Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

50 responses to “Seattle Got Richer Just Before the Housing Bubble”

  1. patient

    Income is not wealth. Without knowing the numbers I wouldn’t be surprised to see a similar growth in household debt during the same period to a level that negated the income growth.

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  2. m-s

    Hi-
    Whoa. The plot is home price TO income, which means home price DIVIDED by household income, which should be smaller when income gets bigger. Anyway, there are 2 variables there; a simpler and more convincing plot would just be 1 variable, i.e. income, for these different counties.
    Looks like King county residents simply wanted to (were convinced to?) spend a larger fraction of their household income on … their house.
    Also, seems that the same “filter” that the median makes for incomes vis-a-vis average, should be operative for median home prices; the expensive outliers are downweighted, so it SHOULD be a wash.

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  3. patient

    Another factor that is not mentioned much is the move up buyers impact on the volume of transactions of higher priced homes and the resulting price impact. It can be very hard to keep high prices boyant when more and more potential move up buyers find themselves with no or negative equity due to falling prices, cash out refis or both. If you get a couple of thousand more +100k jobs you might get even more potential move up buyers with no equity barring them to make the move. We are in an unusual situation and narrow logic will likely get you burnt.

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  4. Scotsman

    “Inflation is back, with higher prices for food and fuel hammering American consumers, and this time it really hurts. It’s not just that prices are rising — it’s that wages aren’t.

    Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent.
    And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it’s not computers and cars that are getting more expensive, it’s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.”

    http://www.washingtonpost.com/business/economy/inflation-inflicting-pain-as-wages-fail-to-keep-pace-with-price-hikes/2011/03/09/AF6K2seC_story.html?hpid=z3

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  5. Blake

    By The Tim @ 3:

    RE: m-s @ 2 – The point is that median incomes didn’t rise all that much, but home prices did, thus driving the ratio up in Seattle but not everywhere else around the state. Something had to be driving Seattle home prices up during that time, and based on the third chart in yesterday’s post, I’m claiming that it was increased incomes on the upper end, which was not reflected in the median household income.

    Another factor is zoning and land scarcity… Outlying areas can expand more readily, while Seattle cannot. Thus, rising population/demand would cause prices to rise faster in Seattle relative to other areas regardless of income. In effect: people are willing to bid more and spend a larger percentage of their income to live closer and not have to commute as far. (I believe Seattle’s population really increased in the 90s?)

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  6. m-s

    RE: The Tim @ 3
    Thanks, Tim, you are extremely patient (or maybe persistent). Its been alluded to before, but the people who had high incomes, after they bought their house (you can only live in one at a time) saw extra houses as investments. That’s stopped, obviously. There are better investments currently, except for GEMS. Therefore high income peoples’ inordinate effect on house prices should also stop.

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  7. BillE

    So, the bottom line is that Seattle’s special. I KNEW it!

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  8. ;

    By The Tim @ 3:

    RE: m-s @ 2 – The point is that median incomes didn’t rise all that much, but home prices did, thus driving the ratio up in Seattle but not everywhere else around the state. Something had to be driving Seattle home prices up during that time, and based on the third chart in yesterday’s post, I’m claiming that it was increased incomes on the upper end, which was not reflected in the median household income.

    do you have average household income?

    a higher average household income might support your higher income theory.

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  9. Ira Sacharoff

    The increased incomes on the upper end didn’t only increase the home prices on the upper end, but seemingly all home prices. As if ” You’re lucky to even be able to live in the same county as these rich people, so pay for it, sucka.”
    Rich people weren’t buying 200,000 dollar houses in 1997, yet a 200,000 dollar home appreciated a lot in Seattle from then on. It wasn’t because the people buying those homes were seeing greater incomes. It was more like the domino effect.

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  10. patient

    Base lines are fine but you need much more than one to make a decent prediction. Baseline employment, interest rates, foreclosures, private debt, downpayment requirements, equity, inflation, sales volume, population, etc, etc.

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  11. Fran Tarkenton

    By Blake @ 6:

    Another factor is zoning and land scarcity… Outlying areas can expand more readily, while Seattle cannot. Thus, rising population/demand would cause prices to rise faster in Seattle relative to other areas regardless of income. In effect: people are willing to bid more and spend a larger percentage of their income to live closer and not have to commute as far. (I believe Seattle’s population really increased in the 90s?)

    This is a variation of the “superstar cities” argument used to assert that some cities were immune from housing declines because of (off the top of my head) a combination of geographical constraints, high paying jobs, and restrictive zoning regulations. The problem with it is that housing in outlying areas are substitute goods for housing in Seattle (though not perfect substitutes). The commute itself is not a great reason why Seattle is not a perfect substitute, because, if anything, there are just as many jobs in these outlying areas as in Seattle proper.

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  12. Ray Watkins

    Tim,
    Really good analysis. We all appreciate the mental stimulation we get from your site and your analysis. I do believe your inference that “Seattle got richer” ergo housing prices went out of whack, is flawed for a couple of reasons. I’m not asserting that there is some other cause, I just don’t believe your argument constitutes a proof. It is a good argument, but it is only one of several possible reasons that the Seattle market behaved differently than other metro markets. Housing market behavior is driven primarily by human behavior. Thus local customs, culture (Seattle is different), psychology, attitudes, media bias etc. All serve to influence people when they make decisions from what coffee to drink to how much should one pay for a house. The period of interest here had a number of things happen in addition to the dramatic rise in per capita incomes. Lending standards were changing, immigration was rising and international trade through the Port of Seattle spiked. All of these factors were likely to have an impact on housing prices along with per capita income. There are systems that can be abstracted using a single highly correlated external phenomena. I am not convinced that housing is one of those. My conclusion is, using PCI as an indicator of future housing market behavior, could possibly lead to a faulty judgement about when the correction is complete. Particularly if other causal factors change dramatically in a direction opposite to the direction of PCI. I’m just saying.

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  13. LA Relo

    I wonder if we’re missing something looking at average per capita income. While growth may be good, it doesn’t tell you at what income range growth is happening. Based on other demographic data I tend to think upper income levels are raising the average, not growth of a robust middle class that can afford the avg priced Seattle area home.

    So incomes are up, but for who? If growth is all at the top it won’t do much to support current price levels.

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  14. Yaj

    Thanks for posting the data.

    One of the factors that’s hard to account for in a quantitative fashion is the commuter-hell effect. I only have anecdotal data to refer to here, but just about everyone that I’ve spoken with that’s purchased a home in the city has cited traffic as one of the factors that helped persuade them to pay a premium to live in the city. In many cases, that meant settling for a crappy, overpriced POS that required a major renovation – but if was worth it to avoid spending 15 hours a week stuck in traffic. An extra hour a day on either end of a commute can mean the difference between being able to participate in family and community life on workday evenings, and being stuck in the eat-sleep-work mode forever.

    Seems like as the traffic worsened, the premium that people were willing to pay (either in higher prices or settling for smaller, crappier houses with no yards ) to avoid it increased dramatically.

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  15. ChrisM

    Are stock options included in income? Would they have been significant?

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  16. softwarengineer

    RE: patient @ 1

    I’d Like to See the Same Charts Done to Per Capita Wages

    LOL…..but I already know the workers per household growth data from census 2010 is hidden from public view [try to find it]….so graphing this pragmatic data away from household income exagerations is a complete pipe dream joke anyway…LOL

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  17. softwarengineer

    RE: LA Relo @ 15

    Yes

    Like we’re missing the whole boat IMO….LOL

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  18. Scotsman

    RE: The Tim @ 3

    “Something had to be driving Seattle home prices up during that time, and based on the third chart in yesterday’s post, I’m claiming that it was increased incomes on the upper end, which was not reflected in the median household income.”

    It’s called stock options, cashed in. where’s the Microsoft, Amazon, Real Networks, McCaw, etc. influence captured in all this? Remember the articles in the Seattle Times about high school educated warehouse clerks at Amazon with $300K in stock? I personally knew a receptionist at MSFT who was cute, but dumb as a brick, with $500K in options. The car customization business I ran depended on “software people” who “wanted it perfect- at any cost” to keep going. We called it funny money, and it’s all gone now.

    Take the net growth in the valuations of these companies over the relevant time period and add a fraction of it to your income, then divide by population and I’ll bet things look much more normal. Seattle did enjoy a surge in income- it just isn’t captured in the government stats.

    As a final note- none of this is coming back. when was the last time you heard a group of people talking about how they will soon be rich- as soon as the IPO hits? Who even gets a significant return on options these days outside of a few bankers? We’re back to good old fashioned earned income- and that is headed down.

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  19. fubarrio

    tim,

    nice article. i agree with some of what you’ve written, but i gotta say i respectfully disagree with some of your conclusions.

    1.) you say that a rise in the ratio of house price to income is an anomaly caused by the high end earners pushing the average higher while leaving the median nearly unchanged…you call this the ‘wealth effect’.

    i agree it was a ‘wealth effect’, but it was a ‘wealth effect’ caused by rising stock prices — (especially in the form of stock options for employees of certain companies that were headquartered in and around Seattle).

    importantly, most of that fantasy wealth vanished already.

    2.) you say that 2003 is a much better indicator of where an income to house value should be. i disagree. your chart, were it to go further back in time would likely show a much more stable relationship, down around 3x — where responsible banking takes place — likely for decades.

    in fact, i think your chart shows what people have been trying to tell you — house prices will correct back to the mean (at least) in income to price. the ratio may actually overshoot given negative demographic trends, negative psychology of a falling market, higher local taxes/funding issues, and a perception that owning locks you into an area and makes you less flexible to accept employment elsewhere.

    thanks for listening.

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  20. Lurker

    “Remember the articles in the Seattle Times about high school educated warehouse clerks at Amazon with $300K in stock?”

    Heh, I partied with some of those Amazon warehouse guys. Some of that money didn’t last long.

    Those party days are gone now but it did leave Seattle for the better in the end. Right now we just need to recover from that hangover, pop some aspirin, get back to reality and talk about the good old days.

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  21. fubarrio

    RE: fubarrio @ 21 – oops, i guess scotsman already made my point for me….’nevermind’ :-)

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  22. fubarrio

    RE: Scotsman @ 20 – importantly, around the middle of last decade, i believe the IRS changed the way companies have to account for stock options.

    that, along with a dormant stock price i imagine, changed the way msft started compensating employees…i don’t work for other people anymore, so i’m not sure how many other companies followed suit, but i’m guessing stock options aren’t quite the consideration they were in the late 90’s with various comp schemes.

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  23. Scotsman

    RE: fubarrio @ 23

    And Chris M before me- ah, the embarrassment of not reading all the way to the bottom before posting. ;-0

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  24. David Losh

    RE: Scotsman @ 20

    You should know better. You’re talking 1995 to 1998, by 2001 the new rich stock option days were closing. We could also throw in the influx of Hong Kong dollars looking for a safe haven, and toe hold into the United States.

    What we actually saw was the beginning of the credit bubble in 2001 to 2007. Those are finance dollars you see from WaMu. In 2003 WaMu was one of the conservative lenders. In 2007 there wasn’t a loan they didn’t like.

    I would like to see these graphs for every city, San Fransisco, Chicago, Las Vegas, New York, and the like. I’ll bet every major metropolitan hub was the same loan leader that spread the housing price bubble. I should say mortgage credit bubble.

    You had to have higher prices to generate higher priced Notes to be sold. It spread from the cities into the surrounding areas.

    I call it homogeneous housing prices. In city was $500K so it must be a bargain to buy in Everett for $300K. When in city prices collapse the surrounding areas don’t have a lot of room to move.

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  25. Scotsman

    RE: David Losh @ 26

    “You’re talking 1995 to 1998, by 2001 the new rich stock option days were closing.”

    That’s true in the sense that there weren’t a lot of new or additional options being generated, but the original money was still around and I’d guess not all of it was available until some point in the early 2000’s what with vesting requirements, etc.

    Good point about the Hong Kong money- I’d forgotten about that. I’m not sure how much of it we really saw though, especially compared to Vancouver, etc. But it does support the idea that there was a lot of money around that wasn’t going to be picked up by standardized government income stats.

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  26. Sanguis

    Sure, incomes increased during the tech bubble, but then it burst. Take a look at a chart of the NASDAQ between Mar 2000 and Sept 2002. Do you remember that the goverment at the time decided to help revive the economy using lower interest rates? Ahhah! –the birth of the housing bubble. Figure out what the next bubble will be, and invest accordingly.

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  27. Macro Investor

    Yesterday I posted a link that showed from 1990 to 2010, debt increased almost 3x faster than income. All these charts show is people stretched their budgets further. That’s what a bubble is. It’s a psychological process where people think they’re either going to get rich quick, or miss out on some pink pony fantasy. That’s it. Deal with it.

    It’s not stock options (which is a one time pay increase). Each buyer up the bubble chain of events had to borrow more and more money, vs. the traditional leverage ratios. That explains why the ratio went from 3 to 7 in a few years. Call it a wealth effect if you want, but all it means is people were so rabid about having a house that they were willing to go deeper and deeper into debt.

    Here is the data. I’m not making it up:http://www.ofm.wa.gov/economy/hhinc/default.asp
    http://www.federalreserve.gov/releases/g19/hist/cc_hist_sa.html

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  28. Chris

    RE: Macro Investor @ 31

    Hmmm. This Federal Reserve release is interesting and maybe runs counter to that. It shows total debt service as a percentage of household income – it looks like things are regressing back to the mean. It also looks like if it were lined up with periods of recession, the household Debt Service Ratio climbs up to 12+ percent at the onset of a recession, then falls back to 11 or below during or after the recession (it probably correlates closely with consumer sentiment). The exception seems to be after the 2001 recession when the debt ratio continued to climb above 13%, which of course helped set the tabel for the housing bubble.

    http://www.federalreserve.gov/releases/housedebt/

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  29. Jonness

    Tim:
    First of all, thanks for taking the time to perform this analysis. While we share different views on this subject, I appreciate your passion and intellectual aptitude.
    I have a different interpretation of these charts than you do. You are saying they validated your opinion, and I believe they validated mine. Perhaps, we need to come up with another thought experiment. :)

    These charts show exactly what I expected. We had a national housing bubble that began around 1997. At that time, we started to pull out of the previous bubble that crashed around 1990. So we would expect to have some organic growth after having worked off the excesses. Perhaps Seattle started to rise earlier than other WA cities because it got jobs back faster and is a big employment center. And perhaps the earlier growth was in part due, being a big city, Seattle home prices began to inflate at the same time many of the other bubble cities (LA, etc) began to inflate, due to national lending games and all the other bubbly things that occurred during that time.

    IOW, the “Seattle is special” theory was birthed, and it took a few years before people figured out Port Angeles was even more special.
    I would guess normal for the big city job centers to start bubbling first, and the outlying areas to tag along. I expect if you ran a chart of other bubble cities, you would see them began to rise earlier than their outlying areas as well.

    I think the most important thing to take away from the above charts is, the percentage of correction of all these areas is about the same. If Seattle’s early runup was due to it being wealthier than the other cities, why would the rate of correction so far be about the same. Wouldn’t the wealth of Seattle have caused it to correct substantially less? Especially given, during bubbles, outlying areas tend to run up later and correct earlier.

    Do you agree that Clallum County is still seriously bubbled? If so, how do you explain that King county has supposedly fully corrected back to historical relationships to incomes, while Clallum County and others are still seriously bubbled? This doesn’t make sense to me.

    Would it be too much trouble to supply a chart of just the incomes of the above cities against each other so that we can more clearly measure Seattle’s early wealth divergence?

    Thanks

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  30. Jonness

    By patient @ 12:

    Base lines are fine but you need much more than one to make a decent prediction. Baseline employment, interest rates, foreclosures, private debt, downpayment requirements, equity, inflation, sales volume, population, etc, etc.

    I don’t believe we are saying the only thing that matters is a single indicator. We are examining this particular indicator in detail in order to better understand the big picture of how everything fits together.

    I expect Seattle did see some dot com-related appreciation, but I also expect it would have shown up as a data pattern during the terrible crash that ensued if it was as relevant as Tim claims. But this is not the case. The most interesting thing to me about the chart is, every city on it still looks bubbled. If Seattle is so special, why is it correcting faster than Port Angeles? Did they put a Google plant their recently and start handing out $100K jobs to former fishermen?

    OK, that was a bit of an unnecessary shot, but I’m seriously trying to wrap my head around this phenomenon in a manner that fits Tim’s hypothesis.

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  31. Consultant Ninja

    Tim-

    See if you have the data to compare the trend in median-to-average home prices and median-to-average incomes. that’s the easy way to prove that the price distribution has skewed upwards over time.

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  32. Michael B

    “The point I’m making here is that the upper incomes around Seattle got wealthier faster just before the housing bubble during the tech boom, as evidenced by the growth in per capita incomes, thus making 2003 a better baseline for local housing market economic fundamentals than any time in the ’90s or before.”Generally a ratio of around 3.5 seems to be the best baseline for housing value to income – so you may want to back the truck up a bit and look at pre-1997. This “wealth effect” idea may seem statstically appealing, but I don’t think it holds water, unless you can dig much much deeper. I wonder if your association with RedFin has somehow impacted on your analysis as you seem much more positive on the Seattle market, than you were before the Redfin gig. Maybe it is just from rubbing shoulders with the techy Redfinnians? To assume that you can come up with a better model as a baseline indicator of home price to income than Case Schiller seems lofty. I would argue that for home price to income ratios 1997 would be a much better baseline for Seattle and prices have much further to fall. By 1999, homes were selling like hotcakes in an extremely heated market. I believe you would find a much higher correllation between home prices and debt, going back as far as 1998. A wealth effect would likely lead wealthy people to purchase more expensive homes, rather than multiple expensive homes as investment properties. For super wealthy people – well, it’s hard to believe they would get into residential real estate in adequate numbers to impact the graph, if that is what you are inferring. Do you have any examples of software millionaires impacting the residential real estate market? Intuitively, housing bubbles begin in the major cities and then push their way out as it becomes more and more expensive to live close to the city. I believe this is a much better explanation of what happened in Seattle.Prices are now at 2004. You believe the baseline is 2003. Go to Redfin and buy a home….Nice try Tim! BTW – Love RedFin! Just don’t believe your hypothesis…

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  33. Bobby J

    I think the relationship between prices and incomes is different before vs after the peak. When the market was on the way up, income levels limited how much people were able to pay for housing and thus served as a ceiling for prices. But it’s hard to see how/why incomes would similarly limit prices on the way down.

    This seems consistent with my anecdotal experience as well. Most people I know bought at some point during the runup and basically put as much as they could possibly afford towards their house (both because of the expectation of future price increases and because it was so difficult to find liveable housing with an income level anywhere near the median). The era of people maxing out for housing looks to be in the past though… attitudes towards housing have changed and it just isn’t necessary to spend every available cent to find a decent house any more.

    As far as numbers, perhaps some light could be shed on the issue by looking at the same income-price relationship for other cities that are further along in the cycle (maybe san diego or san francisco?). I believe the skewing of the income distribution towards the upper end is a nationwide trend over the past decade, but it doesn’t seem to have resulted in a price floor in the way Tim suggests in other bubble cities.

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  34. David Losh

    RE: deejayoh @ 30

    This is the most concise demonstration of the wealth factor which I think is the main point of the macro economy arguments. Technology did create massive wealth. Technology is a very real wealth builder. It’s real dollars as opposed to a bubble. Microsoft was a new, totally new item of value. Microsoft made Amazon possible. Google is a direct result of the internet which was another new industry. This is all new money being generated by a very low cost industry.

    Now that the computer, and internet Industry is in place where do you invest the profit? My contention was that the computer, internet wealth began buying tangible assets like Real Estate. Then there was a leap from Real Estate to mortgages because that was an easier way to control property. From mortgages it was another leap into generating mortgages to sell to the secondary market, bundle investments of Mortgage Backed Securities, and trade those “securities” on the stock market.

    Computers made complex economic formulas possible to predict, and manipulate.

    So yes, there is new wealth. The correlation to housing however requires some conspiracy theory. I call it business.

    In my opinion every one commenting here is correct. It’s just kind of a circular discussion.

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  35. David Losh

    RE: Jonness @ 33

    I don’t know if I ever commented about Issaquah and Fall City, but both of those places have very high housing prices. I looked at a place in Fall City that was being short sold for $440K? WTF? Short for $440K? in Fall City? Not on the river? No acrage?

    Issaquah town house for $350K?

    How did they get loans for that amount?

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  36. mojo

    Tim – one of the first things you learn to do in data analysis is to exclude the outliers that aren’t as statistically significant. In this case, neither the bottom-tier wage earners nor the top tier-wage earners are as statistically significant in determining home prices across a large area like King County. The middle 80% is the most statistically significant group.

    So why use mean income without excluding these outliers? In my opinion, it would be a better analysis if you considered the mean income of middle 80% of wage earners and excluded mean incomes of the top and bottom 10%.

    Using the information in Deejayoh’s graph, it is possible to look at how much the mean income of the middle 80% has increased between 2002 and 2009 if you make some simplifying assumptions.

    For example, if you make the assumption that income distribution within each wage bracket is at the middle of that wage bracket (i.e. the mean wage of earners in the $100k to $150k wage bracket is $125k) then you can approximate what the increase in mean income for the middle 80% is between 2002 and 2009. When I did the calculation, I came up with an increase in mean income of the middle 80% that was pretty close to the median income increase of ~22%.

    So let’s reassess this…don’t you think the middle 80% are more significant in determining “baseline” home price ratios?

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  37. fubarrio

    i also think all of this statistical analysis is interesting, but is not a very useful predictor of short term price movements.

    what many of you are doing is essentially trying to pick a bottom before a turn has occurred.

    why did prices go to 6x+ median incomes during the bubble? — in part because ‘prices were going up’

    why will they come back to and below (perhaps) 3x during the correction? — in part because ‘prices are going down’

    charts do a lousy job of capturing human emotion.

    traditional economic analysis tells you that the chart is seeking ‘equilibrium’ — i think soros is closer to the truth in his book alchemy of finance when he explains that the equation is reflexive and what the chart is going to do next is heavily dependent on what it did LAST.

    iow, prices are going down, because the price just went down.

    study some booms and busts in other markets to understand the psychology. Gold 1980, Nasdaq 1999, Japan 1989, stocks 1929.

    they don’t correct after 3 years after a 30 percent decline, especially in a market as sticky as real estate…more like 18-20 years, and more like 60-80% declines.

    fB

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  38. ESS

    I have a question

    It is my understanding that each county develops its own set of figures for tracking prices and sales of housing. But what about housing on a border of a different county? For example, would housing adjacent to King County be more influenced by the prices of housing in King County than the county those houses are actually located in? An example is South Snohomish County. Would not housing prices in South Snohomish County be equivalent to suburban housing in King County which is an equal distance away from Seattle? And wouldn’t housing prices in Seattle affect the price of those houses more than Snohomish County’s largest city, Everett? Should there not be a subcategory for houses adjacent to Seattle that are more affected by Seattle prices, as compared to housing in north Snohomish County? And if there is such information developed, where would one locate it? Thank you.

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  39. Macro Investor

    RE: Jonness @ 33

    “If Seattle’s early runup was due to it being wealthier than the other cities, why would the rate of correction so far be about the same.”

    Joness, am I missing something? If Seattle were wealthier, that increases the denominator and DECREASES the ratio.

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  40. Jonness

    By The Tim @ 41:

    Yeah, it couldn’t possibly be because home prices have fallen much closer to a level supported by local economic fundamentals, and are just a few percentage points off of where I guessed the bottom might be way back in February 2009.

    That’s called predetermining the answers to your questions.

    You haven’t gotten anywhere near proving your assertion, yet you’ve already called the fat lady in to sing. Tim, I am really, really surprised by your attitude and lack of objectivity here. You are a better analyst than this.

    Why are those outlying areas correcting at about the same rate as King County? This is the question I had in mind prior to you running the charts. You’ve yet to supply an adequate answer. If you want the fat lady to sing, slow down a bit and look at the big picture. Once all the puzzle pieces come together as a single entity, then make your final assertion. If it matches your initial assumption, great. But if it doesn’t match, then adjust your outlook, and move on.

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  41. David Losh

    RE: The Tim @ 41

    You do have the job, and it will always be up for discussion. It’s OK, you’re entitled.

    The problem is that since you started this blog a lot has changed. I personally would have thought a “recovery” in housing was possible. It’s not possible.

    Housing has become a focal point of mortgages, Mortgage Backed Securities, emerging markets, global housing development patterns, and ultimately the derivatives market. Now we have foreclosures, federal deficit, consumer debt, and the yet to be determined rate of bankruptcy for this country.

    We are in completely uncharted waters. No amount of data that you throw out there will be relevant to the housing market place. Number one we never had computers before, and second we have the ability to present all of this data.

    Well, all the data indicates we have never been here before. We have no way of saying that we will revert to a normal. As the next comment below your indicates a “bubble” is a massive amount. You just keep proving that there was indeed a bubble. Otherwise you would be saying that we had a “spike” in the price of housing, like we have a spike in oil prices.

    Real Estate is illiquid. The pipe dream of a Real Estate Index shows that there was no predictive nature to having the index. It’s declining with no other alternative but to continue the decline. There’s no war in Iraq to spike housing, or factory production in China, or civil war in Libya. Housing is X number of people sleeping eight hours a day in shelter.

    You called it a bubble, and you were right. It was in fact a massive bubble, embrace that, love it. We aren’t going back. The brakes aren’t coming on, the Fed is done, jobs, and jobs reports will find a lower, and lower wage base, the rich will get richer, and the poor will riot in the streets.

    You win, you were right to called the bubble, cop to it.

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  42. MIchael B

    RE: The Tim @ 41

    Hey Tim,

    I’m NOT a perma-bear! I’m a semi-perma bear….Let’s face it…there’s not much room in the corporate world for perma bears – so why would you want to be one?

    Look around…Hardly any new house listings in Seattle for 3 months! Does that sound like near a market bottom to you? Millions of homes in shadow inventory across the US. Homes being reduced everywhere and still not selling…It is nasty out there.

    Surely you have access to reams of data at Redfin to back up your theory of the so called wealth effect? People are wealthier now, therefore prices are near bottom….OK! well “Show me the money!”

    When people make wild claims with insufficient data and analysis to back it up…you just have to wonder… Take 1997 prices. Add inflation up until 2011. That’s the likely bottom unless there is a depression. Will prices go up or stay the same? Depends on inflation. deleveraging. But at the end of the day, people will not be willing or able to spend more than 2.5 to 3.5 times annual income on a home for a very long time.

    Tim, Have to say I really enjoy your blog and can see that you have put a lot of effort into it. Thanks for creating this forum.

    Only 10% down in Seattle? You will be proven wrong by Q1 2012.

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  43. David Losh

    RE: The Tim @ 48RE: MIchael B @ 47

    This is a very big assumption that housing units will be an asset at all. In order to take a price in 1997 and add inflation you would have to assume that a housing unit is an asset worth that rate of inflation. You would first have to make the case that a housing unit is an asset above, and beyond a place to sleep, and store your stuff.

    What changed, through massive housing unit development, was the denigration of those housing units as an asset class.

    I think you are already on the right track by looking at 1986 to 1998. In those years housing prices doubled. From 1970 to 1986 housing prices were much more flat.

    You can look at data all day long. It’s not going to change the fact the global economy has out grown the simple basics of get a good job, buy a house, a car, and start a college fund for the kids.

    We’re not going back to 1968 where a one income household could have all the finer things in life.

    By looking at one thing, and concentrating on only one small part of the over all global economy, you are just wedging this one small asset into a formula that no longer exists.

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  44. David Losh

    I left reading here, and went to check on the budget talks for the United States, the European Central bank raising interest rates, and Portugal is accepting a bail out while Spain is saying they don’t need one. In my opinion Spain will simply default.

    When you started this blog did it ever cross your mind that the global economy would collapse? Did you see the amount of wealth that trading in Financial Instruments could generate? Are you factoring in the miles of empty skyscrapers in China, 18 million vacant housing units in the United States? Detroit? Phoenix? Las Vegas? Miami? QEI, QEII, Obama, the Tea Party, and now the looming shut down of the Federal government?

    A lot has changed, and this post about the rich proves that. At the same time you want to revert to past data as predictive of future performance. It’s just not working out to make sense; it’s not logical.

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