Posted by: Timothy Ellis (The Tim)

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

35 responses to “Expensive Eastside Home Sales Spiked in February”

  1. David Losh

    It’s really good that you put this information out there.

    The rise in pricing is very disturbing. When you couple that with the low interest rates, and affordability, the across the board price increases seem like a good thing, but it does depend on the mix.

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  2. blurtman

    RE: David Losh @ 1 – Just allowing more chips to be placed before the croupier shovels them to the house.

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  3. 3rd Generation

    English translation please ?

    “1. David Losh
    March 11, 2013 at 9:15 am | Permalink

    It’s really good that you put this information out there.

    The rise in pricing is very disturbing. When you couple that with the low interest rates, and affordability, the across the board price increases seem like a good thing, but it does depend on the mix.”

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  4. David Losh

    RE: 3rd Generation @ 3

    You baffle me. You never have anything really to say.

    For you, today, the translation is that when higher priced homes sell it raises the over all median price.

    It says so in the post that was presented, so I didn’t really feel the need to repeat it.

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  5. Ron

    This aughta help pump the bubble….

    More people that shouldn’t leverage themselves to the hilt will qualify, again….

    New credit score could help millions
    http://finance.yahoo.com/news/credit-score-could-help-millions-170500824.html

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  6. softwarengineer

    The Eastside Has Always Bucked the Tide Lately

    The question isn’t why it is; the question is can it sustain itself past 2016 and beyond?

    If you think too short sided you’d be better putting cash in the stock market at 16% the last year, than eastside real estate….but short sided bears’ thinking only apply well to real estate and that’s that?

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  7. Jay

    The rise in pricing in the Eastside is partly due to developers who have been manipulating the market. If you look at the sales history and current sales prices of new homes in the Issaquah Highlands, then you can see very clearly that the developer raised their price by $130,000 for the smaller homes, and $200,000 for their biggest homes. History is repeating itself, and it definitely feels like 2005 and 2006 again. We are going to wait and not buy anything until the market calms down.

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  8. Top

    My friends seem pretty excited the houses that they bought in the eastside two years ago have gone up by 20%. I told them that the property market feels like another bubble. This will be a great time to sell for someone that is selling. They got pretty upset and told me that the interest rates will not raise for a while. With such low inventory and pretty of cash buyers, the property prices will just keep elevating. They even advice me to buy as soon as possible despite the fact that I told them even crappy properties are subjected to multiple bids scenario right now.

    I am sure they are banking on their properties doubling in price within 8 years even though their salaries will only go up by 15% for the same time frame.

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  9. Chris

    RE: Jay @ 7

    It strikes me that raising prices doesn’t equate to manipulating the market. Unless there’s more to it than what you wrote, the homebuilder is only adjusting their asking price; they don’t control the buyer side of the equation. Based on my rudimentary understanding of markets, if they raise the price and get a buyer (or buyers) then a new market price is established for that point in time – no manipulation required.

    The surprising thing to me on the Eastside is that there appears to be a booming market for newly built 2,500-3,000 sq ft homes on 5,000 or 6,000 square foot lots with prices approaching three quarters of a million dollars. That seems to be pretty similar to the type of product that drove peak pricing and then crashed hard. Maybe “this time is different”. Still, aren’t loan underwriters more stringent, and isn’t mortgage insurance much higher? It’s hard to understand what’s driving this market.

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  10. Mike

    Most of the Eastside pride difference seems to be due to newer larger homes. When you can find comparable properties in Seattle, the prices aren’t any less expensive. Buying an older $450k home on the west side of the lake more often than not would require another $100k of work to get it up to Eastside standards.

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  11. Eastsider

    RE: Jay @ 7 – RE: Jay @ 7 –

    Perhaps the builders were selling houses at “below” market prices in the past few years. Many builders went broke between 2006 and 2008 and never returned. The surviving builders were probably not making money between 2009-2011. Now they are just making enough to stay in business long term! They always have to compete against resale homes so their pricing power is always in check.

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  12. Mike

    RE: Chris @ 9

    Yes, but this time around the $750k homes aren’t likely to be in Renton or North Bothell.

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  13. redmondjp

    RE: Chris @ 9 – What’s driving the market on the Eastside, Chris, are DINKS who individually are making 2-3X the median household income! Do the math, and a $750K house is not hard to afford on their combined income.

    Shoot, the new neighbors only have one income earner (M$) and last summer they paid almost $400K for a 1977-built house with aluminum windows and baseboard heat (plus it is seismically-unstable, natural gas is not available at the curb, 2×4 exterior walls, original siding, lead solder in the pipes, swampy clay yard with original landscaping, original painted-over hollow-core doors and cheap trim inside, etc etc).

    People are paying for the location as they want to be close to work, in a high cost-of-living area (relative to most of the country).

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  14. Blurtman

    RE: redmondjp @ 13 – It’s where the 5% live.

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  15. Rumpole

    RE: redmondjp @ 13

    I much prefer to be called a DINK then the other acronym that applies; double-income, large dogs owners.

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  16. redmondjp

    RE: Rumpole @ 15 – ;<) I had to think about that one for a minute since it's BC (Before Coffee).

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  17. Tim McB

    RE: Chris @ 9

    Three words: low interest rates.

    If that goes away the market definitely tightens up, if not freezes up. If it stays low (which it shouldn’t) we’ll eventually find a point of equalibrium.

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  18. mike

    RE: Tim McB @ 17 – I’m expecting rates to stay low until default rates are mostly in line with long term trends. Given the current # of loans left over from the bubble and crop of 2008-2009 FHA’s that went belly up, another 3 yrs minimum at 4.5% or below seems likely.

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  19. ARDELL

    RE: mike @ 18

    Some people think rates from 3.5% to 3.625% is up. I totally agree with you. Maybe 4% or under. But some people will call 4% a major buy signal if they don’t have a tolerance within 1/2 a % point.

    Unfortunately that is true of most people. I have actually had clients freak out saying “rates are up!!!” I look and don’t see it. They say yes, yesterday was 3.5% today is 3.625%. Real story. Real scary.

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  20. mike

    RE: ARDELL @ 19 – As The Tim pointed out, today’s prices are still affordable at 6% APR. In my case, it would increase our front end DTI by < 5% and I'm not sure it would have had any effect on the price range we were shopping in. Psychologically, sure, I can see people freaking out about a 2.5% jump in rates, but how many buyers now are pushing their debt to the limit on home purchases?

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  21. ARDELL

    RE: mike @ 20

    Actually I’m talking about the opposite reaction. When rates blipped at 4% for a mini second a little while back, lots of buyers thought they had to buy right now! Before rates went higher. Not because they couldn’t afford a home if they didn’t. Just a knee jerk reaction.

    People feeling like they have to hurry up and buy over minor rate increases is something I hear often. Never is that because they are maxing out on affordability if they don’t.

    Hard to get people to calm down sometimes.

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  22. mike

    RE: ARDELL @ 21 – It sounds as though you’re attributing it to an irrational gut reaction over economics. I know the feeling, but it’s hard to see how it would affect a motivated buyers time frame by more than a few months. Missing out on a well suited home over a .5% rate difference – or settling on a bad home just to get a good rate doesn’t make a whole lot of sense.

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  23. patient

    Maybe there will soon be some young driven guy out there who are looking at homes and realizes that we have a bubble forming and maybe he will start a blog about it and maybe his followers will start popping up at real estate insider and agent heavy sites as this one to challenge the establishment and maybe they will be redicouled and later proven right?

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  24. Tim McB

    RE: ARDELL @ 21

    Minor moves in rates do matter to a monthly payment buyer which probably constitutes about 75% or more of the market right now. A .5% increase reduces affordability by 5%. On a 450k house that’s 22.5k. A 1% increase reduces affordability by 10% or 45k on said house. My total shoot from the hip guess is that about 10% of the recent increase here and elsewhere is from the drop from 4.25% to 3.25% (and now we’re back to 3.5%+) over the last year plus. The rest is coming from inventory restriction/job growth/Amazon/RE cheerleadering etc. Rates absolutely do matter to the typical (not cash) buyer.

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  25. patient

    To say that rates doesn’t matter is the same as saying that exotic financing doesn’t matter. Home buyer as a group are idiots who spend as much as they can afford or more if someone let them. Lower rates means that they can afford a higher price. When Money is a lot cheaper and/or easier than what is sustainable there will be a bubble, every time. The gov. and the bankers are hell bent on pumping up the bubble again and they are succeeding. Enjoy the spectacle, again..

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  26. ARDELL

    RE: Tim McB @ 24

    But rates can change an 1/8th to a 1/4 in one day..clearly can and do that during a week. If rates are 3.5% when you make an offer, they can clearly be an 1/8th higher by the time you have a mutually accepted offer and can lock the rate.

    Reacting over a 1/8th move while looking at houses suggests the buyer hasn’t left enough play in their monthly. Many use a hard number for monthly and that is not practical for many reasons. RE taxes change that payment number ongoing as does the cost of fire insurance.

    Rates move in 1/8th increments and can move from 3.5% to 3.625% and back again from morning to night. You can’t lock it in until you have a mutually accepted contract. Some buyers don’t lock as soon as they possibly can either. If you take the full 5 days allowed in the contract to shop rate and lender vs lock the second you are in contract…rates will be moving while you are shopping by at least an 1/8th this way or that.

    There is nothing in the contract requiring a buyer to lock when they make formal application for their mortgage. So a tolerance for moves of .125 to .25 is part of the home buying process. Did have one person react to 3.625 vs 3.5 by floating almost to day it closed. Ended up closing at 3.75. Rates move in 1/8ths and often…daily…more than once a day.

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  27. Tim McB

    RE: ARDELL @ 26

    True there is volitility to the interest rate market. I’ve found it pretty annoying actually the way 30 year rates are handled, even with post bubble legislation to make things more consumer friendly, there’s quite a bit of opacity to the way mortgages are financed and refinanced. And I believe that’s by design.
    Back to my point though, as patient said, people go for the max they can afford and lower rates give them more buying power. That’s what we’re seeing on the Eastside and Seattle, and other places as well.

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  28. ARDELL

    RE: Tim McB @ 27

    My clients rarely, if ever, go to the max. That has been true for 23 years, so possibly that is my influence.

    No, I absolutely don’t agree that “people go for the max they can afford”. In fact I warn all my clients that lenders over qualify them, and I show them how to qualify themselves. The number usually comes up lower than what the lender said they could buy.

    Not saying that none ever go to the max, But clearly none would fall out of qualifying over an 1/8 to 1/4 point fluctuation in rates.

    The areas you name are the areas I work, and I do not see people pushing their affordability to the max unless there are special circumstances. Once in awhile, often even, they are only counting one income even though both work. Then yes, would make sense to go to the max on that one income, knowing they are really making almost double that amount.

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  29. ARDELL

    RE: ARDELL @ 28

    Must be some lenders reading, as I can’t imagine anyone here would counsel people to spend all the way to he max of affordability, or give thumbs down on sound advice that is contrary to lender practices.

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  30. Howard

    By ARDELL @ 29:

    RE: ARDELL @ 28

    Must be some lenders reading, as I can’t imagine anyone here would counsel people to spend all the way to he max of affordability, or give thumbs down on sound advice that is contrary to lender practices.

    We over extended ourselves on our first house purchase. Classic “house poor”. We bought a $200k house with $6k down at 7% interest with an income of $48k. It really stunk till our incomes rose.

    Never again. I knew the math back then and I know it know. 20% of both our incomes is where I would like to be.

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  31. Plymster

    I keep reading about multiple offers on homes losing out to all-cash offers. Ardell, Ira, and any other agents out there, are you seeing this commonly?

    I have to wonder if interest rates really matter if so many homes are being sold for cash (ie: no loan involved).

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  32. Jay

    RE: Eastsider @ 11
    They started building last year, and they have increased the price by more than $130,000 comparing to the same single family homes that were sold last year in Issaquah Highlands. There is no way that I buy a home from them after I know about their sales history, which is very easy to check on Redfin! Even if I do have the money, I will NEVER throw away more than $100,000 for a house just because the market is so hot right now!

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  33. Jay

    I highly recommend buyers to check the sales history thoroughly using both Redfin and King County Records before making an offer. Tim did a great job explaining how to search King County’s New Online Property Records a few years ago, http://seattlebubble.com/blog/2010/06/22/guided-tour-king-countys-new-online-property-records/. These are the best tools that will help anyone making an informed decision for the biggest purchase of a lifetime.

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  34. Siddharta

    RE: Jay @ 32
    That area has a lot of new commercial construction activity and it might be causing the spike in prices nearby.

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  35. NWMLS: Sales Unfazed by Still-Scarce Inventory • Seattle Bubble

    [...] More or less the same as last month at a nearly 20% year-over-year gain. Remember that this large of a jump is mostly due to a decrease in distressed sales (short sales, bank-owned) and a geographic shift toward the more expensive parts of the county. [...]

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