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.

47 responses to “Bottom-Calling Checkup: False Bottom Psych-Out”

  1. Lurker

    You’ll know the bubble has fully deflated and the bottom has passed when the everyman has conversations about buying investment rental properties.

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  2. NotMe

    Having a hard time reconciling the radar plot at the top (showing Seattle $/sqft of ~$164 in August 2010) and the RedFin chart at the bottom (showing Seattle $/sqft of ~$330 for October).

    What is different about these data?

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  3. Lurker

    Also, as the Tim informed us a while back, Redfin calculates the $/sqft using county records for the livable sq ft. while the other may calculate $/sqft using MLS data which usually combine livable with non-livable space (garage, unfinished basement, etc)

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  4. softwarengineer

    Imagine How Unaffordable Homes Will Be

    If the Bush income tax cuts aren’t extended for 2011. I know, a lion’s share of the bubbleheads think it’s slamdunk, after all, the “MSM nuts” all assume it. Let’s hear what the “Tea Party nuts” have to say:

    “…Late in September, the Nancy Pelosi-led 111th Congress voted to adjourn by a vote of 210-209 and in doing so by fiat will allow the Bush tax cuts to expire January 1. What a bunch of cowards! These spineless Democrats voted to return November 15 after return to their districts to campaign, to take up the matter of extending the tax cuts in the lame duck session of Congress. My sense is these politicians will NOT extend the tax cuts in what most believe is the deepest recession this country has endured in decades. Politicians who voted for the adjournment were voting for a return to higher taxes.

    I spoke to Rep. Buck McKeon, (R-25th) representing the Santa Clarita and Antelope Valley, California how this gutless gesture by Speaker Pelosi chose to adjourn the Congress. He was similarly outraged and said any vote to adjourn was a vote to return to the higher tax rates….”

    If the Tea Party news is correct, everyones’ income taxes are going to go up through the roof in 2011 and Tim’s charts have more slamdunk dipping downward on a trend, as qualifying 1st time homebuyers go the way of the dinosaurs.

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  5. Kary L. Krismer

    By Lurker @ 4:

    Also, as the Tim informed us a while back, Redfin calculates the $/sqft using county records for the livable sq ft. while the other may calculate $/sqft using MLS data which usually combine livable with non-livable space (garage, unfinished basement, etc)

    I would use the term “sometimes” rather than “usually.” I think most agents properly exclude garage and unfinished space from the calculation.

    I would also note that on some properties, Redfin probably gets it wrong because the counties (particularly Snohomish) report the square footage so many different ways it would be difficult to automate. Redfin is probably more accurate, but not perfect.

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  6. D. in Ballard

    RE: Kary L. Krismer @ 6 – That’s not been my experience touring homes in Seattle for 3 years. Unfinished basements are almost always added to square footage.

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  7. Lurker

    RE: D. in Ballard @ 7

    It is not my experience either. When I find a place that doesn’t list the unfinished basement as livable sq ft. I feel like I discovered some kind of secret.

    You can also see the large discrepancy on price per sq.ft between Altos Research and Redfin as well and this is specific to the city of Seattle.

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  8. deejayoh

    By Lurker @ 1:

    You’ll know the bubble has fully deflated and the bottom has passed when the everyman has conversations about buying investment rental properties.

    No, that is when you will know the next bubble has started. You’ll know the bubble is over when everyone thinks property will never go up again

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  9. The Other Ben

    By Lurker @ 1:

    You’ll know the bubble has fully deflated and the bottom has passed when the everyman has conversations about buying investment rental properties.

    What? That’s stupid. “You’ll know the bubble is deflated when everyone thinks there’s demand for the asset.”

    You know when bubbles are deflated when the common perception is that it’s not a good asset class.

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  10. Lurker

    Ok, but in my defense it is not an incorrect statement but rather an obvious one.

    Where is that “delete post” button? ;)

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  11. Ira Sacharoff

    RE: Kary L. Krismer @ 6
    The NW MLS allows unfinished basement space to be counted as square footage, but not garage space.
    Most agents count unfinished basement space. I’d count it if it seemed like it wouldn’t be that huge of an undertaking to finish, but I’ve shown houses where the basement ceilings were low, full of monster sized heating equipment and ductwork, and would require excavation to finish. I’d never count that as part of the square footage, but sho’ nuff, it’s more often than not counted.

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  12. David S

    Then there’s always the caveat emptor, ‘square feet x,xxx, buyer to verify’. This is especially true when I see property in South King County listed at $232/sf. I just know there are some square feet hidden somewhere that will bring that $/sf down to a more reasonable level. God forbid I dare ask for less than list price for fear of offending both the seller and listing agent and many times now the banks.

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  13. pfft

    By deejayoh @ 9:

    By Lurker @ 1:
    You’ll know the bubble has fully deflated and the bottom has passed when the everyman has conversations about buying investment rental properties.

    No, that is when you will know the next bubble has started. You’ll know the bubble is over when everyone thinks property will never go up again

    the only thing that will tell you this is all over is prices. price rules.

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  14. Scotsman

    RE: pfft @ 14

    What??! When it’s “over”? I thought you said we were in recovery- doesn’t that imply it was “over” long ago?

    I’m feeling more and more like it hasn’t even begun. We’re still eating the h’ordeuvres. I’d like some wine with mine, please- helps put me in that party mood.

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  15. Kary L. Krismer

    By Ira Sacharoff @ 12:

    RE: Kary L. Krismer @ 6 – The NW MLS allows unfinished basement space to be counted as square footage, but not garage space.

    I can’t find a rule that allows that, but I also can’t find a rule that prohibits it.

    The input page specifically breaks out finished (excluding garage) and unfinished, but they do also have on a separate page just the area square footage. I don’t know what gets reported to consumers if you report that as the sum of finished and unfinished. In any case, I think that would be legally risky for an agent to do, even with form 22d checked.

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  16. The Other Ben

    By pfft @ 14:

    By deejayoh @ 9:
    By Lurker @ 1:
    You’ll know the bubble has fully deflated and the bottom has passed when the everyman has conversations about buying investment rental properties.

    No, that is when you will know the next bubble has started. You’ll know the bubble is over when everyone thinks property will never go up again

    the only thing that will tell you this is all over is prices. price rules.

    Well that’s silly. What price? How do you know the “bottom of the bubble” price for a supply-and-demand asset class? You can’t. You can only tell when the bubble mentality has worked its way through the system – that’s when prices can return to only being supported by people’s need for them and their real earnings potential. I still have friends talking about buying investment houses because prices are so low right now (compared to what they were) – blind to the fact that they would still be losing money each month if prices were stable. Obviously it hasn’t worked itself out of our systems yet.

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  17. One Eyed Man

    RE: Scotsman @ 15

    Get back in your bunker, we’ll tell you when its safe to come out (but only after we drink all the wine).

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  18. One Eyed Man

    RE: Kary L. Krismer @ 16RE: Ira Sacharoff @ 12

    Come on Ira and Kary, you can count that space. And even if you don’t count it, you can market it. You’re just not using your marketing creativity to target the right demographic while avoiding those inappropriate characterizations that risk Equal Housing Opportunity issues. Something like “Frodo and Bilbo will love the cute and cuddly square footage available with just a little sweat equity in the Hobbit space downstairs. And it will be their shire of choice once they realize that its out of reach of Sauron’s all seeing eye.”

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  19. BelRenter

    RE: One Eyed Man @ 19

    Laughed hard enough to put tears in my eyes.

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  20. pfft

    By Scotsman @ 15:

    RE: pfft @ 14

    What??! When it’s “over”? I thought you said we were in recovery- doesn’t that imply it was “over” long ago?

    I’m feeling more and more like it hasn’t even begun. We’re still eating the h’ordeuvres. I’d like some wine with mine, please- helps put me in that party mood.

    I said it looks like housing has bottomed. the trend is a bottom sometime between summer of 2010 and spring 2011(case-shiller humbers).

    “I’m feeling more and more like it hasn’t even begun.”

    prices have fallen in an unprecedented fashion nationwide, we had a huge giant recession and a financial system near-meltdown and you think we’re only getting started?

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  21. pfft

    By The Other Ben @ 17:

    By pfft @ 14:
    By deejayoh @ 9:
    By Lurker @ 1:
    You’ll know the bubble has fully deflated and the bottom has passed when the everyman has conversations about buying investment rental properties.

    No, that is when you will know the next bubble has started. You’ll know the bubble is over when everyone thinks property will never go up again

    the only thing that will tell you this is all over is prices. price rules.

    Well that’s silly. What price? How do you know the “bottom of the bubble” price for a supply-and-demand asset class? You can’t. You can only tell when the bubble mentality has worked its way through the system – that’s when prices can return to only being supported by people’s need for them and their real earnings potential. I still have friends talking about buying investment houses because prices are so low right now (compared to what they were) – blind to the fact that they would still be losing money each month if prices were stable. Obviously it hasn’t worked itself out of our systems yet.

    your method is highly subjective.

    what happens if prices start going up but your subjective method doesn’t? what then?

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  22. Ira Sacharoff

    By Kary L. Krismer @ 16:

    By Ira Sacharoff @ 12:
    RE: Kary L. Krismer @ 6 – The NW MLS allows unfinished basement space to be counted as square footage, but not garage space.

    I can’t find a rule that allows that, but I also can’t find a rule that prohibits it.

    The input page specifically breaks out finished (excluding garage) and unfinished, but they do also have on a separate page just the area square footage. I don’t know what gets reported to consumers if you report that as the sum of finished and unfinished. In any case, I think that would be legally risky for an agent to do, even with form 22d checked.

    There was a NWMLS Monday bulletin about a year ago, which specifically stated that you could count unfinished basements, but not garages. Sorry I can’t be more specific.

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  23. deejayoh
  24. Scotsman

    RE: pfft @ 21

    “I said it looks like housing has bottomed. the trend is a bottom sometime between summer of 2010 and spring 2011(case-shiller humbers).”

    I call B.S. You’ve said several times in the past couple of months that the bottom was last spring if not before. I don’t have the time to look it up and stick it on your chest right now, but let’s stop with the revisionist history.

    Just getting started? Yup. The bottom is years away.

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  25. Ira Sacharoff

    By Scotsman @ 15:

    RE: pfft @ 14

    What??! When it’s “over”? I thought you said we were in recovery- doesn’t that imply it was “over” long ago?

    I’m feeling more and more like it hasn’t even begun. We’re still eating the h’ordeuvres. I’d like some wine with mine, please- helps put me in that party mood.

    we’re still eating the h’ors douvres, slowly ,and just so we don’t offend the host, but we may skip the entree entirely. That appetizer of cream chipped horse crap on toast didn’t exactly whet our appetite.

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  26. Scotsman

    RE: deejayoh @ 24

    Still somewhere between denial and fear in my book. Yours?

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  27. Scotsman

    RE: Ira Sacharoff @ 26

    “cream chipped horse crap on toast ”

    What?! They said it was rainbow skittles. I just thought I got a lot of chocolate ones. They don’t come in chocolate?

    Have some more wine.

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  28. The Other Ben

    By pfft @ 22

    your method is highly subjective.

    what happens if prices start going up but your subjective method doesn’t? what then?

    “Bubble” is a subjective concept. An asset going up and then coming down and bottoming later isn’t a bubble, it’s just price changes. A bubble is when irrational expectation of future price increases is introduced as a component of the price. When the irrational expectation is gone, the bubble is gone. A bubble deflating might not result in an absolute drop in the price – it may just mean that the asset doesn’t appreciate as much as it otherwise would have.

    You’re talking about “prices bottoming”. That’s different from (albeit related to) “bubble deflating”.

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  29. wreckingbull

    Pfft, I highly suggest the following book:

    http://www.amazon.com/Manias-Panics-Crashes-Financial-Investment/dp/0471389455

    I read it back in 2006 and I found it very enlightening. It helped me make sense of what I saw going on around me. Dr. Kindleberger touches on the differences between price appreciation and a bubble.

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  30. CalEngineer

    By deejayoh @ 24:

    http://common.tycoonresearch.com/assets/image/04022008_bubble.jpg

    Remember this?

    I think we’re approaching capitulation in Downtown/North Seattle.

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  31. sleepwalker

    non-livable spaces I doubt are used that frequently, but certainly unpermitted areas are used all the time. I live in a house with a 500-600sf non-conforming attic. If I listed the house I would certainly list this extra bedroom and bathroom. I’ve lived in the house for 5 years and they live like a bedroom and bathroom.

    THat said, the county doesn’t know about the remodel and as such, the country records would show our house as 1000sf. With all the attic and basement conversion, I wouldn’t be surprised to see this making a huge difference between the MLS and country #’s.

    By Kary L. Krismer @ 6:

    By Lurker @ 4:
    Also, as the Tim informed us a while back, Redfin calculates the $/sqft using county records for the livable sq ft. while the other may calculate $/sqft using MLS data which usually combine livable with non-livable space (garage, unfinished basement, etc)

    I would use the term “sometimes” rather than “usually.” I think most agents properly exclude garage and unfinished space from the calculation.

    I would also note that on some properties, Redfin probably gets it wrong because the counties (particularly Snohomish) report the square footage so many different ways it would be difficult to automate. Redfin is probably more accurate, but not perfect.

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  32. Lurker

    RE: Scotsman @ 27

    I know a few sellers that are feeling pretty desperate about now.

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  33. CCG

    By Scotsman @ 27:

    RE: deejayoh @ 24

    Still somewhere between denial and fear in my book. Yours?

    Agree. We had some fear in 2008 but the conversion of the United States to socialism has helped back us up somewhat. Besides, once we get the Central Economic Planning Committee (CEPC) going and house prices are set by government fiat according to what the “homeowner” “deserves”, we don’t have to worry about that chart anymore. Just set it to “despondency” and forget it.

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  34. CCG

    By Ira Sacharoff @ 26:

    That appetizer of cream chipped horse crap on toast didn’t exactly whet our appetite.

    You all really have gotta learn to stay away from Claim Jumper :)

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  35. patient

    By Scotsman @ 27:

    RE: deejayoh @ 24

    Still somewhere between denial and fear in my book. Yours?

    That is my experience as well talking to friends, collegues and neighbours. Denial with a creeping sense of fear.

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  36. Scotsman

    RE: CCG @ 34

    “Just set it to “despondency” and forget it.”

    LOL +7

    Wine, please!

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  37. patient

    By CCG @ 34:

    By Scotsman @ 27:
    RE: deejayoh @ 24

    Still somewhere between denial and fear in my book. Yours?

    Agree. We had some fear in 2008 but the conversion of the United States to socialism has helped back us up somewhat. Besides, once we get the Central Economic Planning
    Committee (CEPC) going and house prices are set by government fiat according to what the “homeowner” “deserves”, we don’t have to worry about that chart anymore. Just set it to “despondency” and forget it.

    Hehe…though as I remember it socialism is more of a Robin Hood kind of idea, take some from the ones that have and give to the ones that have not. The current government is more of the opposite. Borrow in the name of the people and give it to the elite. Has there actually ever been a larger transfer of currency from the people to the elite anywhere anytime in history? Technically though the transfer is still pending since we are not really paying our debt…yet.

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  38. Lurker

    RE: sleepwalker @ 32

    True, the unpermitted areas would throw that off too. I don’t see garages necessarily used as livable space that much (unless they throw some carpet on the concrete and call it the “master”) but from my experience unfinished basements are typically listed in the MLS.

    Just because you hide from your wife and drink your beer down there doesn’t technically make it “livable.”

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  39. WestSeattleDave

    “I don’t see garages necessarily used as livable space that much (unless they throw some carpet on the concrete and call it the “master”)…”

    Back where I come from, down in L.A., they have a housing innovation they call a “Two Car Apartment”. Works quite well in a pinch!

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  40. ray pepper

    “bottom calling”……………..how can anyone even fathom the notion we are near a bottom when 30 % of SALES ARE FORECLOSURES!!

    Joe homeowner doesn’t have a prayer.

    People are getting it!…They only stay stupid for so long!

    http://www.cnbc.com/id/39650403

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  41. whatsmyname

    I really like the first chart. It reminds me of the days when every other post around here was about price trends and the inevitability of returning to the mean.

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  42. Jonness

    By deejayoh @ 24:

    http://common.tycoonresearch.com/assets/image/04022008_bubble.jpg

    Remember this?

    I’m not sure where we are at on the chart, but judging from pffft’s posts, it appears we still might be in the denial stage. If so, judging from recent price reductions, it appears we might be passing through the denial stage and into the fear stage.

    Hey, at least we are making progress. Now bring on the REO’s, and let’s get this show on the road. :)

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  43. Jonness

    By pfft @ 21:

    I said it looks like housing has bottomed. the trend is a bottom sometime between summer of 2010 and spring 2011(case-shiller humbers).

    LOL! So you are already renigging on your previous bottom call? Face it, you’ve made the same mistake as all the blind RE agents before you. At least you have the good sense to push your next bottom call out another 6 months, as opposed the new bottom call every month typical of the major RE bottom callers.

    I’ll give you this, you are pretty crafty. You are betting on a Spring jump to make it look like you correctly called the bottom this winter. If only we could all forget about your previous bottom call, you would look like a genius for a couple of months prior to the fallout that will occur after Spring.

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  44. Scotsman

    RE: whatsmyname @ 42

    The first chart really doesn’t tell the whole story. If you start in 1950 instead of 2000 you get the perspective of a much lower long term mean, one well below what this chart suggests is the normal trend.

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  45. Scotsman

    RE: Jonness @ 44

    “If only we could all forget about your previous bottom call, you would look like a genius”

    Highly unlikely, as it is illogical, as our friend Spock would say.

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  46. Housing price trends in Seattle - Washington (WA) -Seattle and King County Suburbs - City-Data Forum

    [...] love the Seattle Bubble site; Bottom-Calling Checkup: False Bottom Psych-Out • Seattle Bubble And he now works for Redfin who also have some good stats; Homes for Sale in Seattle, WA | Redfin [...]

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