty steep expenses in front of you. Don’t give up the day job, you’re going to need it.

    Glad I’m not in your shoes, genius!

    Hahahahahahahaha!

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  75. Alan

    Chico,

    What is your rate of return on your properties? Take your net annual income for a property (or the price you would pay to rent your residence) and divide it by the net proceeds you would get from a sale today.

    I would guess your rate of return is in the 2-5% range because that seems to be the rate of return that society is accepting for real estate.

    If Scottsman can rent and get a higher rate of return on his nest egg than you are getting, then he isn’t throwing money down the drain. He is not passing up an opportunity to earn more with his money than you are.

    But your situation looks even worse if you project into the future. The rate of return on housing is at an historic low. If society starts to demand a higher rate of return, one of two things will happen:
    - Rental prices will increases
    or
    - Real estate prices will drop

    (or more likely a combination of the two).

    Increasing rental prices will only be a large component of that change if wages increase without an corresponding increase in inflation (good luck). The most likely outcome is that real estate prices will drop.

    You have your retirement capital in a vehicle that is earning 2-5% and runs the risk of dropping in value over the next decade.

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  76. Kary L. Krismer

    RE: Alan @ 75 – Are you taking depreciation into account?

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  77. disbelief

    Chico reminds me of some of the commenters who posted a lot of vitriolic stuff aimed at the naysayers on this blog just prior to the begin of the crash – a little too emotional to be quite believable when they talk about how well they’re doing. Btw, do 50 year olds use words like “tard”?

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  78. ray pepper

    RE: Greenwoodian @ 70

    incessant marketing tag lines?

    hmmm?

    you mean trolling??

    Me?????

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  79. Greenwoodian

    To be fair, while the rate of return on buying a home could theoretically only be 2-5%, the rate of return on paying rent is a cool -100%. Couple that fact with the possibility that gambling in the stock market could be a losing proposition, and stashing your down payment in a savings account THAT YOU CAN LIVE IN, doesn’t really seem like such a bad deal…

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  80. MikeBoyScout

    Of course the house is a consumable; utility if you want to call it that.
    The underlying land may be an investment. Depends.

    The profits that were realized (sold in 2005 myself) were not the result of any appreciation, but simple speculation.

    Have been in the market looking for 2 years, but the prices have led me to question the liquidity of the purchase in the event I need to relocate and sell. There are not always greater fools available.

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  81. ElPolloLoco

    By Kary L. Krismer @ 66:

    But it would be a false response. Even during the go-go years banks didn’t want to own the property. Their business was loaning money.

    Well, no, like any for-profit entity, the bank’s business is that of using money to make more money. Lending is one possible way to do that. There are others.

    They would often make a lot of concessions to avoid taking the property back.

    … thereby nicely making my point for me. “Gee, Wally. Why are the banks acting like my house was built over a cursed Indian burial ground that was later used for radioactive waste disposal?”

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  82. atcguru

    Ok….maybe I’m missing something here. Let’s say, for example:

    -an individual rents for $2000/mth., OR
    -this same individual buys a small house/condo/whatever for a monthly mortgage pymt. of $2000/mth (same amount).

    Assume also that this individual is able to save about $1000/mth after his monthly expenditures.

    EVEN IF the value of his house falls, if he goes the purchase route, how is he worse off that someone who rented, and essentially got NOTHING BACK, for all those years of renting? He doesn’t have any additional money to invest via the rental route (in fact, he may have less), so I don’t see how owning a home is a losing investment in the long run compared to renting. In the short run, renting can make sense, particularly if one wants to remain mobile. But long run? No way.

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