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.

81 responses to “Bottom-Calling Checkup: Finally Almost There”

  1. Scotsman

    Well this should be fun . . . ;-)

    I tend to agree- I think we’re very close to a bottom if the macro picture holds together. I’ve put my money where my mouth is, and am locked in on a purchase @ 50% off peak. I’d add that buying at my price point is a very conservative purchase for me and doable for anyone with close to median King County income. I’d guess the upper tiers have a bit further to fall and present more risk, some locations excepted.

    Now the macro future- there’s an interesting question. Collapse is possible, but I’m betting on controlled currency devaluation/inflation stretched out over a decade or more with budget constraints and manipulated interest rates. Future economies will be politically controlled, not driven by fundamentals.

    The new majority doesn’t understand or really care. They just want their stuff and something to do.

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  2. wreckingbull

    While working today, I am listening to Real Time with Bill Maher. Unfortunately, Suze Orman is on the show, and her cacophonous screech is basically telling everyone that housing is a horrible investment. While not specific to Seattle, if that is not a buy signal, I don’t know what is.

    I predict this post is going to be a three-pager.

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  3. patient

    It’s anyone’s guess how a market as sick as ours will behave. Interest rates are at extreme lows but prices are still falling. Many potential sellers can’t afford to sell, cutting the legs of the move-up chain, distressed sales are at record precentages and the banks are holding a considerable backlog of REOs. Very far from a healthy market. Will prices move up, down or sideways? More difficult to predict than ever but the risk is high due to very unusual circumstances. When in this level of doubt I prefer to keep my powder dry.

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  4. Tim McB

    Thanks for the update Tim. I must admit when I saw these prediction models in Feb of ’09 I had thought we’d fall somewhere between the Case Shiller Inventory Based model and the simple mirror model. Somewhere in the neighborhood of 25% down before the bottom and I was called pessimistic by my friends. Looks like I was actually an optimist. If financial armegeddon does hit I’ll probably be worrying about a lot of other stuff before I worry about what riots and blood in the streets will do to my home’s value.

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  5. wreckingbull

    RE: The Tim @ 3 I disagree with the term ‘horrible’, as one receives dividends of utility. I don’t view my car as a horrible investment for that same reason.

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  6. David S

    By The Tim @ 3:

    By wreckingbull @ 2:
    Unfortunately, Suze Orman is on the show, and her cacophonous screech is basically telling everyone that housing is a horrible investment.

    Well, housing is a horrible investment. You should buy a home because you want to own a home, not because you want to make money on it. No different from buying a car, a boat, or an RV.

    My wife misunderstood you when you said “Then you’re doing it wrong” in another thread. This latest statement will clarify your position to her. All is well The Tim!

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  7. David S

    RE: wreckingbull @ 6 – If you don’t view your car as a consumable then you’re doing it wrong.

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  8. wreckingbull

    RE: David S @ 8 – I guess I am doing it wrong. I look at is as a capital investment. Without it, I can’t earn money.

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  9. wreckingbull

    RE: The Tim @ 10 – Fair enough, although if you do quote the MW definition, you may wish to quote the full definition from the MW link you post, which is:

    “: the outlay of money usually for income or profit : capital outlay; also : the sum invested or the property purchased ”

    My original point is this: If you zig when the blowhards zag, you are already ahead of the game. That simple rule has been very good me over the years.

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  10. Peter Witting

    You are a courageous man, Tim. I think “bottom” will be a median price hovering slightly below $300,000, and we will bumble along for at least a year in this territory.

    Unless the world falls apart ~ then all bets are off.

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  11. fubarrio

    i’ll give you credit for putting it out there….but the caveat is too easy an ‘out’ unless you define “total economic collapse”.

    i will say this: i disagree. i think the bubble bloggers/callers were early in identifying the top (so was i) and i think they will prove to be early calling the bottom.

    trying to apply charts and metrics to define a bottom makes about as much sense as it did to try to define a top on the way up — didn’t work, did it?

    soros, for all his faults, wrote an excellent book called the alchemy of finance — i listened to it as a book on tape when i had a commute, and it took me a year or so to grasp one of the simple premises of the book:

    securities (or anything) does NOT seek ‘stable’ true pricing…they are inherently unstable…and the reason for this is that the single biggest factor driving future price moves is past price moves.

    in other words, the price is going up because it’s going up, and the price is going down because it’s going down…aka ‘trending’

    emotions drive purchase decisions…once a hyperbolic blowoff in a market happens, the price action doesn’t level off when the security reaches ‘fair value’…it happens when psychology gets repaired.

    doesn’t make much sense to rational folks like ‘the tim’ (otherwise he would have bought in 2006), but if you want to know when housing will bottom a trader would be a better person to consult than a traditional economist or even a rational observer.

    pull up a chart of nasdaq 2000, gold 1980, nikkei 1989, jdjia 1929, japanese real estate 1989, or even florida real estate around 1925’ish….

    now look at the tim’s case shiller chart since 1990 that he posted here in this post. what holds it magically at 130? because you want it to? because the dollar is going to continue to weaken? what if we are facing deflation? what if the dollar stops weakening?

    it will be 7 years since 2006,7,8 soon.

    don’t try to catch falling chainsaws… while they are running… between your legs… while nude. :-)

    fB

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  12. Kary L. Krismer

    By The Tim @ 10:

    A home does not directly generate “income or profit.” A car allows you to participate in income-generating activities, but does not itself directly generate income or profit.

    It does in the form of reduced expenses when you own it free and clear (making the assumption that taxes on the house are less than rent would be). So it improves your net income, if not your gross income.

    A house is still a productive asset with an owner in it, just as much as if a tenant were in it.

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  13. No Name Guy

    Most predictions are based on that old school notion that we actually have a some what free market. That basis is, and has been, totally replaced with the planned economy ruled by the whims of man, not the rule of law (GM bondholders being screwed, failure to prosecute forgery in fraud closure, unpunished MF Global theft, etc), that we now have.

    Ben has manipulated rates down trying to goose housing to re-inflate the popped bubble that artificially low rates in the post dot com crash created in the first place. Goosed housing worked out how last time? Oh yeah, that’s right, we’re here in post bubble land. I gotta wonder what will be screwed up this time……

    My point….the only way to predict anything in a planned economy in the short to mid term is to predict the whims of the man making the rules. And understand that, in our case he’s absolutely bat sh** schizophrenic (2 examples – hailing Boeing Exports, yet trying to shut down one of the plants that will build those very items to export. Bemoaning high gas prices, while vetoing Keystone XL, stopping Gulf drilling, beating the war drums in the Gulf, and being actively hostile to fracking.) In the long term, predicting things in a planned economy is slam dunk easy: It goes to heck in a hand basket as ALL planned economies fail miserably.

    Keep your powder dry and be patient……..

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  14. AxlRose

    If you get to add 16 months to your prediction, shouldn’t the other models get the same adjustment?

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  15. WannaBuy2012

    If this is the bottom, then buying low is overrated. There is NOTHING nice and worthwhile out there on the eastside.

    I do agree something is happening. Post-collapse stagnation perhaps. Personally, I think prices will drop 2% to 3% YoY most years for another decade. With a few good 3% to 4% summer jumps in there to counterbalance some of the loss. The year 2022 should be -10% to -12% below today’s prices if things follow some non-US post-bubble geriatric-capitalism market trends. I have seen no progressive forward thinking thoughts or data which suggests otherwise.

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  16. Gary

    Wrong, more to go to the bottom. There’s more a foot than hitting a projected date or percentage. Basic income levels is at a new lower level based on jobs as greeters at Walmart and baristas at Starbucks. There’s is considerable under employment and jobs are hard to get that can afford Seattle home prices + taxes. Also, older home owners are unwinding there equity to cover retirement and/or dying; unloading these expensive homes to a population that can’t afford them. That said, as income levels go down and government taxes suck out the rest of disposable income left; will put pressure to move prices to new lows below the Case Shiller 100 year average.

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  17. Michael

    Amen to fubarrio.

    In the same way these things overshoot, they undershoot the equilibrium. Expect to blow past this so called bottom…in sort of a glacial fashion…before things head back to a very temporary equilibrium. And before long interest rates will have to go back up (unless we turn into Japan with savings accounts that pay negative interest), in which case affordability will disappear. When the inflation demon pokes its head out, expect the Fed to act fast and aggressive.

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  18. whatsmyname

    RE: patient @ 4
    Patient, what year did you start keeping your powder dry?

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  19. Tatiana Kalashnikov

    We’re three years from the bottom. It will be down 40%, all tiers.

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  20. For Real

    Seattle is an economic laggard. This isn’t a value judgment, but an observation of this city’s economy’s relationship to national economic trends. Recessions tend to arrive later here, and recoveries do too. It’s not as pronounced as it used to be, now that Boeing is less pervasive as a driver of Seattle, but Boeing’s influence is still large.

    Any big, capital-intensive manufacturer tends to be somewhat countercyclical, owing to the lag times on both sides of the cycle. To the extent that Seattle is a manufacturing center or heavily influenced by manufacturing, its economic movements will tend to lag. We saw this in housing. Relative to, say, San Diego, which has historically been service-driven and therefore an economic leader, housing peaked later here and can be expected to recover later.

    Therefore, until we see a sustained price trend in the “early” cities, I think it’s too early to call the bottom in Seattle.

    Beyond that, I’d have to wonder why it matters. Those who buy at the bottom and sell at the top do so by accident. You can only reliably see tops and bottoms through the real-view mirror. It seems to me that, in today’s context, those who want to call the bottom are generally those with a vested interest in selling.

    To me, I think a sign of the bottom will be when there’s little or no interest in calling the bottom. Today’s bottom-callers strike me as people who still can’t let go of the good old days; who have property to sell; or who work for a real estate broker or the National Association of Realtors.

    It is also worth remembering that we remain quite firmly in an era of subsidized interest rates. Those with money in the bank are underwriting unnaturally low rates these days. The minute the national economy actually rises from its deathbed (as opposed to the current situation, which is better described as “a pulse has been detected”), interest rates will rise, and that will keep the lid on, both nationally and here.

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  21. David Losh

    Number one the family home is most people’s largest, most expensive, asset. Throw affordability out the window, it doesn’t mean anything. An asset is a cash price.

    What your charts should be showing is debt. They should show private, and public debt, with age tiers. Are new buyers really going to buy baby boomer life styles if it means ten times more debt than the baby boomers had?

    Even twenty years ago a family could buy a house, pay off school, have a new car, and plan for retirement. How’s that consumer confidence working today?

    Reality is that the game has changed. Your charts should be showing declines to 2001 pricing. I agree about the deflation, we are in another round of musical chairs, and the music will stop after the United States Presidential elections. If you buy a home today, you should be prepared to pay it off in seven years.

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  22. Scotsman

    A lot of confusion here with people either holding onto old notions of how economics works or simply not putting the puzzle pieces together correctly. The most important thing to remember is that we no longer have a market economy, but a managed economy. If you’re confused, watch what they do, not what they say.

    Are real wages flat to down? Are they likely to stay that way thanks to high unemployment, globalization, etc? Yes. But here’s the important point- housing affordability is up- to record levels. That’s what matters for home prices. And owning can be cheaper than renting.

    Record low interest rates are the key. In a real market they would have both inflation and risk premiums built into them. They don’t now because the government has forced artificially low rates through its policies. And it will keep them there, even when inflation weaves its way into every element of our daily lives. Because they (government, banks, 1% ers, etc.) see a historically impossible combination of low rates and inflation as the only way out of the debt crisis. Inflation is already with us in everything except wages and some large asset classes. But it will eventually show it’s influence there as well.

    Low interest rates are the result of a policy collusion between the Fed and the treasury where the Fed buys 90% of the new debt issued. The market no longer sets interest rates- the Fed does. As long as the Fed is the majority buyer of new debt it will control and depress rates. Eventually the Fed will stop and then need to dump all the debt it has acquired. There are several ways to do this, but all of them are ultimately highly inflationary. And while the .gov and Fed say they don’t want inflation #2% official target anyone?) they really do- so that old debts can be paid with ever more numerous and worthless new dollars. A tricky balancing act, but if they pull it off we go on. And those who own leveraged property will win. And if they fail, not much matters. There is no winning bet on collapse.

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  23. ray pepper

    RE: The Tim @ 3

    Home and Autos are wonderful investments if the purpose of the investment is to MAKE MONEY. The fact is a home is ALWAYS an investment and it becomes crystal clear when you are forced to sell.

    BTW…bottom???……………It will be the longest bottom we have EVER SEEN in this generation with a trend line down bias for many years to come until they all come back to FMV.

    Tatiana…down 40% additional in 3 years? There is as much of a chance of that as the prices increasing 40%. Remember the FED has our backs as it does BAC and that will NEVER occur in the next 3 years.

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  24. David Losh

    RE: Scotsman @ 27

    Or you can look at the reality of the financial markets.

    I was discussing REITs today and Dubai’s ability to dump billions of dollars into commercial Real Estate here in the United States. The guy I was talking to was saying they have more oil money than they know what to do with, and I pointed out they can’t lend money because of Shari Law.

    If you wanted to talk technically we could, but I like to jump right in, and say there are legitimate ways to make money. The financial markets don’t needs to rely on slimy contract tricks to steal money. You don’t have to be bankster con man to make a buck. I honestly think more people will catch on that lending isn’t the only game in town, and that’s going to be deflationary.

    You can talk Fed, but oil money is going to win this race.

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  25. Nick

    Been a while since I posted here… some comments re the west LA RE market, for what it’s worth.

    It “feels” like we’re still a bit from the bottom, although I’m not sure I have enough data to back up my gut. However, some data points:
    – West side median home price seems still in the 600k+ range, which (for normal price/income ratios) is over double what would be “affordable” to most people
    – There’s an REO [pipeline] backlog, for several reasons. Presumably because banks do not want to flood the market with current inventory, especially if there isn’t a lot of demand. Also, there’s been a push to modifications, most of which still need to fail, go through the foreclosure process, and become REO’s. Finally, there’s still a couple years of bad loan vintages waiting to implode (pending losses for FHA and GSE’s). All of these will push against any additional demand.
    – Price trending in subjective markets is certainly a real phenomenon. Even if 35% off peak is “normal” (and I’d guess 50% is closer), I’d expect the market to overshoot.

    People tend to view delays in trends as indicative of nearing a bottom, and that might be true under normal circumstances. Remember, though, that there’s quite a bit of government interference going on in the market, which is skewing the normal free market trends. If fundamentals are at all still relevant, I think we still have room for affordability to increase.

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  26. Jonness

    By Scotsman @ 1:

    I tend to agree- I think we’re very close to a bottom if the macro picture holds together. I’ve put my money where my mouth is, and am locked in on a purchase @ 50% off peak.

    Tim’s bottom call timeline was premature. Time will tell if his percentage drop prediction will bear fruit, but it seems fairly reasonable to me.

    The fact that we are nearing the crossover point between Tim’s maximum potential decline and my minimum potential decline is interesting. Most likely, we will either drop more into the meat of my prediction, or we will go sideways long enough to allow inflation to make up the difference. Either way, it’s still a great time to be saving a down payment.

    One thing you guys should consider is, we are at 2004 price levels. However, back in 2004, the unemployment rate was extremely low, prices were shooting up and making everyone feel rich, you could get a home loan with 0-down, and HELOC wealth was flying off the shelves in practically every other household. My point is, a whole lot has changed since then other than just price. Thus, just putting the price back to 2004 levels is not enough to cause a bottom to occur. It was too high then, and it’s too high now.

    OTOH, the fact that other areas have declined far more than Seattle could help provide some National support that helps Seattle turn the corner a bit early. However, I still believe we will hit a new low next winter.

    I’ve long felt we will be tipping in and out of good and bad economic micro-cycles for years. Right now, the stock market is booming, and there is a general bullish attitude that’s driving sentiment upward. IMO, this is mostly due to stimulus (cheap money bailouts) around the world flooding into riskier assets. I don’t see it as long lived or sustainable. It’s a can kicking exercise, and I’m currently using the risk on environment to make a little money in stocks. When we enter back into bearish territory, everyone will re-extend their pain timelines, and we’ll play the game all over again. We are in the midst of a bullish cycle, so everyone is calling the bottom again. I’ve seen this before, and I expect I will see it again.

    It’s much better to miss it on the other side by 5% than it is to miss catching a falling knife by 25%. That said, I believe both Scotsman and Tim have done a fantastic job of analyzing this market and choosing an entry point. I’m holding off until I either run across a house that I just MUST have, I get a steal of a deal, or I see legitimate signs of stabilization.

    The overall trend in the Seattle metro area remains down, but buying now is a whole lot safer than it was a few years ago. That’s about the best that can be said of the current environment.

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  27. Jonness

    By ray pepper @ 28:

    Tatiana…down 40% additional in 3 years? There is as much of a chance of that as the prices increasing 40%. Remember the FED has our backs as it does BAC and that will NEVER occur in the next 3 years.

    I read that as bottom in 2015 with all tiers combined stabilizing at 40% off peak. I could be wrong. :)

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  28. MichaelB

    Well, I guess that’s it, then. The bubble has burst and we are only 5% from the bottom….

    On the other hand, median home prices have not even reached 3 X household income yet. Historically, home prices can drop below 3X. There are no magic numbers in the “NEW NORMAL” Hmmm….

    Prices at 2004 levels? When will the get back to 1997 or 1999 levels?

    The thing is, if we don’t hit bottom pretty soon, The Tim’s gonna be out of a job. So for Tim’s sake (and RedFin’s) we’d better hope it doesn’t take 10 years to hit bottom. Suppose Tim came out with a pronouncement that prices are gonna drop another 20% over the next 3 years…don’t suppose he’d be too popular over at Redfin. I believe this is called “Talking your book”

    BTW, there are actually 3 key factors that will determine when we hit bottom:
    1. Debt
    2. Debt
    3. Debt

    David is absolutely correct about the role of debt in this bubble and it seems to be something that The Tim has glossed over. It’s the elephant in the room… Boomer retirement is another great point to consider. People still have some hope today, but with a significant number of homes under water the day will come when people will truly lose hope and prices will drop further. As I said before, The Tim was only half right, as prices have a lot further to fall.

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  29. Scotsman

    RE: Jonness @ 31

    I’d be curious to hear where you think the Dow, etc. are headed and when. Seems to me stocks might be a more risky investment than housing at this point, although most likely both will just go sideways for sometime.

    It’s hard to generalize about housing. Parts of KC have been hit hard while Greenlake just keeps chugging on. Eastern KC and those parts south of I-90 have seen some pretty harsh declines in places, well over 35%. You say we’re at 2004 price levels. I’m looking at paying 20% less than what the home sold for in 2001. I won’t claim that makes it a GEM, but it does suggest there might be some legit deals out there now, even when expecting further general declines. I can buy stuff now that cash flows with 10% down. But I also agree there are better deals to come, or at least a better selection to pick from.

    I’m struck by how many- almost everybody- says it’s a terrible time to buy. It’s not- unless uncertainty is your most heavily weighted factor. These are uncertain times, but for reasons that we can’t control for. There is no defense against political and socio-economic collapse when the most likely outcomes are either anarchy or some style of facism. Life is short- may as well get on with it and hope for the best. No one said it would be perfect. And I don’t care how smart you might be, it’s very difficult to out perform or out game seemingly random events. When everybody, including the governments, appear to be making it all up as they go and you don’t know what the rules will be next week, how do you play to win?

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  30. Scotsman

    RE: MichaelB @ 33

    “Debt, debt, debt” is nothing more than a cliche at this point unless you’re willing to explain what happens next. Yes, we have lots of debt. What does that mean? Build a story for me of what happens next, and what that affects, what the probable adjustments/reactions are, and so on. Explain the process and its consequences as time moves forward.

    The solutions to “debt, debt, debt” can be counted on a couple of fingers, as well as the scenarios that flow from them and the consequences for . . . a home buyer. Tell us what you see, attach probabilities to the diffferent outcomes, but don’t just keep throwing around yesterday’s news.

    Yes, the U.S. and other major world economies are in a mess. But that mess will resolve, life will go on, the question is how. I’d say that’s the only question worth working on at this point.

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  31. jp

    RE: No Name Guy @ 16

    RICK SANTORUM: We have a president who’s doing everything he can to see the oil and gas, coal in this country, as a liability, not an asset.

    HORSLEY: But the numbers tell a different story. The number of drilling rigs in U.S. oil fields has quadrupled while Mr. Obama’s been in office. And last year they pumped the most oil in eight years.

    Even the controversial Keystone oil pipeline from Canada, which Mr. Obama nixed, wouldn’t have delivered any oil for years.
    http://www.npr.org/2012/02/22/147241969/presidential-hopefuls-blame-gas-prices-on-obama

    Injecting wastewater deep underground is the prime suspect, potentially widening earthquake worries linked to hydraulic fracturing
    http://www.scientificamerican.com/article.cfm?id=ohio-earthquake-likely-caused-by-fracking

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  32. wreckingbull

    The term ‘keeping the powder dry’ is being used quite a bit here.

    I’d like to hear how you are allocating that powder. When 2011 rolled around, and I realized that we now live under a command economy, I started to get uncomfortable with holding most of my assets in a fiat currency. I was uncomfortable with the price of gold. I am largely done with the wall street casino, with the exception of some ETFs. Housing became a reasonable way to diversify, especially as an inflation hedge.

    I don’t know if we are in for inflationary times, but I do know that we are at the whim of our corporate appointed bureaucrats, and that scares me.

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  33. Kary L. Krismer

    RE: jp @ 36 – Oil has gone up in price, so you would expect more drilling and also using new methods to get more oil out of existing wells. It would be virtually impossible for President Obama to totally counter that. But he did do things to reduce supply, like his drilling moratorium after the BP disaster. That was wider spread and longer than it needed to be. Again though, not much impact simply because a handful of wells doesn’t make that much difference in overall supply.

    When first commenting on his pipeline decision I noted that it wouldn’t affect supply for years, but that it would come back to haunt him during the election.

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  34. David Losh

    RE: Scotsman @ 35

    The interest rate only needs to be 4%. The margins may be tight but every one makes money, no one is losing money. You, as a consumer, think it’s smart to use that money for as long as possible, so you keep your mortgage just a little bit longer. You pay more, but it’s the right thing, the smart thing for you to do.

    The other people in the market place are paying cash, they want a discount for that. The seller won’t give a cash discount, why should they, they get more by taking the financed option, after all they don’t pay the fees.

    Everybody stays in the finance game a little bit longer.

    However, the buyer pays more for the property and has to get more of a return in order to ever sell. It’s great sales talk to say a home isn’t an investment, or that that no one should expect to make money, but the fact is most people need to have an exit strategy, and are stuck. Many people are buying into this 20% down payment on a personal residence and that money is now gone forever.

    As more, and more money pours out of personal wealth, and into bank coffers the middle class is squeezed financially. The consumer relies more on credit, and more wealth is lost to the financial markets.

    The trend will be to rent and save. If housing isn’t a forced savings plan, and rents are cheaper by the year, we’ll continue to see a decline in the price of housing.

    We need to see how many rental units come on line this year, and second those years of between 1995, and 1998 should be the base of where the true trends lines are.

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  35. David Losh

    I suppose I should also add that the Real Estate market never changes, there is no top, or bottom. There are good purchases, and bad purchases. If you want to know the difference you should hire an expert. All things come with risk, but using high quality professional opinion is worth the loot.

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  36. ray pepper

    RE: MichaelB @ 33

    Red Fin and Zipr and for that matter LEDR unfortunately do NOT stand a chance. There will not be another round of VC for any of these boys and THIS market will prove to be the death stake driven into the heart of all these pioneering companies. Look for radical changes to the models and absorbtion in the coming 24 months..

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  37. ray pepper

    for those wondering: http://finance.yahoo.com/q?s=ZIPR Turn out the lights..

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  38. No Name Guy

    RE: jp @ 36

    Typical……talk and think short term – can’t you NPR listeners and New Yorker readers think beyond tomorrow. Duh Keystone won’t deliver for years. That’s why it needs to be done NOW – to secure a supply for the future.

    And, in case you’re not aware, FUTURE expectations do play a part in the CURRENT price. Witness the recent spike due to the war drum beating in the Mideast. World supplies haven’t been disrupted, yet there is a risk premium being priced in.

    As Kary mentioned, there’s also his attitude WRT drilling: To Brazil – here’s a fat wad of US taxpayer money and we’ll be your bestest buddy customer for your oil. At home – shut ‘em down, obstruct, slow ‘em down. If there’s an increase in drilling domestically, it’s in spite of what President Obaba has done, not because of it. If his administration was only only neutrally implementing the Law, there would clearly be even more domestic drilling and more domestic supply (which, you know, creates real, profitable jobs that pay well, and pay dividends to you know, domestic investors who own the companies – hmmmmm….yet another schizo part of this President and the command economy we’re in).

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  39. Marc

    Here’s an interesting take on the bottom of real estate prices. http://www.notorious-rob.com/2012/02/22/median-house-prices-19702011-gold/#more-2543 This guy thinks we’re not at the bottom yet based on the premise that home prices will ultimately reach an equilibrium with the price of gold. He freely admits to not fully understanding the significance of the data he’s compiled and asks for help from greater minds. Maybe someone here can help him out or we can have our own discussion on the matter.

    The most obvious thing is that if you price homes in gold, the home values in 2011 are almost at the lows of 1980. In 1980, the median priced home in the US cost 92.41 oz of gold; in 2011, the median priced home cost 103.84 oz of gold.

    Of course, by the end of the piece he seems to concede that maybe we are at the bottom based on this metric. The whole premise seems like a bit of a stretch. I don’t doubt there maybe some correlation but I don’t buy that there’s causation.

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  40. Marc

    He also has an interesting post on Redfin’s recent business model change (3.0): http://www.notorious-rob.com/2012/02/22/thinking-brokerages-redfin-30/.

    I intentionally didn’t bring this change up myself to see if it would get much play here on Seattle Bubble. To my surprise I’ve noticed no discussion of it at all. I expected it to be at least discussed but everyone seems to have hardly noticed. Admittedly I’m biased since I’m in the business but this non-event treatment is extremely significant to me.

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  41. ray pepper

    RE: Marc @ 45

    I missed it Marc…too busy Coaching this time of year…But, have you visited the RedFin website as of late. I just spent 5 minutes there and its hard to find how much a Buyer gets back now…All I find is based on price and to go look at a specific property to find the rebate. 15% back for a short sale or an Agent in network is a joke…I thought 20% back from Zip was a crime but this is what MUST occur to survive going forward…It will be futile……BIG CHANGE better come to RedFin fast I don’t mean Red Fin 3.0 because this will NOT help their bottom line unless they are going 75% to Red Fin and 25% to Buyer which would be truly sad.

    btw is anyone manning the phones on the 800 # at Red Fin..? They need that automated system that says ” your call will be answered in 3 min or 8 min or whatever…I was just on hold for 3 minutes and hung up…I wanted to get clarification of current pricing….However, I did get to listen to Talking Heads burning down the house and it was worth it for a laugh!!!

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  42. Marc

    RE: ray pepper @ 46 – Yeah, the rebate is now a total black box. I first noticed it last month when I visited their site and saw that they had changed their pricing structure in Chicago and San Diego. At that point I was aware they’d gone to 66% Redfin & 33% in Boston but thought that was the only market with a change. Turns out they changed San Diego and Chicago last year (Nov. & Dec.).

    I actually think the 15% for partner agent referrals is actually a pretty good way for them to apply their core competency (technology) in markets where the median price won’t support a rebate model (i.e., middle America).

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  43. David Losh

    It is a non event. The site you linked to is a part of a network of Real Estate geeks of the week who all feed off of independent agents who contract for web work. Individual Brokerages like WaLaw, or 500 Realty use redfin as a search site so they don’t have to build an IDX experience.

    Companies like John L Scott have the search tools.

    Having an agent follow a Real Estate transaction from beginning to end cuts liability. Glenn buddy must have had a light bulb moment like you see in the cartoons. It may have occurred to him that people gift him money, generously, for agency, in the State of Washington, and they might expect representation.

    I agree that we may well see the end of online Brokerage the way things are going, so it is completely a non event.

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  44. Macro Investor

    By Scotsman @ 35:

    RE: MichaelB @ 33

    “Debt, debt, debt” is nothing more than a cliche at this point…

    Yes, the U.S. and other major world economies are in a mess. But that mess will resolve, life will go on, the question is how. I’d say that’s the only question worth working on at this point.

    False on your first point. Michael is right that Tim glosses over debt. Affordability just means lower prices. It completely ignores DEBT CAPACITY AND AVAILABILITY. Obviously low priced debt is useless unless one can obtain it.

    Agree with your second point. But your earlier comments go off the rails. Saying the fed can monetize forever is no different than saying housing prices can go up forever. Greece, Spain, Portugal, Hungary and Italy are your elephants in the room. How’s your housing bottom doing there?

    Every other debtor nation will get a turn at bat. You seem to know that, but you gloss over it by saying “aw shucks, there’s no defense against collapse” — which again, you know (or should know is incorrect).

    BTW, buying 20% below 2001 prices sounds pretty good. Maybe you have a gem if it’s also below market. Getting back to my comments a few weeks ago, your total cost of living is not just your monthly payments. It includes your eventual capital gain or loss amortized over the time you owned it.

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  45. Kary L. Krismer

    RE: No Name Guy @ 43 – What’s ironic about the environmentalist objecting to drilling in this country is that they cause more drilling elsewhere. And in many of those places the environmental protections are negligible. They’re harming the planet trying to save the planet!

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  46. Kary L. Krismer

    By Marc @ 45:

    He also has an interesting post on Redfin’s recent business model change (3.0): http://www.notorious-rob.com/2012/02/22/thinking-brokerages-redfin-30/.

    I intentionally didn�t bring this change up myself to see if it would get much play here on Seattle Bubble. To my surprise I�ve noticed no discussion of it at all. I expected it to be at least discussed but everyone seems to have hardly noticed. Admittedly I�m biased since I�m in the business but this non-event treatment is extremely significant to me.

    Is there some particular part of that which caught your eye?

    The thing that caught my eye is they’ll send an agent to the “closing” which I assume here means escrow signing. Based on how difficult it is with some escrows to set up signings with an agent present, I thought I was one of the few agents that went to signings.

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  47. Kary L. Krismer

    By David Losh @ 48:

    Having an agent follow a Real Estate transaction from beginning to end cuts liability. Glenn buddy must have had a light bulb moment like you see in the cartoons.

    Good, no excellent point! It also probably improves customer service because the client won’t have to tell multiple agents the same thing.

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  48. Blake

    It’s only 2012 and – as I’ve written here for a few years – this whole decade will be “lost” because of debt deleveraging and bad austerity policies pursued blindly by the US and European goverments. A bottom for the US housing market is still a ways off…

    The central banks have engaged in unprecedented money printing that has averted the worst of the Lesser Depression so far…
    http://www.ritholtz.com/blog/2012/01/living-in-a-qe-world/
    – snip – The degree to which central banks around the world are printing money is unprecedented…The combined size of these eight central banks’ balance sheets has almost tripled in the last six years from $5.42 trillion to more than $15 trillion and is still on the rise!”

    But this only creates liquidity and much of this has just flowed into speculation in commodities and other assets (such as stoxxx)… more bubbles!

    Look at the frickin’ Eurpoean housing bubbles now!!
    http://www.thebubblebubble.com/european-housing-bubble/
    Those are going to burst this year or next…

    Two months ago Mervyn King – the Gov of the Bank of England – noted that the world economy is still too dependent upon the central banks.

    The fact is: Almost 4 years ago the world economic system collapsed and it is still in the ICU on life support! Western governments are in the vise grip of the creditors/bond holders who are demanding more austerity, job cuts and pain when we need debt reductions and job creation. It’s terrible… we have a ways to go and probably another economic crisis or two yet this deacde. (And I write that as a bubblehead who bought a house 8 months ago – – I knew it wouldn’t go up in value for years, but it was not an “investment” but something I needed and love!)

    Keep your powder dry and don’t buy all the BS from our politicans and the coporate media hacks. They’ve really f*cked up and continue to make it worse!
    Cheers! ;-)
    Blake
    ps- Worth reading:
    http://londonbanker.blogspot.com/2012/01/survivor-bias-and-tbtf-tyranny.html
    http://jessescrossroadscafe.blogspot.com/2012/02/sp-500-and-ndx-futures-daily-charts_22.html

    See also Bill Moyers’ interview with David Stockman a few weeks ago (… if you think they soved the problems that caused the ’08 collapse!)
    http://billmoyers.com/segment/david-stockman-on-crony-capitalism/

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  49. Marc

    RE: Kary L. Krismer @ 51 – Just the rebate reduction. The one-on-one service wasn’t a surprise at all. When I first saw the rebate change they made in Boston last June I predicted to Tim that they’d roll out the change to all markets by the first of this year. I was off but still pretty close.

    A few months after the Boston change I searched the Boston Forums on their site to see if people were talking about it there. I found essentially zero discussion of it and I knew then it would definitely be rolled out everywhere. By the time they did it I figured they would get plenty of media coverage but wasn’t sure how blog writers and commenters would respond to it.

    I expected at least some push back or accusations that they were giving up on their stated mission and becoming just like all the stodgy old brokerages. But I really haven’t seen much of that which says to me they will return to this well again within 24 months and probably less. If it was this easy to increase it why the heck wouldn’t they do it again.

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  50. Kary L. Krismer

    RE: Marc @ 54 – I wonder if Redfin operates out of high cost downtown areas in every city they operate in? They should have a cost advantage over other firms by just having one office, but they reduce that advantage by putting the office in a location where renting is the most expensive. They’re thinking more like an Internet company than a real estate company.

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  51. HappyRenter

    The economy is ticking up again. The stock market is up. Unemployment is down. People might feel more secure from a job and financial point view and start getting out and purchase homes, also taking advantage of lower home prices.

    But, what if the uptick in the economy that we have seen in the last few months is just an artifact of election year? What if things deteriorate again when the elections are over?

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  52. ChrisM

    I haven’t seen mobility addressed lately, so allow me to retort. If I lose my job tomorrow, as a renter I have the possibility to relocate to a godawful state (NE, WY, AZ, etc.) that has significantly lower unemployment than WA.

    Were I a homeowner, I’d be forced to look for jobs in something like a 50 mile radius, or face the costs of selling a house. I don’t see that addressed in most “should I buy a house” posts.

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  53. Kary L. Krismer

    By ChrisM @ 57:

    I haven’t seen mobility addressed lately, so allow me to retort. If I lose my job tomorrow, as a renter I have the possibility to relocate to a godawful state (NE, WY, AZ, etc.)

    Those aren’t the states I would list as gadawful. Florida would top the list of states (and most the lower part of the east coast), and El Paso the list of cities. So yes, if owning a property kept me from moving there, I’d be grateful. ;-)

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  54. MichaelB

    RE: Scotsman @ 35

    debt, debt, debt leads to deflation, deflation, deflation… and a sea change in how debt is viewed. Lower wages, fewer people willing to buy into the real estate dream – according to some – it’s no longer an “investment”. In reality, it is still a very poor investment in Seattle. Just look at that piece of crap house on a tiny lot in Seattle for around $450k- 500k…should be $300k…

    Why should anyone take on 30 years of debt slavery in a deflationary environment for a “non-investment” or what is obviously a poor investment?

    If you want details, graphs, charts, etc. I like to follow Steve Keen, an Australian economist who predicted the current economic crisis.

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  55. Kary L. Krismer

    By Kary L. Krismer @ 58:

    By ChrisM @ 57:
    I haven’t seen mobility addressed lately, so allow me to retort. If I lose my job tomorrow, as a renter I have the possibility to relocate to a godawful state (NE, WY, AZ, etc.)

    Those aren’t the states I would list as gadawful. Florida would top the list of states (and most the lower part of the east coast), and El Paso the list of cities. So yes, if owning a property kept me from moving there, I’d be grateful. ;-)

    I should have added Stockton to the list. Check out the statistics for the city at the bottom of this story about their possible bankruptcy next week.

    http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/02/24/bloomberg_articlesLZVDRL1A1I4J01-LZWQM.DTL

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  56. Axion

    “Prices in the Seattle area may dip a bit more, but I’ve yet to see any compelling evidence that they’ll lose another twenty or even ten percent. Affordability is already through the roof, and interest rates are likely to be held artificially low for quite some time to come. Buyers are coming back, and supply is taking a beating. Put it all together and you’ve got a picture of a market that’s bottoming out.”

    Sounds like the same happy talk we heard back in 2007 from the housing “experts”.

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  57. MichaelB

    RE: The Tim @ 62

    Tim, are you saying you believe home prices will keep up with or surpass inflation over the next 7 years?

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  58. Absinthe

    Ah; for some reason I thought Case-Shiller showed that over time dwellings gained nothing more than inflation – and adjusting for that, will usually return to baseline except in times of densification, undersupply, or gentrification. I’d imagine that the overbuild years of the bubble would cause the opposite case. Of course, I believe this only looks like another 10-15% on the downside and if I were in a similar market I might buy anyway given price/rent ratios. Only I’m in Vancouver, where the bubble rages on.

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  59. Kary L. Krismer

    RE: Absinthe @ 64 – Keep in mind C-S deals with large areas. Some areas do better and some do worse. I would guess that the value of land in downtown Seattle (stripped of the building value) has far exceeded inflation since 1900.

    Woodinville and Renton might have done worse, because as properties were developed and transportation improved, other options opened up.

    Stated differently, as prices rise you’d expect supply choices to increase, reducing the price increases.

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  60. MichaelB

    RE: The Tim @ 66

    A decade is too short of a time horizon. Try 50 -100 years….

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  61. Seattle Bubble • Local Home Prices Outpaced by Inflation since 2000

    [...] commenter brought up an interesting point over the weekend: I thought Case-Shiller showed that over time dwellings gained nothing more than [...]

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  62. ;

    1) fundamentals(price, income, inventory, sales, etc) are terrible indicators of tops/bottoms.
    2) any top or bottom call needs to mention “investor” psychology since i believe psychology is the force driving prices above or below fundamental value.

    in 2006 fundamentals were out of whack, but psychology in the form of a housing mania was at a peak.

    today, fundamentals are mostly back in line, but there is still some enthusiasm for housing as an investment. when these last few bulls give up RE as an investment, and when the average person (someone -not- on seattlebubble.com) argues renting is better than buying, we will be close to a bottom. we’re not quite there yet.

    the large number of bottom calls this year is a sign, in my opinion, that we haven’t hit bottom since bottom calls are typically early. people typically don’t have the patience to make an accurate call. you basically watch people and when almost everyone hates housing, you’re close to a bottom.

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  63. Kary L. Krismer

    Personally I think politics has to be considered. President Obama not being re-elected might be viewed favorably by business, depending on who is elected, and lead to more employment. Also, not quite politics, but if the Supreme Court takes an extreme position and strikes down all of Obamacare, and not just the individual mandate, that will probably encourage hiring, and indirectly affect whether we’re at the bottom.

    Again though, many other factors could come into play. I’m just saying you have to take those two things into account.

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  64. Marc

    RE: Kary L. Krismer @ 55 – I don’t know but I suspect that’s probably the case at least in Seattle and San Francisco where they have the rest of their engineering folks.

    I’ve thought about your question for the last few days and it’s led me to make this prediction:

    Within a year from the date of the Redfin 3.0 announcement Redfin will announce a tweak of 3.0 as follows: Redfin agents will no longer be permanently based in Redfin’s offices. Rather, they’ll work predominantly by remote utilizing Redfin’s “superior technology.” This will be sold as a benefit to the consumer because the agents will be even more responsive since they don’t have to drive in and out of downtown offices. It may very well be true but I think a more accurate description will be that Redfin is cutting down operating expenses and rent is a big one. Moreover, this will be just another step in its transformation into a traditional broker a la Windermere, JL Scott, RE/MAX, etc. I don’t mean this as a judgment of good or bad, simply what I think is happening to them.

    Second prediction: David Losh will be tempted to refer to Redfin as REdfin/MAX but won’t because it sounds somewhat complimentary.

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  65. Marc

    Tim,

    I get the sense you’re not impressed with my brilliant ability to predict the past! Seriously though, I didn’t know that. I was under the impression that the lead agents and transaction coordinators reported to the office more or less daily (I always presumed the field agents worked from home and only came in for staff meetings or other ad hoc reasons). Do lead agents and coordinators still have their own offices or cubicles (did they ever)?

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  66. Kary L. Krismer

    By The Tim @ 75:

    Anyway, the point is that I think we’re already pretty frugal as far as office space rental goes.

    Frugal? You call downtown Seattle and Bellevue frugal? None of your leases are GEMS. If you had frugal leases you’d be able to refund 100% of the commission. /Ray Pepper :-D

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  67. Marc

    RE: The Tim @ 76 – Well, there you have it. It obviously works for them. I’ve never liked the idea of working from home as I’ve always liked the concept of “going to work.” Keeping work and home as separate as possible has always been big for me (but not always easy being an entreprenuer). Perhaps I’m old fashioned and have to get with the times.

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  68. David Losh

    RE: Marc @ 73

    John L Scott already went to the remote office concept when they closed the offices on 185th and Aurora.

    Redfin will have a hard time competing with traditional agents. The damage has been done by the way they market themselves. The redfin approach has been adversarial. How will they change that game changer image when they become like every one else?

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  69. Seattle Bubble • Reporting Roundup: Party Like It’s 1999 Edition

    [...] were printed verbatim in the news articles quoted below. I would like to point out that while I actually do think we’re basically at the bottom for prices, scare tactics like the Frank Wilson quote at the end of the second paragraph above are still lame [...]

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  70. Seattle Bubble • Has “Investor Psychology” Turned Against Home Buying?

    [...] a comment that was left recently by a reader that is a good example of an outlook shared by many people who sat out the housing bubble and have [...]

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