It’s time once again for the monthly reporting roundup, where you can read my wry commentary about the news instead of subjecting yourself to boring rehashes of the NWMLS press release (or in addition to, if that’s what floats your boat).
To kick things off, here’s an excerpt from the NWMLS press release:
Multiple offers for homes stimulated by constricted supply, favorable financing
Brokers around western Washington reported brisk activity during July with home buyers scrambling to take advantage of attractive financing while encountering shrinking inventory and, in some areas, rising prices.
…
J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, said strong summer sales and low inventory in the Puget Sound region are resulting in price increases and multiple offer situations. Prospective purchasers need to be “buyer-ready to get a home in today’s market,” he emphasized, noting that pre-approval on a loan and becoming very familiar with market conditions can be beneficial.
…
“Counter to the historic yearly pattern of increasing inventory from January to late summer, this year we have seen inventory levels shrink month over month,” observed Joe Spencer, area director for the Northwest Region of Keller Williams. “This pattern of shrinking inventory, historically low interest rates and higher consumer confidence clearly signals that the market is on the rebound,” he added.
*Yawn*
This month’s release is surprisingly low on hyperbole and misleading or flat-out incorrect statements. It must have been written by an intern who hasn’t yet learned the ways of the used home salesman.
Read on for my take on this month’s local news reports.
Connor Radnovich, Seattle Times: King County home prices up 7 percent from last year
With more would-be buyers than sellers, the buyers are starting to become frustrated, said Ellis and Seattle real-estate economist Matthew Gardner.
Gardner said the major reason for the low number of listings is that people are underwater on their mortgages — they owe more than their homes are worth — and have to stay in their homes.
He said the levels of inventory are the lowest they have been since early 2006.
People want to move, Gardner said, but can’t afford to pay the bank to leave and are waiting to get above water before they sell their homes.
This may be the first time on record that I find myself agreeing with Matthew Gardner.
Aubrey Cohen, Seattle P-I: King County house prices up from 2011, down from June
The story continues to be extremely low inventory. The county had 2.4 months worth of homes for sale at the current pace in July. That’s unchanged from June and down from 5.4 months worth of homes for sale in July 2011. Seattle had 2.2 months worth of inventory, down from 4.6 months a year earlier but up from 2 months in June.
…
A lower level of “distressed homes” — those in or under threat of foreclosure — has helped buoy prices, because these homes typically sell at a discount.
Yup, that’s what I’ve been pointing out for months now. Much of this year’s apparent increase in prices is really just a decrease in distressed sales.
Kurt Batdorf, Everett Herald: Home sale prices rise again in county
Record-low mortgage interest rates and a shrinking inventory of homes for sale again drove up sales prices across most of Snohomish County in July, a trend that first became apparent in April.
This month’s Herald piece is little more than a handful of numbers presented in prose form instead of a table, with a Joe Spencer NWMLS press release quote thrown in for good measure.
Rolf Boone, Tacoma News Tribune: Expert: Real-estate market in better shape
Despite lackluster results for the Pierce County housing market in July, a Lakewood-based real estate broker thinks the market is in much better shape than the data would suggest.
Pierce County home sales and median prices in the year-over-year July period were flat for the most part, with sales rising 2.36 percent to 860 units from 838 units, according to combined single-family residence and condominium data released by the Northwest Multiple Listing Service on Monday.
…
The fact that inventory levels continue to fall – possibly the lowest in five or six years – and has not stimulated prices because there’s less to choose from, was surprising for the July data, said Mike Larson, president and designated broker of Lakewood-based Allen Realtors.
Home prices aren’t “stimulated” by low inventory, they’re driven by local economic fundamentals—i.e. incomes. Why is that basic fact still so hard for real estate salespeople to understand?
Rolf Boone, The Olympian: Hopeful news continues for Thurston County home sales
The Thurston County housing market had one of its best months of the year in July — at least in percentage terms — as home sales rose 14.17 percent in the year-over-year July period, according to Northwest Multiple Listing Service data released Monday.
Although monthly sales fell below 300 units, last month’s sales still outperformed the market in July 2011, rising to 282 units from 247 units, the combined single-family residence and condominium data show.
…
Van Dorm Realty Managing Broker Steve Pust said the local housing market continues to get better and better, making it 14 straight months of sales increases for the west-side real estate brokerage, one of the largest in the area.
…
“Honest to goodness, confidence levels are increasing,” Pust said.
I love the “honest to goodness” bit. It’s almost as if he doesn’t expect you to trust the word of a salesman. Odd.
(Connor Radnovich, Seattle Times, 08.06.2012)
(Aubrey Cohen, Seattle P-I, 08.06.2012)
(Kurt Batdorf, Everett Herald, 08.06.2012)
(Rolf Boone, Tacoma News Tribune, 08.07.2012)
(Rolf Boone, The Olympian, 08.06.2012)
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Yes, Incomes Drive Credit Limits
Having said that, the average income may seem like a great place to hang a prediction hat; but its the incomes of the potential buyers out there, not average incomes [i.e., most higher end incomes already bought a house] that drive potential demand.
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By softwarengineer @ 1:
On the other hand, looking at median income is better than to simply look at housing inventory. At any given time, there are going to be a certain number of people out there who would like to buy a house. Some of these people buy houses no matter what the real estate market is like, because they just feel better owning their own home, and they can afford to pay the mortgage and they just don’t care if it’s prudent or not.
Others would have liked to have purchased a home five or six years ago, but prices were overinflated and they held off. Now, prices are down but inventory is very low, making the odds much higher that they’re not going to find the house they want in the place they want for the price they want. It’s not that there are no houses on the market, just that the selection sucks.
Over the next few years I’d expect incomes to remain about the same around here unless we get some wage inflation.
Generally speaking, if you look at the median household income to home price ratio over the last 20 years, one would expect that it ultimately reverts to the mean, or close to it. There’s clearly a relationship between income and home prices, and if you could know what incomes were going to be like in the future, you could make some serious dough:)
There’a also a rent to home price ratio that’s important to look at.
David seems to feel that home prices are going to go down some more. Others are saying we’ve hit bottom and we’re on our way back up, even if it’s a slow rise.
Me? I’m not sure. Pricewise, I expect more wallowing near the botttom for a while, but ultimately, over the next couple of years, something’s going to break. Inflation? Massive principal write downs? Microsoft relocating their headquarters to Mumbai? President Romney sprinkling fairy dust from his magic wand?
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From the piece:
“People want to move, Gardner said, but can’t afford to pay the bank to leave and are waiting to get above water before they sell their homes.
This may be the first time on record that I find myself agreeing with Matthew Gardner.”
This is going to be a self limiting feed back on the market. IF prices bump up enough for some of those underwater “owners” to be able to get out of their current homes, they’ll hit the market, effectively putting a brake (via the surge in supply) on further increases in prices.
It’s going to be a long hang over to work through….
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If Gardner is getting bearish, it might be time to get bullish.
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By No Name Guy @ 3:
Anyone want to venture a guess on the condition of these homes when they come on the market? Have the people that are nearly above water been maintaining and upgrading, or holding off and neglecting? Most of the people that I know personally that are underwater are well over 20%, so I don’t see their houses becoming inventory any time soon unless they decide to short sale.
Shopping the past few months, the short sales have generally been in mediocre shape. Not surprising. I just don’t know what to expect of the ‘recently underwater’ inventory we’ll be seeing as the recovery progresses. Overall, a lot of the inventory is in lousy shape.
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RE: No Name Guy @ 3 – More people becoming capable of moving to another location does not increase inventory only sales volume. Sell one, buy one equals net change zero inventory. Foreclosures increase inventory. Investors dumping their holdings increases inventory.
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“Yup, that’s what I’ve been pointing out for months now. Much of this year’s apparent increase in prices is really just a decrease in distressed sales.”
Yup, another way of saying that an equivalent amount of the previous years’ apparent decrease in prices was just really an increase in distressed sales.
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By Mike @ 5:
Well, At least it’ll keep nominal prices down.
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Tim – I have to quibble with your comment that low inventory doesn’t drive price, but rather income. I would humbly suggest that income drives demand. More/higher income will cause people to think about buying, i.e., demand. Inventory is the supply aspect. So, both low inventory and income fundamentals will influence home prices.
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RE: Carl @ 9 – “Home prices aren’t “stimulated” by low inventory” This is a quote from Tim Ellis who is a real estate market analyst…. I just want to pull this quote out and highlight it for future reference.
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By whatsmyname @ 8:
There are buyers who are looking for fixers or cosmetic fixers.
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By Carl @ 9:
Correct. And to put it in the context of an individual seller, if you have a house in a market that has four buyers making an offer in the first five days, that is likely to lead to a higher sales price than in a market where you wait three months for an offer because there are a lot of competing active listings out there. Low supply drives price.
Speaking of which, we may see that again in gasoline given the California fire. I’m not sure if our refinery sources can be diverted to California–given their special mix issues, but if it can, we’ll see prices head up again unless that refinery can be started quickly.
Somewhat amazing that after roughly 100 years of refining gasoline they still don’t understand the corrosion elements of the process.
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I’ll add into the discussion: personal debt. Mortgage debt along with credit card debt. Many home sellers are waiting for prices to actually start climbing so they will have some equity to play with. Also, many move-up home buyers have lots of unsecured debt and may not qualify for that move-up home today whereas they would have in 2006.
Regarding income, during the housing bubble income stayed relatively flat. It was relaxed underwriting guidelines, qualifying ARM loan recipients at the teaser rate, and a huge push by banks and wholesale lenders that lead to the rapid increase in home prices, not income.
I have a graph for you on that but I’ll have to locate it. See exhibit 1:
http://www.fanniemae.com/portal/about-us/media/commentary/030812-fahey.html
So income is still flat and we have more sane underwriting guidelines. I think we’re overlooking personal debt—unsecured debt–as a possible dark horse holding back first time and move-up buyers.
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RE: Kary L. Krismer @ 12 – If they got rid of the (ADM Corporate Welfare) ethanol requirements, that would help ease the price fluctuations on gas in the future (as well as in corn, of course). Not to mention the reinstatement of the Keystone pipeline, but I digress.
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RE: Jill Schlicke @ 13 – Jill, there is only now a growing realization that the college loan debt problem is just the next domino to fall in the financial house of cards. Watch the current powers – that – be attempt to introduce legislation to allow those declaring personal bankruptcy to include all of their educational debt. But it’s doubtful that any of the banks underwriting that debt (or the universities) will be on hook for all of those billions – it’ll be the taxpayer in the end who gets the bill.
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RE: DMac @ 15 – I think the federal government is on the hook for most student loans.
They used to be easier to discharge in bankruptcy, but still difficult. The change was in about 2005 if I recall correctly.
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RE: Kary L. Krismer @ 16 – Was that the same legislation that the major card issuers pushed for, the one where it became much harder to discharge credit card debt in a personal bankruptcy filing? That one still cheeses me off.
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RE: DMac @ 17 – It’s not really harder to discharge credit card debt. That’s just how the press reported it.
One of the changes was to make people over a certain income level, based on median income levels, file Chapter 13s instead of Chapter 7, subject to some exceptions (e.g. being a business bankruptcy). That’s probably what the press was reporting. But even prior to that change a high income individual would have been subject to a claim of “substantial abuse of Chapter 7.” So really all they did was make more specific rules.
But yes, I think the student loan changes came at the same time, but I’m not 100% certain of that. It’s now been about six or seven years since I quit practicing, so I no longer keep all that stuff in my head.
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There’s nothing for sale, but sales are higher than they’ve been at anytime in the last 52 months. zzzzzzzzzzzzzzzzzzzzzzzzzzzzz.
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RE: Jill Schlicke @ 13 –
I was interested to see that on the Debt Clock http://www.usdebtclock.org/ Person Debt is neck and neck with Government Debt at about $15 Trillion.
There are people here who are all freaked out about government debt, but I look at it as though the government can afford debt while many individuals, today, can not.
I mean the government has one of the lowest tax rates, and a huge budget that they could cut if they wanted to.
Individuals have a pretty much set income, and budgets that are tiny, if not already cut to the bone.
Now you could say you were smart by having no debt at all, or a very low managable debt, but we just saw, anything can happen, to anyone.
I think the watch word is going to be deleveraging. It looks like a very simple way to get rid of a massive chunk of debt is to dump the high priced property you own, and start over with a much more managable mortgage debt, a mortgage you can pay off in say seven years.
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I’m one of those frustrated buyers dealing with skimpy inventory. We are not a high income or even middle income family, so we sat on the sidelines through the heyday of high real estate prices and watched the bubble being blown up to a monstrously unsustainable size. Yes, we could have probably gotten a loan then, but would never have been able to afford a mortgage, so we did what was prudent for our financial circumstances and felt very sorry for ourselves for missing out. Recently, interest rates and lowering prices made us think we could finally make the leap and purchase our first home. We aren’t interested in a home as an investment vehicle more than we want one as a permanent shelter and place in our community where we can live and thrive. But the market, I will firmly attest, is brutal for buyers like us. Not only is inventory low, but what is available out there is in such dire need of pricey repairs that the low listing price is a farce when adding it all up. This market is not for buyers, its for investors, and now that I’ve spent several months tracking listings of interest I’ve seen many homes bought at those low prices and returned to the market with squeaky clean new kitchens with slabs of granite thrown all over them being offered at DOUBLE the price they were just a few months ago. When there is the occasional homeowner who is pushed to list their property of their own begrudging will by paying down their mortgage , they wont make any concessions for fixes etc and don’t appreciate the would be buyer who asks for them. I don’t really blame them of course, but as a buyer I cant get on board with having to fix a whole wall of rotted siding and put on a new roof right away, I want to spend what little I have left after closing on all the little finishing touches that will make the place feel like our home. We are losing hope and getting lost in the shuffle of a market trying to correct.
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This is from today’s news.
http://www.foxbusiness.com/personal-finance/2012/07/30/how-to-tell-if-have-too-much-debt/
Not that I’m a fan of FOX anything….BUT this is interesting. The author suggests that people who are paying out 43 to 50% of their income towards debt are on the verge of financial distress. Okay, that’s not news.
But I will say that my loan originator students are writing deals today where the home buyer or refinancing homeowner is paying out 45 to 50% of his/her gross income towards debt not including things like utility bills, health ins, car ins, cell phone, daycare.
Somewhat frightening –> We call these sane underwriting guidelines.
We are stretching the qualifying ratios as much as possible without the insanity of the bubble days. And who’s keeping these loans on their books? Not the banks. Instead the loans go right to Fannie, Freddie, FHA/VA/USDA.
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RE: Nereid @ 21 – Excellent comments. Also you should consider your exit strategy – were you to purchase a house today, could you sell it in a few years where presumably interest rates return to 6%?
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RE: Jill Schlicke @ 22 – Yay for sound underwriting.
Luckily, our capitalistic free market ensures that banks who fail at underwriting go under. The invisible hand of the free market prevails.
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RE: Nereid @ 21 – My advice would be to cast your net was wide as possible. Don’t limit your location too much. There are some good houses coming on the market, but if you’re only looking in a one square mile area (or whatever), the choices can be very limiting.
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By ChrisM @ 23:
Just a reminder that FHA is assumable. When interest rates go up we’ll start seeing that again for the first time in many years.
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RE: Nereid @ 21 –
My parents bought a house they could afford in a good neighborhood. They paid down the mortgage, sold the house, and moved to a new development that was at the cusp of what they could afford. They paid that house off, and I remember burning the mortgage. It was done in the back yard, and all of us kids were there. I was really young but rememebr the day.
My parents were both of the same mind set of saving money.
The first house they bought was below a hillside on a cul de sac. The house still needs work today fifty years after they sold it. It’s just one of those houses that is rental quality, and will always be a rental, in my opinion, until it’s torn down. It’s a solid house but hardly worth fixing up.
They bought it, paid down the mortgage, built equity, sold, and moved up.
It’s nice to say the family home isn’t an investment, but it is. In my parents case the family home was the largest asset that they owned for many years until the saved more.
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RE: David Losh @ 27 – Your parents lived in a very different time.
“My parents bought a house they could afford in a good neighborhood.”
The point he/she is making is that this is no longer possible for the vast majority of people, even if all they want is simple, basic, safe housing. I really do feel for those starting out right now, although I encourage them to keep up hope. I also encourage them to consider other geographical areas. I had to move away in order to get the lifestyle I desired.
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RE: wreckingbull @ 28 –
I think we are in the perfect time to buy affordable housing, at least every news report tells us so.
The problem I see, as was pointed out in this comment, is that people don’t want to buy what isn’t ideal. People don’t want to buy what may be embarrassing.
People buy into these remodelled messes, even though they pay twice the price.
My parents bought below the means they had, paid down principal balance in order to have equity, then sold, and moved up.
You’re telling me that isn’t possible when I see that it is.
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RE: Jill Schlicke @ 13 – The article is referring to what would be called back end debt to income ratio. FHA has a limit of 43% at the moment so these people wouldn’t be getting an FHA loan. Conventional Loans are about 36% limit, so they wouldn’t get one of those either.
If your people are writing non-conforming loans, the people are probably paying extremely high interest rates, as they should be.
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Sorry. Have to LOL at Corndogs telling Jillayne what lender standards are. HAHA!!!! P.S. Conventional loans do not have a 36% backend ratio. P.S.S. Jillayne teaches lenders what lending standards are…for a living. :)
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RE: ARDELL @ 31 – Of course that’s what she does… that’s what she just said she does. Let’s let her tell us what kind of loans she’s talking about and what interest rates people are paying for a 50% DTI ratio.
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RE: corndogs @ 32 – Also, what is the down payment required, bank reserves required, it isn’t gonna make any difference to the banks or the taxpayers this time around if the right down payments are required.
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RE: ARDELL @ 31 – Don’t mock the cornham. He has…………………………………. A MILLION DOLLARS!!!!!!!!!!!!!!!!! bua ha ha ha ha ha ha.
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RE: Kary L. Krismer @ 25 – Thank you for your kind words of encouragement. We are actually looking (king) county wide and have only been looking for a month,
aggressively, too early perhaps to give up hope, but our experiences thus far have not been good:(
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RE: ChrisM @ 23 – good point, thank you!
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RE: David Losh @ 29 – WHAT!? Last month you said you had 40 years of real estate experience and anyone owning a home should sell and run away! Now you wax sentimental about the family home and it’s a good time to buy?…. Wasn’t it a better time 6 months ago?…. What have you been arguing for all this time?… What’s changed now? Well, dang Losh….. you’re late to the party…. prices already popped 20% and there’s nothing to buy…. Corndogs told you that would happen 6 months ago…. since you are now saying it’s a good time to buy…. I’d expect prices to go back down now starting today…..
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RE: corndogs @ 37 –
Yeah, well, hmmm, it’s kind of hard to get a handle on your comments, but yes people can buy below their means, pay a house off, and build equity. The house will be worth less than they paid for it but they will save on interest payments.
Real Estate prices at the time of my parents were pretty much flat, and that’s what people did to build equity, they paid the mortgage off.
Now I don’t get your up, and down idea about Real Estate because it’s supposed to be a fairly stable asset.
The very fact you are talking up, and down, like Real Estate is the stock market, with that top, and bottom nonsense, indicates Real Estate has become a major economic problem subject to speculation.
It’s a problem that can be solved, but it takes a strategy.
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By David Losh @ 38:
A simple concept that has seemingly been lost on most people, as has been buying within your means. Fortunately the banks are doing a better job on the second one than what they were several years ago.
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RE: David Losh @ 38 – There was a bubble! Therefore, there is a top and a bottom… Yes, very much like the stock market. That’s the point of this website. Real Estate speculation has gone on since the beginning of time and is exactly what you’ve been talking about everyday on this site. You’ve been saying prices will continue to drop for the last year… I said the bottom was at the end of the year. Since then prices have gone up YOY. and inventory is at a record low. So we had an argument and you lost….. that’s the point… I know you don’t understand that, which kinda takes the fun out of it but thx anyway….
The fact that you say its a good time to buy is 180 degree reversal of what you had been saying… just so you know. That means something inside your brain has changed, I was curious to see if I could get to the bottom of that, but I guess not.
For regular folks, with a modest house, houses should track with inflation. Houses are a good hedge against inflation. That’s all that should be expected. I’ve shown how a house can be a good investment just tracking with typical inflation. But you said you figured out in 2008 that this was a suckers bet. Now you’re changing your tune…
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RE: corndogs @ 40 –
The fact there was a bubble is the problem.
Where did I say this was a good time to buy? This is a bad time to buy, but people have, and people will, continue to buy into the hype you put out there.
It’s just hype, time will tell.
My comment was a response to comment 21, because that person wants to buy. That’s a choice they made, and if they make that choice they should have a strategy.
You can always have a strategy in Real Estate, but most people don’t listen to me, they have other ideas.
We never had an argument. You put up a listing you said you bought that was exactly the listing the person Joe Hammy put up. It was a vertical grain clear cedar, as I recall 1980s construction that you paid $500K for in a neighborhood of $650K homes.
You claimed you could split the lot, and maybe you could, but it is still all a gamble.
I’m very clear if we ever argued, but it makes no difference.
So who are you? corndogs, or Joe Hammy? or just a guy wanting to be right.
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