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.

99 responses to “Big Picture Week: Price to Rent Ratio”

  1. Astro Kermit

    10-20% drop is a pretty conservative call. Great graph.

    Are these rents per comparable square footage? From SFH on CL? How are you pulling the data of rent prices?

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  2. An Onyx Mousse

    Tim,
    Rents are falling due to the glut of unintentional landlords who would rather sell but need some cash flow while waiting for the market to improve. This distorts the otherwise robust rental market in Seattle which never saw the bubble insanity (most landlords did not pay bubble prices for their properties, and so had positive cash flow at reasonable rents.) I think both prices and rents will continue to stagnate either slowly down or flat for some time, so it will be a while before the ratio gets much better. If / when interest rates go up, which they will eventually (see Europe), that will drive prices down and rents up as more people return to renting, restoring the historical trend.

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  3. D. in Ballard

    Apologies if this is explained in another post. When calculating this ratio, how much does one assume the buyer is putting down? 20%? More? I intend to put down a large down payment when I buy, in which case my mortgage should be fairly close to the rent I pay now.

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  4. One Eyed Man

    Tim, I assume that the rental index in the graph is therefore specific to Seattle? I haven’t pulled the BLS index or the Cesnus Bureau series to confirm that but I assume that at least the census series is a regional series for Seattle even if the BLS is a national index? Or is the BLS a regional index too?

    I don’t want to ask you to do a lot of work cause you do alot already, but have you ever seen an analysis similar to the graph you generated above for any of the three major California markets? I’m academically curious as to whether they follow the same pattern as the Seattle graph. I’m still assuming that the YOY price increases in the California markets are a local short term anomaly (a bit of a dead cat bounce) but they’ve got my attention. I guess my biggest curiosity would be whether the California markets closed the gap in the above chart before prices moved radically upward. I assume that they didn’t.

    If I have time I might search Toscano’s site and some of the other Calif sites to see if I can find anything.

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  5. wreckingbull

    Great graph. 1997 is when when things went haywire. I point to Easy Al’s marriage to an attractive, young Andrea Mitchell as the cause. Very distracting for a fellow like Al.

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  6. Scotsman

    At least another twenty percent to fall until traditional relationships are restored, then who knows how far down as both gross and net personal incomes reduce, driving rents down below historic norms with home prices following.

    FHA data is out today showing homes fell another 1.7% over the last two months, and 3.3% over the last year. That suggests the downward trend is accelerating as we head out of “recovery summer” and back to reality.

    http://www.fhfa.gov/webfiles/16978/MonthlyHPI92210F.pdf

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  7. Ira Sacharoff

    RE: Scotsman @ 8
    You got it all wrong. ” Recovery Summer” didn’t mean that home prices were going up. It meant that Bernanke and Geithner stopped drinking and joined a twelve step group.

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  8. Cheap South

    As I’ve been stating, crystal ball says another 20%. How long? 18-36 months.

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  9. One Eyed Man

    RE: The Tim @ 6

    Thanks Tim!

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  10. One Eyed Man

    RE: wreckingbull @ 7

    And here I thought the size of his brief case was supposed to be the indicator of whether things were up or down. No wonder I lost so much money.

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  11. pfft

    By Scotsman @ 8:

    At least another twenty percent to fall until traditional relationships are restored, then who knows how far down as both gross and net personal incomes reduce, driving rents down below historic norms with home prices following.

    historic in this case is only 20 years though. the 90s were disinflationary, suppose the next decade is inflationary. the usual metrics(that being the 90s) might not apply. the usual metrics already failed. the boom went on more than the 1990s metrics would have foretold.

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  12. pfft

    remember home prices don’t necessarily have to fall. prices could stay where they are and rents could soar. home prices could fall a bit and rents could go up some. worst case scenario is both rents and prices could fall.

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  13. query_squidier

    By pfft @ 14:

    worst case scenario is both rents and prices could fall.

    That’s not only the best case scenario but also to whence we be a-goin’.

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  14. pfft

    By query_squidier @ 15:

    By pfft @ 14:
    worst case scenario is both rents and prices could fall.

    That’s not only the best case scenario but also to whence we be a-goin’.

    prices bottomed nationally well more than a year ago. comp10 is up 7%.

    http://www.ritholtz.com/blog/wp-content/uploads/2010/09/caseshiller0913101_big.gif

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  15. teacher_greg

    Could one divide the purchase price of a house by the potential rent to determine the ratio for a specific house? Or am i mixing up the math?

    For example if a home was purchased for $500,000, and could rent for $2,000 a month would that be a ratio of 250?

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  16. LA Relo

    RE: pfft @ 16 – You can’t call it a recovery when billions of dollars were given to borrowers and lenders to artificially flatten otherwise declining home prices.

    California skewed June ’09 to June ’10 higher, and Seattle was actually down. Now that the gov’t is largely done meddling with the market things will continue to go down, and a 6% decline (which is all the 20 city comp is up by), is not hard to imagine by any means.

    Until average incomes rise steadily home prices will fall to the historical equilibrium The Tim mentioned.

    My guess?
    – 2012 = bottom
    – 2000 prices inflation adjusted
    – 15-20% further to drop depending on the area

    Of course that assumes in 2 years the rest of the economy has started recovering as well and interest rates don’t increase.

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  17. TheHulk

    By pfft @ 14:

    prices could stay where they are and rents could soar. home prices could fall a bit and rents could go up some

    Please let me know what you are smokin. The housing market was in cardiac arrest and the tax credit was a little shock therapy to keep it goin for a little while. Now to get it into good shape comes the tough part – diet and exercise (aka falling house prices and tougher loan requirements).

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  18. TheHulk

    Oh and btw, Tim you are totally killing with the series this week. I love it.

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  19. Scotsman

    RE: Ira Sacharoff @ 9

    Are you sure it was drinking? The list of available programs has over 30 entries.

    http://en.wikipedia.org/wiki/List_of_twelve-step_groups

    Slimy Political Hacks Anonymous wasn’t readily seen, but Debtor’s Anonymous was. Maybe that would work.

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  20. tt

    Generally speaking the Seattle area apartment rents are beginning to tighten. Vacancy rates have fallen in the last 6 to 8 months and now concessions (one or two months free rent) are starting to evaporate. The next step is for rents to rise in the coming quarter. I expect rents to continue to rise over the coming 3-4 years due to the echo boom generation coming into their early 20′s and beginning to form households. Also those that lost their homes are now renters. So I think the gap will close by rents increasing and home prices to continue to fall now that price supports are being removed by the government.

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  21. Urban Artist

    I have been renting all my adult life I have had a few good landlords and I’m sorry to say a lot of bad landlords. I rented because I did not really want to buy I did not feel I had a stable enough income and rents were a lot cheaper than buying. Then rents went crazy not so much during the bubble but later. It seems to have a lot to do with the accidental landlord that wants a renter to pay their over priced mortgage. Many of the new landlords really don’t care if the rents are affordable or if 10 people have to move in in order to cover the rent. Renting has more negative issues than it used to. Now when you rent you worry if the place you are renting will get foreclosed on why you are there. I’m a long term renter when I find a place I like I don’t like to move until I choose. The accidental Landlords tend to be in your business more than long time landlord. I would still probably be okay with renting but things aren’t the same as renting 10+ years ago. Now it is down to choosing the lesser of two evils an overpriced house and renting from the bank,probably forever. The plus with the bank as landlord you can actually live in the place without someone in your business. Or renting from crazy novice landlords charging overpriced rents and pretty much not actually wanting you to live in the place and they are always in your business. I lived in Europe and most people do rent but the landlords don’t micro manage so much. I hope I have stayed on topic.

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  22. pfft

    By LA Relo @ 19:

    RE: pfft @ 16 – You can’t call it a recovery when billions of dollars were given to borrowers and lenders to artificially flatten otherwise declining home prices.

    really? I don’t remember anyone saying in the spring of 2009 that home prices would start to go up. people were too busy worrying about the financial system falling apart. did you say that the billions of dollars would prop up housing?

    “California skewed June ‘09 to June ‘10 higher, and Seattle was actually down.”

    california started the bust and is emerging sooner. seattle isn’t down, seattle looks to have bottomed in the spring of 2010. we won’t know for sure until some time passes.

    none of this is what I think has happened or will happen. it’s just the facts.

    what if housing bottomed and nobody noticed?

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  23. pfft

    By TheHulk @ 20:

    By pfft @ 14:
    prices could stay where they are and rents could soar. home prices could fall a bit and rents could go up some

    Please let me know what you are smokin. The housing market was in cardiac arrest and the tax credit was a little shock therapy to keep it goin for a little while. Now to get it into good shape comes the tough part – diet and exercise (aka falling house prices and tougher loan requirements).

    just like CFC expiring was going to crash car sales? that didn’t pan out. I don’t remember when the housing measures went into effect but comp10 bottomed in spring of 2009.

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  24. One Eyed Man

    RE: Ira Sacharoff @ 9RE: Scotsman @ 22

    Are Bernanke and Geitner the lucky ones? Romer and Summers were both enrolled in a 12 step program on an 11 step pier. I like the line that Summers wants to preserve his tenure. Like you have to worry about losing your teaching job after slumming it as Head of the President’s National Economic Council. The employment picture must be even worse than I thought.

    And speaking of 12 step programs, Ira, could you fill up Scotsman’s glass please. It still appears to be half empty.

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  25. HappyRenter

    My take is that the model is a bit too simplistic. You need to also consider what has happened in and around Seattle since 1997. Companies like Microsoft and Google and possibly others have expanded attracting comparatively higher wage earners, who can afford more expensive homes. Somebody told me that 15 years ago Seattle was much more like Portland, i.e., easy going young society and a lot of people building their houses by themselves. Today Seattle has become more snob with all the executives of the software industry and that makes it also more expansive.

    That said, the current unemployment and economic uncertainty will probably cause home prices to decrease further. Should the economy recover soon (which I doubt), the price to rent ratio might fall to 2002 levels. Otherwise, it might drop to 1997 levels or lower.

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  26. Calen

    Do you know if anything has changed in either subsidies or tax rates/deductions that could partially explain the ’97 split and have produced a new relationship between the two slopes? Obviously the bubble produced the hump, but what happened prior?

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  27. Lurker

    RE: pfft @ 25

    While they both felt similar, comparing CFC with the housing tax credit isn’t the best. For instance, automobiles didn’t go through inflated bubble prices and over-supply issues.

    You keep pointing at the comp10 numbers (which doesn’t even include Seattle btw) but the latest data is three months back and since then I believe the numbers have been going back down. What remains to be seen right now is if those numbers go lower than spring 2009.

    Locally, I think we may already be back at the “bottom” and I don’t think prices are going to start going back up in the Fall or Winter.

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  28. One Eyed Man

    RE: The Tim @ 18

    Tim, I think I disagree with this statement:

    “That would be the same math that was used to generate the first chart above, but I make no claims that the resulting number will provide a useful comparison to the area-wide aggregates represented in the above data.”

    This also relates to Astro Kermits question at comment #1.

    You described the chart as “Seattle Case-Shiller single family home prices divided by average annual rent.” I assume the “average annual rent was derived from the BLS data and or the census data. If so the price data and the rent data wouldn’t necessarily be for equivalent properties. The median rental is a probably a much different property than the median SFH in the CS Index.

    The rental available for the median rent would probably be something like a 2 bed 2 bath apartment rather than for a single family house. But the CS is an index for the change in prices of all single family houses. I would guess that the median house in the CS index would be the middle house of the mid tier and would probably be something like an 1800 to 2000 sq ft house in Seattle. The point is that I don’t think that the chart compares the rental rate for an 1800 sq ft house with the sale price for an 1800 sq ft house. Obviously my conclusion is based on an assumption as to the rental data.

    Teacher_greg, here’s Zillow’s description of the Gross Rent Multiplier (GRM) which I think is what you’re talking about:

    http://www.zillow.com/wikipages/What-is-Gross-Rent-Multiplier/

    Here’s a site that has GRM’s on it. It loads slow and has always been hard for me to use. I’m not sure how they get their price and rent data which makes any GRM calculation suspect. I think they use Craig’s List asking rents for the rent but I’m not sure. If you play around with the site, they might give the actual methodology, I can’t remember for sure.

    http://kexter.com/index.php?city=seattle&report=gross_rent_multiplier&&centerlong=-122.35032&centerlat=47.62180

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  29. 2kt

    The numbers don’t make any sense to me, once again. It’s a simple math really. Your basic home in Seattle rents for about $1/sqf. That comes to $12/year. The properties are selling between $190 sqf to $250 around various parts of Seattle. Either way you slice it, it does not come to 30+ times annual rent. Condos/appartments rent between $1.50/sqf to $2/sqf. So, you have $15 sqf/year to $24/year. I have not seen too many $450/sqf to $600/sqf condo sales recently.

    What say you, able proprietor? Another piece of statistical garbage?

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  30. Lurker

    RE: pfft @ 26

    I just checked Redfin and they are posting Seattle median sqft sales of $336 which broke the bottom from March ’10 and May/June ’09.

    http://www.redfin.com/city/16163/WA/Seattle

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  31. One Eyed Man

    RE: 2kt @ 32

    Just to be clear 2kt, I don’t think that there’s anything wrong with The Tim’s chart if one acknowledges what it represents. If my assumptions are correct, its a chart that sort of compares the median home price to the median rental rate. That’s fine, but its not the same data as an average Gross Rent Multiplier because the home that sells for the median price is probably an 1800 sq ft house whereas the rental that rents for the median rental price is a 900 sq ft 2bd 2ba apartment.

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  32. EconE

    Why the change of tune Tim?

    Where does 20X annual come from?

    In 2006, I was under the impression that a 180GRM (15x annual) was the appropriate amount with a 120GRM (10x annual) being the cutoff for an investor. That was the general consensus among bubble bloggers. Patrick even did the math on his homepage.

    from http://www.patrick.net:

    The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you’ll know it’s safe to buy for yourself because then rent could cover the mortgage and all expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:

    annual rent / purchase price = 3% means do not buy
    annual rent / purchase price = 6% means borderline
    annual rent / purchase price = 9% means ok to buy

    So for example, it’s borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. That’s $12,000 per year in rent. If you buy it with a 6% mortgage, that’s $12,000 per year in interest instead, so it works out about the same. Owners can pay interest with pre-tax money, but that benefit gets wiped out by the eternal debts of repairs and property tax, equalizing things. It is foolish to pay $400,000 for that same house, because renting it would cost only half as much per year, and renters are completely safe from falling house prices.

    David Leonhardt of the NYTimes also stated that anything over 20 was a bubble.

    http://www.nytimes.com/2008/05/28/business/28leonhardt.html

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  33. 2kt

    RE: One Eyed Man @ 34

    Which makes it statistical garbage that it is.

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  34. Lurker

    RE: Lurker @ 33

    Crud, please disregard, that number was for house and condo combined. Funny that when combined it breaks the bottom but each one on their own have yet to break the bottom yet (but man, they are both close!)

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  35. 2kt

    Per Altos Research, Seattle proper had $215 sqf selling price in September (so far). So, for SFH in Seattle, the annual rent multiplier is actully at or below 20.

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  36. Lurker

    RE: 2kt @ 38

    You are right. Why is there such a large discrepancy between Redfin and Altos?

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  37. drshort

    RE: 2kt @ 32

    I agree. If you look at specific properties in Seattle, they’re priced much lower than 30x annual rent. I pulled up some houses for rent in Ballard and Maple Leaf. Houses that would probably sell around $400K were renting around $1800 a month.

    The mix of housing included in the rental index is very different than the mix in the single family housing index. The historical relationship between those two indexes is interesting, but I don’t think the absolute ratio tells us that much.

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  38. 2kt

    RE: Lurker @ 39

    Probably because Altos tires to sell its research data to clients and thus has to put some extra effort to monitor quality of the product.

    When you get free analysis/research, at times it is very good, at times it matches its cost dollar for dollar. Nobody is perfect, however.

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  39. 2kt

    RE: Lurker @ 39

    Probably because Altos tries to sell its research/analysis to clients and thus has to put some extra effort to monitor quality of the product.

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  40. Herman

    By HappyRenter @ 28:

    My take is that the model is a bit too simplistic. You need to also consider what has happened in and around Seattle since 1997.

    1997 was the start of the dot-com bubble. That brought a lot of outside money into the area.

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  41. One Eyed Man

    RE: Lurker @ 39

    The first thing I’d look at would be if one includes condos and one doesn’t. The second thing would be whether they cover the same geographic area in their calculations. The third would be whether both use a rolling average. I think Redfin is a 3 mo rolling average and the tax credit sales were probably lower cost/sq ft.

    I started to try to look up the methodologies to see if the above issues might add up to $100/sq ft difference, but it was too much of a pain.

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  42. Herman

    By Urban Artist @ 24:

    The accidental Landlords tend to be in your business more than long time landlord.

    Boy howdy that’s for reals. About two months ago I called a woman about a house she was renting. She had remodeled it for sale, but had just pulled it off the market. She had given up trying to sell it for whatever profit she wanted. She was resigned to renting it out to control her costs while she waited for a recovery.

    She questioned me closely about everything that I might do that could cause a nick, scuff, or ding to her new remodel. To include physically entering the house with a child.

    She wanted the rent money, but she didn’t want the renter.

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  43. Macro Investor

    “The insane divergence of the last ten years or so is slowly correcting, and I believe it will continue to do so now that you can no longer get free money for buying a home.”

    There’s still plenty of free money. What do you call 3.5% down FHA? What do you call banks borrowing trillions from uncle Ben at 0.25%? This may be the aftermath for consumers, but it’s still the silly season where dot gov and the banks are hiding everything under the rug. No bottom until they face reality.

    “Based on this comparison to rents, I estimate that Seattle home prices still have another ten to twenty percent yet to drop before they line back up with the economic fundamentals. What’s your take?”

    What economic fundamentals? The ongoing saga of job outsourcing and declining wages? Or the 40 year low in interest rates? The past 20 years are an aberration. What ever you think is normal, take down an extra 20% for normalizing interest rates.

    I look at economic news all day every day. Please, cheer me up. Find me one credible reason why 2020 will be better than 2010.

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  44. David Losh

    Bear with me for a minute while I puzzle this out.

    Land lords who have held for a long time should sell now, and put the after tax cash into bonds. If they lose 20% in equity, they pay 35% in taxes, and get 1.5% return on the bonds, at least.

    They then have after tax dollars that cost them 13.5 %. That’s cash they can do anything with, even reinvest in Real Estate.

    Let’s say they take the cash to Boise, and buy rentals, or Greece, Ireland, or Spain. There they can buy at huge discounts.

    Why wouldn’t your land lord sell today? Why hold on if the equity machine is dead? Cash Flow? I would think that a smart investor would trade up in today’s market place. If you own residential you should trade up to multiplexes. You could even bank some cash, and diversify.

    I think that may be what’s really going on here. If you had property, it makes sense that you sold it, last year, or two years ago, and the new land lord needs to get a higher rent.

    Eventually things will even out, and more housing units will be rented out, or go back to the bank. In my opinion people will realize they a stuck with the property they own, and come to some real compromises.

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  45. Jonness

    Based on this comparison to rents, I estimate that Seattle home prices still have another ten to twenty percent yet to drop before they line back up with the economic fundamentals. What’s your take?

    Based on a my study of the data using similar info to above and other indicators, I’m of the mind the Puget Sound area will experience a minimum 15% further correction in home prices. The reason I am being conservative is because some of the necessary declines can happen in a sideways market amidst inflation.

    There is plenty of time left to save up a big down payment and get in on the ground floor. The smart money is on the sidelines. However, a time is coming when the smart money will start pouring into an extremely well-priced market (relative to the overpriced junk of the last decade).

    Not everybody has cash, and not everyone can obtain credit. A time is coming where those who have the means are going to be able to pick up some extraordinary deals. Those who buy early will suffer dearly, and those sitting on the sidelines eating popcorn will reap the rewarding opportunity created by the poor decisions of others.

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  46. David Losh

    RE: Herman @ 45RE: Urban Artist @ 24

    Accidental land lords are getting on my nerves. We have the cleaning, and repair businesses for Real Estate professionals. We get calls at least twice a month now about how some renter has done the land lord wrong. In some cases they are cute, cute, cute houses that the renter just got tired of dealing with the busy body land lord. Others are a mess of deferred maintenance that need extensive work, and the land lord is looking for the renter to pay for maintaining the place out of the rental deposit.

    The worst are these big time investors who bought a bunch of property, and are sure of the market turn around.

    In every case people are just ignorant of how Real Estate is a hands on job. Owning property takes work. You have to work on your property, and that costs money. Then no body wants to pay for the idea of doing the simple stuff it takes to maintain the property.

    We’re seeing more hacked up yards, bad paint jobs, ugly carpets, trim work that is swelling up, or appliances that are beyond repair. When I say it’s going to cost more to fix what some one has already done, the looks on people’s faces is like I’m strangling the family dog. It just is, what it is. Property has to be maintained properly, or it’s junk.

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  47. Jonness

    By Ira Sacharoff @ 9:

    RE: Scotsman @ 8
    You got it all wrong. ” Recovery Summer” didn’t mean that home prices were going up. It meant that Bernanke and Geithner stopped drinking and joined a twelve step group.

    Why would they drink?

    Bernanke – Spent entire life studying the Great Depression and theorizing how to recognize it forming and preventing it’s occurrence. He’s recognized as the world’s foremost expert on the subject. Unfortunately, it came up and bit him on the seat of the pants. Meanwhile, bloggers everywhere, many without so much as a formal education in economics spotted the coming collapse and warned others in time for them to prepare.

    Geithner – Spent entire life studying how to predict future economic trends. Yet, as we speak, he is horribly underwater on his house and in danger of being foreclosed upon.

    My prediction is this winter will be known as relapse winter. Those who bought houses during the bubble will be drinking to drown their sorrows, and those sitting on the sidelines will be drinking to celebrate their massively good fortune. We’ll all be drunk this winter. It’s just that some of us will be making money, and the rest will be losing it. The word “recovery” will be nowhere in the midst.

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  48. Jonness

    By pfft @ 13:

    the usual metrics already failed. the boom went on more than the 1990s metrics would have foretold.

    False. Lending standards during the 90′s didn’t reach anywhere near the lax levels of the 2000′s. The 90′s was a cakewalk. This time we have to pay a much greater price for our foolishness.

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  49. pfft

    By Lurker @ 30:

    RE: pfft @ 25

    While they both felt similar, comparing CFC with the housing tax credit isn’t the best. For instance, automobiles didn’t go through inflated bubble prices and over-supply issues.

    You keep pointing at the comp10 numbers (which doesn’t even include Seattle btw) but the latest data is three months back and since then I believe the numbers have been going back down. What remains to be seen right now is if those numbers go lower than spring 2009.

    Locally, I think we may already be back at the “bottom” and I don’t think prices are going to start going back up in the Fall or Winter.

    the corelogic data or whatever the name is shows the same thing as the comp10 and comp20.

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  50. pfft

    By Jonness @ 51:

    By pfft @ 13:
    the usual metrics already failed. the boom went on more than the 1990s metrics would have foretold.

    False. Lending standards during the 90′s didn’t reach anywhere near the lax levels of the 2000′s. The 90′s was a cakewalk. This time we have to pay a much greater price for our foolishness.

    how is that false? the metrics said a boom should have busted years before it did.

    “Lending standards during the 90′s didn’t reach anywhere near the lax levels of the 2000′s.”

    this just shows how metrics aren’t set in stone. a trend can go on longer than we think.

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  51. Jonness

    By pfft @ 25:

    none of this is what I think has happened or will happen. it’s just the facts.

    So in 2 months when your bottom call is exposed as nothing more than a shill call, you will apologize and stop with the nonsense?

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  52. ray pepper

    “Based on this comparison to rents, I estimate that Seattle home prices still have another ten to twenty percent yet to drop before they line back up with the economic fundamentals.”

    20-30% over the next decade as we slowly grind it down. Same call as GS made at 23% further. Seems were all in agreement!

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  53. Jonness

    By pfft @ 53:

    “Lending standards during the 90′s didn’t reach anywhere near the lax levels of the 2000′s.”

    this just shows how metrics aren’t set in stone. a trend can go on longer than we think.

    No, it just goes to show that people who think inside of boxes make horrible forecasters. It starts with MV=PQ. Any economic policy that adjusts that formula will have an impact. The trick is to separate sustainable changes to the outcome of the formula from temporary factors like the BS put forth during the stimulus period. Now that the stimulus is wilting, and the economy is slipping back to reality, proponents want a second stimulus. Those who do not learn from history are doomed to repeat it, over and over and over again.

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  54. 2kt

    RE: Macro Investor @ 46

    Hmmm.

    1) By 2020 the country will have about 30 million more folks who will eat, drink, sleep and do other earthly things.

    That’s all I do for tonight. Don’t be too bashful.

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  55. pfft

    By Jonness @ 54:

    By pfft @ 25:
    none of this is what I think has happened or will happen. it’s just the facts.

    So in 2 months when your bottom call is exposed as nothing more than a shill call, you will apologize and stop with the nonsense?

    I didn’t call anything. that is what the price action told me. that’s what you guys don’t get. you tell the market what it’s supposed to do instead of listening to what it’s saying.

    comp 10 bottomed well over a year ago.

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  56. pfft

    By Jonness @ 56:

    By pfft @ 53:
    Now that the stimulus is wilting, and the economy is slipping back to reality, proponents want a second stimulus. Those who do not learn from history are doomed to repeat it, over and over and over again.

    the stimulus was too small but did work. it saved near 3 million jobs. it worked so I don’t know what history you are referring to.

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  57. Jonness

    I look at economic news all day every day. Please, cheer me up. Find me one credible reason why 2020 will be better than 2010.

    They’ll have invented a cure for baldness and an Extenze tablet that actually works. :)

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  58. Jonness

    By pfft @ 59:

    the stimulus was too small but did work. it saved near 3 million jobs. it worked so I don’t know what history you are referring to.

    IMO, you are like the guy who raged his motorcycle across the desert in a haphazard manner and eventually wiped out and lost his arm. When he woke up in the VA hospital, he thought, “don’t worry, the government will put a new arm on me, and I’ll be as good as new.” But as time went on, he slowly realized the only thing he got from the government was an overpriced hook.

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  59. Lurker

    RE: One Eyed Man @ 44

    a $100 difference is incredibly substantial (~40%) I can’t imagine why the difference but by doing some off the cuff spot checking on what is available out there I think Altos is more accurate. I always did have this feeling that Redfin’s rending numbers were too high.

    They still both show similar downwards trends.

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  60. pfft

    By Jonness @ 61:

    By pfft @ 59:
    the stimulus was too small but did work. it saved near 3 million jobs. it worked so I don’t know what history you are referring to.

    IMO, you are like the guy who raged his motorcycle across the desert in a haphazard manner and eventually wiped out and lost his arm. When he woke up in the VA hospital, he thought, “don’t worry, the government will put a new arm on me, and I’ll be as good as new.” But as time went on, he slowly realized the only thing he got from the government was an overpriced hook.

    what you are saying is that the government can spend $700 billion and not effect the economy. stimulus has worked all over the world. deal with it. in the asian tigers that experience austerity in the late 90s they have not tried it this time around. it was too painful and counterproductive. austerity doesn’t work.

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  61. Scotsman

    RE: pfft @ 63

    You’ve posted this parroted nonsense about twenty times now. Nobody will believe it unless you expand the concept- show some evidence of real growth that lasted beyond the “stimulus.”
    And it doesn’t belong on this thread anyway- it belongs on the “global economic” thread where, by the way, you have a question waiting for you.

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  62. jj

    By tt @ 23:

    Generally speaking the Seattle area apartment rents are beginning to tighten. Vacancy rates have fallen in the last 6 to 8 months and now concessions (one or two months free rent) are starting to evaporate. The next step is for rents to rise in the coming quarter. I expect rents to continue to rise over the coming 3-4 years due to the echo boom generation coming into their early 20′s and beginning to form households. Also those that lost their homes are now renters. So I think the gap will close by rents increasing and home prices to continue to fall now that price supports are being removed by the government.

    rent now or be priced out forever!

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  63. jj

    By The Tim @ 67:

    By Lurker @ 39:
    Why is there such a large discrepancy between Redfin and Altos?

    There are a few differences between the Altos and Redfin’s data.

    1) Altos displays only listing $/sqft. On Redfin you can view them separately.
    2) Altos appears to lump all homes (SFH, condo, townhome, mobile home, etc.) together. On Redfin you can view Houses, Condos, or both. Townhome and other housing types are not currently included in the charts.
    3) I don’t know how strict Altos is in their region definitions, but I know Redfin’s boundary definitions of cities are buffered slightly, including about three extra blocks on all sides.

    I would expect #3 to possibly skew Redfin’s Seattle numbers down slightly, but #2 would probably skew Altos’ numbers down considerably.

    I thought #2 was one of the two major possibilities, the other being possible differences in what sqft number is used. Is it total or finished sqft? Many of the homes I browse on redfin will have a listing of say 1800 sqft, but a finished of 1100-1200 sqft. If Redfin calculated $/sqft based on finished sqft and Altos based it on total sqft – this might also explain the difference in statistics.

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  64. jj

    By pfft @ 58:

    I didn’t call anything. that is what the price action told me. that’s what you guys don’t get. you tell the market what it’s supposed to do instead of listening to what it’s saying.

    this statement is either naive or intentionally misleading.

    for example, in 2006 the price action told me to buy as much home as I could afford. price action told me to buy amazon, enron, and lehman all before they lost more than 90% of their nominal value. price action told me to buy beanie babies at $200.

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  65. Cheap South

    I guess we are back to “taste great!”, “less filling!”.

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  66. wreckingbull

    pfft, you leaked out of the global economic thread. I was just thinking about how much I was enjoying this blog after the bifurcation of the economic topics. But since you are here, can you share your rent vs. own experience? Maybe that will help us all understand your strange sentiments.

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  67. 2kt

    RE: The Tim @ 64

    At end of the day if our data are correct, you should be able to take rents in the market place and verify your averages, multiples, etc.

    Your data presents picture of the market place that does not exist.

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  68. Lurker

    RE: The Tim @ 73

    Yes, I’ve always wanted to know that myself too. Thanks for checking on that, The Tim!

    Wow, so all gains made prior to the housing credit are now gone and we are going into the slower season at a new bottom. I’ve seen around a dozen new foreclosures going into the market every day as of the past few weeks and overall inventory levels keep creeping up higher and higher. Depending on conditions, perhaps next spring I’ll actually step into the arena and see what is available.

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  69. Drshort

    By The Tim @ 64:

    RE: 2kt @ 32 – Nobody calculates an area’s price to rent ratio like that. I’m following the standard practices, which is to compare home prices of homes that are selling to annual rents of homes that are being rented.

    Is it homes that are rented or homes, apartments, condos, etc that are rented?

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  70. Ahau

    RE: pfft @ 16
    Pfft, I’m generally an optimist and I like that someone here is trying to challenge the doom-and-gloomers, but I’ll agree with them that we cannot yet really call spring of 2009 as a bottom for the Comp 10, nor can we call spring of 2010 as a bottom for Seattle. Look at the redfin price per square foot graphs for King County In August and September of 2009, spring of 2009 looked exactly like the “bottom” we saw in spring of 2010. These numbers are the results, and we won’t be able to call anything a bottom until we are well beyond it. I think that if you want folks to give more weight to your comments, you need to provide something beyond pointing to a graph of the past and saying that things can rise without a rational explanation (e.g. that people will just be willing to spend more of their money on housing than they did in the past. You may have a point here, but the equal counterpoint is that things can deflate without a rational explanation as well. Generally, I see some immediate risk for home values to drop further due to foreclosures and buyers waiting to see if the market will spiral down after the tax credit expiration. Long term (8-10 years) I don’t see as much risk in buying at today’s prices because I think home values rise faster than base inflation due to population gains, so we’re not dramatically overvalued in todays market. King County is an expensive place to build houses due to all of the red tape and the relative lack of flat, well drained ground that has good access to roads and utilities. Unless the economy spirals into massive deflation to lower the costs of permitting, mitigation, labor and materials, it will never be possible to develop land and build a house for a fraction of what it costs today.

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  71. mydquin

    By HappyRenter @ 28:

    My take is that the model is a bit too simplistic. You need to also consider what has happened in and around Seattle since 1997. Companies like Microsoft and Google and possibly others have expanded attracting comparatively higher wage earners, who can afford more expensive homes.

    This is why using a 1990-2000 average as a reference point is just silly. Tim knows this, but it doesn’t match his narrative.

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  72. pfft

    By Scotsman @ 65:

    RE: pfft @ 63

    You’ve posted this parroted nonsense about twenty times now. Nobody will believe it unless you expand the concept- show some evidence of real growth that lasted beyond the “stimulus.”
    And it doesn’t belong on this thread anyway- it belongs on the “global economic” thread where, by the way, you have a question waiting for you.

    I didn’t bring the stimulus up someone else did.

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  73. pfft

    By jj @ 70:

    By pfft @ 58:
    I didn’t call anything. that is what the price action told me. that’s what you guys don’t get. you tell the market what it’s supposed to do instead of listening to what it’s saying.

    this statement is either naive or intentionally misleading.

    for example, in 2006 the price action told me to buy as much home as I could afford. price action told me to buy amazon, enron, and lehman all before they lost more than 90% of their nominal value. price action told me to buy beanie babies at $200.

    that is where the rough metrics come in. you just weigh the risks and the rewards and deal with the consequences.

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  74. m-s

    By mydquin @ 78:

    By HappyRenter @ 28:
    My take is that the model is a bit too simplistic. You need to also consider what has happened in and around Seattle since 1997. Companies like Microsoft and Google and possibly others have expanded attracting comparatively higher wage earners, who can afford more expensive homes.

    This is why using a 1990-2000 average as a reference point is just silly. Tim knows this, but it doesn’t match his narrative.

    Gee, if that were true, the affordability, which takes into account that “comparatively higher wage earners” stuff, would have uncoupled from house prices. It didn’t, until 2005. Either that’s not true, or the number of higher wage earners is not big enough to affect the median wage, in which case there probably aren’t enough to have the effect on house prices that you suggest, either. Note that this post uses a graph from the “affordability” thread.

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  75. pfft

    By Ahau @ 77:

    RE: pfft @ 16I think that if you want folks to give more weight to your comments, you need to provide something beyond pointing to a graph of the past and saying that things can rise without a rational explanation (e.g. that people will just be willing to spend more of their money on housing than they did in the past. You may have a point here, but the equal counterpoint is that things can deflate without a rational explanation as well. Generally, I see some immediate risk for home values to drop further due to foreclosures and buyers waiting to see if the market will spiral down after the tax credit expiration.

    your whole post have some very good points.

    a rational explanation for why home prices are rising is tough to come by. they are going up though so we must respect that. nobody can be an expert as to why the housing market is going up. there are too many variables. if it is going up maybe there is a rational explanation and we(housing bears) are just wrong.

    I always laugh to myself when people are arrogant enough to say an asset shouldn’t be moving up as though they are some kind of expert. how arrogant! we aren’t that smart. for every asset I can give a doubter. gold, housing and the stock market to name a few.

    “Generally, I see some immediate risk for home values to drop further due to foreclosures and buyers waiting to see if the market will spiral down after the tax credit expiration.”

    I agree but because home prices are going up maybe the risks are overblown and our analysis must change? that is the way I approach markets.

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  76. One Eyed Man

    RE: mydquin @ 78

    Having a data base to do the numbers for a different period is probably part of the issue. Unfortunately the CS index for Seattle didn’t exist until 1990. He might be able to use the FHFA HPI for years prior to that, but I’m not sure its as easy or accessable. It’s not as broad as the CS. I think it only includes sales with Freddie and Fannie mortgages and has existed since about 1975. See Scotsman’s comment #8 above for a link to the FHFA site.

    Other substitutes for the CS probably also have their limitations.

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  77. pfft

    By jj @ 70:

    By pfft @ 58:
    I didn’t call anything. that is what the price action told me. that’s what you guys don’t get. you tell the market what it’s supposed to do instead of listening to what it’s saying.

    this statement is either naive or intentionally misleading.

    for example, in 2006 the price action told me to buy as much home as I could afford. price action told me to buy amazon, enron, and lehman all before they lost more than 90% of their nominal value. price action told me to buy beanie babies at $200.

    sorry I’d like to add to this. in 2006 home prices had been rising for 10 years. tech stocks had been rising for 20 years! the last few years saw tech stocks go parabolic. there was plenty of time to sell enron after the newspaper reporter published her piece.

    home prices however have only been rising a few months and not until after an epic housing crash. remember before the crash people were telling us there had never been a post-war housing crash on a national level.

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  78. Lurker

    Shhhh, I’m listening to the market right now and it’s telling me prices are going back down again!

    Rate this comment: Thumb up 0

  79. Ben

    I would like pfft to answer this with a serious reply….

    By Ben @ 62:

    RE: Ben @ 61

    I might add that the only realistic scenario for starting a sustainable new trend in increasing home prices would be lots of job and income growth. I don’t think anyone credible is forecasting that happening anytime soon. What else does that leave? Hyperinflation? A return to 2005 lending practices?

    I’d like to have a serious reply why Seattle home prices aren’t going to fall for years to come.

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  80. Herman

    Here’s some great journalism at CNN:
    http://money.cnn.com/2010/09/23/news/economy/existing_home_sales/index.htm?hpt=T2

    Headline:
    HOUSING BOUNCES BACK IN AUGUST

    Article:
    (from July)
    (and sales are down 19% YOY)

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  81. Lurker

    RE: Herman @ 87

    The title of the article sounds positive, which it is really since sales were not as bad as the previous month but if you read the entire thing they don’t really sugar coat it. They even make a further 10-25% decrease in pricing prediction.

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  82. deejayoh

    By wreckingbull @ 7:

    Great graph. 1997 is when when things went haywire. I point to Easy Al’s marriage to an attractive, young Andrea Mitchell as the cause. Very distracting for a fellow like Al.

    One theory is that the change from 97-00 was driven by tax treatment. The Capital Gains tax treatment of home purchases changed in 1997. At that point, for all intents and purposes, gains on sales of homes became a non-taxable event up to some ridiculous ceiling.

    If you remove the taxes from class of investments, the price of that investment is going to rise.

    That was a one time event that should have shifted the market, and I would not expect that premium to disappear unless the tax law is changed back.

    The next run-up from 01-07 is the financing driven bubble.

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  83. Lurker

    RE: The Tim @ 90

    Thank you, The Tim. I looked at a bunch of different properties and it does appear that Altos is probably going with what the listing says (which I agree are often padded) and Redfin’s numbers do match better with county records. Looks like the mystery is solved.

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  84. pfft

    By Lurker @ 85:

    Shhhh, I’m listening to the market right now and it’s telling me prices are going back down again!

    the numbers may bounce around a bit but it looks like we are on track in spring of 2011 for YOY price growth.

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  85. Macro Investor

    RE: pfft @ 58

    “I didn’t call anything. that is what the price action told me. that’s what you guys don’t get. you tell the market what it’s supposed to do instead of listening to what it’s saying.”

    So now you are contradicting what you argued yesterday. At one time the market said amazon and ebay were worth $400. A short time later they were worth $15. Aig $100 one week and $1 the next. And so on… Do you or don’t you believe the market is some magic prediction god? You have to pick one, Pft. You can’t contradict yourself from one day to the next.

    You are a shill. We all know it. Please, just go away. Who ever is paying you to spout MSM nonsense, just tell them it’s not working and stop. You’re not even good at your job. Maybe there are openings in something less annoying to people. Have you considered telemarketing?

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  86. Macro Investor

    By Lurker @ 88:

    RE: Herman @ 87

    The title of the article sounds positive, which it is really since sales were not as bad as the previous month but if you read the entire thing they don’t really sugar coat it. They even make a further 10-25% decrease in pricing prediction.

    That doesn’t let them off the hook. The headline is what’s widely quoted and often the only thing people read. You’re still a crook if you paint over mold, then reluctantly admit it once someone looks carefully.

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  87. pfft

    By Macro Investor @ 94:

    RE: pfft @ 58

    “I didnâ��t call anything. that is what the price action told me. thatâ��s what you guys donâ��t get. you tell the market what itâ��s supposed to do instead of listening to what itâ��s saying.”

    So now you are contradicting what you argued yesterday. At one time the market said amazon and ebay were worth $400. A short time later they were worth $15. Aig $100 one week and $1 the next. And so on… Do you or don’t you believe the market is some magic prediction god? You have to pick one, Pft. You can’t contradict yourself from one day to the next.

    You are a shill. We all know it. Please, just go away. Who ever is paying you to spout MSM nonsense, just tell them it’s not working and stop. You’re not even good at your job. Maybe there are openings in something less annoying to people. Have you considered telemarketing?

    here we go again. I must be a shill because I have a different view. I am sorry for having a different view comrades.

    “Do you or don’t you believe the market is some magic prediction god? You have to pick one, Pft. You can’t contradict yourself from one day to the next.”

    I never said that. if you’ve been worrying about deficits for awhile and you’ve been wrong. maybe you’re just wrong? the stocks you speak of went up for years and went parabolic. that is part of the price action.

    we aren’t important people. nobody cares what we think. get over yourselves with this shill stuff and this paying me stuff.

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  88. Seattle Bubble • Big Picture 2011: Price to Rent Ratio

    [...] chart with dramatic improvement since last year’s Big Picture Week. When last we checked in on this measure (June 2010 data), the ratio was 20% above its 1990-2001 [...]

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  89. Mr Obama

    Here’s a simple real life scenario:

    I currently rent a one bedroom apartment ( 750 sq ft) for around 825$ which includes water, sewer and garbage – close to shoreline area.

    Now if I were to look for a similar place to buy I would end up paying somewhere between 90K – 150K + closing costs + mortgage Interests + property tax + insurance + HOA ( 250 – 450$ per month)

    Does it make sense to buy ? I dont think so unless there is a chance that home price will appreciate by over 50%.

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  90. David Losh

    RE: Mr Obama @ 98

    You’ve hit on the most important part of the rent to buy equation.

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