King County Home Prices & Affordability 1950 – Q2 2012

A reader pointed out to me this week that it has been three years since I updated the long-term chart of King County home prices back to 1950. So, by request, here is an update to that chart as of May, along with the affordability index over the same time period.

King County House Prices: 1950-2012

In the first quarter of 2012 inflation-adjusted home prices had retreated to roughly the same level that they were in Q2 1999. The bounce we’ve seen in the median price so far in Q2 2012 has brought prices back up to Q2 2002 levels.

Ten to thirteen years, zero real appreciation. What a great long-term “investment!”

Sources:
(1946-1992 Home Prices: Seattle Real Estate Research Report)
(1993-2012 Home Prices: NWMLS)
(Misc. Price Data: Seattle Times)
(Inflation Data: Bureau of Labor StatisticsConsumer Price Index)
(Household Income: US Census Bureau)
(1950-1970 Interest Rates: Financial Forecast Center)
(1971-2012 Interest Rates: Federal Reserve)

  

About The Tim

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

120 comments:

  1. 1

    “Ten to thirteen years, zero real appreciation. What a great long-term “investment!”

    You’re ignoring the fact that people are either leveraged, which would increase their returns, or own free and clear, which provides a form tax free income. So it’s not that simple.

    Rate this comment: Thumb up 0

  2. 2
    Ross Peterson says:

    Your graph can be a little misleading. what does the 100 index mean? Can you maybe plot Median house price vs the price the average person can afford.

    Rate this comment: Thumb up 0

  3. 3
    Sam says:

    RE: Kary L. Krismer @ 1

    Leverage also amplifies your losses. It can turn zero price appreciation into a loss because you have been paying interest to get leveraged.

    Rate this comment: Thumb up 0

  4. 4
    David Losh says:

    It gets worse as an investment as you look at the past thirteen years.

    We had a unprecendented increase in home price appreciation which has changed the way people look at Real Estate in general, but residential housing in general.

    The government’s intervention of the past five years has made matters much, much worse for the small investor in Real Estate.

    The stock market responded positively to the European Community giving banks more money to lend, but the effect on residential Real Estate, and consumer spending, debt spending, will have more long-term negative effects.

    We are in strange times, and people should step back.

    Rate this comment: Thumb up 0

  5. 5
    The Tim says:

    By Ross Peterson @ 2:

    Your graph can be a little misleading. what does the 100 index mean? Can you maybe plot Median house price vs the price the average person can afford.

    I don’t see how it’s “misleading” at all. The affordability index is a well-established metric that has a simple and clear definition. For the full explanation, hit this post: What the Heck is the Affordability Index, Anyway?

    Rate this comment: Thumb up 0

  6. 6
    wreckingbull says:

    “Ten to thirteen years, zero real appreciation. What a great long-term “investment!”

    Hey now!!! My RE agent tells me that home ownership is a ‘forced savings plan’ for those who don’t have the self discipline or ability to setup automatic transfers from their checking account. How could you forget that Tim?

    Rate this comment: Thumb up 0

  7. 7

    The Recent 2012 Census Data Is Still Omitted on Internet

    RE: # of workers (incomes) per household historically tracked from 1950 – 2012.

    And just because its documentation is “undocumented” doesn’t make it “Not Applicable” to the household income figures….if anything, it makes today’s household income figures “unsubstantiated” comparable/historically to the last several decades.

    One difference we do know in the 1950-1980 timeframe; there were far more households making it on one income not two like today [like high priced Seattle real estate the last several decades significantly demands/requires]. It makes comparing the past household incomes a skewed joke to today. Especially emphasizing affordability.

    The BLS data is out there and the total civilian labor force is not only flat, its decreased for men over 20 years of age YOY. See Table A-2.

    http://www.bls.gov/news.release/pdf/empsit.pdf

    Here’s the BLS data chart for Seattle/Bellevue/Everett documenting a flat total labor force the last 3 years:

    http://data.bls.gov/timeseries/LAUMT53426606?data_tool=XGtable

    Rate this comment: Thumb up 0

  8. 8

    By Sam @ 3:

    RE: Kary L. Krismer @ 1

    Leverage also amplifies your losses. It can turn zero price appreciation into a loss because you have been paying interest to get leveraged.

    True, except here we’re talking about 2012 dollars and over the past 10 years we have had some inflation.

    Rate this comment: Thumb up 0

  9. 9
    Erik Muller says:

    RE: Ross Peterson @ 2
    100 is when Median Family Income = Qualifying income.

    Rate this comment: Thumb up 0

  10. 10
    Tim McB says:

    Thanks for the graph update Tim. I would take some of the earlier comparisons with a grain of salt. Most Americans spent a great deal of money up until the 1970’s on food rather than housing. 40% in 1949 compared to 15.3% today (source: http://www.npr.org/blogs/money/2012/04/05/149997097/what-americans-buy). As costs for food went down it freed up more money to go towards other avenues (such as housing). In fact if you compare the two they seem to have almost traded places with one another. Just some food for thought.

    Rate this comment: Thumb up 0

  11. 11
    patient says:

    High housing costs is absolute poison to a countries long term economy. It’s also poison to family time. It now takes two middle income salaries to support a middle class home where it used to take one. Low housing costs is ideal for a country and it’s citizens, still everyone with power, political and/or financial is pushing for higher prices, truly insane.

    Rate this comment: Thumb up 0

  12. 12

    RE: patient @ 11

    You’re Rocking the Seattle Boat Patient

    It my be a moot point too.

    IMO, we’re enterring a new economic paradigm due to the Bubble Impact. Your wealth isn’t measured anymore on how much leverage debt you larger household income flaunts, no not at all. In fact, many Seattle home owners with two middle incomes can’t afford to sell their underwater investment real estate [i.e., the low inventory right now].

    The new richer household in Seattle [irrespective of household income] has no debt and although their savings don’t generate much interest income(s); the dedicated saver can pile it away each month anyway, while the over-leveraged [irrespective of household income] pay out interest for a 1% YOY real estate loss in Seattle. The over-leveraged may flaunt a bigger dwelling with higher utilities/maintenance, the saver with no debt flaunts more household wealth.

    Its that simple.

    Rate this comment: Thumb up 0

  13. 13

    RE: softwarengineer @ 12

    Fortune Magazine, July 2, 2012, Had a Good Article Called, “Take Control of Your Future”, page 47

    It suggests:

    “…In today’s low-yield environment, most of us must salt away more…”

    “…Spending less and saving more is like sushi: You have to be made to try it, but then you may find you love it….”

    Rate this comment: Thumb up 0

  14. 14
    Al says:

    The principal appreciation alone doesn’t tell the full story. You also have to look at the implied rent less expenses and taxes. If you tack on leverage, then the after-tax interest adds to expense, but you add gains on borrowed money to your “income”. I don’t mean to be patronizing because readers of this site are likely to know all of this, but these factors get lost in everyday conversation.

    Rate this comment: Thumb up 0

  15. 15
    ChrisM says:

    RE: patient @ 11 – I’m dubious. Austria, Germany, and Switzerland have very expensive houses. I thought Japan & Singapore did as well. They ain’t cheap in Ireland or the UK, either. Nor in Vancouver BC… On the other hand, I expect housing is cheap in Africa & South America???

    Rate this comment: Thumb up 0

  16. 16
    patient says:

    RE: ChrisM @ 15
    Cheap compared to what? If you make a dollar a day it doesn’t help you much if a house cost $10k. It’s all relative but I think if you look at good economicc growth ( not paper gains, loans and bubbles ) it goes hand in hand with relatively low cost of neccessities as energy and housing. It will free up funds for consumption that drives the economy. Housing bubbles are one of the most dangerous bubbles there is as we should know by now. In the same way low housing costs in relation to income are very productive but you need to let the air out of a bubble before you can reap the benfits. Foreclosures are unfortunately part of getting rid of the air to allow all families to enjoy lower costs permanently. But banksters will take it in the shorts, that’s why it’s so slow and fought to the nail.

    Rate this comment: Thumb up 0

  17. 17
    Mike says:

    RE: patient @ 11

    Sad but true. Inflation is bad, except when it involves the biggest expense most families face. A loaf of bread goes up a 5% and its a tragedy. Gas goes up 20% and we need to find a country to invade. But housing going up 2%, well stop the presses its wonderful! We set up government agencies and structure the tax code to try and encourage that form of inflation. It’s really better not to think about it since it isn’t going to change anytime soon and it will just make you mad.

    When household income now includes two people working it really means that housing is half as affordable as it used to be all other things being equal.

    Rate this comment: Thumb up 0

  18. 18
    patient says:

    RE: Mike @ 17 – Exactly.

    Rate this comment: Thumb up 0

  19. 19
    David Losh says:

    I have a little more time now so let me expand on the investment aspect of Real Estate in tha past thirteen years.

    The chart tells me that the golden era for buying Real Estate as an investment was the 1970s, and 1980s. In the 1990s things went wacky because there was so much cash generated in the tech revolution.

    Guys at Microsoft, even the janitor had a million dollars. Guys in California, Palo Alto, made money promising other people they could make them money. Real Estate was the investment tool of that decade, because it was safe.

    After the Microsoft anti trust action more money was looking for a home. The money was no longer going into buying property it was being lent on property. Money was being lent on a promise that the home mortgage would pay a return.

    The mortgages were bundled, and sold to make more money, then the whole thing was insured both privately, and by government guarantee.

    The financing, and financial instruments became the most important commodity, and the mortgage payer is left holding the bag.

    Banks don’t lose anything in this because it is all averaged out. Let’s say there were three years of absolute bubble, but the rest of the loans, before, and after are still viable.

    The only real change is that banks, and huge hedge fund investors, own more of the market place than they ever have before. Right now it looks like they control the market.

    What that means to the individual who has a bunch of rentals, or maybe just a single family home, is that the price of property will continue to go down as banks, and hedge fund investors continue to divest in residential housing units.

    The money now will go into large blocks, apartment buildings, of rental units.

    Rate this comment: Thumb up 0

  20. 20
    whatsmyname says:

    “Ten to thirteen years, zero real appreciation. What a great long-term ‘investment!'”

    You’re funny. Is housing a bad investment because the prices have gone up too much?
    Or is housing a bad investment because the prices haven’t gone up enough?

    Rate this comment: Thumb up 0

  21. 21
    Johnnybigspenda says:

    RE: patient @ 11 – Rising prices are a sign of economic health/ prosperity. If you can’t afford the homes as a result you either aren’t keeping up thing or you should move to an area further outside the expensive core. People are not entitled to live in the affluent areas. Our country has gone through a tough time but overall urbanization continues. The burbs are there for a reason. The market will dictate what homes should cost. Your assertion that they are somehow poison is backwards. The fact that the the residents of those countries are making $100,000USD while their competition in brazil are making $18,000 is what drives business to look elsewhere.

    Rate this comment: Thumb up 0

  22. 22
    Jonness says:

    And what an investment it has turned out to be for those who bought a house in 2007! After 5 years of misery, they’re still down by ~40%.

    Rate this comment: Thumb up 0

  23. 23

    By Jonness @ 22:

    And what an investment it has turned out to be for those who bought a house in 2007! After 5 years of misery, they’re still down by ~40%.

    Only if you don’t understand statistics. And if you disagree with that, come back here next week and tell us all how the market has gained over 20% in value since February because that’s what the new median indicates.

    Some are down my more than 40% and some are down by much less. The ones hardest hit though are the first time buyers. Their 2 bedroom, 1 bath homes really plummeted in value.

    Rate this comment: Thumb up 0

  24. 24
    Tim McB says:

    By patient @ 11:

    Easy, low cost credit is absolute poison to a countries long term economy.

    There, fixed the quote for you. You wouldn’t have high housing costs without without easy or low cost credit. Together there terrible for an economy long term. Sorta like a sugar high with the inevitable crash.

    Rate this comment: Thumb up 0

  25. 25
    David Losh says:

    RE: Tim McB @ 24

    In Peru, in 2000 there was only one retailer who offered credit, and the terms were 24% with a pay off in 6 months.

    Today every one, well most every one, has a credit card, and there are hundreds of super markets, and retailer who also offer credit terms.

    The second part, and the most scary is that most property transfers were done with cash in 2000, and today there are a wide variety of mortgages available. The price of housing has tripled.

    Even though people may be careful with credit many families are struggling to keep up the payments because they use the credit as a status symbol. People are buying cars, condos, and luxury items because they can afford the payments, but there is less left over after buying into the new dream of prosperity.

    A lot has been accomplished to increase the standard of living in the past twelve years, there is much more affluence, there are many more jobs, and the economy is much more robust.

    Credit has created it’s own economy in Peru.

    The same thing has happened in Brazil, Equador, but especially Chile. There is a lot more available than ever before, cell phone, computers, banks, and new foriegn investment. It’s an emerging market.

    The question is how a country can go from no credit to full credit in twelve years. What could possibly go wrong?

    Rate this comment: Thumb up 0

  26. 26
    whatsmyname says:

    By Jonness @ 22:

    And what an investment it has turned out to be for those who bought a house in 2007! After 5 years of misery, they’re still down by ~40%.

    And those who bought Bank of America in 2007 are still down 80%.
    But you won’t hear that from a stock pimp.
    Also worth remembering the next time Losh goes on about how the banks never lose.

    Rate this comment: Thumb up 0

  27. 27
    apartment boy says:

    RE: whatsmyname @ 26RE: whatsmyname @ 26
    Citi was ~ $55 pre crash and is now ~ $2.70(pre reverse split). Those investors s/b occupying Prince’s summer home.

    Rate this comment: Thumb up 0

  28. 28

    By whatsmyname @ 26:

    And those who bought Bank of America in 2007 are still down 80%.
    But you won’t hear that from a stock pimp.
    Also worth remembering the next time Losh goes on about how the banks never lose.

    Bank stock is always worth the same value. ;-)

    Rate this comment: Thumb up 0

  29. 29
    David Losh says:

    RE: whatsmyname @ 26

    Paper losses on current stock don’t translate into a loss of cash reserves.

    I’m amazed by the number of people on this blog that feel sorry for the poor bankers.

    Rate this comment: Thumb up 0

  30. 30
    John Berkowitz says:

    RE: David Losh @ 25

    I´m studying about Latin America but I have not investigated the situation of the mortgage markets in each country. Thanks for an interesting comment. Do you know any web pages where can I find more information about Latin American RE? It can be in Spanish.

    As a Canadian, I can see the exactly same thing happening there. It is the same curse as in Peru, Chile and other countries you name. And we are talking here about this: “Canadians aged 25 to 34 years are those who most likely hold some form of debt (84 per cent) together with those between 35 and 44 years (83 per cent)” (quoted from Three quarters of Albertans are in debt!). This is the reason why our RE market sucks all our money and gives us nothing in exchange. There is almost 17 per cent Canadians who have more than 4 debts… With the current economic crisis of the Western world, I´m really skeptical about the possibility to repay everything and have Tabula Rasa, as our parents or grandparents had in 60s or 70s.

    Rate this comment: Thumb up 0

  31. 31
    David Losh says:

    Let me add this link http://www.huffingtonpost.com/2010/10/12/job-creation-idea-no-9-en_n_759329.html

    The Huffington Post wouldn’t be my first choice of information, but try to Google banking. You will find pages, and pages of self serving posts, web sites, and sales hype for banking with very little information about what banks make.

    Banks have advanced way beyond taking deposits, and lending money in our communities. Banking is a global investment.

    Trying to say that one area of banking, like the small number of bad home loans they may have made is all that banking is today is like saying Haliburton is a General Contracting company that lost money on supplying oil to Iraq.

    Rate this comment: Thumb up 0

  32. 32

    RE: David Losh @ 31 – If you want business to spend money they need to know what the future will be. Obamacare is a big unknown even after the decision.

    If you want businesses to take risks, you need a President who doesn’t personally call out companies that fail. Chase just had some trading losses which for them were relatively insignificant. Their CEO just spent time in front of a Congressional committee. Why would businesses take risk in this political climate? They might fail. It’s safer to just keep doing what they’ve been doing, and either sit on the profits or use the profits to buy back stock.

    Rate this comment: Thumb up 0

  33. 33
    whatsmyname says:

    By David Losh @ 29:

    RE: whatsmyname @ 26

    Paper losses on current stock don’t translate into a loss of cash reserves.

    I would be very interested to know what you think you just said.

    …And how that relates to the point that people who bought ownership positions in big banks lost a lot of very real money.

    Rate this comment: Thumb up 0

  34. 34

    RE: whatsmyname @ 33 – Paper losses are like paper cuts. They hurt!

    Rate this comment: Thumb up 0

  35. 35
    whatsmyname says:

    “Ten to thirteen years, zero real appreciation. What a great long-term “investment!””

    Things like “real” appreciation of one particular asset as denominated in constant 2012 dollars doesn’t have a lot of meaning when you have nothing else to compare with it on the same basis.

    So make it easy on yourself, and consider a comparison on nominal terms is at least as informative. For example, from 5/99 to 5/12 the DJIA increased from 10,006 to 12,454, or about 24%. King County median house prices in the same period increased from $229,950 to $362,000, or about 57%. Given that the relationship to real appreciation, denominated in 2012 dollars is identical.

    Would that mean long term, negative, real appreciation for “investments” in stock?
    Your turn to do bonds.

    King County median numbers from the Seattle Bubble
    DJIA numbers are everywhere.

    Rate this comment: Thumb up 0

  36. 36
    Scotsman says:

    Housing isn’t an investment- it’s an expense. And too many forget financed assets and debt aren’t wealth. The only thing that will make housing an “investment” is consistent, significant (but manageable) inflation in asset prices and wages- an outcome with a 50/50 chance at best.

    Rate this comment: Thumb up 0

  37. 37
    whatsmyname says:

    RE: Scotsman @ 36
    Every investment is the allocation of resources to provide something which is an expense to someone.

    Rate this comment: Thumb up 0

  38. 38
    MichaelB says:

    30 years of ever increasing debt resulting in ever increasing home prices in the United States. Take away the debt and house prices revert to the mean of about $200k (or less). $200k is about right since that is 3x the average household income in Seattle. Real wages have hardly budged in 30 years, but the house price bubble is still with us…We are in a period of deleveraging and will be until debt gets back under control. It’s nowhere close.

    The saddest part is that houses are not productive assets. Would be much better to invest in factories, software development, biotech, etc…

    Rate this comment: Thumb up 0

  39. 39
    corndogs says:

    RE: softwarengineer @ 12 – Actually, wealth was never measured by debt load. It’s measured as net worth. The rich have the money and the house, with no compromises. Their upper tier home prices were largely unaffected by the bubble past the 1st 18 months… Upper tier prices have been flat for 3 years… Nope, the rich are still the same people, but the middle class has sank a little lower. Especially those who don’t understand what it means to be wealthy.

    Rate this comment: Thumb up 0

  40. 40
    corndogs says:

    Did it ever occur to any of you that the composition of housing has changed over the last 50 years? My house is 4,600 sq ft on 1.5 acres. How many of your grandparents owned a house like this? People who discuss and potentially invest in real estate need to understand median pricing, an increase in the median is meaningless if you don’t understand the composition it reflects. Many of you probably could afford a little post wwII home and it is still worth 100K just not in the middle of Seattle which obviously isn’t the same city it was 40 years ago.. Real estate is a tremendous investment, but if you keep looking at charts and you don’t understand what you’re looking at, you’re not going to get far.
    http://www.moyak.com/papers/house-sizes.html

    Rate this comment: Thumb up 0

  41. 41

    By whatsmyname @ 35:

    So make it easy on yourself, and consider a comparison on nominal terms is at least as informative. For example, from 5/99 to 5/12 the DJIA increased from 10,006 to 12,454, or about 24%. King County median house prices in the same period increased from $229,950 to $362,000, or about 57%. Given that the relationship to real appreciation, denominated in 2012 dollars is identical.

    Huh? Maybe I need more coffee still, but I’m not following that at all. Wouldn’t you need to discount those percent increases by the inflation which occurred from 1999 to 2012? And I’m not sure what the last sentence is trying to say.

    Rate this comment: Thumb up 0

  42. 42

    By MichaelB @ 38:

    The saddest part is that houses are not productive assets. Would be much better to invest in factories, software development, biotech, etc…

    I would say providing a basic human need is productive. The need is shelter. Cheaper houses are more efficient at that production than luxury houses, but there is clearly a useful product there.

    Rate this comment: Thumb up 0

  43. 43

    By Scotsman @ 36:

    Housing isn’t an investment- it’s an expense. .

    Not true at all for the cash buyer.

    Rate this comment: Thumb up 0

  44. 44
    David Losh says:

    RE: whatsmyname @ 33

    There is absolutely no doubt we all lost from the devalued stocks. Banks though can continue on with the help of, from what I gather, every government in the world to realize more profits.

    The banks themselves, the people managing the money, and continue to manage the money, still get hefty pay checks. The banks are both required to have cash on hand, and have also put cash to work in emerging markets,

    Money continues in the system. For every buyer that lost money there is a seller who made money. The cash is being held in a global system that we, as consumers, pay for.

    Rate this comment: Thumb up 0

  45. 45

    By corndogs @ 39:

    RE: softwarengineer @ 12 – Actually, wealth was never measured by debt load. It’s measured as net worth. The rich have the money and the house, with no compromises. Their upper tier home prices were largely unaffected by the bubble past the 1st 18 months…

    I’m not sure what you’re basing that on. Case-Shiller tiers? Remember those tiers are adjusted.

    Rate this comment: Thumb up 0

  46. 46
    corndogs says:

    Ten to thirteen years, zero real appreciation. What a great long-term “investment!”

    putting 20% down on an investment that keeps pace with inflation will more than double your money in ten years at 2.5% inflation.

    Rate this comment: Thumb up 0

  47. 47
    corndogs says:

    RE: Kary L. Krismer @ 45

    Well, Case Schiller yes, but you can do your own research. Go to Redfin search King County pending sales and look at previous sold prices. I searched King County between 750K and 950K and found 200+ pending properties, only two were selling for more than 20% off their previous sell price. One 29% off from beginning 2008, one 22% off from end 2006. The vast majority were selling for much more than previously even ones bought in the last few years. I found 4 that had dropped 10-15% from the previous sale all in the 2007 time frame.

    So… if you in King County and your houses is pending in the range of 750K to 950K. Here is a table that shows your chances of selling at a loss.

    loss chance
    >30% 0%
    20-30% 1%
    15-20% 2%
    10-15% 3%

    and these houses aren’t sitting around going lower every month the mean ‘days on Redfin’ is about 70 days

    Rate this comment: Thumb up 0

  48. 48
    David Losh says:

    RE: John Berkowitz @ 30

    It’s interesting to me that your comment got a thumbs down, because you pointed out the obvious about mounting debt.

    This is an organization I talked with yesterday http://www.vittana.org/ they are making student loans, and there is another organization that is doing medical procedure loans.

    It would be called micro lending, but now it is pervasive. The Credit Union they partnered with is a huge corporation with some questionable collection practices.

    Rate this comment: Thumb up 0

  49. 49
    whatsmyname says:

    By Kary L. Krismer @ 41:

    By whatsmyname @ 35:

    Huh? Maybe I need more coffee still, but I’m not following that at all. Wouldn’t you need to discount those percent increases by the inflation which occurred from 1999 to 2012? And I’m not sure what the last sentence is trying to say.

    What I am saying is that to put these numbers into Tim’s real appreciation format you would need to do just that, BUT you would need to do that for the DJIA numbers as well. The relationship of 54% increase for King County houses versus 24% increase for DJIA porfolio will be constant.

    Rate this comment: Thumb up 0

  50. 50
    whatsmyname says:

    By corndogs @ 40:

    Did it ever occur to any of you that the composition of housing has changed over the last 50 years?
    http://www.moyak.com/papers/house-sizes.html

    I point out that the median house over time is not the same house on a regular basis. But Tim chose the indexes to compare.

    Rate this comment: Thumb up 0

  51. 51
    whatsmyname says:

    By David Losh @ 44:

    RE: whatsmyname @ 33

    There is absolutely no doubt we all lost from the devalued stocks. Banks though can continue on with the help of, from what I gather, every government in the world to realize more profits.

    The banks themselves, the people managing the money, and continue to manage the money, still get hefty pay checks. The banks are both required to have cash on hand, and have also put cash to work in emerging markets,

    Money continues in the system. For every buyer that lost money there is a seller who made money. The cash is being held in a global system that we, as consumers, pay for.

    The Banks (or some of them) got the same help as the car companies. Not saying it’s right, but it’s not some kind of no lose proposition. Ask any former WAMU stockholder.

    Cash floating in the system is not equity for banks.

    Rate this comment: Thumb up 0

  52. 52
    David Losh says:

    RE: whatsmyname @ 50

    Washington Mutual is the perfect example. The stock holders lost money, but the bank was absorped. Everything is still in place, the same as the day WaMu bought H.F. Ahmanson.

    It’s a game that has cost us, here in Seattle, billions of dollars.

    The game is continueing in Europe today with the promise by the Central Bank to infuse money directly to European Banks effectively by passing government controls.

    Banks, since the beginning of time, have been the enemy, but today we can’t function without them, economically.

    Rate this comment: Thumb up 0

  53. 53

    By David Losh @ 51:

    RE: whatsmyname @ 50 – Washington Mutual is the perfect example. The stock holders lost money, but the bank was absorped. Everything is still in place, the same as the day WaMu bought H.F. Ahmanson.

    By that way of thinking, the Titantic was a pretty good ship. It was absorbed and is still in place!

    Rate this comment: Thumb up 0

  54. 54
    whatsmyname says:

    By Kary L. Krismer @ 52:

    By that way of thinking, the Titantic was a pretty good ship. It was absorbed and is still in place!

    Well put, sir.

    Rate this comment: Thumb up 0

  55. 55
    whatsmyname says:

    By Scotsman @ 36:

    Housing isn’t an investment- it’s an expense.

    The term “housing” is used to describe both the consumptive factor of using shelter and as a generally inclusive descriptor of shelter assets. To define it as one meaning in the context of a conversation regarding the other is the basest form of definitional fallacy.

    I’d say that you’re only fooling yourself, but the thumbs say otherwise.

    Rate this comment: Thumb up 0

  56. 56
    David Losh says:

    RE: whatsmyname @ 53

    Not well put at all. Financial instruments are totally fluid. Just because a bank takes a loss in one department doesn’t mean the entire ship went down.

    WaMu could have been sold to Chase, but refused, because they felt they could have weathered this storm. The FDIC stepped in, and I think it was Paulson who recommended that WaMu be taken over.

    The assets, and deposits stay in place except those taken by depositors. The stock price was destroyed in this process. Investors in bank stock are the ones who lost out, but the money, those dollars that were invested, are still with the banks. How do you think that money gets lost? It is some place.

    Rate this comment: Thumb up 0

  57. 57
    David Losh says:

    RE: whatsmyname @ 54

    This I agree with, and it makes sense. Real Estate is an investment if it is purchased, leased, or rented well, and managed for a profit.

    Rate this comment: Thumb up 0

  58. 58
    Jonness says:

    By Kary L. Krismer @ 23:

    Only if you don’t understand statistics.

    As a statistician by trade, I’m not surprised you bought a house in 2007. Meanwhile, I chose to hold off, short the stock market on its way down, and then ride it up the other side.

    Rate this comment: Thumb up 0

  59. 59
    Jonness says:

    By whatsmyname @ 26:

    And those who bought Bank of America in 2007 are still down 80%.

    Yeah, some people really got walloped on stocks. And still I hear investment advisers talking about how foolish people are who don’t buy and hold stocks.

    Buy and hold my arse. BAC was a good deal back when Meredith Whitney recommended it at $3. For those who paid over $50 for this stock using the buy and hold philosophy, it’s time to get a new money manager.

    Rate this comment: Thumb up 0

  60. 60
    MichaelB says:

    RE: Kary L. Krismer @ 42

    A house provides shelter, but it doesn’t produce anything, just like an empty factory building doesn’t produce anything (although it would provide shelter for the “workers”!). If you are not sure about this, go stand outside your garage and see what comes out the end of your home’s assembly line other than your wife’s car.

    In conclusion, it might be better for the economy if people were to invest in $500k machines that produce widgets for airplanes or biotechnology than to buy houses that produce nothing. Thus, a housing bubble driven by debt, takes resources from productive resources and wastes them on unproductive, speculative housing “investments”. Sad. People getting rich by selling the same assets over and over again to each other…Not productive.

    Rate this comment: Thumb up 0

  61. 61

    By Jonness @ 58:

    By Kary L. Krismer @ 23:
    Only if you don’t understand statistics.

    As a statistician by trade, I’m not surprised you bought a house in 2007. Meanwhile, I chose to hold off, short the stock market on its way down, and then ride it up the other side.

    I’d explain again how that has made a lot of sense, but you wouldn’t respond because you know it’s right. Why don’t you calculate how much rent I would have paid to live in my house, and then add on the taxes I would have had to pay to earn that amount of rent. The longer you make your nonsense claims, the less sense they make!

    And unlike you, my position of buying and selling is recorded in the public record, and not some fantasy I make up to post to a website. Your investment strategies are a legend in your own mind, but pure fiction in the real world.

    Rate this comment: Thumb up 0

  62. 62

    By MichaelB @ 60:

    RE: Kary L. Krismer @ 42 – A house provides shelter, but it doesn’t produce anything, just like an empty factory building doesn’t produce anything (although it would provide shelter for the “workers”!).

    Incorrect analogy. Use a warehouse rather than a factory. I would agree an empty warehouse does nothing, just as an empty house does nothing. Have goods in the warehouse and it’s productive, just as the occupied house is productive.

    Rate this comment: Thumb up 0

  63. 63
    David Losh says:

    RE: MichaelB @ 60

    That big spike in the price of housing was from people who had a vested interest in the price of housing going up. The Master Builders Association made money, through membership, by promoting housing. The Mortgage Bankers Association made money, through membership, selling the idea that your mortgage payment is better than renting. The Real Estate agents made money by commissions, and the government estimate is of collecting a tax is $90K per unit.

    That is a lot of billions of dollars pumping a housing market.

    What this chart shows, more than many others, is how expensive housing got.

    As an investment housing was great as it went up in price compared to the rest of commodities. Once it began it’s long decline it became less, and less attractive. A mortgage payment, over thirty years, and now fifteen years, has a much higher cost for housing than renting, and once you are done, and own it free, and clear, you need to maintain, pay taxes, and insure it.

    At the end of even fifteen years the price of the property, even if it only declines 10% is a net loss that will need to be recovered over time. Well, how much economic life have you got?

    You would be much better off buying a dump truck, and renting it out.

    Rate this comment: Thumb up 0

  64. 64
    The Tim says:

    By whatsmyname @ 35:

    Would that mean long term, negative, real appreciation for “investments” in stock?

    Yup. Stocks haven’t done great over the last decade either. What’s your point?

    By corndogs @ 46:

    putting 20% down on an investment that keeps pace with inflation will more than double your money in ten years at 2.5% inflation.

    Sure, okay let’s do the numbers on that. Let’s say you put 20% down on the median-priced home in Q2 1999. Home price: $229,650 | Down payment: $45,930

    Then let’s say you sold the home in Q1 2012. Price: $317,708 | Post-sale proceeds: $146,256 (after paying real estate agent and excise taxes).

    Hey, that’s a $100,326 return on your “investment.” You crushed it, returning 218% vs. total inflation over the period of just 38%.

    Except, you paid $158,529 over the period to rent the money from the bank. And $36,884 in taxes to the state for the privilege of holding title to the property. Plus probably around $35,000 in maintenance.

    So, after subtracting for expenses, your $100,326 gain turns into a $130,087 loss, spread out over 13 years.

    Wow, what a killer “investment!”

    Rate this comment: Thumb up 0

  65. 65
    David Losh says:

    RE: The Tim @ 64

    Real Estate has been, traditionally, an investment. You can see by the chart that up to 1998 it was a fairly safe investment.

    What your chart isn’t showing is that the price of property is declining.

    The price of rents is declining, and the investment quality of Real Estate is about done in the foreseeable future.

    The problem here is the reliance on sales data which is, at best a six month window of Real Estate pricing. These charts, over say fifty years, are much more informative.

    Rate this comment: Thumb up 0

  66. 66
    corndogs says:

    RE: The Tim @ 64RE: The Tim @ 64 – Let’s say your numbers are right, that comes to $833/month “loss” as you say…… Tim, all investments have to be weighed against the best alternative investment for the time period. (that’s the point whatsmyname @ 35 was trying to make RE: the stock market BTW). For most people an investment in the house is an alternative to paying rent, assuming rents increased on this house at the same 2.5% inflation from $1,290 to $1,750 over 13 years, you would have paid $236,000 for rent during the same time period. Using your numbers that leave’s you in the black $106,000! But wait, you also forgot that you get 25% of your interest payments back from the IRS as a write off. So now your in the black $146,000 . I think that is an incredible investment given the time period (the worst housing market years we seen in our life times, recession/depression, volatile stock market).

    Let’s say you kept the house. Your original principle of ~185K would have been paid down to 120K? (guess) after 13 years. Refinancing at todays rate you could lock in a mortgage payment of about $550/month! how does that compare to the rent of $1,750? How about in another 10 years. Maybe you can take survey as to who’d rather be locked in with a $550 mortgage vs. ever escalating rent?

    You seem to think you’ve come to some kind of epiphany that renting isn’t the suckers bet people have made it out to be. That was true for a period of time. I also rented during the bubble (in lieu of a personal residence for myself) because as a landlord it was clear that properties were overpriced in relation to rents. That’s no longer the case. Property ownership is and always will be primarily a hedge against inflation for the average citizen. You shouldn’t expect more than to keep pace with inflation and you don’t have to to do quite well.

    Rate this comment: Thumb up 0

  67. 67
    corndogs says:

    RE: David Losh @ 63 – Fascinatingly absurd, the whole lot of it. I’m going to reduce my comments on your posts though because I don’t want to discourage you from continuing.

    Rate this comment: Thumb up 0

  68. 68

    By corndogs @ 66:

    But wait, you also forgot that you get 25% of your interest payments back from the IRS as a write off.

    Only if you have about $10,000 of other deductions, including the real estate tax paid.

    Rate this comment: Thumb up 0

  69. 69
    David Losh says:

    RE: corndogs @ 66

    Let’s make it easy and say the rent is $2K. After twelve years I walk away without any consequence.

    That’s $288000 paid.

    The land owner still owes $180K, he can refinance and have cash flow of $1500 according to you.

    The income, all things considered, and let me be generous here is $192K, for twelve years, but you still owe $180K. Now you are saying that the land lord should start the whole thing over again?

    You would also check your inflation rate to housing unit prices.

    Rate this comment: Thumb up 0

  70. 70
    corndogs says:

    RE: Kary L. Krismer @ 68 – True – Even if some people didn’t have that benefit my point is still correct.

    Rate this comment: Thumb up 0

  71. 71
    corndogs says:

    RE: David Losh @ 69 – “The land owner still owes $180K, he can refinance and have cash flow of $1500 according to you”. Is that how mortgages work?. After paying a loan for 13 years you’d still owe the original principal? Fascinating! Instead of thumbs down, I’m gonna start giving you thumbs up, just for the entertainment value.

    Rate this comment: Thumb up 0

  72. 72
    David Losh says:

    RE: corndogs @ 71

    It’s your numbers, oh I see it’s $120K, according to you, OK same thing, it’s a debt.

    I don’t read your comments, because it is simple controversy for the sake of controversy.

    It’s called trolling http://en.wikipedia.org/wiki/Troll_(Internet)

    Rate this comment: Thumb up 0

  73. 73
    whatsmyname says:

    By The Tim @ 64:

    By whatsmyname @ 35:
    Would that mean long term, negative, real appreciation for “investments” in stock?

    Yup. Stocks haven’t done great over the last decade either. What’s your point?

    I think that corndogs answered that succinctly in post 66. But if you remain dubious, I would be happy to break it out for you in detail.

    Rate this comment: Thumb up 0

  74. 74
    David Losh says:

    RE: whatsmyname @ 73

    Could you please.

    Rate this comment: Thumb up 0

  75. 75
    whatsmyname says:

    RE: David Losh @ 74
    Well, if you want.

    The point is that you have to compare things on a like basis to get an intelligible result.

    Look at the initial statement: “Ten to thirteen years, zero real appreciation. What a great long-term “investment!'”

    House prices here are presented in an unfamiliar context of real appreciation. Intuitively we remember that other investments (in another form of presentation) do appreciate. There is a clear implication that housing’s zero real appreciation compares so badly with other investments that even the term “investment” is put in quotations when applied to housing.

    However, to make sense, we need to compare investments by the same standards. Hence, we compare stocks and housing on an easy to follow gross appreciation basis to find that stocks performed worse than housing. I invited the next person to do the same with bonds. If you have a well laddered bond fund you will also get a less-than-housing result, although with the right bonds and timing you could possible have beat housing. Perhaps we should do the same exercise with cash, although it shouldn’t be hard to intuit that result.

    This is not definitive, and there are other, effects you could add; cash flow, stock dividends, the rent dividend, some degree of expanded tax reduction. But at the end of the day, this model will most closely translate to Tim’s chosen methodology of real appreciation, and the relative benefits of each investment type to the others will remain constant. Oddly, housing in the period Tim picked likely beats most other conventionally defined investments when you do the same math for each investment. That is hardly a basis to mock housing as an investment.

    In fairness to Tim, although he chose it, median house price is not a perfect proxy for investing in a particular house, because for most of that time houses were getting bigger, and getting some energy and technology improvements (although this part has been seriously challenged by the “crapbox theory”)

    Rate this comment: Thumb up 0

  76. 76
    corndogs says:

    RE: whatsmyname @ 75 – all very true… nicely put. All that aside though, it’s obvious that anything that can be bought or sold can be profited from. The larger the value and complexity, the bigger the possibilities. Do you think a used car is an appreciating asset? Of course not, but there’s many wealthy people who trade them for a living… real estate is even better. My Dad flips houses, he can do anything, build new cabinets from scratch, pour a foundation, add a room, reclaim old wood for new trim, it’s pretty amazing. Even if prices are going down you can make a dollar if you know what you are doing and have some skills. You buy the undesirable and make it desirable. If you’re not good with your hands you might just be experienced at finding the good deals.. that helps too.

    Rate this comment: Thumb up 0

  77. 77
    David Losh says:

    RE: whatsmyname @ 75

    Investing is profit, or loss. We can take any period for any investment and make a general statement about it’s investment quality.

    The stock market in 1994 was 5000, and in 1999 it was 10000, that was a great time to invest either way. The stock market became it’s own casino.

    Housing between 1999 to 2008 was a great casino. Lots of money was made.

    After the crash every investor is trying to prove they made the smartest play. Some shorted stocks, others bought gold, some sold houses, some bought stocks after the crash. Every body has a strategy.

    The period Tim picked happens to correspond with the Seattle Bubble Blog. Between 1999 to 2012 a whole bunch of people jumped onto the Real Estate band wagon claiming it was the best investment because history tells us so. The price of Real Estate never goes down, and inflation will float the boat of this asset class.

    What Tim has pointed out is that Real Estate just proved to be one of whe worst long term holds if you did in deed buy in 1999 with the idea of keeping the property. long term. In my opinion he is correct.

    In order to have a profit or loss you need to sell the property. If rely on rental income, and tax deduction alone you have a long ways to go before you hit that profit because your cash investment, and mortgage are in the loss column.

    People want to believe we are at the bottom of the Real Estate market because they are holding equity in property. Property is a hard commodity to sell, and it costs money to sell, as well as it costs money to hold it.

    Because I know that people holding property are losing money, I think retirement age people will sell for the highest price they can get, and move to a property that is cheaper, newer, and easier to maintain. I think in terms of investment there are much better places to put money right now than a box to hold your crap.

    Rate this comment: Thumb up 0

  78. 78

    By whatsmyname @ 75:

    In fairness to Tim, although he chose it, median house price is not a perfect proxy for investing in a particular house, because for most of that time houses were getting bigger, and getting some energy and technology improvements (although this part has been seriously challenged by the “crapbox theory”)

    Beyond that though, you also have the impact of the distressed sales. If you used the non-distressed median the numbers would be entirely different. Most likely the median would have seldom dropped below $400k. And by not doing that you get to absurd results, like properties having risen in value by over 23% from February to June.

    Rate this comment: Thumb up 0

  79. 79
    corndogs says:

    RE: David Losh @ 77 – Noooo, now come on Davy, the apartment you live in is a ‘box of crap’. That’s all it is and you know it. People with houses aren’t trying to justify their purchase, they are living the dream that all people aspire to, including you and the Tim. Tim showed a little balls and got himself one. You on the other hand don’t have what it takes to be a homeowner, let alone a realestate investor, you know that, and that’s about the only thing there is to your credit. You were just shown here in black and white on this particular post why housing is a good investment, you haven’t shown that it isn’t and you haven’t shown that there is a better investment. You want it to be a bad investment, because you want other people to come down to your level… well…. friend… nobody wants to be there, not even you. Quit BSing. Your endgame is an apartment with a kitty litter box in your dining room? Really? Come on!

    Rate this comment: Thumb up 0

  80. 80

    RE: corndogs @ 79 – What makes you think he’s not a dog person who owns a house?

    Rate this comment: Thumb up 0

  81. 81
    wreckingbull says:

    RE: corndogs @ 79 – I realize your douchy
    comments are meant to get a rise out of everyone, and based on the responses, I’d say they are falling flat. You may not agree with Losh, and I rarely do, but you have to give the man credit where it is due. If you don’t believe me, research the history of Pasta Bella. My hunch is that he has also owned a few homes in his day, and probably still does.

    I sense a large amount of post purchase dissonance wafting from your direction. You know, many of us own multiple properties. You are not the only one. What I don’t understand is this constant need for self-affirmation. We get it, you bought a foreclosure or REO. Nice work. Can we move on?

    Rate this comment: Thumb up 0

  82. 82
    David Losh says:

    RE: corndogs @ 79

    As much fun as this is, you have been shown that if you bought a house in the past ten years, and didn’t sell it for a profit, you will have a net loss. The people buying today will also be extremely challenged to get a return.

    Rate this comment: Thumb up 0

  83. 83
    whatsmyname says:

    By David Losh @ 77:

    RE: whatsmyname @ 75

    What Tim has pointed out is that Real Estate just proved to be one of whe worst long term holds if you did in deed buy in 1999 with the idea of keeping the property. long term. In my opinion he is correct.
    …… I think in terms of investment there are much better places to put money right now than a box to hold your crap.

    David, this is where I need you to slow down a little bit. Tim may have asserted that real estate from 1999 proved to be one of the worst long term holds, but we just established that if you are comparing indexes, then stocks, bonds and cash largely did worse. This is not opinion; this is math.

    I do agree that liquidation and liquidation costs are a part of the final return. With June warranty deeds up around 2007 levels, it is hard to make the case you can’t liquidate, and with a 30% differential versus the DJIA return, it is hard to claim that the differential in liquidation costs will turn the tide – at least where stocks are concerned.

    Finally, I want to point out that for most of us, whether we buy or rent, we will be paying for a box to hold our crap.

    Rate this comment: Thumb up 0

  84. 84
    whatsmyname says:

    By Kary L. Krismer @ 78:

    By whatsmyname @ 75:
    In fairness to Tim, although he chose it, median house price is not a perfect proxy for investing in a particular house, because for most of that time houses were getting bigger, and getting some energy and technology improvements (although this part has been seriously challenged by the “crapbox theory”)

    Beyond that though, you also have the impact of the distressed sales. If you used the non-distressed median the numbers would be entirely different. Most likely the median would have seldom dropped below $400k. And by not doing that you get to absurd results, like properties having risen in value by over 23% from February to June.

    Absolutely right over the last 4 years. The absurd result of a 23% increase from February to June is just the flip side of that earlier distortion. One can not be absurd unless the other is too.

    Rate this comment: Thumb up 0

  85. 85
    corndogs says:

    RE: wreckingbull @ 81 – Pasta blah blah? Really? How does the saying go?… “If you wanna make a small fortune, begin with a large fortune and then open a restaurant”. Everyone knows that’s a 0 to 2% margin unless!!! Unless, you own the building!!!. I guarantee you that the guy who’s renting him his space has made more money from his business than he has and David knows that also. That’s OK, I can have compassion for that, but if you’re gonna run your trap and say inaccurate things you’re gonna have people tell you about it… that’s what these blogs are about….. or is this just a support club for people who can’t afford a house…. don’t be so sensitive, what are you a democrat…?

    Rate this comment: Thumb up 0

  86. 86
    corndogs says:

    RE: David Losh @ 82 – Listen to the whatsmyname guy… he knows hat he’s talking about.

    Rate this comment: Thumb up 0

  87. 87
    2kt says:

    RE: David Losh @ 82RE: David Losh @ 19

    Makes no sense, Dave. The cap on most residential properties is about 5%-6% now. 10-year Treasuries yield under 2%. One can earn a decent return in real estate relative to bond market.

    Rate this comment: Thumb up 0

  88. 88
    2kt says:

    RE: David Losh @ 29

    Dave, stop posting about investments, banks, rates of return and other related items. You know nothing about it.

    Rate this comment: Thumb up 0

  89. 89
    David Losh says:

    RE: 2kt @ 88

    Educate me.

    Rate this comment: Thumb up 0

  90. 90
    David Losh says:

    RE: corndogs @ 85

    The only thing you got right is that you need to own the building.

    Rate this comment: Thumb up 0

  91. 91
    David Losh says:

    RE: 2kt @ 87

    Really? is that the cap rate for rental income or the over all loss of equity. How about the cost to buy, and sell?

    and I said I would rather buy a dump truck, and rent it out for a higher return than 2%.

    Now why would some one buy Treasuries for growth?

    Rate this comment: Thumb up 0

  92. 92
    2kt says:

    RE: David Losh @ 89

    I am not big on lost causes.

    Rate this comment: Thumb up 0

  93. 93
    2kt says:

    Any investment can lose money. Treasuries may lose money if and when rates rise. The dump truck can have a major accident and end up tied up in lawsuits forever, Dave. It’s all relative. 5%-6% cash return on rental is decent, all things considered.

    Rate this comment: Thumb up 0

  94. 94
    corndogs says:

    RE: David Losh @ 89 – You got educated, some people call it schooled. Go back and read all the posts in this string, except the ones by you, The Tim, and wreckingbung and you’ll have all you need to know….

    Rate this comment: Thumb up 0

  95. 95

    By whatsmyname @ 83Finally, I want to point out that for most of us, whether we buy or rent, we will be paying for a box to hold our crap.

    http://www.youtube.com/watch?v=MvgN5gCuLac

    “Your house is just a place to put your stuff.”

    Rate this comment: Thumb up 0

  96. 96

    By whatsmyname @ 84:

    Absolutely right over the last 4 years. The absurd result of a 23% increase from February to June is just the flip side of that earlier distortion. One can not be absurd unless the other is too.

    It’s funny how I get a lot less crap here pointing out the mix matters now, when I point out the median is going up because of the mix, than I did when I was pointing out that the median was being driven down because of the mix.

    Rate this comment: Thumb up 0

  97. 97

    By 2kt @ 87:

    RE: David Losh @ 82RE: David Losh @ 19

    Makes no sense, Dave. The cap on most residential properties is about 5%-6% now. 10-year Treasuries yield under 2%. One can earn a decent return in real estate relative to bond market.

    And the bond market will get absolutely crushed by inflation, if and when that happens.

    Rate this comment: Thumb up 0

  98. 98
    wreckingbull says:

    By corndogs @ 85:

    RE: wreckingbull @ 81 – Pasta blah blah? Really? How does the saying go?… “If you wanna make a small fortune, begin with a large fortune and then open a restaurant”. Everyone knows that’s a 0 to 2% margin unless!!! Unless, you own the building!!!. I guarantee you that the guy who’s renting him his space has made more money from his business than he has and David knows that also. That’s OK, I can have compassion for that, but if you’re gonna run your trap and say inaccurate things you’re gonna have people tell you about it… that’s what these blogs are about….. or is this just a support club for people who can’t afford a house…. don’t be so sensitive, what are you a democrat…?

    Wow, that one went over your head, but based on your comments I’m not surprised. He built it up from nothing, and then got out when it was hot. This was decades ago. He must have done something right, as the place is still going strong over 30 years later, unlike all the the new trendy places which come and go in Ballard. What were you doing in 1980?

    It takes quite a tool to get me defending Losh, but congratulations, you did it!

    Rate this comment: Thumb up 0

  99. 99

    By 2kt @ 93:

    Any investment can lose money. Treasuries may lose money if and when rates rise. The dump truck can have a major accident and end up tied up in lawsuits forever, Dave. It’s all relative. 5%-6% cash return on rental is decent, all things considered.

    I think Dave might be surprised what a dump truck costs new, and how much fuel it burns.

    Rate this comment: Thumb up 0

  100. 100
    David Losh says:

    RE: 2kt @ 93

    Let’s take the case of what corndogs outlined.

    “Let’s say you kept the house. Your original principle of ~185K would have been paid down to 120K? (guess) after 13 years. Refinancing at todays rate you could lock in a mortgage payment of about $550/month! how does that compare to the rent of $1,750? How about in another 10 years. Maybe you can take survey as to who’d rather be locked in with a $550 mortgage vs. ever escalating rent?”

    You would start out with a payment of $1200 per month, rent may cover that, but under this same example the rent goes up to $1700, a $500 per month cash flow, or savings after let’s say ten years that’s $60000 income, or $6000 savings per year.

    You still owe $144,296 on that property, and have paid $10K in interest, with $5K in principal.

    Now that you are just getting to a point of really amortizing the loan corndogs is recommending a refinance to increase income, and start the whole process over again.

    What happened is that you saw that purchase of $185K mushroom to $400K in the bubble, and now that $400K has deflated to $325K.

    What you want to tell me is that you have a profit of $140K for the privledge of owning that property.

    You didn’t say that, you were speculating about a phantom 3% to 6% return on investment, but you have to take into account that total package.

    Now you own a property with a $145K balance and an income of $1200 per month, according to you, after that $500 a month mortgage payment. Wow! I’m still very much not impressed.

    That is an income of $18000 per year on a debt of $145K that you guys have reaffirmed, and started the amortization over again.

    You could have dedicated that extra income, according to you, to the principal, but hey, this is you on your way to owning more homes because it is such a great investment.

    Sure anything can happen to my dump truck, and anything can happen in Real Estate.

    My point is that Real Estate will continue a decline in price, and rents. More, and more housing units will be added to the over supply we already have, and banking will continue to divest mortgages in favor of safer havens.

    The consumer, your renter, or buyer, doesn’t need to pay you your high prices any more because there are more, and more choices in housing all the time.

    Those are the bets I have made, and last year you might have convinced me you were right, and I was wrong. This year, with that Spring Bounce, and the high prices people paid for property, and the fact more people didn’t jump in to sell, confirms to me that we are in for a serious decline in prices.

    People paid way too much this year. Even a slight decrease will change the numbers you guys have laid out. Without a future bubble in pricing people will be disillusioned. More housing units will be built, and fewer people will clamor for them.

    It’s time to move on. There are better opportunities.

    Now don’t get me started about the theory of inflation in housing, because that is full of holes.

    Rate this comment: Thumb up 0

  101. 101
    David Losh says:

    RE: wreckingbull @ 98

    How would you possibly know that?

    It was a listing of mine that no one wanted. I bought it with two partners for $1. We paid Mrs. Nicolosi, Philip’s mother $2K for the dishes, because that was fair, and took over the debt which we renegotiated.

    I bought out the partners, knew nothing about the business, but lived there until I did.

    It sold for $35K on a contract at 10% interest for three years.

    I continue, from time to time to consult with restuarant owners, and opened one in a hotel some years ago.

    The only reason that I’m responding is because I would like to revive the original business of Rumblefish Espresso.

    Rate this comment: Thumb up 0

  102. 102

    By David Losh @ 100:

    RE: 2kt @ 93

    Let’s take the case of what corndogs outlined.

    “Letâ��s say you kept the house. Your original principle of ~185K would have been paid down to 120K? (guess) after 13 years. Refinancing at todays rate you could lock in a mortgage payment of about $550/month! how does that compare to the rent of $1,750? How about in another 10 years. Maybe you can take survey as to whoâ��d rather be locked in with a $550 mortgage vs. ever escalating rent?”

    You would start out with a payment of $1200 per month, rent may cover that, but under this same example the rent goes up to $1700, a $500 per month cash flow, or savings after let’s say ten years that’s $60000 income, or $6000 savings per year..

    Let’s maybe work with some real numbers. The $120,000 after 13 years is actually pretty close, assuming the initial rate was 7%. To then refinance over 15 years (increasing your total term by 3 years, your payment would be about $850.00 at 3.5% interest.

    Rate this comment: Thumb up 0

  103. 103

    By David Losh @ 1:

    It was a listing of mine that no one wanted. I bought it with two partners for $1. We paid Mrs. Nicolosi, Philip’s mother $2K for the dishes, because that was fair, and took over the debt which we renegotiated.

    You bought a property from your own client? That’s a good way to get sued and lose your license.

    Rate this comment: Thumb up 0

  104. 104
    corndogs says:

    RE: wreckingbull @ 98 – You and Losh are peas in a pod. He at least keeps trying to talk numbers. You don’t because you’ll get the same schooling… not just by me, but everyone else… Try making an intelligent comment about real estate, or zip it.

    Rate this comment: Thumb up 0

  105. 105
    corndogs says:

    RE: Kary L. Krismer @ 99 – Where’s he gonna park it when it’s not rented? 7-11 next to his apartment?…..

    Rate this comment: Thumb up 0

  106. 106
    corndogs says:

    RE: Kary L. Krismer @ 2 – I personally would have refinanced over 30 years. but you don’t have to refinance at all to make what I’m saying work…

    Rate this comment: Thumb up 0

  107. 107
    corndogs says:

    RE: David Losh @ 1 – Holy smokes!!, wreckingbung!! hahaha…. he sold his business for 35K and aspires to open a coffee stand….. I paid twice that much in income taxes last year, talk about credit where credit is due, I should get a metal for supporting you democrats… Wow, that’s some success, what’s your next step in life? buy a dump truck together and live in it… jesus, that’s just sad…

    Rate this comment: Thumb up 0

  108. 108
    David Losh says:

    RE: Kary L. Krismer @ 103

    You are always allowed to do that as long as you have marketed the property to the very best of your ability.

    The lease was the best part of the deal, the space needed work, there was debt, and bad will from the person who inherited the business.

    The alternative was that the person who listed with me would be sued by the land lord.

    As long as all disclosures are made you can indeed buy your own listing.

    Rate this comment: Thumb up 0

  109. 109
    David Losh says:

    RE: corndogs @ 7

    You’re forgeting that the business cash flowed after the first six months, broke even after the first three.

    According to your numbers that business did much better than your “investment.”

    Work the numbers, then get back to me when you have something to say.

    The dump truck is an old saying in Real Estate investing, it always pays more.

    Rate this comment: Thumb up 0

  110. 110
    David Losh says:

    Hey, wait a minute, that mukoh person was also bragging about paying $70K in taxes.

    Rate this comment: Thumb up 0

  111. 111

    By corndogs @ 6:

    RE: Kary L. Krismer @ 2 – I personally would have refinanced over 30 years. but you don’t have to refinance at all to make what I’m saying work…

    I was trying to not increase the time to pay off by a significant amount. There are two potential problems with refinancing: (1) The cost; and (2) Resetting the clock.

    Rate this comment: Thumb up 0

  112. 112

    By David Losh @ 8:

    RE: Kary L. Krismer @ 103

    You are always allowed to do that as long as you have marketed the property to the very best of your ability.

    . . .
    As long as all disclosures are made you can indeed buy your own listing.

    David, you don’t know what you’re talking about. I will repeat so that other agents don’t make the same mistake. Buying your own listing is likely to result in your being sued and losing your license. It’s an incredibly stupid thing to do. About the worst thing that an agent could do.

    Look at the appellate court case that Craig Blackmon recently won–Grace v. Hanks or something. There the seller and the agent couldn’t even agree on what the facts were. So good luck proving you fully marketed the property–that’s not a disclosure type of fact.

    BTW, it’s likely a transaction that is presumed fraudulent under Washington law. I’m basing that on a Washington case that has a presumption a transaction between an attorney and client is presumed fraudulent. I don’t know why a transaction between a real estate agent and their client would be any different.

    Rate this comment: Thumb up 0

  113. 113

    By David Losh @ 8:

    The lease was the best part of the deal, the space needed work, there was debt, and bad will from the person who inherited the business.

    The alternative was that the person who listed with me would be sued by the land lord..

    Wow. The lease was the best part of the deal, but the client had to worry about being sued by the landlord? An attorney suing you would love to hear you say that in a deposition. It makes no sense.

    If the lease was such a great deal, the landlord would probably have been glad to see the lease terminate. I once had a restaurant case where the buyer paid over $150,000, mainly because the lease was such a great deal. They shut down the restaurant that was there and started an entirely new type of restaurant. The landlord would have probably paid money to terminate that lease. They did pay a lot in attorney fees trying to terminate it.

    Rate this comment: Thumb up 0

  114. 114

    By David Losh @ 9:

    RE: corndogs @ 7 – You’re forgeting that the business cash flowed after the first six months, broke even after the first three.

    Another thing the attorney suing you would love to hear you say in a deposition. And if the seller heard of these facts, the reason you would be sued. Seller’s remorse.

    Rate this comment: Thumb up 0

  115. 115
    David Losh says:

    RE: Kary L. Krismer @ 114RE: Kary L. Krismer @ 112

    You are making a case based on other cases that have no bearing here.

    You start with “David, you don’t know what you’re talking about,” then go on to make random comments.

    Well, the fact is I did do it, the land lord was grateful, the client was grateful, and I over paid for that privledge. The person who bought the place from me made money out of the gate, because I left a fair amount of money on the table.

    I always over pay, because I have more money than brains.

    Now how does that work in your liability thinking? I give money away and some how you jump to fraud, and liability.

    Rate this comment: Thumb up 0

  116. 116

    RE: David Losh @ 115 – You paid a dollar!

    And those are not random comments. They only seem random to you because you still don’t realize what you did wrong. You placed your broker at incredible risk. They clearly were not providing enough oversight.

    Rate this comment: Thumb up 0

  117. 117
    David Losh says:

    RE: Kary L. Krismer @ 116

    If everybody makes money where would the damages be?

    You would have to prove damages.

    We all looked at the deal, no harm, no foul.

    You’re wasting my time again.

    Sorry, my fault, I should have never engaged you. I do know better.

    Rate this comment: Thumb up 0

  118. 118

    By David Losh @ 117:

    RE: Kary L. Krismer @ 116

    If everybody makes money where would the damages be?

    Well first, I’m talking about the risk of being sued, and the risk of losing your license. If you’re sued or have a complaint filed against your license, you’ve already lost. Having a judgment entered just makes it worse.

    And seriously, you keep saying things which indicate you don’t have a clue! What’s it matter that everyone made money? YOUR CLIENT DID NOT MAKE THAT MONEY! YOU DID! You were representing your client and at some point you decided it was best for your client to sell to you! You then made money off of that occurring.

    Have you never heard the term: “Conflict of interest?”

    Rate this comment: Thumb up 0

  119. 119

    […] some will say no.   This question came up recently in a blog post over at http://www.SeattleBubble.com (http://seattlebubble.com/blog/2012/06/29/king-county-home-prices-affordability-1950-q2-2012/).  The post noting value changes end with the […]

    Rate this comment: Thumb up 0

  120. 120

    […] late June’s post where I plotted the long-term trend of inflation-adjusted local home prices, there was some disagreement with my snarky insinuation that zero real appreciation over thirteen […]

    Rate this comment: Thumb up 0

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Please read the rules before posting a comment.