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.

30 responses to “By Request: 2+ Years of Redfin Size-Adjusted Prices”

  1. Pegasus

    Excellent Tim! Thank you.

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  2. Peter

    Yep, this is great information and very helpful in understanding the current market. Thank you Tim.

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  3. David Losh

    This year’s bump is going to be a problem.

    Any time Real Estate agents start talking about good news in the housing market it is bad news for the consumer.

    You should over lay the declining interest rates onto these charts.

    Prices moving higher while interest rates go lower only means an increase in household debt.

    If interest rates ever do go up it will lower the price of housing units, just to be at evens with a payment structure we have become accustom to.

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  4. Pegasus

    RE: David Losh @ 3 – Typically the interest rates rise as the economy grows stronger. If that is typical then we would be seeing employment also improving. That can offset rising interest rates as new buyers qualify as they become employed for a while. Since we are in an artificially manipulated interest rate environment it could be different if the rates rise because they are just returning to normal risk/return instead of being raised to control the economy and inflation. If rates went up tomorrow without any improvement in the economy then yes it would definitely lower the price of housing units. Real estate agents are definitely talking up the market right now. Hopefully they get everyone to raise their listing prices and have the houses sit on the market again….

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  5. David Losh

    RE: Pegasus @ 4

    My point here is that lower interest rates are the reason for the increase in pricing.

    The pricing for residential housing units is high. It can be rationalized, but the price of residential housing units is very high.

    If the economy continues to grow there will be less, and less, and less emphasis on residential housing units as a means to growing wealth, or as an asset class.

    The game has changed forever, so hoping that the economy will come back around, and it will be like it was in the past, is a fools mission.

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  6. Jonness

    By David Losh @ 3:

    Prices moving higher while interest rates go lower only means an increase in household debt.

    If interest rates ever do go up it will lower the price of housing units, just to be at evens with a payment structure we have become accustom to.

    Easy there Losh. You are making too much sense. Or put another way, show me the job growth that will support increased home prices.

    Without jobs, they’ll be forced to eat potatoes.

    http://upload.wikimedia.org/wikipedia/commons/b/b1/Van-willem-vincent-gogh-die-kartoffelesser-03850.jpg

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  7. whatsmyname

    By David Losh @ 3:

    If interest rates ever do go up it will lower the price of housing units, just to be at evens with a payment structure we have become accustom to.

    Do you mean like it did in the 70′s?

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  8. Erik Muller

    Low interest rates do drive up housing prices, but housing prices also follow the supply and demand curve. I would attribute this current spring bounce to the low supply of inventory. Not sure how heavily each one is weighted, but they both drive housing prices up.

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  9. David Losh

    RE: whatsmyname @ 7

    I was thinking 1980s.

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  10. David Losh

    RE: Jonness @ 6

    It’s really a weird thing that Deejayoh threw up some links showing that the economy was growing, I guess, but when you read them it was pretty dismal.

    I agree about the loss of jobs, and the decrease in wages. It seems to me if people have money again we may have a mind set of after the Great Depression when people hoarded food in the cellar.

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  11. David S

    I can just faintly see the diverging trend between list and sale at the end of the charts in all three counties. It will be an interesting summer to watch. Thanks for the splendid summary of data The Tim.

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  12. whatsmyname

    By David Losh @ 9:

    RE: whatsmyname @ 7

    I was thinking 1980s.

    Here’s a chart for rates in the 70′s and 80′s.
    http://www.doctorhousingbubble.com/wp-content/uploads/2009/12/30-year-fixed-mortgage-fed-funds-rate-cpi.png

    Rates went up in the 70′s, peaking in 1980. They went down through the rest of the 1980′s decade:

    Here’s the census bureau on housing prices:
    Median Home Values: Unadjusted
    2000 1990 1980 1970 1960 1950 1940
    United States $119,600 $79,100 $47,200 $17,000 $11,900 $7,354 $2,938

    Note that prices not only went up during the rate increasing 1970′s; they did so much more robustly than they did in the rate decreasing 1980′s.

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  13. Jonness

    RE: David Losh @ 10 – I think you get this, but for some reason, most people are incapable of understanding that record low bond yields are a sign of extreme market fear and economic weakness. How these people turn this around and believe it to be a symptom of a strong improving economy is beyond me?

    Let’s see, 58K U.S. jobs last month, and it requires 125K just to keep up with population growth. Meanwhile, the U.S. is stuck in a liquidity trap every bit as severe as what occurred in Japan (hence the record low bond yields for years on end). Please forgive me if I fail to be impressed with claims of an economic recovery.

    Sure, we pumped $trillions of borrowed money (unsustainable debt) into the U.S. market, and it created a temporary miniature upward blip. Wow! Now this is what I call an economic recovery!

    http://www.abcactionnews.com/dpp/money/living-on-food-stamps-in-middle-class-suburbia

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  14. Jonness

    By whatsmyname @ 12:

    Note that prices not only went up during the rate increasing 1970′s; they did so much more robustly than they did in the rate decreasing 1980′s.

    You seem to be saying that house prices go up during periods of wage/price spirals. I agree with that. But, where is the supposed future wage/price spiral going to emanate from that drives up house prices in the manner you indicate will most certainly occur?

    http://www.newyorkfed.org/newsevents/speeches/2012/pot0607_14.jpg

    http://2.bp.blogspot.com/-NjmxdbUEwUM/T6l1yh4MxfI/AAAAAAAARfE/K68MNiZW_g8/s1600/fredgraph.png

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  15. David Losh

    RE: whatsmyname @ 12

    That is a period of inflation that included wages. In that period when the price of housing was doubled my wages doubled, and my ability to buy doubled.

    I’m just one person but here is a historical chart: http://visualizingeconomics.com/wp-content/uploads/2008/05/avg-income-2006.jpg

    The difference between today’s interest rates and then is that we have a massive manipulation of the economy, an interference, that is global, and I think unprecedented.

    Today, I think, the price of housing remains high, but the payments are lower to match stagnant wages.

    I’m sorry to interject more conditions onto my comment, but I was referring to an interest rate over lay of the past few years.

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  16. sarah

    Thanks for all your posts. I enjoy reading and agree with most of them.

    As a buyer, I have been tracking the housing market and local economy. Limited housing inventory does seem to be driving prices up, which though it makes sense from a standpoint of supply and demand, it does not make sense to me as buyer to jump in. The houses that I’ve looked at are still priced high for their value. It makes no sense to me why I should overpay for low value, just because inventory is so low. I will wait until this market becomes a buyer’s market again to jump in.

    As pointed out earlier, it makes no sense for me to buy a crappy, overpriced (albeit more affordable) house just because interest rates are low – that would still lead me to end up with a crappy, overpriced house that I would still be indebted for – didn’t we just learn this lesson? I think we all have except for first time new homebuyers, who maybe this narrative is for. I think new homebuyers are more savvy though having witnessed this.

    I tend to agree with Gary Shilling – prices still have about 20% more to fall, yes, even in the Seattle market. Why? Because of employment and wages data:

    http://www.bls.gov/eag/eag.wa_seattle_msa.htm

    If you take a look at the unemployment figures, though unemployment for the region has dropped, non-farm employment figures have not changed much since November 2011. Not to mention that personal wealth dropped nationally by 40%:

    http://www.washingtonpost.com/business/economy/fed-americans-wealth-dropped-40-percent/2012/06/11/gJQAlIsCVV_story.html

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  17. Pegasus

    RE: sarah @ 16 – Now you have done it. You mentioned that personal wealth dropped nationally by 40%. Deejayoh will be upset and will counter with networth figures that are almost back to all time highs. However he will be unable to explain where the increase came from considering real estate prices have dropped about 30 percent since the peak and have not recovered. Hopefully when he gets done making my lattes he will be kind enough to explain it to those of us that are not smart enough to work at Starbucks.

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  18. bb

    RE: sarah @ 16

    I certainly support the idea of staying out of the market if you don’t see something you think is worth buying for the price.

    I’m not sure, however, whether the market is going to drop significantly at this point because of unemployment or wealth loss, at least in Seattle. The unemployment and wealth situation is baked into to the market already, and I don’t necessarily see the job situation in the city worsening in the near term (cf. Amazon’s plan to build 3 new buildings for 12,000 more employees downtown ).

    The only really near term change that seems likely to happen is a rise in interest rates.

    This would certainly suppress prices and hurt you if you bought and then wanted to sell soon thereafter. On the other hand, it’s not really going to make your situation better on the buying side, unless you are paying for a significant chunk of the house with cash.

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  19. turf

    re: sarah @16

    the idea is not to buy an overpriced, crappy house anytime but to buy a good value house CHEAP which is why i bought last year. It’s still not too late but you have to go out and look.

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  20. whatsmyname

    RE: David Losh @ 15RE: Jonness @ 14

    Yes, I agree with both of you that the 70′s price increase pattern was about a wage-price inflationary spiral.

    My point though was in addressing David’s hypothetical:
    “If interest rates ever do go up it will lower the price of housing units, just to be at evens with a payment structure we have become accustom to.”

    If interest rates ever do go up (or when they do, as I believe the economy to be cyclical), it will coincide with increasing economic activity and rising overall prices. No sign of the latter on the horizon? Then by implication, no sign of the former either. (BTW, are you also getting credit card come-ons at 0% for 18 months?)

    If you want to analyze the effect of rising interest rates on, say, housing, you have to do so in the context of an environment that accompanies rising interest rates.

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  21. David Losh

    RE: whatsmyname @ 20

    I apologize for harping on this, but there is a point:

    In 1968 wages were $1.60, and in 1981 $2.30. $.70 increase

    Between 1988 and 1998 wages went from $2.30 to $4.90. $2.60 increase, doubled

    Between 2000 and 2012 wages increased from $6.50 to $9.04. $2.54 increase

    2000 to 2012 is a more normal rate of wage increase, however the price of housing blew right past a normal rate of appreciation.

    http://www.dol.gov/whd/state/stateMinWageHis.htm

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  22. whatsmyname

    RE: David Losh @ 21
    David,
    Don’t forget to make a mental adjustment for the fact that you are using base periods of differing lengths. Now, consider that your rates of appreciation in wages are largely tied to rates of change in general inflation. Try comparing the same periods for prices of gas, eggs, and interest rates.

    The price of houses is the gross price of real estate, but
    The price of housing is the monthly payment for the real estate,
    The delta for the latter is not nearly so much out of line with wage changes.

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  23. David Losh

    RE: whatsmyname @ 22

    We are talking about an asset class, rather than the cost of housing.

    The price of the asset, which translates into personal wealth, when it’s sold, increased. The cost of housing increases gradually, but the asset can appreciate at a much faster pace while rents are more tied to what a wage earner can afford.

    By lowering interest rates now, the price of property can stabalize.

    Investors, banks, and financial markets are smart. Real Estate has become volitile so smart money is going to safe havens.

    Real Estate used to be one of those safe havens, now it’s just a promise to pay with mortgage payers putting 20% down.

    Banks, and investors are making smart moves.

    Here’s the inflation chart: http://www.tradingeconomics.com/united-states/inflation-cpi

    I don’t meant to be argumentative. My personal observation is that what I see on the market today is over priced. From time to time I see something that is a good deal, but the majority of stuff I look at is crap, but people buy it anyway, at what I consider high prices.

    I just keep thinking that after people spend a decade of making payments will they be any further ahead.

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  24. Kary L. Krismer

    RE: David Losh @ 21 – You think the price of houses is determined by the minimum wage?

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  25. Kary L. Krismer

    By David Losh @ 23:

    Real Estate used to be one of those safe havens, now it’s just a promise to pay with mortgage payers putting 20% down.i

    You think everyone is putting 20% down?

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  26. whatsmyname

    By David Losh @ 23:

    RE: whatsmyname @ 22

    We are talking about an asset class, rather than the cost of housing.
    .

    I also do not mean to be argumentative, but you have to keep these separate.

    Your initial comment concerns RE as an asset class. RE is typically leveraged so interest rates matter. But if they go up, it is important to consider the economy in which they go up. This doesn’t happen in a vacuum.

    Your comment on wages concerns RE as housing. RE as housing (monthly payments), is impacted by the same economy, but with considerably less volatility. Still, this is the part (and the only part) that needs to be in sync with incomes in order to have a functioning market.

    Personalized issues such as achieving wealth through a sale, or prices rising faster than a worker can “afford” are simply point-of-view distortions: the same as a person pricing their house to get enough to pay the mortgage or a trip to Hawaii. They are about a person’s internal state, and not about the asset or its value. Also, there are no safe havens.

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  27. David Losh

    RE: whatsmyname @ 26

    Last is the chart of housing prices http://www.jparsons.net/housingbubble/

    The spike in pricing is incredible, it’s like it might be gold, http://goldprice.org/gold-price-history.html or oil http://chartsbin.com/view/oau

    That puts housing, the price of the residential housing unit, in the class of speculation.

    So inflation stays the same, wages stay the same, but the price of the housing unit spiked like there was no tomorrow, and yes, it’s leveraged.

    You don’t typically leverage gold, or oil.

    The leverage is the problem, the debt that a family carries is a problem if there is no further appreciation.

    So interest rates can go to zero, which is what appears to be happening, but the balance of the debt will remain amortized.

    More plainly, the price of the housing unit can’t go up. We don’t have the wages, or inflation to make the price move up. Even if we have inflation there is no gaurantee wages will move up with it.

    I keep harping on specualtion dollars, but I don’t see speculation dollars ever, I mean ever, returning to residential Real Estate. It’s no longer liquid enough.

    I agree there are no safe havens. Real Estate for a while was a very good deal. Today I think money will go where ever it will get the best short term return. Real Estate doesn’t fit that criteria.

    Without investor dollars the price of property will languish at best, but in my opinion decline while more emphasis is on higher interest rates to get better returns from the cash that is sloshing around in the global economy.

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  28. Azucar

    RE: David Losh @ 27

    Both of the first two charts in your first link about housing prices suggest that the bubble is deflated/over. The prices are back down to the “pre-bubble trend line” (both nominal and adjusted), and the house price to rent ratio is back in alignment.

    I wouldn’t be surprised to see prices overshoot downwards, but based on the charts you linked to your speculation that housing has another 20%+ to lose seems to be pretty pessimistic.

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  29. Kary L. Krismer

    By David Losh @ 27:

    <More plainly, the price of the housing unit can't go up. We don't have the wages, or inflation to make the price move up. Even if we have inflation there is no gaurantee wages will move up with it.

    Again, you’re looking at the wrong figures. Prices are not affected by minimum wages, and the controlling factor wouldn’t even be the mean or median wage. Prices are determined at the margin.

    Also, you’re totally ignoring perhaps the biggest factor in pricing, which is population growth (or decline). I would add to that a sub-category of employment changes. The more people you have in a given area making more money, the higher prices will go. The fewer people you have in a given area making money, the lower prices will go. You need to get out of your head this idea that real estate only has one value.

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  30. David Losh

    RE: Azucar @ 28

    An excellent point, however the spike in residential housing prices is the problem.

    Residential Real Estate has been a safe haven, or as safe as we could consider it.

    The very fact any one is talking top, or bottom to the residential Real Estate market is a problem.

    It is leveraged, as whatsmyname points out. That means a debt load. The debt load, and paying the debt load is what will suppress pricing for years to come.

    To be plain, if you could just jump in, and jump out, like if it were an Index, that would be fine, but you have to commit money, and make payments. That is a huge drag on that market place.

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