Posted by: 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.

22 responses to “September Reporting Roundup: Free-Falling Sales Edition”

  1. D. in Ballard

    It may not be plausible for people to hesitate buying a house before midterm elections, but I tell you if it’s 2012 and I still haven’t bought a house and the polls are leaning toward a Sarah Palin presidency, I would absolutely hesitate to buy a house. Maybe take advantage of my husband’s dual citizenship to get the hell out of dodge.

    As for the market, anecdotaly I’ve seen a couple of houses on my watch list go pending when I think they are grossly overpriced. I’m looking in Seattle at nice neighborhoods, but it’s not an encouraging sign.

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  2. ray pepper

    hesitate home buying because of an election?? I say BS…..People BUY when there is a perceived VALUE. I have never heard ANYONE not BUY because of a political outcome……

    “Both Gain and Crellin said they don’t foresee any big surge in sales for the rest of year.”

    What a daring call this is…………………

    I love the sky divers. Just so true ! Trendline down down down….Short sales and foreclosures will continue at an unyielding rate. See you at the Auctions and just keep looking for GEMS!

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  3. Scotsman

    One of the bigger 2007 spec homes on my street finally sold. What was expected to be a $1.0M home ended up going for not much over $540K. Reportedly less than the construction loan. Buyer is a CA transplant who is sure the market will turn starting next year. At less than $140 square foot for high end construction she’s probably safe?

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  4. D. in Ballard

    Oh, speaking of elections and big money decisions. I feel like I’ve heard my financial adviser tell me that the stock market always does well during an election year. It may not be true, but it might be one of these things that people believe.

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  5. Kary L. Krismer

    RE: Scotsman @ 3 – Is that one of those places that is totally different than the rest of the neighborhood?

    I know of a place like that in Skyway where most everything around it is small one story houses built in the 40s or 50s.

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  6. Packet

    Crazy requirements? Unless something has dramatically changed in the last couple months, there’s nothing crazy about the requirements. I bought a house earlier this year and it was fairly painless. You get preapproved, you make an offer, the appraisal comes back and everything goes according to plan.

    The only thing I’ve noticed is that the appraisals are actually coming back with reasonable valuations to them. So, if you offered more than the house is worth, you’re not going to get a loan on it.

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  7. Scotsman

    RE: Kary L. Krismer @ 5

    It’s a mixed neighborhood- everything from a few double-wides to multi-million horse properties. There are several comparable properties on the street. $650K might be the midpoint, so I’m a bit surprised there wasn’t more interest in this house. There’s nothing really wrong or odd about it, just little market for that price range?

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  8. CCG

    By D. in Ballard @ 1:

    It may not be plausible for people to hesitate buying a house before midterm elections, but I tell you if it’s 2012 and I still haven’t bought a house and the polls are leaning toward a Sarah Palin presidency, I would absolutely hesitate to buy a house. Maybe take advantage of my husband’s dual citizenship to get the hell out of dodge.

    As for the market, anecdotaly I’ve seen a couple of houses on my watch list go pending when I think they are grossly overpriced. I’m looking in Seattle at nice neighborhoods, but it’s not an encouraging sign.

    I can’t see how Sarah Palin could make it much worse at this point. We’re hosed. Getting the hell out of Dodge is the correct answer.

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  9. CCG

    By D. in Ballard @ 4:

    Oh, speaking of elections and big money decisions. I feel like I’ve heard my financial adviser tell me that the stock market always does well during an election year. It may not be true, but it might be one of these things that people believe.

    Typically the Fed fires up the printing presses during election cycles to help inflate equity/bond prices (earning the FOMC the nickname “committee to re-elect the president”). Bernanke, for example, was nominated for a second term by Obama and has reason to play ball. Of course, people know the party will end at some point and then the question becomes who is closest to the exits. Sometimes the puking starts in January as you’d expect, sometimes they wait till February, sometimes they jump the gun in December.

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  10. GH

    Many people on this website feel home prices will fall. Could somebody explain why that would happen?

    The fundamental factors that brought housing down in 2007-2008 have reversed:
    (1) Unemployment has stabilized and is starting to fall.
    (2) Bad mortgages are being slowly worked out of the system.
    (3) Banks have tightened their lending standards.

    Why can’t this be the bottom?

    The only plausible reason prices would significantly fall from here is a sudden rise in interest rates, or another general meltdown of the economy. The Fed’s recent actions suggest neither are likely.

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  11. Ira Sacharoff

    By GH @ 10:

    Many people on this website feel home prices will fall. Could somebody explain why that would happen?

    The fundamental factors that brought housing down in 2007-2008 have reversed:
    (1) Unemployment has stabilized and is starting to fall.
    (2) Bad mortgages are being slowly worked out of the system.
    (3) Banks have tightened their lending standards.

    Why can’t this be the bottom?

    The only plausible reason prices would significantly fall from here is a sudden rise in interest rates, or another general meltdown of the economy. Neither seems likely.

    1. The inventory of homes for sale is higher than it’s been for a while.
    2. Sales are lower than they’ve been for a while.
    3. The fact that banks have tightened their lending standards shouldn’t result in higher prices, it should result in less folks able to buy houses.
    4. Rent to home price and income to home price ratios are still high compared to their historical norms.
    To answer the question: It could be the bottom. But it probably isn’t.

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  12. Scotsman
  13. Jonness

    By Ira Sacharoff @ 11:

    1. The inventory of homes for sale is higher than it’s been for a while.
    2. Sales are lower than they’ve been for a while.
    3. The fact that banks have tightened their lending standards shouldn’t result in higher prices, it should result in less folks able to buy houses.
    4. Rent to home price and income to home price ratios are still high compared to their historical norms.
    To answer the question: It could be the bottom. But it probably isn’t.

    And there is massive shadow inventory out there. I have neighbors on both sides of me who haven’t made a house payment in years. This is getting ridiculous. The one guy is going on 3 years of free rent. How many people like this are sitting out there collecting free rent and using the money saved to go to dinner and the movies; thus, temporarily artificially propping up consumer spending? And to top it off, he previously took $300K equity out of his home and went on a 3-year spending spree. That’s GDP that will never come back to the U.S. by way of his wallet no matter how many years pass. And this does not bode well for the future.

    At this point, economically speaking, everything is phony. The housing market is a house of cards and represents an extreme risk to buyers. If the banks start putting these turkeys on the market, how many people have stellar credit, recession-proof jobs, and big down payments necessary to clean up the mess? In that scenario, Seattle would look worse than Las Vegas.

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  14. Lurker

    RE: GH @ 10
    1) Unemployment is very high and it appears that it will stay high for many years.
    2) Foreclosures and short sales are spreading into the system, causing values to drop and will continue do so for several years until the distressed sales have been stabilized.
    3) Stricter lending standards mean that it is harder to get a loan for a house (this reduces demand)

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  15. David Losh

    RE: GH @ 10

    It’s the straight line of appreciation that’s the issue. If you look at the graph of historic home prices you see the curve up at the end, and then the crash. If you take a ruler and adjust it on the graph then it shows we should decline to 2002 prices. However the graph really starts going up in 1998.

    Now the real question is about inflation. Did we have true inflation or was the appearance of inflation do to loose lending practices? Do we have a true economy of goods, and services, or do we have paper generated profits? Then we have the whole derivatives market thing going on which ballooned into I think $26 Trillion, Corporate cash reserves of $2 Trillion, and if all of that is real money, or just some phantom equity.

    So, it’s basically some weird debate that goes on, but general consensus is that 2002 pricing will prevail. I think we are somewhere in 2004 territory now.

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  16. GH

    RE: Ira Sacharoff @ 11

    Thank you for your response.

    ********

    If you believe that this is NOT the market bottom, then you believe something will get worse. So what will it be?

    Will unemployment climb to 20%?
    Will the volume of foreclosures continue to grow?
    Will banks require 800+ credit scores?

    If nothing gets worse, then by definition we are at a market bottom.

    Housing will not recover soon. But I argue that this is a buying opportunity.

    ********

    You did mention one factor: “Rent to home price and income to home price ratios are still high compared to their historical norms.” That made me think.

    Does that historical imbalance necessary mean that prices will fall from where they are now?

    Suppose future home values appreciate 1% below inflation. With proper leverage, residential real estate would still be profitable, and this historical imbalance could be corrected.

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  17. GH

    RE: David Losh @ 15

    You make some interesting points.

    I agree that inflation is key. Some argue that the US government under reports true inflation.

    If so, how would that affect our analysis of past home prices?

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  18. EconE

    By GH @ 16:

    RE: Ira Sacharoff @ 11

    Thank you for your response.

    ********

    If you believe that this is NOT the market bottom, then you believe something will get worse. So what will it be?

    Will unemployment climb to 20%?
    Will the volume of foreclosures continue to grow?
    Will banks require 800+ credit scores?

    If nothing gets worse, then by definition we are at a market bottom.

    Housing will not recover soon. But I argue that this is a buying opportunity.

    ********

    You did mention one factor: “Rent to home price and income to home price ratios are still high compared to their historical norms.” That made me think.

    Does that historical imbalance necessary mean that prices will fall from where they are now?

    Suppose future home values appreciate 1% below inflation. With proper leverage, residential real estate would still be profitable, and this historical imbalance could be corrected.

    http://en.wikipedia.org/wiki/Straw_man

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  19. ray pepper

    RE: Jonness @ 13

    “And there is massive shadow inventory out there. I have neighbors on both sides of me who haven’t made a house payment in years. This is getting ridiculous. The one guy is going on 3 years of free rent. How many people like this are sitting out there collecting free rent and using the money saved to go to dinner and the movies; thus, temporarily artificially propping up consumer spending”

    How many are out there doing this? More then you and I could comprehend. Remember…………….people only will remain STUPID for so long…….Now, upside down homeowners have crossed the path of social acceptablity of doing this and there is no coming back…………….

    I have so many stories to tell you all but trust me whan I say this over and over…………..”They are all coming back…” There will be GEMS to be had…See you at The Auctions…(except this weekend..Seattle Home Show)

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  20. The Other Ben

    By D. in Ballard @ 4:

    Oh, speaking of elections and big money decisions. I feel like I’ve heard my financial adviser tell me that the stock market always does well during an election year. It may not be true, but it might be one of these things that people believe.

    Yeah, 2008 was a really good year for the stock market. :)

    I feel like this warrants some excel spreadsheets.

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  21. softwarengineer

    Real Estate Price Free Falling Due to Chronic Unemployment

    But…..the pundits say the repression’s over, sales will rebound and the stocks will rise.

    They say 2-3 yrs of chronic unemployment is just a lagging indicator….LOL.

    I say our stocks are rising not because the domestic consumer is buying again, they rise because foreign interests are buying up America’s stock assets and America is buying everything foreign. How long will this go on? I suppose until the debt spiggot is turned off by the foreigners.

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  22. ARDELL

    RE: GH @ 10

    1) Prices are currently higher than they were in early 2009 when the tax credit briefly expired. So a fall back to at least that level is a given by year end 2010.

    2) Volume is down 40% YOY Single Family Homes (not including townhomes) King County. A 40% volume drop has to result in price drops…especially after January 1 and continually thereafter, as inventory rises against that decreased volume.

    Some stats and graphs here: http://www.realtown.com/Ardell/blog/tracking-the-market

    Required disclosure: Information in this comment is not provided by, verified by or published by The Northwest Mulitple Listing Service.

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