Case-Shiller: Welcome Back to 2004, Seattle

Happy Case-Shiller day, everybody. Yes, it’s time once again for us to take a look at the latest data from the Case-Shiller Home Price Index. According to December data, Seattle home prices were:

Down 2.0% November to December.
Down 6.0% YOY.
Down 27.9% from the July 2007 peak

Last year prices fell 0.7% from November to December and year-over-year prices were down 7.9%.

December’s data marked yet another new post-peak low point for Seattle home prices, which have now fallen back to levels last seen in late 2004. Prices are down 5.7% since July (the first post-tax credit month), and down 7.2% since their late-2009 tax credit mini-peak.

Here’s an interactive graph of all twenty Case-Shiller-tracked cities, courtesy of Tableau Software (check and un-check the boxes on the right):

Two more of the holdouts dropped back into YOY negative territory in December: Los Angeles and San Francisco. Now only two cities are still above where they were this time last year: San Diego and Washington DC.

In December, thirteen of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops (or saw year-over-year increases) than Seattle (one less than November):

  • Washington, DC at +4.1%
  • San Diego at +1.7%
  • Los Angeles at -0.2%
  • San Francisco at -0.4%
  • Boston at -0.8%
  • New York at -2.3%
  • Denver at -2.4%
  • Dallas at -3.6%
  • Miami at -3.7%
  • Cleveland at -4.0%
  • Charlotte at -4.4%
  • Las Vegas at -4.7%
  • Minneapolis at -5.3%

Falling faster than Seattle as of December: Tampa, Chicago, Portland, Atlanta, Phoenix, and Detroit.

Hit the jump for the rest of our monthly Case-Shiller charts, including the interactive chart of the raw Case-Shiller HPIs.

Here’s the interactive chart of the raw HPI for all twenty cities through November.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

Case-Shiller HPI: Decline From Peak

In the forty-one months since the price peak in Seattle prices have declined 27.9%, another new high.

With prices breaking backward into 2004 for the first time, I thought it might be a good time to bring back the “rewind” chart:

Case-Shiller HPI: Seattle Rewind

The blue line on August 2005 represents the month that this site launched. As of December 2010, there have effectively been zero price gains for six full years.

For posterity, here’s our offset graph—the same graph we post every month—with L.A. & San Diego time-shifted from Seattle & Portland by 17 months. All four cities fell yet again in December. Year-over-year, Portland came in at -7.8%, Los Angeles at -0.2%, and San Diego at +1.7%.

I think this graph is still worth posting if only to display how the government’s massive intervention in the market screwed with the natural flow, causing all the markets to rise simultaneously, and once the artificial support was removed, to come crashing back down to reality simultaneously.

Case-Shiller HPI: West Coast

Note: This graph is not intended to be predictive. It is for entertainment purposes only.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 02.22.2011)


About 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.

55 comments:

  1. 1
    Shinichi says:

    Tim,
    I was struck this AM by Calculated Risk’s plot of Case-Shiller not in nominal dollars, as is commonly shown, but in real dollars in which inflation is accounted for (via CPI less housing). Because this measures people’s real spending power to purchase a house, I think it’s a better estimator of the date back to which ‘prices’ have reset since the bubble. CR shows that while prices in nominal dollars have reset to 2004 nationally, inflation-adjusted prices have reached back to 2000. Would you have this for Seattle?
    Thanks,
    Shinichi

    http://www.calculatedriskblog.com/2011/02/real-house-prices-fall-to-2000-levels.html

  2. 2
    Kevin says:

    Awesome! When I moved to Seattle in 2004 I thought a bubble was already happening and decided to sit it out for a bit. I had moved from the east coast and though Boston was a prime example so I just did a little searching and here we go:

    http://www.bostonbubble.com/forums/viewtopic.php?t=3185

    I think there’s still plenty of room for prices to keep falling, in Boston and here.

  3. 3
    F says:

    I second the call for an inflation adjusted graph, but just a few calculations show that we are now back to about where it was from 2000 through 2004. It’s also roughly the same as the peak of the last housing market in 1990. It is, however, still about 33% higher than it was at its lowest point ever, in 1997 (IOW it was 25% lower in 1997).

    It looks like a 10-20% real drop in prices may still be in the future, but that may end up coming entirely from inflation (i.e. very little nominal price drop).

  4. 4
    Real World Express says:

    Basically the two cities that a floating on Government worker salaries — DC and Diego — are up and everyone else built on mostly the private sector is down. And when the Teacups cut the spending…DC and Diego will be done too.

  5. 5
    HappyRenter says:

    In the stock market they talk about the lost decade. In the real estate market, do they talk about the lost 6 years?

  6. 6

    I don’t understand how Phoenix and Detroit could still be falling faster than Seattle. If I had to guess it’s the effect of short sales and banks still not processing them properly.

    I recently came across a short sale property where two separate buyers got tired of waiting for the bank and withdrew their offers. And that would have been an easy short sale for the bank to approve, since the seller was deceased! All the bank would need to do is get off its butt and have a BPO done.

    I don’t know if it’s still active after cutoff, but there was a bill pending in the legislature where the bank would be committing a consumer protection act violation by not responding to a short sale offer.

  7. 7
    LA Relo says:

    I think we should say “Seattle home prices plummeted in December at an annualized rate of 24%.” Sounds more dramatic.

    No bottom yet.

  8. 8
    ray pepper says:

    postponement after postponement week after week at The Trustee Sales. Shadow inventory mounting month after month. More and more homeowners sinking underwater and with the cost to sell in this State of 10% even more are further underwater then they expect.

    Market tanking today, oil up, OUCH! take your time Buyers…They have to sell FAR more then you have to buy. Time is on your side!

    (1st time this last week I saw Condos for under 15k in Pierce County at Trustee Sale..I wouldn’t even take it for free with the ever increasing 200+ dues to cover all the vacant units, 100+ taxes, insurance+…Owners are running from these and I would like to add………………….rightly so……………..

  9. 9
    patient says:

    That should put most Seattle buyers who took the opportunity of the tax credit using FHA minimum down under water. Sorry but I can’t say we didn’t warn you.

  10. 10
    Scotsman says:

    If I turn my monitor upside down it looks like a recovery! Try it, you’ll like it!

    Buy now, or be priced out forever!

  11. 11
    Matthew says:

    Welcome 2004, onward to 2002!

  12. 12
    redmondjp says:

    RE: Kary L. Krismer @ 6 – Kary, have you ever actually been to Detroit? And nearby Flint (where I spent two years in college) is in every bit as dire of a situation. They can’t even give houses away in many areas.

    The only way that devolving post-industrial cities such as Detroit and Flint will survive is to significantly shrink geographically, as their existing infrastructure cannot be maintained with current (or predicted) revenue streams.

  13. 13
    ChrisM says:

    RE: redmondjp @ 12 – JP– are you by any chance familiar with Richland? :-)

  14. 14
    Pegasus says:

    Shiller says house prices could fall 15% to 25% more

    • From David Streitfeld at the NY Times: Home Prices Slid in December in Most U.S. Cities, Index Shows

    Mr. Shiller, noting the unrest in the Middle East, a large backlog of foreclosed houses, the uncertain future of the mortgage holding companies Fannie Mae and Freddie Mac, and proposals to reduce the mortgage tax deduction, saw “a substantial risk” of declines of “15 percent, 20 percent, 25 percent.”

    http://www.nytimes.com/2011/02/23/business/economy/23housing.html

  15. 15
    Drone says:

    Tim, I love the Rewind graph. I think it’s my favorite :)

    Seriously though, Rewind makes it really easy to benchmark properties currently for sale. Most properties have changed hands so often that it’s simple to locate a sale close to 2004, and then see if the current wishing price is above or below that mark. Of course, major remodels affect that calculation somewhat.

  16. 16
    redmondjp says:

    RE: ChrisM @ 13 – Why yes, I grew up there, did you? If so, did your dad restore a 1950s MG while you were in school?

    BTW the Richland/Tri-Cities real estate bubble is still in full swing, I was just there a few weeks ago. It’s not really fair to call it a bubble, it’s more of a cycle, and directly tied to the amount of federal funding for the Hanford site (which is scheduled to taper off significantly in the coming years as the various sites are “cleaned up”).

  17. 17
    SummitSeeker says:

    RE: redmondjp @ 12
    How would shrinking the geographical extent of a city work in practice? Offer free close-in, abandoned houses to people that live in far out areas? If they refuse, have reverse-annexation votes? Vote them off the island!

  18. 18
    Jonness says:

    According to Ardell’s personally doctored data set, the area saw a big increase in median price for the month of December! Darn, I was really starting to believe her new bottom call of January 2011 would hold. Now I’m stuck waiting with baited breath for her February 2011 bottom call so that I can feel safe enough to buy a house. :)

    Sarcasm off: Tim, this is my favorite data series you post as it seems the CS uses a method that’s a lot more meaningful to price than MLS data.

  19. 19
    redmondjp says:

    RE: SummitSeeker @ 17 – The issue you raise is a very valid one, and it is being worked by many urban planners back east. My personal suggestion would be financial incentives (“free house/land” – maybe not quite) for those who want to remain in the city limits but are in geographic areas planned for reversion to the county or township.

    Take a virtual tour of many neighborhoods in Flint or Detroit courtesy of Google (street view gives you the walking tour w/o any risk of bodily harm), where you may see only 5-10 remaining occupied houses on a block that originally had 50. There is just no way to support all of the infrastructure with that kind of tax base. In your Street View tour you’ll find that nature is quickly reclaiming the largely abandoned neighborhoods, with overgrown trees, brush, and weeds aplenty, taking back the lots, burnt-out houses and all. Even the parking lots for the now-closed GM facilities are growing an amazing number of plants.

  20. 20
    EconE says:

    RE: redmondjp @ 19

    I’ve taken those virtual tours you suggest. It’s a trip.

    I was perusing the RE in Flint on Trulia. For those that are curious, here are some interesting examples.

    $20,900 Brick Tudor in a seemingly nice enough neighborhood…

    http://www.trulia.com/property/3043343335-415-S-Vernon-Ave-Flint-MI-48503

    $105,000 house in a much nicer neighborhood…

    http://www.trulia.com/property/3042395890-1317-Blanchard-Ave-Flint-MI-48503

    $179,000….

    http://www.trulia.com/property/3043346435-1009-Woodlawn-Park-Dr-Flint-MI-48503

    $279,000…

    http://www.trulia.com/property/3030643671-2747-Westwood-Pkwy-Flint-MI-48503

    $375,000 mansion…

    http://www.trulia.com/property/3003112390-1634-Woodbourne-Dr-Flint-MI-48503

    $530,000 mansion…

    http://www.trulia.com/property/1040953140-2750-Westwood-Pkwy-Flint-MI-48503

  21. 21
    Lo Ball Jones says:

    Take a Rentometer Test!

    http://www.rentometer.com/

    My apt rent came out as “reasonable”.

  22. 22
    softwarengineer says:

    I imagine the Seattle Chamber of Commerce

    Is still alleging uncontrolled population growth the last 7 years, CLEARLY lowering household incomes, will keep Seattle area RE prices rising with no end.

  23. 23
    Yakima_Hick says:

    How many times do you have to make a thread about November sales? Four times maybe? Well buddy this is ancient history. December sales already jump.

  24. 24
    Jonness says:

    By Yakima_Hick @ 23:

    How many times do you have to make a thread about November sales? Four times maybe? Well buddy this is ancient history. December sales already jump.

    I’m not sure what you are referring to. The data in the charts is through December 2010. The bottom is falling out, just as I predicted many months ago.

    Perhaps you are mistaken because you have been using the NAR doctored data. Stay away from that data. The NAR is not a trustworthy source of news or data.

    http://seekingalpha.com/article/254181-nar-overstates-house-sales-case-shiller-shows-price-erosion

    “NAR’s home sales count was at odds with calculations by CoreLogic, a California real estate analysis firm, according to the report. CoreLogic says NAR could have overstated home sales by as much as 20 percent. An over-count of home sales may mean that there is a bigger backlog of unsold homes and that it will take longer for the U.S. housing sector to climb out of the deep hole it is already in, dragging on the broader economic recovery.

    The NAR said the data could be revised downward this summer.”

  25. 25
    Feedback says:

    Congratulations! This presents a major opportunity for moneyed buyers to enter into home ownership before their President repeals the mortgage interest deduction (M.I.D.). The M.I.D. will still be allowed for homeowners who purchased prior to the repeal taking effect, so it is advisable for those who can benefit from the M.I.D. to purchase soon.

    For more information, Bing “Save the M.I.D.”

    This comment is not sponsored nor endorsed.

  26. 26
    Scotsman says:

    RE: Yakima_Hick @ 23

    Whoa, a bit terse there. Just get a NOD on that “rental” you’ve been trying to unload? You should stay up bit later than usual and try to catch one of those “cash flow” real estate seminars they show on late night T.V.

  27. 27
    Scotsman says:

    RE: EconE @ 20

    A couple of serious comments. First is that these obviously lay to rest any idea that replacement costs will set the floor for housing. What do you think the replacement costs would be for either of the last two listings? But look at the property taxes- at 5% annually taxes are close to the mortgage. We may see that here as cities look for more revenue to meet pension costs, etc. unless serious change takes hold. It’s not all the uncommon east of the Mississippi.

    Finally, even though employment opportunities are few in many of these areas, for folks on steady retirement incomes they can be a huge bargain. I fully expect to see some of these cities revive over the next 20 years based solely on retirees moving there to cut costs and still have some access to past housing expectations. Those are impressive homes, even more so when you don’t know the prices. There’s nothing wrong with the homes- they are often gorgeous. It’s the economic environment that surrounds them that kills their value. I could use these listings as an example of how it’s the externalities- like national or global economics- that are primarily responsible for home prices. But then The Tim would banish me to the thread that shall not be named, populated by he who shall not be named. ;-)

  28. 28

    RE: Scotsman @ 27
    Yes, if you didn’t need to find a job, you can buy a real cheap house and retire in Flint, Michigan.
    But then you have to live in Flint, Michigan.

  29. 29
    EconE says:

    RE: Scotsman @ 27

    The maintenance on those homes would be pretty high also…not like maintenance on soggy rain soaked Seattle homes would be any less however.

    You hit the nail on the head with the global economic externalities. That area used to be thriving back when the American auto industry was at it’s zenith. What happens to Seattle when India/China/wherever becomes the latest greatest tech hub for the world? Wouldn’t you think that realtors were saying things in Detroit in the 1950’s, 60’s and 70’s such as…

    “We’ve got lakes!”

    “We’re centrally located! ”

    “Detroit’s special!”

    “We’ve got jobs! It’s not like people are gonna stop buying cars!”

    I think that there might be a market in helping the people who sell their homes in bubblezones find a nice cheap place to retire. With all the money one can save, they can spend winters on a beach in _______.

  30. 30
    EconE says:

    RE: Ira Sacharoff @ 28

    You could do a heck of a lot of travelling with the money you save!

  31. 31

    “I think that there might be a market in helping the people who sell their homes in bubblezones find a nice cheap place to retire.”

    Hot Springs, Arkansas is one of those places. They seek out retirees looking for cheap housing, and being a resort area doesn’t have the industrial tinge of a place like Flint. Maybe Flint just needs a makeover.

  32. 32
    Yukon Dave says:

    Retired people will be greatly affected. I am looking at buying a home right now for $315,000 in the Seattle area. The last time the place I am looking at was worth $310,000 was in 2006. Interest rates are already rising and that means the monthly price will rise when the Fed stops supporting 0% interest to the banks. When that happens expect interest to rise to at least 7% before the end of the year. That is not very high historically and the interest rates are now ½ point above historical lows.

    Current rates are about $552 per $100K and will move to about $665 per month at 7%. For a $315,000 home that is $1,325 a month versus $1,595 per month. At 8% that is $1,761 per month. The fact is at 7% interest rate the home price would have to drop to $250,000 to match the current monthly payment you can lock in today. Forget the fact that qualifications are very hard to get for a loan when the Fed is not giving away free money. Come June, the private sector will have to make those loans and they want interest to justify the risk.

  33. 33
    Jonness says:

    By Shinichi @ 1:

    inflation-adjusted prices have reached back to 2000. Would you have this for Seattle?

    I have the data, but I haven’t put up a dynamic chart of it on my website. Using U.S. city average CPI, Seattle CS is back to 2002/2003 level prices. My outcome would be slightly different than the link you provided because I use all categories of the CPI and the linked poster subtracted shelter.

  34. 34
    Scotsman says:

    RE: Ira Sacharoff @ 31RE: EconE @ 29

    It may not be the first choice, but it might be one that worked. I can see church groups (national level) or other organized groups taking over entire communities and filling them with retirees, cleaning the area up, bringing in support services, etc. Maybe a variation of group living for the larger homes- like a frat house for young-at-heart boomer octogenarians.

    My main point is that economic incentives can be pretty powerful. As Flint shows, and EconE also points out, yesterday’s success doesn’t guarantee today’s. And tomorrow can also be a whole new game. If you and a brother-in-law (and wives) are retired from Boeing and looking to cut costs, what works best- splitting a Ballard shit box for $500K or a mansion in a recovering Flint neighborhood for $250K with a big motor home parked in the drive?

  35. 35
    ivan says:

    RE: Drone @ 15

    One problem with using a prior sale as a benchmark is that it was really easy to overpay by 10% – 20% (or more) during those heady years. It seems like a lot of home values were determined by how much money the buyer could borrow.

    Case in point, this Capitol Hill condo is pending for its 1999 price:

    http://www.redfin.com/WA/Seattle/615-E-Pike-St-98122/unit-402/home/13800

  36. 36
    Yukon Dave says:

    In regards to the MID grandfathered buyers, the AMT will handle those people. As long as they keep raising the Alternative Minimum Tax those with interest to deduct will only keep deducting less and less each year. I believe 7% interest will be the norm by years end but you also have to consider that at 5% interest the banks are willing to do business. How much above 5% will the investors require. If you invested your money would you want a greater than 2% return? Because a 2% return added to the 5% the banks make means 7%. If they want more because they are spooked, welcome to the 1980’s. Heck the 1990’s saw 8 to 9%

  37. 37
    Scotsman says:

    RE: Yukon Dave @ 32

    Trust me, the home will drop to $250K and the payment will stay the same. If someone was willing to pay the higher payment for that home it would be selling now at the higher price. But it’s most likely not selling at all. The facts keep smacking people in the face, but no one wants to acknowledge them.

    To make the $270/mo higher payment requires a $900/mo increase in income assuming a 30% front ratio. The original $1325/mo assumes an income of about $4400/mo. The extra $900/mo needed to cover the increase due to increasing interest rates translates into a 20% raise. How many people do you know who are getting 20% raises in this economy?

    That’s what I thought. Thus, when rates rise the price of the house has to fall, all else being equal. But it’s not equal. If, as you hint, federal guarantees disappear and conventional lending rules the new day then qualifying will be ever harder even at current rates. There’s only one way to go when you get to the edge of a cliff and fall over. . . and that’s where we’re going.

  38. 38
    EconE says:

    RE: Ira Sacharoff @ 31

    Hot Springs looks like a neat little town although the crime rates appear to be pretty high.

  39. 39
    redmondjp says:

    RE all of you mentioning turning Flint into a retirement community – NOT! It gets frickin’ cold there in the winter, MUCH colder than here in temperate Seattle (our occasional “snow” events notwithstanding). While In college there I distinctly remember our furnace running in the middle of June and thinking “what the heck? It’s the MIDDLE OF JUNE!”

    I was a co-op student while attending college in Flint, so I spent 50% of the year (every other 3-month period) in Kokomo, IN which is south of Flint, but still not pleasant in the winter (and downright uncomfortable much of the summer with 90+ temps and humidity). My adopted grandparents (a retired EE from whom I learned a lot) who lived there wintered in Florida every year from late January to mid-March (during which time I was in Kokomo experiencing 30 below temps and 3 feet of blowing snow at the worst). The coldest and snowiest winter weather always seemed to be during this period, in general.

    As I get older, I can appreciate the attractiveness of the snowbird lifestyle! Who wants to be cold all of the time? With energy prices going nowhere but up, the heating costs of staying up north year-round will make these areas even less attractive over the long term.

  40. 40
    EconE says:

    RE: redmondjp @ 39

    Well, we wouldn’t actually *live* in Flint. It would just be a cheap U.S. mailing address to pick up our Social Security checks. We can get 10 or so retirees to each put 20k into a mansion there and when it gets too cold, we’ll all hop in Scotsmans Winnebago and head south. When it gets too hot, head up north to Canada!

  41. 41

    By redmondjp @ 12:

    RE: Kary L. Krismer @ 6 – Kary, have you ever actually been to Detroit?

    Not for years. My point was that a place that has already fallen a lot should be less likely to fall as much as other places. I think they are the only city under 70 on the C-S scale, meaning they are at less than 70% of 2000 values.

  42. 42

    By Scotsman @ 27:

    A couple of serious comments. First is that these obviously lay to rest any idea that replacement costs will set the floor for housing.

    You’re correct replacement cost is not a floor. It’s the flip side of increased costs not necessarily affecting end prices.

    However, what it will do is affect supply. Excluding those properties already in some state of development, or situations where the owner wanted to dump land, there would be few new houses built where the prices was less than the cost to build. And that would be a stabilizing factor. If King, Pierce and Snohomish counties had somehow had a building moratorium since 2005, we’d probably be discussing a median close to $500k and C-S above 200, even with all the horrible economic news we’ve been having the past three plus years.

  43. 43
    sp6859ch says:

    I remember the Las Vegas Review Journal saying home prices back to 2002 in Vegas… Problem was i wondered why my wifes house she bought in 1994 for 83k that we sold for 225k in 2006 that was currently listed at 78k as a hud repo!!!! Articles like that were everywhere.. Yet the papers still said back to 2000 pricing.. It is amazing how i have watched the similarities to our price declines happen up in the NW albeit at a later and slower pace. BUT now as i thought the banks are getting ready to do their stuff.. I have seen major reductions and to prices that in some cases are 10k above where people bought in 1998. This of course is in Puyallup, everyone will say its not like that in Ballard or Queen Anne. Well just wait and see. The buyer pool now need a job need good credit need money down. OH OH i see you have a buyer pool that is also A LOT smarter than in the past. The strong, oh and conservative were left standing and they will just wait it out. I don’t care how good the listing picture is…

  44. 44
    David Losh says:

    RE: Kary L. Krismer @ 42

    I’m going to put the question on the open thread of how much of a drain new construction is on the economy. It’s a global phenomenon from South America to Greece to Shanghai China. Rampant building is done, has been done globally, and now those units exist. Are they worth anything?

  45. 45
    Fran Tarkenton says:

    By Jonness @ 33:

    By Shinichi @ 1:

    inflation-adjusted prices have reached back to 2000. Would you have this for Seattle?

    I have the data, but I haven’t put up a dynamic chart of it on my website. Using U.S. city average CPI, Seattle CS is back to 2002/2003 level prices. My outcome would be slightly different than the link you provided because I use all categories of the CPI and the linked poster subtracted shelter.

    Is there an advantage for using shelter in CPI here? Is it just an easier calculation to make if you don’t subtract it?

  46. 46

    RE: David Losh @ 44 – China may be a little different and a bit more extreme than the US. But in the US given the time lag for construction projects (especially where zoning and permitting takes longer) you would expect to have boom and bust cycles in housing even with a stable economic situation (although those cycles would affect the overall economy). First you have a shortage, then a ramp up, then oversupply. When projects take more than three years from purchase of land to completion of construction, the oversupply can be very significant.

  47. 47
    D. in Ballard says:

    RE: Scotsman @ 34 – I think I’d take Flint.

  48. 48
    Pegasus says:

    By Kary L. Krismer @ 46:

    RE: David Losh @ 44 – China may be a little different and a bit more extreme than the US. But in the US given the time lag for construction projects (especially where zoning and permitting takes longer) you would expect to have boom and bust cycles in housing even with a stable economic situation (although those cycles would affect the overall economy). First you have a shortage, then a ramp up, then oversupply. When projects take more than three years from purchase of land to completion of construction, the oversupply can be very significant.

    The real estate business rarely follows a shortage, then a ramp up, then oversupply cycle. They always build as many projects as possible to sell, then they pyramid their projects with the profits and then they end up in bankruptcy through greed and stupidity. Give the buyers unlimited credit based lax or non-existent compliance with normal financing requirements and you create unlimited suckers for their crappy houses, condos and office buildings at massively inflated prices. A return to reality shuts down the sucker pool and the builders that did not get off the merry-go-round go banko.

  49. 49
    Scotsman says:

    RE: Pegasus @ 48

    Wow- nice summary of the entire mess. It may take a little longer than usual to dig out of this one, but I’m sure the cycle you describe will eventually repeat itself.

  50. 50
    Jonness says:

    By Fran Tarkenton @ 45:

    Is there an advantage for using shelter in CPI here? Is it just an easier calculation to make if you don’t subtract it?

    There are many variables that can skew the CPI comparison.

    I used the U.S. average CPI as opposed to the Seattle specific CPI. The Seattle specific CPI would give a better idea of the actual cost of living in the city. The U.S. average is easier for me to keep up to date, because I only have to update one data field per month, and it works for all U.S. cities. Different people will argue that one or the other is better or worse for comparing to city specific house prices.

    The Fed subtracts food and energy from the CPI in order to measure inflation because they say these costs are volatile and don’t give a good measure of organic inflation at any one point in time. Others argue food and energy should be left in because it’s a graphically more accurate representation of people’s actual living costs through time. In many people’s opinion, the Fed is simply manipulating the data in order for their constant use of the printing press to better fly under the radar. Others believe the Fed is justified in subtracting volatility from its target inflation number.

    It really comes down to what you want to look at. The housing portion of CPI currently gives an impression of a deflationary environment, while food and energy give the impression of an inflationary environment. Thus, right now, the CPI is very easy to manipulate to produce whatever numbers you best want to see. The reason I tend to not subtract anything is it gives me a better idea of what dollars are worth in the overall economy.

    It appears to me, the Calculated Risk blogger subtracted shelter from the CPI in an effort to more directly compare housing costs to all other living costs. I think this is a great idea, but I tend to prefer to compare housing costs to the overall value of the dollar.

    I haven’t put any charts on my website mostly because I haven’t decided which CPI version produces the most meaningful comparison to house prices. Thus, I’m thinking of building a form that let’s users select whatever CPI version they prefer.

  51. 51
    Fran Tarkenton says:

    RE: Jonness @ 50 – Thanks for the insight.

  52. 52
    David Losh says:

    RE: Pegasus @ 48

    Banko is a part of the new construction scheme, you are right though that builders always build until there are no more suckers in the pool, until lately.

    The mortgages, the loans are still circulating years after the property is sold, and foreclosed.

    We have a big problem globally.

    In Shanghai there are literally square blocks, or miles of empty buildings. The same now in Barcelona, and Lima Peru. You’re already seeing Flint here, and we are going to Miami in March where I’m told it’s the same.

  53. 53
    David Losh says:

    RE: Jonness @ 50

    Housing isn’t a part of the Consumer Price Index because of many variables, including intrinsic vale. A housing unit can be worth more or less in any geographic area, in theory.

    On Capitol Hill you could have cheap worker condo housing units next to mansions. It’s always been that way where you have working class housing close to high end housing.

    Juat as an aside when I was just starting in business in the late 1960s, and early 1970s you could still see people in the Mount Baker area walking from the Rainier Valley side of the hill to work in the houses on the Lake Washington side.

  54. 54
    Matthew says:

    Just imagine where we would be right now without:

    1. QE 1+2
    2. Historically low interest rates
    3. Home buyer tax credits

    Yes it can get much worse from here.

  55. 55

    With all the distraction of the snow and other things, I think I missed the fact that the 18 month offset graph disappeared! ;-D

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