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.

100 responses to “Case-Shiller: Seattle Home Prices Nearly 30100 Off Peak”

  1. Dave0

    “The blue line on August 2005 represents the month that this site launched. As of January 2010, there have effectively been zero price gains since September 2004.”

    I think you meant to say January 2011.

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  2. ray pepper

    30%!!!!!!!!!!!!!!!!!!!!!!….That would be heaven for so many!

    I’ve been down here in Sacramento and Reno for Spring Break looking at near 80% off highs. Made an offer on a home with 8 family members living in it for 50k. Price dropped from near 360k. Bank has had enough trying to get 100k.

    Homeowners in the PNW should be VERY aware we have a high % of futher drops ahead of us and to plan accordingly. With the amount of REO’s coming and the absence of further Fed Stimulus we too can pray for a flatline that will not arrive. REO’s will dictate housing prices for years. As for short sales and deed in lieus, homeowners are becoming far too saavy to fall for those “deals” much longer. Banks better begin offering LARGER CASH INCENTIVES to homeowners to expediate the foreclosure process for them or MASSES will continue to “play the game” and live in their homes for years delaying the inevitable. Meanwhile the banks will pick up the tab on property taxes, insurance, and human resources trying to Modify Loans for homeowners that have NO INTENTION of ever keeping their property.

    Until then Buyers……. there are GEMS that pop up everywhere and be ready..Walk from all multiple offers and when asked for highest and best…………….. lower your offer! You won’t get the home but I assure you there will be another! My last Buyer did this and the Listing agent questioned it, but also got a BIG laugh….My Buyer had already found another home while waiting for seller response, so he lost interest , and we just decided to have some fun..

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  3. Snigliastic

    We are talking nominal dollars when comparing housing prices in 2004/2005 to now, right? Same question for Case/Shiller?

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  4. Interesting factoid

    December to January was the fourth largest post peak one month drop in both pecentage and index value, and the largest since January 2009.

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  5. Steve Thompson

    Over the next 15 years as baby boomers look to sell their homes or, at the very least downsize, the supply of for sale real estate will rise far more than the demand, pushing prices lower, especially for certain types of real estate since supply. This will be particularly critical for boomers who are looking to cash in the capital built up in their real estate holdings to fund their retirement.

    Here is an examination of the coming demographic issues facing the real estate market:

    http://viableopposition.blogspot.com/2010/12/next-housing-bubble-is-this-perfect.html

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  6. The Other Ben

    By ray pepper @ 2:

    ….

    Until then Buyers……. there are GEMS that pop up everywhere and be ready..Walk from all multiple offers and when asked for highest and best…………….. lower your offer!

    I don’t know why, but it absolutely drives me crazy how every single post you make has “GEMS” in it. Why all caps? Why the repetition? So many questions, so few answers.

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  7. Matthew

    Thank you US G for officially wasting millions of dollar on a 8k tax credit. All you did was postpone the inevitable. Can we please resume the crash in progress without attempting to throw any more money into a black hole?

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  8. Lurker

    RE: The Other Ben @ 7 -GEMS – Gastrointestinal Engorged Mass Syndrome

    A common malady picked up from spending too much time down at the Claim Jumper :D

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  9. whatsmyname

    RE: Steve Thompson @ 6
    There you have it. Home prices are going down for the rest of your working lives. Time to cozy up to the landlord.

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  10. Interloper

    RE: Interesting factoid @ 5 – Yes — this is a big deal. Two of the five biggest month-over-month drops EVER for Seattle were in December & January.

    The word “plummeting” comes to mind. Looks like a worst case scenario ahead of another 10-20%+ drop, worse in Seattle than nationwide.

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  11. HappyRenter

    Are we going to see the same price decline as in the fall of 2008 – spring 2009?

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  12. Scotsman

    I want to repeat this from a previous thread- it’s too important to ignore. It’s pretty easy to make the argument that the initial wave of foreclosures was what started prices falling in the first place- an influx of homes for sale that exceeded the market’s ability to absorb them. Now, with a huge supply of vacant homes already on the market a second wave of foreclosures will eventually hit, initiating a strong second wave down. As these stats show we aren’t even beginning to move foreclosures through the system- they just continue to pile up on the bank’s balance sheets:

    “• An enormous backlog of foreclosures still exists with overhang at every level:

    –There are three times the number of loans deteriorating greater than 90+ days delinquent as compared to foreclosure starts.
    –There are also three times the number foreclosure starts vs. foreclosure sales.
    –Foreclosure inventory levels are over 30 times monthly foreclosure sale volume.

    http://www.lpsvcs.com/NewsRoom/IndustryData/Documents/2011%20-%2002%20Febuary%20Mortgage%20Monitor/LPSMortgageMonitorFebruary2011.pdf

    The impact of these bad loans and the losses they represent is a second issue that will eventually hit the financial markets and interest rates, qualifying standards,, etc. We have a lot further than just 10% to fall.

    To those thinking of buying a house I would suggest just flushing your down payment and a good portion of your future discretionary income down the toilet now. You’ll get the same result but the pain will be over much quicker.

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  13. Ross

    RE: Scotsman @ 14RE: Scotsman @ 14 – I think you’ve missed the deeper cause in your analysis of the original problem. I agree that the initial foreclosures caused the price crashes. But something else caused the initial burst of foreclosures: ARM resets with no way out. Previously, the ARM resets had not been a problem because people had been able to flip properties before the initial reset, but in late 2006/early 2007, even the most enthusiastic boosters couldn’t seem to point to examples of a quick +10% sale needed to break even: there was no more “next sucker” to flip to and there was no exit for those now pinned into those mortgages of doom.

    To support your overall thesis, however, you are 100% right that the unsold inventory, both visible and hidden, are going to drag the market much further down. I suspect we’re going to need to see BofA’s bad bank start selling and a few other lenders get forced into accounting for their rotting inventory before prices build up some downward momentum. But those predicting just a 10% drop are living a pipe dream, smoking the same pipe as the quarterly: “The bottom is about 6 months out and then we should see a restoration of a healthy market shortly after.”

    I’ve been telling my in-laws about further 20-25% reductions from here in Santa Monica and that they should get out now while their tear-down is still worth something to a well off buyer who can land a jumbo mortgage, but it’s very difficult for old people to move. To them I already sound alarmist, but I honestly think the drop will be more like 35-50% from here.

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  14. Matthew

    Just remember that bubbles almost always over-correct. I think we are headed for another 20-30% on the downside, after that, we probably bounce along the bottom for a while.

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  15. Matthew

    Teacher_Greg,

    You just have to factor in the following:

    1. Loss of downpayment: Good bye 50-100k, see you again never.
    2. Maintenance
    3. Property Tax
    4. Stuck in the same house forever, no mobility. Hope you have a secure job and that the secure job won’t ever move you.

    Yeah you get a small tax break. But even that may not be untouchable in the future.

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  16. Scotsman

    RE: Teacher_Greg @ 16

    Opportunity costs. By locking yourself into unnecessarily high housing costs now you give up the opportunity to spend the potential savings from buying later, at a lower price point, on other things- vacations, better education, earlier retirement and the adventures that might bring, etc.

    Just because you can afford to buy something doesn’t make it a prudent decision. But that’s not to say an informed, responsible choice isn’t OK, even if it’s not optimal when viewed by different set of criteria. We all have different values and priorities, an important consideration. For most people simply having a plan that makes sense and sticking to it overrides everything else. I’m always amazed at the number of people who have no idea where they’re going in life, let alone the ability to hold onto a goal for more than a couple of months. Congrats on knowing who you are and having a plan.

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  17. ARDELL

    RE: Scotsman @ 14

    “It’s pretty easy to make the argument that the initial wave of foreclosures was what started prices falling in the first place…”

    I wouldn’t call that “an easy argument” or even true. The declines started when people needed to have a down payment and qualify for a mortgage beyond the fog a mirror test.

    The foreclosures followed, and many were more a result of the market in decline when prices were down from the lending standards changes, and people could not refinance because they were underwater. Also, spot-spec builders had their funds cut off and there were half finished projects all over town. OR the builder/flipper figured out if he finished the project, it would not sell for the original intended price and just quit and left.

    The prices were already down and were the cause of those foreclosures, not vice versa.

    The foreclosures did not lead the market down…they were more a result of the down market.. I saw one yesterday in bankruptcy. Flipper 3/4s done…just walked away when the end product price was at break even as to costs to date.

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  18. ARDELL

    Interesting to note that while this blog and many “bubble” blogs started in 2005 as a warning bell, today’s market is really much worse than the 2005 market as to where it is expected to go from here. There were many who bought in 2004 and early 2005 who left with a profit in 2007 and even 2008. From here…that is not likely a possibility by anyone’s account (except Ray Pepper’s Gems) of what is to come in the next 48 to 72 months from here.

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  19. The Other Ben

    By ARDELL @ 22:

    Interesting to note that while this blog and many “bubble” blogs started in 2005 as a warning bell, today’s market is really much worse than the 2005 market as to where it is expected to go from here. There were many who bought in 2004 and early 2005 who left with a profit in 2007 and even 2008. From here…that is not likely a possibility by anyone’s account (except Ray Pepper’s Gems) of what is to come in the next 48 to 72 months from here.

    GEMS

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  20. softwarengineer

    RE: Teacher_Greg @ 16 -Cash is King

    Yes, Scotsman does have a good heart though….and in a strict financial planning manner, he’s absolutely correct IMO.But you’re right too, if you buy a house with a bag a cash [I assume you have another big bag of cash too for emergencies...LOL]…so what if it’s a bad investment down the toilet? What’s dangerous for the buyer and the tax payer now-a-days is if the mortgage noose you put over your neck tightens with unemployment or wage degradation, along with future home price degradation. How about a lighter noose to face more home price degradation, with a big down payment? Is that OK too?

    Let’s put it this way….I side with Scotsman then too [unless its like 80-90% down]…the uncertainties of the Seattle economy with a CLEAR shrinking total workforce [irrespective of job gains in certain areas] and more gypsies packed in less repression home units today, skewing household income comparisons to 2005, even the rosy stagnant comparisons….makes a paltry 20% down WAY too risky IMO.

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  21. softwarengineer

    RE: The Tim @ 21

    At Some Point Even Rent Has to Plummet With Seattle’s Per Capita Wage Degradation

    Notice I didn’t say household income, Hades, that could be mom. pop and three adult kids with grand kids too; all living in one house….if all of the adults land burger flipping jobs, their household income looks fine on the BLS charts…..LOL

    Plus, this repression “gypsy packing” as I call it, empties apartments and will even SLOW Boomer home sales….the Boomers need the space for all the family gypsies that move in.

    The biggest dam to home price decreases [rent too] IMO [it appears Scotsman's too] is bank owned shadow inventory. Dr Bubble has a great article on shadow inventory and even empty homes waiting around have an eventual expiration date when they turn rotten.

    http://www.doctorhousingbubble.com/

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  22. Ross

    RE: The Tim @ 21 – I’m reading from a distance here. In Santa Monica California (planning a move to Seattle next year), the price:income ratio is about 6 and I believe must correct down into the 3.5-4.5 range. I understand that most locales in and around Seattle aren’t as far out of whack and as a result don’t have as far to fall to return to alignment with incomes.

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  23. Lord Koos

    @ The Tim “I just don’t see the 30% drop scenario playing out without another massive economic catastrophe as bad or worse than was seen in 2008.”

    Despite the happy chatter from the mainstream media about “recovery” and “green shoots”, the fundamentals of the US economy are worse than they were in 2007. Unemployment, higher, inflation, higher, home values continuing to drop, and without the Fed continuously creating money out of thin air, the markets will crash. Generally when a bubble deflates, it goes back to the beginning value, and we aren’t even halfway there yet.I bought my house in 1995 and I’m thinking of selling now while there is still a good profit to take, and then buying back in later when prices will be lower. At this point in time you are better off holding gold than real estate.

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  24. Ira Sacharoff

    RE: Teacher_Greg @ 16
    Some people only feel truly happy when they own a home of their own.
    As a renter, I always had pretty good experiences, but I know that’s not true of all people. Sometimes it just feels like the time to buy a house. If you’d had that feeling four years ago, it was then time to kick yourself and say ” I can wait longer. Buying a house right now is a really stupid thing to do.”
    Four years ago, I was convinced the housing market was seriously overheated and ” cruisin’ for a bruisin'”. I was telling people that a crash was imminent. I thought we’d see some large and quick declines, and we did. I didn’t figure in the government intervention which changed things for a while, delaying the inevitable. We’re not declining as intensely as we were three years ago, but even going completely flat for six months straight would be a great accomplishment.
    Still, it all depends on your perspective. If Scotsman turns out to be right ( and it wouldn’t be the first time), we may be seeing another 30%+ decline. If that’s the case, maybe waiting a little longer would be prudent.
    I happen to disagree with Scotsman on this one. I’m seeing another 10-15% decline, and maybe wallowing at or near it’s low for a couple of years after that. Not pretty.
    Lots of people put off buying a few years ago but are looking at houses now. There isn’t a whole lot of inventory but there are some GEMS( trademark Ray Pepper) out there. Four years ago was a horrible time to buy. It’s a much less horrible time to buy now. How’s that for an advertising slogan?

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  25. Macro Investor

    By The Tim @ 21:

    To the commenters predicting another 30% off or more: Are you suggesting that incomes and rents will plummet, or will real estate 20%+ below it’s historical level in relationship to those local economic fundamentals?

    I just don’t see the 30% drop scenario playing out without another massive economic catastrophe as bad or worse than was seen in 2008. If that’s what you’re calling for, then I guess the 30% prediction makes sense, but without a significant decrease in incomes and rents I just don’t see the justification for more than another 10%-15% off, tops.

    Kindly answer your own question, Tim. Are you saying all that shadow inventory won’t have any impact on rents?

    Also, I don’t recall ever seeing you seriously address rates. Will historically low rates last forever? Will normalization have no impact on prices, rents or incomes?

    Will Fannie and Freddie buy all mortgages made in America forever? And will the US government, now projecting $2 trillion in annual deficits, guarantee them forever?

    Will baby boomers retiring have no impact on prices and rents?

    Will continued job outsourcing to lower-paying countries have no impact on incomes?

    I agree 30% or higher predictions are hard to swallow. But do you seriously NOT see a few more bubbles that need to burst?

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  26. Lurker

    By Ira Sacharoff @ 28:

    It’s a much less horrible time to buy now. How’s that for an advertising slogan?

    You really have a knack for slogans, Ira. A while ago didn’t you also come up with this gem of a slogan for Claim Jumper, “You may not get sick here?” :)

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  27. GregD

    I agree there is more room to fall, this is more then just a housing bubble we are still in the recession and if you didn’t notice Boeing is having serious issue and Bellevue’s second largest employer was just bought by At&t, that will cull a lot of jobs.

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  28. bob

    where is the best place to get median/average household income for either seattle or king county? Housing prices (except for the top 5 %) will likely fall to 3x income.

    These ratios like (P/E in the stock market) somehow always seem to be very relevant.

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  29. softwarengineer

    RE: bob @ 34

    I Agree

    3 times the avg Seattle household income [even gypsy sized] is $150K.

    LOL…today’s avg Seattle home prices are like $300-400K…..LOL

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  30. Scotsman

    RE: Macro Investor @ 30RE: The Tim @ 21

    This is where the data analysis approach of sites like Seattle bubble breaks down. The Tim says “show me the data” for a future that has yet to unfold. Since no one can provide data from a future that hasn’t happened too many assume the argument is won. But is it fair to assume that the future will always be an extension of past trends and economic models? I don’t think so, and I’m pretty sure Tim wouldn’t make that argument either. So obviously the answer isn’t going to be found in simple ratio analysis or even trend analysis, but rather in a series of questions and answers that capture the whole of the home buying experience.

    In 1974, not that long ago, my single mom bought a very simple house. She was unable to get a traditional mortgage because she was a single woman, albeit educated and well employed. A 10 year signature loan was the answer, impossible for the vast majority of folks in her position. Five years ago almost anyone with a pulse could buy an elaborate home, and many did. How do the metrics we look at today capture that change? How relevant is price/income under those vastly different conditions? Then tell me what it will mean five years from now when a 10 year employment history, 35% down, and 15 year term may be the market response required by a failing banking system.

    Data analysis, done through the rear view mirror, doesn’t hold the answers for the future here. Like a well played game of chess we have to move through a series of questions, look at possible/most likely responses, etc. to come up with a range of probabilities and most likely scenarios. But for a short answer, tell me which trends that support the current environment of falling prices have even stabilized, let alone reversed. Until the inputs stabilize, how can the outputs?

    The pink pony still thrives, if only in our hopes for the future.

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  31. Lord Koos

    @ Tim, here’s some data for you:http://www.zerohedge.com/article/foreclosure-backlog-hits-30-months-option-arm-cliff-arrives-average-delinquency-period-537-d

    From the article:As of the end of February, foreclosure inventory levels stand at more than 30 times monthly foreclosure sales volume, indicating this backlog will continue for quite some time. Ultimately, these foreclosures will most likely reenter the market as REO properties, putting even more downward pressure on U.S. home values.” That is assuming Banks manage to bribe enough people to allow them to get back to foreclosing on tenants with improper loan docs (something we have no doubt will happen). And possibly far more troubling is that the Option-ARM trap is finally slamming shut: “February’s data also showed a 23 percent increase in Option ARM foreclosures over the last six months, far more than any other product type. In terms of absolute numbers, Option ARM foreclosures stand at 18.8 percent, a higher level than Subprime foreclosures ever reached. In addition, deterioration continues in the Non-Agency Prime segment. Both Jumbo and Conforming Non-Agency Prime loans showed increases in foreclosures and were the only product areas with increases in delinquencies.”

    ————————

    It takes about 40 good loans to pay for one default.

    Let’s remember that it’s not just home prices that are falling — it’s income falling as well, in nominal terms (and even worse adjusted for inflation) while at the same time unemployment is increasing. If you are trying to calculate home values by income I think we have a long way to go. Maybe you should look at the great depression of the 1930s as a model.

    BTW, anyone who is interested in the true inflation and unemployment statistics as opposed to the heavily massaged numbers that the US government puts out, you might find this site interesting: http://www.shadowstats.com

    Say the Fed doesn’t raise interest rates and inflation continues, what is that scenario? What is the alternative scenario if they do finally raise rates to try to curb inflation? Mortgages become even less affordable. It’s kind of a lose-lose situation as far as I can see.

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  32. GregD

    Tim IMHO the horizon on that chart is too new, by 1990 the irrational lending practices had already started.

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  33. Real World Express

    What percentage of total homes in Seattle were bought during the last decade?

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  34. softwarengineer

    RE: The Tim @ 37

    Was It 70s Data Tim?

    Before 1978 all was cherry blossoms, single income mostly and 5 acre plots….one lower blue collar income could qualify/buy a lower middle class home in Bellevue….today, a whole tribe of gypsies couldn’t qualify for a Bellevue home.

    Households may still have predominantly 1 main income when there’s still up to two bread winners per home….especially with young kids…..but what the hades does that buy anymore in the Seattle area?

    My dad bought his home for about 2 times his single modest income in Lynnwood in 1960. A big 4000 sf home on a wooded acre.

    I watched many buy homes from 1970-1978 for 2 times their income….before interest rates shot up to 15% after 1978….then it became double incomes only, 4 times a single income….just to qualify.

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  35. David Losh

    RE: Scotsman @ 36

    i appreciate your previous comment, and this one. We are reaching different conclusions.

    In 1974 the difference between a mortgage payment, and rent was closer. A mortgage was a little bit higher, but you also had the cost to maintain a property. If you put 20% you would be close to the rent making the mortgage payment. That’s how, and why, so many people bought properties.

    With 20% down banks were happy to make loans because the cost to foreclose, and resell were covered by the down payment, plus any interest payments the bank received.

    The only thing that changed between now, and back then, is the banks willingness to lend more, and more money, based on the promise to pay. We can discuss income to debt ratios forever, but banks made this decision, especially when they could sell the over inflated Notes to the secondary market.

    It’s over. Stick a fork in the Bubble.

    Banks then went into “emerging markets” with the same BS. Consumer debt is at an all time high. Mortgages are on properties all over the world. The “secondary market” as we used to call it, is now a mish mash of longs, shorts, insurance, and that is what we today call derivatives.

    We are in an economy of debt.

    The only thing you as an individual can do is stop playing the debt game, and get out. That includes paying off the family home, because if you rent, you are the system.

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  36. softwarengineer

    RE: Real World Express @ 40 -IMO, Not many in the Seattle Limit Old $600K Avg Pink Pony Neighborhoods

    Lots of old retirees there and some lucky kids with inheretence….totally out of working stiffs’ price league. The suburbs have most of the old priced $300-400K homes and a lion’s share of these are underwater now.

    I believe the new crop of buyers the last 10 years are about 30% of the whole lot. About the same percentage that are underwater, albeit some were bought previously but Helixed to death. I’m sure there’s a lucky many that bought the last ten years that have the title too, the savvy investers in my book.

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  37. Econe

    RE: The Tim @ 33

    There is a big difference between “what ifs” that make housing mathematically unaffordable and “what ifs” that make housing “too affordable”.

    Economics is part art and part science. It appears that you ignore the “art part” in favor of the hard science due to your engineering background.

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  38. Lord Koos

    If economics is a science, then the “scientists” running Western economies are idiots, having missed every major bubble since 1980.

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  39. ARDELL

    RE: Macro Investor @ 30

    The original potential for the decline was up to 50%. The tax credit stopped it at I think 22% and then it went to 26% shortly after the credit expired and now 30%. I think that’s how the numbers fall.

    So if the credit is to have ZERO lasting impact, we could be looking at 20% more max down from here by year end 2013.

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  40. Macro Investor

    By The Tim @ 33:

    RE: Macro Investor @ 30 – 1) I have addressed interest rates before. Notably last year here, here, and here.

    2) All you’re doing is asking a bunch more questions. If you think those factors are going to drive home prices significantly below where their historical relationship to incomes suggest they will end up, please provide a quantifiable explanation, otherwise your statements aren’t really any different than the agents who claimed during the bubble that home prices would continue rising forever despite what the local economic fundamentals suggested.

    Tim, I am also a former engineer. I understand wanting to be able to quantify everything. But an economy has too many variables. There is an uncertainty principal at work here. One of the main variables is human behavior, which nobody knows how to quantify. I think it’s safe to say bubbles happen because human beings act emotionally.

    Let’s take your posts on interest rates as an example. Please note I’m not trying to criticize. I’m just trying to make the point that fundamental analysis isn’t enough on it’s own.

    Interest rates vs. media home price — From 1950 to 1977, rates doubled from 4-5% to 8-9%. In the same 27-year period prices declined. From ’88 to 2005 rates halved and we had our bubble. From ’77-’88 the relationship broke down, but we have to look at what else was going on then. Was there pent up demand from baby boomers forming households, or 2 income families? Was inventory low because little was built when rate were so high? Who knows? I don’t think we can conclude rates don’t matter because the trend wasn’t perfect.

    Affordability index — I have a bit of trouble with this one. 1 — affordability now is about where it was in 2006. Does that imply 2006 and now are about equally a good time to buy? 2 — Affordability increased from 2007 to 2010, while unemployment was rising. I’m guessing that means the median income number only includes people who are employed. I doubt it’s per capita. Basing it on tax data would likely show declining population income.

    Weekly Conventional Mortgage Rates — by your own chart, the average rate over the past 40 years is at least 8%. For that trend to normalize, prices would have to come down by at least 20% based on same-income buying power.

    The questions I raised can be quantified. Not that I’m recommending that. Too many assumptions needed. One example:

    Shadow inventory — We could estimate how many homes are REO and pre-foreclosure vs historical norms. Assume some percentage each year will end up as rentals. Add in wanna be sellers who are accidental landlords. We could add this to the vacancy rate published for apartments.

    But it’s too much work, and over the time series too many other variables change. At some point it makes sense to just be like Pffft, and wait for the market to tell us it’s done tanking :)

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  41. Macro Investor

    By ARDELL @ 46:

    RE: Macro Investor @ 30

    The original potential for the decline was up to 50%. The tax credit stopped it at I think 22% and then it went to 26% shortly after the credit expired and now 30%. I think that’s how the numbers fall.

    So if the credit is to have ZERO lasting impact, we could be looking at 20% more max down from here by year end 2013.

    I thought you said 2018. What happens in those 5 years? Do we just get high and sleep ;)

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  42. Yaj

    Anyone know where we are at in terms of price to rent metrics? We’re paying ~$1300 a month in a place that would probably fetch something north of $400K at the moment. My guesstimate is that when you consider the total cost of owning vs renting, renting is roughly 2x less expensive than owning. And this is in a house that would need a $50-100K refurb just to bring the roof, gutters, basement, insulation, heating, and wiring up to snuff.

    Is there a significant delta between the price/rent and price income metrics in Seattle at the moment, or are we just an exception?

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  43. ARDELL

    RE: Yaj @ 49

    It depends on the land value. Look it up in the King County Parcel Viewer and look for % improved. The land may be the larger portion of the value. I’ve seen some where the land is valued at $600,000 and the house only $1,000.

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  44. ARDELL

    RE: Macro Investor @ 48 -2013 is the “drop to” date. 2018 is the “back up to”? date. Continue falling to flat through 2013 then rising up to 2018, then back down again. The tax credit screwed up the ratio a bit. Interest rates are the Wild Card.

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  45. One Eyed Man

    RE: Scotsman @ 36

    I hate one sided discussions. So before anointing the messiah, it might be reasonable to consider whether there are other possible (even if you believe less probably) outcomes to the particular events under consideration.

    To pretend that there’s only one possible outcome is probably at least a little myopic. A lot of people here thought the big banks were toast just 2 years ago but the reigning power structure will agressively defend its turf. While the Fed probably doesn’t care if Seattle real estate falls another 30%, do you think the Fed will sit by and watch the banks go under and the economy devolve into GD2 if the economy begins to deteriorate again? BB will buy up all the debt the US gov can issue before he’ll let that happen.

    Unless the anti-Fed set can eliminate the Fed or at least its dual mandate, or elect a president who will replace BB with a hawk, the Fed will buy US paper as long as BLS unemployment isn’t falling and government measured inflation isn’t well over the target 2%. It may take some time, but the eventual result of that policy will be destruction of the dollar’s value (already happening), increased demand for goods produced in the US which are valued in dollars (already happening), absorption of the slack in the economy (beginning to happen), and higher nominal prices and wages (beginning to happen). While there are far too many variables to say if that will continue and if it would happen before or after real estate prices fall another 30% in Seattle, a potential (and perhaps even probable) effect would be that prices wouldn’t stay bouncing along the bottom like they did in the early to mid-1990’s.

    If we get high inflation (even 5% per year) a 2010 purchase price with a 5% 30 yr fixed could look like a bargain for somebody with the intent to hold the property for 20 to 30 years.

    I’m not making a prediction. I’m just telling you that it could happen. And if you’re a bear who unreasonably discounts that possibility, it might be the black swan that bites you in the asss.

    Also, for those who think prices might fall 30% and think selling makes the most sense, don’t forget to include all the additional costs in selling like the 9 or 10% back end load, the costs to find a place and move, the probability that you won’t buy at the bottom if you intend to buy again, and all the other “inconveniences” some of which are huge to an old person who has trouble just putting on their own socks. (My 91 yr old father, not me. I may have to wear Depends cause I get lazy when I drink but I can still dress myself.)

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  46. Blurtman

    It was refreshing to watch Dr. Shiller on the PBS News Hour this evening. I was surprised to hear him attribute so much of the declining market to a change in sentiment. That now owning was not looked on as favorably, and renting seemed to be more in fashion. He also said he was guessing and did not know.

    Quite refreshing. Perhaps as is done with cigarettes, NAR should partner with Hollywood to engineer positive home ownership themes into movies. In the next Star Wars movie, perhaps Darth Vader can be shown to be renting the Death Star, and Luke the proud owner of a cush pad on Nabu.

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  47. Pegasus

    By ARDELL @ 51:

    RE: Macro Investor @ 48 -2013 is the “drop to” date. 2018 is the “back up to”? date. Continue falling to flat through 2013 then rising up to 2018, then back down again. The tax credit screwed up the ratio a bit. Interest rates are the Wild Card.

    Do you have any meaningful legitimate data for your predictions or are you just trippin the light fandango whilst in a psychedelic state?

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  48. Tacoma

    RE: The Tim @ 21 – I think house prices will fall 30% or more from today’s levels. And it won’t require incomes to fall.

    Historical household spending shows how it can happen. For example, in 1960 households spent 25% of their income on food, and today they spend about 13%. In 1960, households spent 10% of income on clothing, and today they spend less than 5%.

    When one category of expenditures increases, another category decreases. Macro economic changes cause prices to change, and the next big macro economic change will likely be the fall of the US dollar. When that happens, interest rates will go up, oil prices will go up, and import prices will go up. The result will be higher prices for everything……….except land and houses (and maybe medical care and school tuition). We will be paying a lot more for food, transportation, clothing, etc., so there will be less money for houses and those prices will likely go down.

    http://www.bls.gov/opub/uscs/report991.pdf

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  49. EconE

    By Blurtman @ 53:

    Perhaps as is done with cigarettes, NAR should partner with Hollywood to engineer positive home ownership themes into movies. In the next Star Wars movie, perhaps Darth Vader can be shown to be renting the Death Star, and Luke the proud owner of a cush pad on Nabu.

    Watch the first 5 minutes and the last 2 minutes of ‘Panic Room’ with Jodie Foster.

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  50. Jackson Wallace

    People think oceanfront property is valuable until two superkiller tsunamis within seven years. THere’s six million people asking to get wiped in Naples next to Vesuvius, and yet they probably think their property is valuable. If you have a family, get a house probably. If you need to workspace, then you can rent. I guess the whole home ownership thing does just suck. There so many places to go in this world before it becomes impossibly expensive to travel. Get on it.

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  51. Scotsman

    RE: One Eyed Man @ 52

    Yeah, yeah- you and Kary, no predictions, no commitment, no risk. Remember the old saying about ham-n-eggs for breakfast- the chicken dropped off a donation while the pig gave all? What’s really funny is that the alternate scenario you offer- basically inflation through printing (now more properly money creation) eventually leads to the same result thanks to our global economy and the destruction of the dollar.

    Here’s the point so many either fail to grasp or willingly ignore: the economy (global, national, local) has an equilibrium that it is always seeking out. Attempts to push it, stimulate it, or otherwise manipulate it toward some unnatural or unsustainable realignment always come with a cost, often unanticipated or underestimated. And thanks to the power of time and exponents today’s short term gain always comes with a significantly greater long term cost associated with it. The myopia you mention most often concerns those costs. Most citizens and all politicians have trouble seeing more than two weeks into the future, so we continue to get snazzy short term solutions that turn into long term disasters.

    You can’t borrow your way out of debt. Especially when you have to borrow to make the interest payments too. It’s never worked in the past, and it won’t work now. And printing more money is essentially the same as borrowing but instead of interest expenses cutting into the value of future dollars you get dilution. In either case your money buys less value than it used to. The inflation scenario you suggest eventually nets out to zero- after all, houses won’t be the only focus of higher prices.

    Home prices will continue to fall for one very fundamental reason- they ultimately reflect the value of relative increases in productivity in the wages that purchase them. No real productivity gains, no wage increases, no home price increases. Relative wages in the U.S. are falling compared to the rest of the world, a measure of our productivity. And what productivity gains we may experience will be going to pay interest on our ever increasing debts.

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  52. Macro Investor

    By ARDELL @ 51:

    RE: Macro Investor @ 48 -2013 is the “drop to” date. 2018 is the “back up to”? date. Continue falling to flat through 2013 then rising up to 2018, then back down again. The tax credit screwed up the ratio a bit. Interest rates are the Wild Card.

    That’s the funniest thing I’ve heard all month. You don’t know what you’re having for lunch tomorrow, but you know what’s going to happen for the next 7 years. The bottom date and the recovery date too.

    I’ll bet you $10,000 it doesn’t happen that way. Where is S-crow? We can put the money in one of his accounts.

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  53. ARDELL

    RE: Pegasus @ 54

    Actually I’m holding to one of those “old school” rules of thumb, which at one time was attributed to Greenspan back in the 80s. The longest sustainable up-swing is supposed to be 7 years, nationally that was 1998 to 2005 and 1983 to 1990, and likely several before that. The down periods are supposed to be 3 years as in 1990 to 1993 and 2006 to 2009 (nationally vs locally) but the tax credit extended the time frame. Actually more like “interrupted” the time frame. In between the up and down cycles there is a sustained flat period prior to advancing.

    The tax credit slowed and extended the down period to end of 2013. The early grow years will be 2014 and 2015 which should pick up momentum to 2018. But I doubt we’ll get back to peak pricing. I don’t see the full 7 year upswing playing out, so I shortened it to 5 from 2013 to 2018. By then I’ll be 65. Maybe I’ll retire. :) I’ve been following the cycles since 1972. It’s not hard and fast, but it’s loosely reliable as “rules of thumb” tend to be.

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  54. Ross

    By softwarengineer @ 41:

    RE: The Tim @ 37

    Was It 70s Data Tim?

    Before 1978 all was cherry blossoms, single income mostly and 5 acre plots….one lower blue collar income could qualify/buy a lower middle class home in Bellevue….today, a whole tribe of gypsies couldn’t qualify for a Bellevue home.

    Households may still have predominantly 1 main income when there’s still up to two bread winners per home….especially with young kids…..but what the hades does that buy anymore in the Seattle area?

    My dad bought his home for about 2 times his single modest income in Lynnwood in 1960. A big 4000 sf home on a wooded acre.

    I watched many buy homes from 1970-1978 for 2 times their income….before interest rates shot up to 15% after 1978….then it became double incomes only, 4 times a single income….just to qualify.

    You’re implicitly saying that the value of land in Bellevue should be the same as it was 40 years ago. But that city is much bigger, there are big employers in the area and many successful people competing for the land compared to the 70s.

    It’s kind of like being surprised that land in Manhattan was cheaper (in real terms) ~300 years ago.

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  55. One Eyed Man

    RE: Scotsman @ 58

    Kary’s the one that doesn’t make predictions. I generally just attempt to assess probabilities but If I believe the probability is sufficiently high, I’ll make a prediction. If I recall correctly, I’ve made a couple of predictions on the Bubble before. I think about 2 yrs ago I predicted that the government would keep the big banks from going under by allowing their loan losses to be strung out and offset over time with revenues generated by a steep yield curve created by the Fed. I believe I also predicted last Sept that the DOW would be up at the end of the year. Either that or I hallucinated that I had a lunch date with Ira and although I find him attractive I’m pretty sure that’s not it.

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  56. One Eyed Man

    RE: Macro Investor @ 47 – “From 1950 to 1977, rates doubled from 4-5% to 8-9%. In the same 27-year period prices declined.”

    Inflation adjusted prices (real prices) may have declined between 1959 and 1977, but not nominal prices, at least according to Karl Case.

    “The behavior of single-family home prices in the United States has become
    a topic of increasing interest during the past two decades. Prior to 1970, house
    prices moved slowly at about the rate of inflation or slightly below, and regional
    differences, while they existed, were relatively modest by current standards.
    During the 1970s, however, house prices nationwide grew significantly
    faster than the rate of inflation, and homeowners earned tax-sheltered imputed
    rents and tax-sheltered capital gains on their leveraged assets, producing dramatic
    rates of return and low user costs throughout the decade.”

    http://www.nber.org/chapters/c8820.pdf

    The article by Case is an interesting read on prior boom and bust cycles and to some extent, their causes. It also brings home the fact that anybody who was alive in the 1970’s and 80’s should have known from huge regional booms and busts that real estate doesn’t always go up.

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  57. Blake

    RE: ARDELL @ 60
    >> “Actually I’m holding to one of those “old school” rules of thumb…”
    Um, this time is different for more reasons that I care to list.

    “…which at one time was attributed to Greenspan back in the 80s.”
    >> Whoops… I see a bigger problem with your reasoning here!

    btw: I tend to agree w/you that 2018 might be the point where we see house prices recover – – nominally. (But that’s after the second credit crisis/collapse of 2014)!

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  58. Scotsman

    RE: One Eyed Man @ 62

    Fair enough. And, you were right and I was wrong about the stock market for 2010. Although I still maintain it will soon have a significant retrace.

    Ira is some kinda man, isn’t he? ;-)

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  59. Jonness

    By The Tim @ 21:

    To the commenters predicting another 30% off or more: Are you suggesting that incomes and rents will plummet, or will real estate 20%+ below it’s historical level in relationship to those local economic fundamentals?

    I’m not necessarily predicting 20 to 30% off, but median household income/median house price is still perhaps 20% above historically healthy levels. In addition, bubbles have a tendency to overshoot the bottom. And one could argue rents are more a reflection of bubbly house prices than current incomes.

    http://housingcorrection.com/medianpricechart/caseshillerAbsoluteVsMHI.aspx

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  60. Jonness

    By The Tim @ 29:

    RE: Ross @ 26 – I did an analysis on incomes vs. home prices for the Seattle area back in September and at that time home prices were about 10% above their historic relationship to incomes. Note that the Case-Shiller home price index has fallen about 8% since then.

    I’m not getting how per capita income is a better indicator of how much money people make in King County than how much money people make in King County? In addition, I don’t believe you are accounting for the growing disparity between the middle class and the wealthy.

    http://survivalandprosperity.com/wp-content/uploads/2011/02/chart_rise_of_super_rich.top_.gif

    The previous housing runup peaked in 1990. Why not compare ratios during the subsequent correction instead of comparing after a massive stock market bubble increased the wealth of the rich.

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  61. Jonness

    By The Tim @ 37:

    I use the Washington State Office of Financial Management. As far back as reliable income and home price data goes, King County’s multiple was only as low as about 4x. That was before the big tech boom in the late ’90s, though, which pushed the multiple up to above 5x.

    In 1997, the multiple was 3.2x. In 2007, it was 5.9x Using the 3x through 6x range is a much closer approximation than using the 4x through 5x range.

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  62. Jonness

    I have a much different interpretation of this chart:

    http://seattlebubble.com/blog/wp-content/uploads/2010/09/Home-Prices-and-Incomes_2010-06.png

    To me, it shows per capita incomes outpaced King County incomes since about 1994. I’m having trouble drawing a connection why King County house prices should be increasing at a faster rate during a time when incomes are clearly lagging the rate increase? Where is the extra money coming from that justifies higher house prices?

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  63. ARDELL

    RE: Blake @ 64

    Well you’ve got to hang your hat on some guy. Mine’s always been Greenspan. Jillayne’s has been Krugman I think. I’ve never given two cents for anything Bernanke’s had to say from day one, Did anyone?

    My belief is the bubble was 100% intentional, and a direct result of The U.S. “save face” efforts after 911. Greenspan and the Fed policies were as American as apple pie and baseball. They did not want the U.S. to look beaten down after 911, and did everything to prevent an economic and housing price decline after 911. I agreed with that effort and sentiment in a “never let them see you sweat” kind of reaction. They did everything from lower interest rates to the point of ridiculous, followed by give everyone a loan to buy a house campaign.

    Sure it had to come down eventually, but by that time no one would see it as an after effect of 911, which was the intention. No one wanted the bastards to be responsible for creating an economic crisis after 911. So they made a fake thriving economy to “save face” and give them the big Yankee finger.

    Then Bernanke came along in 2006 like he didn’t understand the whole fckn idea of what was going on and dropped a big club on it instead of unraveling it. Idiot.

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  64. ray pepper

    RE: The Other Ben @ 7

    im not sure why i do that…..but please do NOT let it bother you. I’m bothered daily by Steve Tytler commercials, and that face, but I have learned to put it behind me.

    http://www.bestmortgage.com/ …………….ugghh..(not the lady in the background though. She never bothers me)

    For those interested I had ClaimJumper today in Reno. Breadsticks,Rotisserie Chicken,veggies,and then 5 bites of that chocolate calzone dessert. No problems anymore since I avoid the cheese dip and the dressing from the meatloaf and gold rush chicken. Last time I had that sauce I nearly had to swerve off I5 with the gut wrenching cramps and sweaty skull .. I think I got it all figured it now but it took me many years..

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  65. David Losh

    RE: Scotsman @ 58

    Well, debt is a relative term. Even the Global Debt Clock is in per cent of GDP per country. It all comes back to, you quote it, the GDP. Hey, that’s us!

    It’s all about worker productivity when you ask, but we all know deep down it is the paper economy that is driving the old steam engine. It’s mortgages, consumer debt, the insurance on the debt.

    It’s all fiat money, funny money. What’s not so funny is that along with that worker productivity comes a promise to pay. We have all heard here a thousand times that a promise is a promise and any one who dares to want a Plasma TV better pay cash.

    The real problem is currencies. The currency markets are all up for grabs. Forget commodities because ultimately they will be traded into the strongest currency of the day.

    Are you following that? Debt buys commodities which are sold for profit, and then converted into currencies. The currency gets day traded into more profit.

    The debt, however comes from a huge pile of promises to pay. Investors, corporations, borrow against those account receivables, or balance sheets, or paper profits. They buy tangible, securities, commodities, or Real Estate to borrow more, to buy more, to make more profits to be converted into the currency of the day.

    Governments have played along by playing this game of buying debt, I love this part, by creating more government debt that can be borrowed against. Isn’t it great? Don’t you just love the part where you can borrow at 1% and lend at 5% all day long?

    How about you borrow at 3% and lend at 18%, but wait, there’s more because you can now borrow against that promise to pay by holding cash reserves. So not only do you keep the cash, you borrow cash, you lend cash, and buy tangibles which go back into currencies that get traded into more cash reserves.

    That there is your debt cycle.

    There is no debt. It is all paper. It’s all debt securing debt, that is traded into currencies. It never ends. It’s a complete circle of larger, and larger profits.

    What that means to housing is that it is over. Housing units were a stepping stone to get to where we are today. Wealth has moved on to buying bigger and better things. Housing units will now revert back to the little people, you know who you are.

    There are countries to buy, sky scrapers to trade, cities to build on sand bars.

    You can go on and wait forever for things to go back to the way they were, but the world, the global economy has moved on. You can rebuild, nobody is going to care, and they are all going to help you. You are a promise to pay.

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  66. LocalYokel

    By ARDELL @ 70:

    RE: Blake @ 64

    My belief is the bubble was 100% intentional, and a direct result of The U.S. “save face” efforts after 911.

    You left your tin-foil hat at the Illuminati meeting.

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  67. David Losh

    RE: ARDELL @ 70

    Well, it actually started in 1998. It went on until 2001 then again resurged to 2006.

    The problem is global. It’s now everywhere, and is continueing to grow. The bubble is expanding into emerging markets.

    You need to look at the Euro, Europe, Asia, Africa, and South America. Then there was Japan, and it’s lost decade.

    9/11 was a reaction to economic policy. If anything the bungling of Iraq, and Afganistan stalled the economic patterns that had already been formed by Greenspan.

    Even Greenspan admits he made a mistake.

    Bernanke may be wrong to have slowed the economic collapse, but he is just stalling.

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  68. ARDELL

    RE: LocalYokel @ 73

    That’s what I think. At least I’m not afraid to put my beliefs out there for you to pee on. I may not be “right”. Who is? But I don’t just sit back waiting to poke someone else in the eye at every opportunity.

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  69. ARDELL

    RE: David Losh @ 74

    “Even Greenspan admits he made a mistake.”

    That’s what big men do. Small men stand in the background and point fingers at all the people who were “wrong”.

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  70. Michael B

    Tim,

    As the stockbrokers say “past performance is not an accurate predictor of future returns” or something like that…

    A 15% drop in real estate prices will put what % of homeowners underwater? 40%? 50%? How will we be hitting bottom with 40% of Seattle homes underwater? How many of those underwater will be foreclosed on? With high unemployment, where will the new home buyers and renters come from?

    Where will people be able to borrow money to buy homes at their current prices? How do landlords make money at greater than 15/1 price to rent ratios, unless they expect to make money on asset appreciation? What is the value of an asset if not the ROI (rental income)?

    I believe your 4X value is based on an economy that has been steadily growing from timber then with Boeing, then Microsoft, Amazon, Biotech.. It’s been a great run!…but technology jobs will not continue to grow, in fact they will decrease just as they have in Silicon Valley. 3 X is certainly a possibility and that would easily get you close to a 30% further drop.

    There’s nothing special about Seattle as far as real estate. In fact, to remain competitive, companies will likely start thinking about moving to states with real estate prices and wages that are 50% to 75% of Seattle’s – Austin, Texas comes to mind. Look at Boeing’s recent move…

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  71. Kary L. Krismer

    By Macro Investor @ 47:

    Tim, I am also a former engineer. I understand wanting to be able to quantify everything. But an economy has too many variables. There is an uncertainty principal at work here. One of the main variables is human behavior, which nobody knows how to quantify. I think it’s safe to say bubbles happen because human beings act emotionally.

    I would agree with almost that entire post, but I would add another element–government. I really do think some of the “affordability” programs existed entirely without regard to the people they were supposedly trying to help. Just a couple of examples:

    Even prior to the peak I was critical of some of those government loan programs that provided second position loans with limited payments so that lower income people could afford a property. Those loans were probably even worse for people than the pick-a-payment loans offered by some of the more shady lenders. I wonder how much of a hit government is taking on those loans today? I’ve never seen a single mention of that in the press.

    Zoning for small lots to make houses more affordable, or even allowing stand alone condos which effectively allowed even smaller land portions. I can see doing that for places that are close in–basically Seattle proper, but not for places like Kent or most of Snohomish County. By doing that you just create neighborhoods which are seemingly pointless, and you ruin existing neighborhoods by allowing subdivision.

    Totally unrelated, more on the human behavior side, owning a home became more of a short term investment. The goal wasn’t to buy a home and pay it off over 30 years. The goal was to buy a home and sell it as quickly as possible so that you could buy a bigger, better home, and then sell that as quickly as possible, etc. There basically was no end-game, just consumption with more and more debt.

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  72. Kary L. Krismer

    By Blurtman @ 53:

    It was refreshing to watch Dr. Shiller on the PBS News Hour this evening. I was surprised to hear him attribute so much of the declining market to a change in sentiment. That now owning was not looked on as favorably, and renting seemed to be more in fashion. .

    Clearly that is a big part of things. It’s just the inverse of what happens during the runup–the herd mentality works in both directions.

    Beyond that though I think the collapse of the condo market has also hurt, because the run up drove a lot of younger buyers into condos and they are now stuck there. So even beyond affecting their impressions, it affects their abilities because of negative equity. The condo market stole much more future demand from the market than what the first time buyer tax credits did.

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  73. Kary L. Krismer

    By Pegasus @ 54:

    By ARDELL @ 51:
    -2013 is the “drop to” date. 2018 is the “back up to”? date. Continue falling to flat through 2013 then rising up to 2018, then back down again. The tax credit screwed up the ratio a bit. Interest rates are the Wild Card.

    Do you have any meaningful legitimate data for your predictions or are you just trippin the light fandango whilst in a psychedelic state?

    Now Ardell has done it. She’s posted something that’s made me agree with Pegasus!

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  74. Kary L. Krismer

    By Scotsman @ 58:

    RE: One Eyed Man @ 52 – Yeah, yeah- you and Kary, no predictions, no commitment, no risk. Remember the old saying about ham-n-eggs for breakfast- the chicken dropped off a donation while the pig gave all? What’s really funny is that the alternate scenario you offer- basically inflation through printing (now more properly money creation) eventually leads to the same result thanks to our global economy and the destruction of the dollar.

    First, I really have to ask you what risk you think Ardell is taking with her many ever-changing predictions?

    Second, you don’t get to the same result. Inflation means cash bad, debt good.

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  75. Blurtman

    RE: Kary L. Krismer @ 79 – Yup. We are now in the anti-bubble, and the same type of storytelling/rationalization is at work. People are as convinced and continually convincing themselves that home prices must fall just as they were convincing themselves years ago that they must rise. Expectations are a very important variable.

    Re: stuck owners, it is sort of like a wave that came in and now is going out. The folks left stranded on the beach this time are the recent homeowners.

    On the other hand, lower home prices should leave future buyers with more disposable income. This should contribute to legitimate consumption, and not the home ATM type.

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  76. Kary L. Krismer

    By One Eyed Man @ 63:

    RE: Macro Investor @ 47 – “From 1950 to 1977, rates doubled from 4-5% to 8-9%. In the same 27-year period prices declined.”

    Inflation adjusted prices (real prices) may have declined between 1959 and 1977, but not nominal prices, at least according to Karl Case.

    “The behavior of single-family home prices in the United States has become
    a topic of increasing interest during the past two decades. Prior to 1970, house
    prices moved slowly at about the rate of inflation or slightly below, and regional
    differences, while they existed, were relatively modest by current standards.
    During the 1970s, however, house prices nationwide grew significantly
    faster than the rate of inflation, and homeowners earned tax-sheltered imputed
    rents and tax-sheltered capital gains on their leveraged assets, producing dramatic rates of return and low user costs throughout the decade.”.

    This really understates it because most housing positions were leveraged. If you bought a house for $100,000 with 10% down, and had 10% inflation for several years, your nominal rate of return would have been 100% the first year and higher thereafter. After five years you’d have turned your $10,000 into almost $60,000, after costs of sale. (This ignores any difference in the cost of renting versus owning).

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  77. Kary L. Krismer

    By Blurtman @ 82:

    On the other hand, lower home prices should leave future buyers with more disposable income. This should contribute to legitimate consumption, and not the home ATM type.

    Never underestimate the ability of banks to come up with some sort of loan program that will allow people to spend and then become their virtual slaves. It doesn’t even have to be a secured loan–look at what they did with credit cards.

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  78. S-crow

    RE: Macro Investor @ 62 – I think I can arrange for that! I’ll have to check with Dept. of Financial Institutions on any ramifications on how to handle trust accounting for “wagers” placed in escrow. Anything to get our escrow account up a little… ;)

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  79. Lurker

    RE: Kary L. Krismer @ 82

    A good, younger friend of ours bought a modest condo back around ’06 I think. She sincerely believed she was doing the right thing for herself. She worked hard at two jobs, was house poor and had no discretionary money left after the mortgage and HOA dues. I can hardly imagine the emotion of throwing away your paycheck every month to a place that kept losing its value. Later, she had to move for family matters and finally put her place on the market. It took nearly a year to (short) sell it and for about 40% less than what she bought it for. Thankfully I don’t think she had to pay the difference on the loan but she suffered five years of financial misery and has a credit rating to remind her of the mistake. The market will be lucky if she ever goes back into it.

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  80. Blurtman

    RE: David Losh @ 75 – “Debt buys commodities which are sold for profit, and then converted into currencies. The currency gets day traded into more profit.” Yes, debt buys “real things,” too. One strategy would be to create debt that would not be repaid, bogus debt, sell it, and then pay yourself with the profits. Sure hope Wall Street doesn’t figure that out.

    “There is no debt. It is all paper. It’s all debt securing debt, that is traded into currencies. It never ends. It’s a complete circle of larger, and larger profits.” That’s right, an ever expanding upwards growing spiral. The collapse of this Ponzi debt construct is exactly what terrorized the likes of Hank Paulson and Tim Geithner in 2007, and led them to abandon the law, and pull out all stops to keep it going. For some, to keep it going long enough to adjust to the discontinuous change in the rules of the game, and re-position their winnings, which would have been lost without the intervention. The Horror!

    “You can rebuild, nobody is going to care, and they are all going to help you. You are a promise to pay.” That is, you are the bagholder. And you are again correct – it is up to you to deal with it.

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  81. Scotsman

    RE: Kary L. Krismer @ 81

    No risk to Ardell- her credibility is already shot. The results are inaccurate and the methodology a maze of cherry-picked factoids.

    But you’re wrong about inflation verses currency destruction- the result is the same. Sure, the loan you locked in is paid with ever weaker dollars, but that’s not the only expense you face, is it? Everything else- the cost of imports (energy?), wages, commodities, all those are changing too with the net result that you lose. In both cases- inflation or devaluation- each new dollar is worth less and the national economy, and hence your standard of living, suffers relative to the rest of the world.

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  82. Kary L. Krismer

    By Scotsman @ 88:

    RE:But you’re wrong about inflation verses currency destruction- the result is the same.

    Sorry, I didn’t understand the comparison you were making.

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  83. Pegasus

    RE: ARDELL @ 60 – I am not surprised that you would emulate Alan Greenspan who brought you the great real estate bubble. The man almost solely responsible for the global economic crisis. A man that believed less regulation and more fraud were good for business. A man responsible for creating bubble after bubble. As to the seven year cycle you can attribute that to the Bible in Genesis not Greenspan.

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  84. Magnolia 44

    Bunker mentality over here in Mags. Currently dumping $5-$10 k on some projects after we did $10 k back in Nov. Look on the bright side, in a few months or years this whole system or earth for that matter could be toast!

    Cheers!!!

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  85. LA Relo

    Didn’t see if anyone commented on this already, but LA,is ahead of Seattle in the correction is 40% off peak vs. Seattle’s 30%.

    Seattle could easily drop another 10% from peak.

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  86. Kary L. Krismer

    RE: LA Relo @ 92 – That’s rather simplistic because you’re just picking two random points. Using 2000 instead, Seattle peaked at 192% of 2000 values, and is now at 135%. Los Angeles 272% of 2000 values and is now at about 170%, so Seattle should rise 35%! ;-)

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  87. whatsmyname

    By Scotsman @ 88:

    RE: Kary L. Krismer @ 81

    But you’re wrong about inflation verses currency destruction- the result is the same. Sure, the loan you locked in is paid with ever weaker dollars, but that’s not the only expense you face, is it? Everything else- the cost of imports (energy?), wages, commodities, all those are changing too with the net result that you lose. In both cases- inflation or devaluation- each new dollar is worth less and the national economy, and hence your standard of living, suffers relative to the rest of the world.

    Not entirely true for two reasons. 1) The effect on you depends on your circumstances, and 2) How your standard of living compares to your previous standard of living is more important than how it compares to the rest of the world.

    If you were out of work, but the cheaper dollar made it possible to have more jobs here, and you become employed as a result, then both your absolute and relative standard of living are better. Similarly, if you sell domestic goods in the domestic market, you may benefit by a higher level of domestic trade for the same reason. If you are leveraged to a degree where the difference between the value of your leveraged goods and declining debt exceeds your newly found purchasing disadvantages on other goods, you also win. If you bet on cash and a strong dollar, then you certainly do lose.

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  88. Jonness

    By Jonness @ 69:

    I have a much different interpretation of this chart:http://seattlebubble.com/blog/wp-content/uploads/2010/09/Home-Prices-and-Incomes_2010-06.pngTo me, it shows per capita incomes outpaced King County incomes since about 1994. I’m having trouble drawing a connection why King County house prices should be increasing at a faster rate during a time when incomes are clearly lagging the rate increase? Where is the extra money coming from that justifies higher house prices?

    OK, sorry to run this subject into the ground, but the U.S. aggregate data has been bothering me. It just doesn’t fit right in my mind. But I think I might realize what’s going on.

    We’ve all seen the reports that U.S. inflation-adjusted income decreased over the last decade. So we know people’s salaries aren’t really a whole lot higher over the last 10 years; yet, house prices are still about double what they were.Tim’s chart shows U.S. aggregate income has gone up a whole lot. Despite thrashing with a few hypothesis yesterday, none of them really seemed to be delivering the meat and potatoes. But, when I woke up this morning, a possible explanation dawned on me. Perhaps the population has increased much faster than household incomes, so the per capita income has gone up. But at the same time, household incomes have stagnated. If this is the case, I believe the median household indicator is a WAY better measure of how much people can afford to pay for homes than than U.S. aggregate income indicator.

    What support is provided to house prices if another $trillion in income is doled out to to seasonal fruit pickers over a 10-year period. Maybe it helps, but when the rest of U.S. households are making less than 10-years ago when you adjust for inflation it doesn’t equate to those households being able to pay 2x for a home. Despite getting a bigger nominal paycheck, they have less money left over to spend on a home, because the price of everything has gone up higher than the increase in their wages.

    http://t3.gstatic.com/images?q=tbn:ANd9GcQ1rzfE61W_z1uLTJpsNRgVzjBJzkGs-PxITx8g6ZDjHWZlnSSCuw

    http://seattlebubble.com/blog/wp-content/uploads/2010/09/Home-Prices-and-Incomes_2010-06-600×435.png

    I’d have to see the other side of the argument in order to be certain, but for now, the above seems fairly convincing.

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  89. Jonness

    OK! Forget everything I’ve said about Tim’s chart. I’ve been misinterpreting what it is. It’s not aggregate income, it’s U.S. aggregate income divided by population. (Sorry for not reading the data link in detail. I just assumed Tim provided the wrong link.).

    Despite my confusion, the argument remains the same. Who cares what my income is when I buy a house? I have a dual income family, as do most households.

    I haven’t seen the argument for why individual income in the rest of the U.S. is supposedly a better measure than household income in King County compared to Seattle metro prices. However, the reasons are so non-obvious to me, that I originally dismissed that Tim could possibly be talking about individual income and jumped to the conclusion he must be using U.S. aggregate data without a population adjustment.

    I’m certain there are things about this I’m missing about the counter-argument, and I’m interested to find out what they are.

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  90. Conor MacEvilly

    I tell all my buyers not to buy a home if they do not see themselves staying in it for a minimum of 6 years to allow for what the market may or may not do. And yes, I tell them that your home is probably going to lose value before it ever goes up again. And yes, I tell them to read that scary Seattle Bubble blog if they want a reality check. Despite that, people will always want a home of their own and are willing to leap into the great “unknown” as we know it today.

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  91. fubarrio

    RE: The Tim @ 21 – i think using historical averages of rent versus buy go out the window when you factor in a FALLING market. the biggest reason that buying prices were so much higher than renting prices was the fallacy that ‘prices always go up’. ‘Prices always go up’ was the fuel to encourage people to buy/speculate. Now that that prop is gone from the market, people will start to do a much truer analysis of rent versus buy….

    …now what happens if interest rates go up or lending tightens?

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  92. Ross

    RE: The Tim @ 21 – You mention rent vs. buy, but when I look at house rentals in Norkirk and other nicer eastside neighborhoods, annual rents are well below 6-7% of recent equivalent homes sales prices. There’s definitely another 20-30% of drop just to get back to rent equivalence the way I count the numbers.

    I wonder if the data you’re using is showing you a normal rental market and a broken buying market where the distressed properties and the bottom end of the market are selling all out of proportion to higher-end properties. That would distort the numbers you’re looking at if you’re evaluating county or regional data instead of apples-to-apples rental vs. purchase.

    We’ll see what the story is next spring when my family and I are actually in the moving truck headed north.

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  93. Seattle Bubble • Top 10 Most-Viewed Posts of 2011

    [...] 4,924 pageviews, 03/29: Case-Shiller: Seattle Home Prices Nearly 30% Off Peak [...]

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