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.

54 responses to “Case-Shiller Tiers: Low Tier Surged Most in May”

  1. SMW

    I’m really surprised more people aren’t seeing this for what it is….a FRAUD driven be artificially low (and unsustainable) interest rates, along the demand from foreign investors, as well as hedge funds (see Black Stone/ Invitation Homes). While its too soon to see if the foreign investor trend continues, I know that the Hedge Funds are already in the mist of their exodus.

    I’m calling for the upward trend to reverse itself in the next few months and for supply to out-weight demand significantly (see Tim’s chart that is has already started) soon given that purchasing power is down dramatically in the past 6 weeks.

    Rate this comment: Thumb up 5

  2. softwarengineer

    RE: SMW @ 1

    Exactly SMW

    I think selling all the half million dollar dinky 2×4 insulated museum pieces on small lots in Seattle to the Chinese investors is the way to go….let them try to rent them out to the low wage Millenials for a profit….

    Rate this comment: Thumb up 2

  3. Ira Sacharoff

    If I recall correctly, before the bubble burst in 2007, it was the low tier that was surging the most, after previously lagging the other two tiers.
    I’m not going to pretend that I know what will happen when, but the big rise in the low tier in ’07 appeared to be the last gasp of the bubble. Incomes aren’t rising nearly as much as home prices, and interest rates are higher than they were just a few months ago. Along with a still low inventory, people may be buying in the low tier because it’s what they can afford. We’re not seeing as many cases of multiple offers on houses in Renton.
    But is this a case of the bubble on the verge of bursting? I’m really bad at predicting these things. In early ’06, I was sure the bubble was about to burst, and it took another year and a half. It does strike me that home prices have been going up too much and too quickly. We may not see another crash right away, but a slowdown, flattening, or slight decline are all real possibilities.

    Rate this comment: Thumb up 13

  4. Erik

    RE: Ira Sacharoff @ 3
    That is what the Seattle Times said yesterday too.
    http://seattletimes.com/html/businesstechnology/2021502915_caseshiller31xml.html

    If prices went up as they had and then slowed down to the 3-4% gains as we previously saw through history, that means the fed did what they planned to do. Ben Bernanke isn’t an idiot and I imagine that is the effect he wants. People on this site blast Ben Bernanke and the Fed, but these people didn’t get there by being dumb and making bad decisions. I think our government is in control at this point and what we see happening in the market reflects that.

    Rate this comment: Thumb up 5

  5. David Losh

    RE: Ira Sacharoff @ 3

    I love your comments, they are very to the point, in my opinion.

    What I looked at is the low tier is $273K. $273K.seems like a lot of money for the low end of the housing market.

    The upper tier does seem to be pretty low, but it depends on the property, coupled with the location.

    Rate this comment: Thumb up 4

  6. UrbanDweller

    By Erik @ 4:

    RE: Ira Sacharoff @ 3
    People on this site blast Ben Bernanke and the Fed, but these people didn’t get there by being dumb and making bad decisions. I think our government is in control at this point and what we see happening in the market reflects that.

    RE: Erik @ 4 – This is the same guy who said subprime was contained in 2007. I don’t think ole Benny boy is all that smart. https://www.youtube.com/watch?v=INmqvibv4UU

    Rate this comment: Thumb up 13

  7. Erik

    RE: UrbanDweller @ 6
    Yeah, okay, maybe you are right. I wasn’t paying attention back then. I also short sold cause I didn’t see the drop coming. I’m here to learn and get better. I guess we cannot trust what Ben Bernanke says.

    Rate this comment: Thumb up 3

  8. Christian W

    RE: David Losh @ 5
    I would agree with you that 273k is alot of money for the top end of the low tier if not for the fact that this measurement does not include condo’s or townhomes. Add those properties into the equation and the low tier would be much much lower. A significant number of lower income “home” buyers, *cough* Erik, don’t buy single family homes

    Rate this comment: Thumb up 3

  9. Blake

    Housing is certainly looking bubblicious… +20% plus in a year!
    Is it a sham?
    http://www.salon.com/2013/07/31/this_is_not_a_housing_recovery/

    … I’d lay you 20 to 1 that we got another leg down in the US housing market ahead of us soon! Too much hot, easy money and no fundamentals…

    Rate this comment: Thumb up 6

  10. Erik

    RE: Christian W @ 8
    I would love to not buy a low tier single family home and instead buy a multiplex, but I’m a low tier man because I don’t have enough money to not be. I am certainly not in the market to buy now. I bought a single family home in November 2011. Now I am waiting to own it 2 years and find a good time to sell. Then hopefully I can buy a 4-plex.

    Blake- How soon? When will this decline begin? Do you think the decline will begin before summer 2014?

    Rate this comment: Thumb up 4

  11. Everett_Tom

    The Calculated Risk blog had a interesting comment related to this. He suggested (or rather, the Zillow guy suggested), that Case-Shiller was mis-representing the size of the surge in the low end due to quick re-sales of distressed property (e.g. foreclosures). In other words, a re-sold foreclosure would have a higher price not because it had appreciated, but because it was no longer distressed.

    http://www.calculatedriskblog.com/2013/07/zillow-case-shiller-house-price-index.html

    Rate this comment: Thumb up 7

  12. Ira Sacharoff

    RE: Erik @ 10
    Opinions are like ash holes. Everybody’s got one. I would say the probability is a little better than 50% that in nine months, local home prices will be fairly close to what they are now, +/or- 3%, and the market will not have crashed by then.
    However, I just don’t think the economy is really healthy at this point. Negative stuff is being swept under the rug, and what rebound we have seen doesn’t justify the large increases in both home prices and stock prices. This is just opinion, but I think that in parts of the high tier, in places like Ravenna and Ballard and Sammamish, prices on homes for sale are barely 10% less than peak prices. And it’s not uncommon for houses in those areas to have multiple offers and sell for over list price. I know the economy in Seattle is just rolling along, but it just strikes me that there’s a fair amount of sleight of hand and manipulation that’s propping up this market. And just as we paid the price for manipulation and sleight of hand six years ago, it’s going to happen again. I would not be shocked at all to see a 5-10% or so decline in housing prices within the next couple of years. I think Bernanke knows that too. He’s just hoping it won’t be on his watch, and that he can slither away safely.

    Rate this comment: Thumb up 6

  13. corndogs

    RE: David Losh @ 5 – “What I looked at is the low tier is $273K. $273K.seems like a lot of money for the low end of the housing market.

    The 273K is nothing more than a cutoff point based on sales volume. The 273K number provides ZERO information in regards to what the individual houses sold for in the lower tier. It’s not an average, it’s not a median, the majority could have sold for $1, you have no freaking clue. Tim explains these fine details in his post. Understanding the fine detail is one of those tricks you need to put in your bag… that’s your second piece of free advice for success.

    Rate this comment: Thumb up 13

  14. Erik

    RE: Ira Sacharoff @ 12
    Yeah, my plan was to move from the dumpy place I use to live into a nice area of Seattle, but yeah, prices didn’t really decline in thos prime areas so I bought where I did.

    You, Ardell, and I had a discussion a few months back and you suggested it was probably worth the risk to wait until this next summer to sell in order to avoid capital gains tax. I am looking for arguments that convince me otherwise. So far all I have seen are small indicators that prices won’t continue upward and then people say “You’ve been warned!” to scare me. It’s like their was a conference within the real estate agent community and agents were told if a client doesn’t want to sell, give them a reason and then say to them “You’ve been warned!” That is your best chance to scare them into selling. All i’m saying is I haven’t heard any strong argument to convince me prices will plummet. People are scared our recent history will repeat, which really doesn’t make much sense given the current information.

    The world economy is a complicated puzzle to solve. I don’t think rising interest rates too quickly is going to happen based on our last quarter of sluggish growth. If gross domestic product was increasing at 5% a quarter, I’d be concerned interest rates will be on the rise. That is not the case.

    Rate this comment: Thumb up 2

  15. Ira Sacharoff

    RE: Erik @ 14
    I don’t really remember the specifics of when you’d need to sell your place to avoid capitol gains. Let’s say you’d save 12 or 15 thousand in capitol gains taxes by waiting. Is it likely that the value of your place will have declined by more than 12 or 15 thousand by next summer? Probably not. Is it likely that this decline will happen sometime after that? I think so. What’s the earliest you can sell and still avoid capitol gains? My sense is that you’ll probably make a chunk of change on this. But sometimes even a blind squirrel finds an acorn.

    Rate this comment: Thumb up 2

  16. Erik

    RE: Ira Sacharoff @ 15
    I read your comment and every thing sounded good until i got to the end you said even a blind squirrel finds an acorn implying this is luck. Not true sir. That’s not me. This was skill.

    I guess I will have to figure out how to make money again on my next one in order to prove myself. I would like to land on an all cash deal next time like that Esplanade condos maybe. I think if I have $100k in my pocket, I will be able to find a good deal more easily. I want a similar remodel like the one I just did so I can do all the same stuff. The money is made in the purchase, so I will take as long as I need to in order to get a great deal again. This next remodel, I will have more money in my pocket to buy some tools and hire people so I don’t have to do it all between my work shifts.

    I bought 11/09/2011, so I need to wait only a few more months atleast.

    People on this website talk about finding a good deal and selling for a profit. Look no further folks. Read my comments and learn from a pro… me. :)

    Rate this comment: Thumb up 2

  17. Corndogs

    who else on Seattle bubble, actually bought a house during the downturn. Besides TeenErik and “Tim, The”

    Rate this comment: Thumb up 2

  18. mike

    RE: Ira Sacharoff @ 3 – From my research on what was happening with the subprime market in late 2006 through the crash in March 2007, the availability of subprime purchase loans surged during this time as re-fi’s started drying up. I think this partly explains why the low end saw such a boost of right before the crash. (IIRC the fastest appreciating neighborhoods in the LA area were Compton and Ingelwood!)

    Second, ‘Priced out Forever’ fever was rampant, so more purchases from young marginally qualified buyers were being pulled forward.

    My guess is the current low end surge is due to the following factors:

    1) Downsizing. Empty nesters that held out for a better market over the past 6 years saw an opportunity to sell in a competitive market and took it.

    2) Investor activity is highest in the low end

    3) FTHB’s who were (thankfully) too young to get caught up in the bubble are now settling down.

    4) Across the board, market segments that saw the greatest price declines have also seen the sharpest rebound, while at the same time recovering the least amount of value.

    Rate this comment: Thumb up 2

  19. Ira Sacharoff

    RE: Erik @ 16
    People love to take credit for being smart when things go well. It looks like you have some extremely useful remodeling skills. But skills in knowing when to buy, skills in being able to get it at a good price, those things you can claim all you want, but you won’t have demonstrated them until you sell. And even then it might just be luck:)

    Rate this comment: Thumb up 5

  20. pfft

    By SMW @ 1:

    I’m really surprised more people aren’t seeing this for what it is….a FRAUD driven be artificially low (and unsustainable) interest rates

    how artificially low are they being held and can you show they are unsustainable? Please cite multiple sources. thanks!

    Rate this comment: Thumb up 0

  21. Christian W

    RE: Corndogs @ 17
    I purchased a foreclosure property in January 2012. Renovated top to bottom before moving in, and recently had my agent come back to give an appraisal. I’ll be making money when I sell early next spring as long as prices don’t plummet.

    Rate this comment: Thumb up 1

  22. pfft

    By Corndogs @ 17:

    who else on Seattle bubble, actually bought a house during the downturn. Besides TeenErik and “Tim, The”

    we have a lot of zerohedgers here so I am guessing none even though they think they are god’s gift to the markets.

    Rate this comment: Thumb up 1

  23. Corndogs

    RE: Ira Sacharoff @ 19 – if TeenErik pulls it off and makes 50 to 100 grand he will receive credit because credit will be due. There are few things sadder than someone who doesn’t act and then downplays success. Remodeling skills as you call it are no small thing. If it was easy realtors could do it.

    Rate this comment: Thumb up 12

  24. mike

    By Corndogs @ 17:

    who else on Seattle bubble, actually bought a house during the downturn. Besides TeenErik and “Tim, The”

    According to the trend charts for my ‘hood, the market bottomed in spring 2012 and I bought during the summer. Does that count, even though technically prices had already started their seasonal ascent by the time I went under contract?

    Rate this comment: Thumb up 1

  25. whatsmyname

    By Blake @ 9:

    … I’d lay you 20 to 1 that we got another leg down in the US housing market ahead of us soon! Too much hot, easy money and no fundamentals…

    A term like “another leg down” must mean at least 15%, yes? And “soon” should not mean more than 12 months, no?. I’ll just assume you mean from today. And I’ll happily put $100 into that awesome pot. Maybe Tim can hold the money.

    Should we use the Case Shiller 20 city index, or the national?

    Rate this comment: Thumb up 0

  26. Ira Sacharoff

    RE: Corndogs @ 22
    I was being completely serious. Remodeling skills are indeed no small thing. That’s not something so easy a Realtor could do it.
    But what would be so easy even a Realtor could do it? I don’t know. Walk and chew gum at the same time?

    Rate this comment: Thumb up 3

  27. David Losh

    RE: whatsmyname @ 24

    The thoughts of the bears is that the leg down will come if Bernanke is replaced after his second term as Chairman ends January 31, 2014,

    Rate this comment: Thumb up 0

  28. whatsmyname

    RE: David Losh @ 26
    I just have to go with the offer as presented.

    Awesome?

    Rate this comment: Thumb up 0

  29. David Losh

    RE: whatsmyname @ 27

    I’m in for the leg down in 4th quarter this year.

    I’ll kick the money in through PayPal, plus the expenses, and Tim can hold it, if he chooses.

    Rate this comment: Thumb up 2

  30. whatsmyname

    RE: David Losh @ 28 – I am attempting to accept Blake’s awesome 20 to 1 offer at $100. It is not clear to me what you are doing. Do you see why I would be confused?

    Rate this comment: Thumb up 0

  31. doublemazaa

    Hi all! I was a big follower of this site during 2006-2009 and felt pretty informed/unsurprised when the original bubble burst.

    I’ve been busy since then, got married, grad school, got a good job, and thinking about buying a home. Curious what you all think about that. We’re looking at prime, walkable neighborhoods in central Seattle, (Wallingford, Capitol Hill, Phinney, Tangletown) and looking for 3-4 beds/2 baths, since we’ll be starting a family soon. The interest rates seem really appealing right now, and while I’m confused a bit by the lack of inventory and the recent price bump, it doesn’t seem like it’s a bad time to get in, given what we’re looking for, and our current situation. (Cramped in a nice, but small 1bd apartment).

    Obviously a bit concerned about the Fed and the discontinuation of them pouring money in the mortgage market, but I’m unsure how much that’s propping the market up right now. Even if they stop, and mortgage rates go up into the 5-6% range, that would likely be paired with a small dip in home prices, and my affordability would probably be similar, no?

    Thoughts?

    Rate this comment: Thumb up 2

  32. Mikal

    I did. Bought another fixer for 232000 1 year ago. I own three houses now and pay nothing to live. I’m way in surplus mode, $1000 plus. How can anyone not see the money to be made in real estate if you are smart and not lazy? All three mortgages are paid by the first 2 houses plus $1000 a month. There use to be smart people here. Those that think they are going to live on Queen Anne, Capitol Hill, or even Green Lake because some cataclysm will cause prices to fall are out of their minds. There was a 6 year period of appreciation that should of happened that didn’t because of the fall. Some of what is going on now is that. You missed. You will never be able to afford it and should be looking way out… like Marysville or don’t buy, and quit dogging it. With Amazon here, I know couples with 6 figure incomes each that can’t buy on Queen Anne or Wallingford. By mike @ 24:

    By Corndogs @ 17:
    who else on Seattle bubble, actually bought a house during the downturn. Besides TeenErik and “Tim, The”

    According to the trend charts for my ‘hood, the market bottomed in spring 2012 and I bought during the summer. Does that count, even though technically prices had already started their seasonal ascent by the time I went under contract?

    Rate this comment: Thumb up 9

  33. HappyRenter

    RE: doublemazaa @ 31
    Get a realtor. If you want to buy a house just buy a house. Or move into a bigger rental apartment if you are not sure.

    Rate this comment: Thumb up 3

  34. Corndogs

    RE: David Losh @ 29 – “I’m in for the leg down in 4th quarter this year. I’ll kick the money in through PayPal, plus the expenses, and Tim can hold it, if he chooses”

    Too bad I couldn’t have taken some of your money when you foolishly said back in 2011 that prices were headed to 1998 levels. The site isn’t divided into Bulls and Bears. it is divided into people like you who were unable to predict this upturn of the last two years and basically just Corndog. You’ve wasted countless hours of your life on here talking about the economy of Greece, shadow inventory etc etc making a fool of yourself. Corndogs prediction was for all price tiers to approach 160 on the Case Shiller index and then begin to track with inflation, The acceleration of the lower tier was also a specific part of that prediction. it’s hard to imagine how the prediction could have been any more accurate.

    Rate this comment: Thumb up 7

  35. Azucar

    By Corndogs @ 34:

    RE: David Losh @ 29 – “Im in for the leg down in 4th quarter this year. Ill kick the money in through PayPal, plus the expenses, and Tim can hold it, if he chooses”

    Too bad I couldn’t have taken some of your money when you foolishly said back in 2011 that prices were headed to 1998 levels. The site isn’t divided into Bulls and Bears. it is divided into people like you who were unable to predict this upturn of the last two years and basically just Corndog.

    Corndog and Eric, that is. You guys both called it. Like peas in a pod!

    Rate this comment: Thumb up 1

  36. SMW

    RE: pfft @ 22

    Great question: the federal reserve sets the discount rate at which banks borrow. It has been hovering slightly above 0 for some time now to encourage lending.

    The rates at which money is lent SHOULD BE based on the risks involved with the particular loan. If that was the case, the rates would be much higher than they currently are. That said, we are admittedly in a crony capitalist market in which the government has far too much control over both the interest rates (via the Fed) and lending (Fannie, Freddie, FHA, etc.) to ever say that the rates will be driven by market forces. While I am certainly not one to bet against the government and acknowledge that rates could be kept close to zero (and probably will be) for the indefinite future (see Japan ’90 to current), I can say with certainty that there is only one way in which rates can go as obviously we can’t go below zero. Thus higher or staying the same are the only options. If you’ll notice, the consumer rates have increased over a 1 point in the past 2 months. That is a HUGE difference in purchase power for the average buyer and WILL be evidenced in the market soon.

    My basic complaint with the system is that there are very few real ‘market forces’ in play right now so its hard to say how long it will continue. My guess is that the Republicans (who I generally agree with from a fiscal standpoint) will take the office in ’16 and if they try to cut government borrowing/ spending, rates will spike for treasuries and it will lead to higher rates across the board. That said, we need to take our medicine for the outrageous amount of debt in the system (at all levels including govt, consumer, and businesses) at some point and welcome a return to an actual functioning market place based on market forces rather than the actions of Ben Bernanke.

    As for sources, these are basic math and economic system principles. See prime rate, discount rate, and LIBOR rates.

    Rate this comment: Thumb up 0

  37. One Eyed Man

    RE: Corndogs @ 34RE: Corndogs @ 17

    I believe that Scotsman, one of the bigger deflation bears who posted daily on SB, said he bought in the first half of 2012, and there were also occasional posts from others who bought in that time period. And its my recollection that in the fall of 2011 Ardell called at least a short term bottom (even if she expressed uncertainty of it being a final market bottom) for sometime around spring of 2012. And many of us thought the CSI Seattle bottom would be in the 25% to 35% range for a variety of reasons. Your claim that you were the only one on SB to believe things were turning around is at best naïve if not disingenuous.

    But appreciation in real estate prices is only about half of the story of why buying residential real estate was probably a good investment in the last couple of years. For those with a long term holding period who intend to use borrowed funds, a big portion of the anticipated future investment gain comes from the interest rate arbitrage available at sub 4% long term rates. And you didn’t have to buy in the month of the CSI bottom to take advantage of that. As you know, if one believes in an eventual reversion to the mean on inflation (over 2% long term) and mortgage interest rates (over 7%), the value of long term money borrowed at under 4% (and invested in a quality asset) is huge.

    Furthermore, buying real estate isn’t just about whether the real estate market was turning around. A lot of people who read this site probably had as good or better things to do with their money in the last couple of years than buy additional residential real estate. A few days ago, you lectured Losh on the definition of investment and rating investments based on opportunity cost. As I believe Joness was often telling people on SB over the last several years, people (including me) have made as good or better return on asset prices (not to mention the dividend income) in the stock market than bottom fishing real estate buyers have on real estate. That is unless perhaps you look at certain “cash on cash” returns that can come from having in some cases as little as a few percent down on real estate, or the occasional successful flip or distressed property purchase, or other atypical situations that often carry additional risks or more intense investments of time and effort.

    Rate this comment: Thumb up 7

  38. pfft

    By SMW @ 36:

    RE: pfft @ 22

    Great question: the federal reserve sets the discount rate at which banks borrow. It has been hovering slightly above 0 for some time now to encourage lending.

    The rates at which money is lent SHOULD BE based on the risks involved with the particular loan. If that was the case, the rates would be much higher than they currently are. That said, we are admittedly in a crony capitalist market in which the government has far too much control over both the interest rates (via the Fed) and lending (Fannie, Freddie, FHA, etc.) to ever say that the rates will be driven by market forces. While I am certainly not one to bet against the government and acknowledge that rates could be kept close to zero (and probably will be) for the indefinite future (see Japan ’90 to current), I can say with certainty that there is only one way in which rates can go as obviously we can’t go below zero. Thus higher or staying the same are the only options. If you’ll notice, the consumer rates have increased over a 1 point in the past 2 months. That is a HUGE difference in purchase power for the average buyer and WILL be evidenced in the market soon.

    My basic complaint with the system is that there are very few real ‘market forces’ in play right now so its hard to say how long it will continue. My guess is that the Republicans (who I generally agree with from a fiscal standpoint) will take the office in ’16 and if they try to cut government borrowing/ spending, rates will spike for treasuries and it will lead to higher rates across the board. That said, we need to take our medicine for the outrageous amount of debt in the system (at all levels including govt, consumer, and businesses) at some point and welcome a return to an actual functioning market place based on market forces rather than the actions of Ben Bernanke.

    As for sources, these are basic math and economic system principles. See prime rate, discount rate, and LIBOR rates.

    dude that’s not an answer. What would rates be without government intervention? what would I get a mortgage at?

    “My basic complaint with the system is that there are very few real ‘market forces’ in play”

    yeah there are. the Fed has been extremely transparent in what it’s doing. the market can and has reacted to that. it’s priced in. remember that what everyone knows is not worth knowing. relax and go about your day.

    Rate this comment: Thumb up 1

  39. SMW

    RE: pfft @ 38

    What would I get a mortgage at? Not 3%-4%. Without Fannie and Freddie backing all these loans, there is no way banks would issue loans @ 3-4%

    “The Fed has been extremely transparent”….in their excessive purchasing of treasuries and other securities….you are proving my point that the government/ Fed is all that is propping this baby up. That said, this ‘improvement is certainly not reflected in the number of people that are employed, or the number of people on food stamps….or the students that can get a job to match their skills.

    The point is that the Fed has gone to great lengths to prop up a broken system and it’s not working, and will not work.

    Rate this comment: Thumb up 1

  40. Tim McB

    RE: Corndogs @ 17RE: doublemazaa @ 31

    The first question I’d be asking myself is how long do I plan staying in the house? If less than 5 years wait and save your money and keep renting, if 6-10 years look to buy but only if you can get a decent deal to help in case prices correct (which they might) and help with having more equity for the next place you want to buy. If your looking on holding onto it for 10+ years still look for a deal, but worry more about the house/location itself. If you’re in the 10+ year camp don’t sweat pricing as much as long as you can afford it for the duration you hold the house. The low rate will be more of your friend. The debate on interest rates affecting prices has been a reoccurring debate here. Past data seems actually suggest that no interest rates have very little affect on home prices (up or down) but since we’re in uncharted waters of rate manipulation no one can know for certain what will happen next. My opinion is most similar to Ira’s, 10%ish down in the medium term due mostly to upward shifting rates.

    Corndogs,

    My wife and I bought in late ’09. Appraised in a refi at 90k over purchase amount last winter. It’s probably more like 125-130k now. We bought in NE Seattle. We’re pretty happy with how things have gone so far but I wouldn’t take too much credit for it, mostly it was luck. We snagged the home buyers credit, and doubled down with improvements and snagged the $1,500 energy credit and refi’ed down to 3.25% in winter last year. Total gov’t assistance comes in at around: $66,050 (56,550 for the rate buy down from 6.5% to 3.25% wherein $4,350 buys down 0.25% off the interest rate). Thanks Uncle Sam.
    Of course none of this matters until we sell which won’t be for another couple/few decades but it does make you feel a little better. You won’t hear too many others piping up because after buying there’s not much incentive to return to the blog unless you’re neurotic about RE like I am.

    Rate this comment: Thumb up 2

  41. Tim McB

    RE: One Eyed Man @ 37

    Good points. Also, not to mention that real estate is not nearly as liquid as stocks/commodities/ gold etc. Back in early ’09 very few would have predicted that S & P would be over 1,700 like it is today. Had you the foresight to jump in there you’d have more than doubled your money.

    Rate this comment: Thumb up 1

  42. corndogs

    RE: Tim McB @ 41RE: One Eyed Man @ 37 – This isn’t a competition whether you should invest in real estate or stocks. You should have cash, stocks, rentals and some amount of low interest debt that you feel comfortable with. You jockey things around based on what you think is going to happen next…. I wouldn’t have popped 500K on a repo if I didn’t have a pile of cash that I needed to get rid of and if I couldn’t afford the risk of prices going down significantly. The key factors toward my success was not buying real estate when the bubble was inflated and being all cash when the market crashed…. everything else is a cake walk.

    But in the interest of argument, let’s talk about the comparison.. I didn’t buy my house in 2009 I bought it in 2012. if you had bought my house in Feb 2012 with 10% down, your investment would be 50K. The SP500 has only risen 30% since that time. So you missed out on 15K of investment income. The current tax assessment for the house just arrived at 735K. The Zillow value is 920K. You can play with the numbers all you want but that $15K is chicken feed compared to the return you’d likely get by offloading the house at this point.

    Rate this comment: Thumb up 2

  43. pfft

    By SMW @ 39:

    RE: pfft @ 38

    What would I get a mortgage at? Not 3%-4%. Without Fannie and Freddie backing all these loans, there is no way banks would issue loans @ 3-4%

    “The Fed has been extremely transparent”….in their excessive purchasing of treasuries and other securities….you are proving my point that the government/ Fed is all that is propping this baby up. That said, this ‘improvement is certainly not reflected in the number of people that are employed, or the number of people on food stamps….or the students that can get a job to match their skills.

    The point is that the Fed has gone to great lengths to prop up a broken system and it’s not working, and will not work.

    we are making progress. you said nothing really except you cut your screed in half.

    very simple question. what would mortgage rates be if the Fed weren’t intervening. if you don’t know that then how do you know there is a problem or the magnitude.

    “”The Fed has been extremely transparent”….in their excessive purchasing of treasuries and other securities….you are proving my point that the government/ Fed is all that is propping this baby up.”

    The Fed is doing exactly what it’s supposed to do during a deleveraging- keep everything better than it would be. that includes QE. Since you merged the government and the Fed together fiscal policy is actually a drag on the economy. something like 1.5 percentage points of GDP.

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  44. SMW

    PFFT-

    You want a more specific answer of what rates would be? While its admittedly impossible to say with certainty, look to hard money lenders who charge 10-14% – that is presumably the ‘market’ for private loans. Perhaps you can take a little off for borrowers with better credit and a down payment, but the reality is that the market would easily dictate 6%+ given the risks involved, and much more for the FHA and VA crap loans with nothing down to protect the security.

    The Fed is solving a debt problem with even larger amounts of debt and artificially low interest rates to encourage more borrowing. That is the equivalent of giving an alcoholic a bag of cocaine so he can stop drinking.

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  45. Tim McB

    RE: corndogs @ 42

    True and I come to a similar conclusion when I did a hindsight analysis for our situation as well. Leveraged debt works wonders as long as the asset leveraged is going up. But you would have to sell to realize your gains and if recent history has shown us anything housing always going up is not a defacto guarantee. One benefit RE holds over stocks though is the capital gains exemption on it up to 500k I believe. Stocks don’t have that exemption. All things being equal I’d recommend investing in all of the above as well (RE and stock, etc). Never will do the rental thing though I’m glad it works for you. My dad was too nice a guy and got his shirt taken right off his back with his rental. I’ve sworn them off. There’s plenty of other ways to be successful without rentals.

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  46. One Eyed Man

    RE: corndogs @ 42

    You also have to keep in mind that your Gig Harbor place isn’t the average real estate purchase in the last two years. It’s a great deal, much better than the average which would be more closely modeled by the CSI. The Apple stock I bought in 2006 at $60/sh was a great deal at the time too, and much better than the move in the S&P since then. We can cherry pick high performing investments of either asset category, but for comparison we should probably compare the return based on the CSI to the return based upon the S&P. If you look at the CSI rather than the return on your place in Gig Harbor most people who bought in the last 2 years are only a few percent in the black after round turn closing costs. If they are up 13% and have 10% in round turn closing cost they are up 3% which would be a 30% return on a 10% cash down payment, almost exactly the same as the return on the S&P,

    That said, there is no asset other than residential real estate that offers the average person the opportunity to lever up to 3 times their income with so little down while holding an asset that generally moves up with the rate of inflation. If those stats hold true, IMO Ardell is wrong when she says that a home is no longer the American (financial) Dream, at least for the average Joe.

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  47. pfft

    By SMW @ 44:

    PFFT-

    You want a more specific answer of what rates would be? While its admittedly impossible to say with certainty

    no, just google it. I did.

    if you don’t have a specific answer how do you know for sure(and you sound very certain) that the Fed is holding everything together? Remember when people said bad things would happen when the Fed stopped purchasing MBS? Tim did a post on it. The Fed stopped buying MBS and economic disaster did not happen.

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  48. wreckingbull

    The American Dream was originally the notion that one could live better than those who gave birth to them. It had nothing to do with real estate. It is a term that the REIC has hijacked to fit their own interests.

    Another thing to remember is that many of us not only bought in the crash, but also refinanced a year or two later at laughable rates. Thanks Gub. Double win. The difference is that most of us don’t feel compelled to tout our financial gains in this forum. I guess it is old-school, but some of us are modest about matters of the wallet. I purchased a home that I never would have imagined I could own. I’ll put the view out my living room window up against corndog’s any day of the week.

    I have to hand it to corndogs, he has more balls than me when it comes to the monthly nut he is willing to pay the county in rent. I have better use for that dough. To each their own.

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  49. Tim

    RE: One Eyed Man @ 37 – you mentioned: “As I believe Joness was often telling people on SB over the last several years, people (including me) have made as good or better return on asset prices (not to mention the dividend income) in the stock market than bottom fishing real estate buyers have on real estate.” Amen. Some of the returns depending upon your entry are absurdly good >> ie, SBUX, APPL, BAC, NFLX, BRK-B, COST,etc….among others.

    S-Crow

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  50. Blake

    RE: Corndogs @ 17
    I purchased a house in 2011… great location, needed work. I am building sweat equity and plan to sell in 3-7 years, but I really only expect the appreciation to come from the improvements in the house and property.
    This is my third house I’ve done this with. My next house will be the one I stay in… I hope!

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  51. Blake

    RE: whatsmyname @ 30
    I gave up wagering years ago… In 2007, I was shorting WaMu, AIG, Goldman Sachs, and a few home builders. I made money on WaMu, but lost on the others (including AIG!) since the bottom didn’t drop out til late 2008.
    “Markets can remain irrational longer than you can remain solvent.” – JM Keynes

    It is very hard to predict WHEN something might happen, especially if the authorities are doing their utmost to keep the music/game going. The last 5 years the Fed has purchased (and monetized) over $2 trillion in debt – the equivalent of 3% of GDP PER YEAR! – and look how the economy still barely limps along! Is this sustainable? It is an artificial economy and what little growth there is accrues almost entirely to the wealthiest, while the workers and “consumers” are gasping for life! I don’t see any change coming and the big bankers and wealthy are just using all that cheap money to speculate and drive up asset prices. People think that rising home prices shows a “recovery”…? huh? I see 20+% home price appreciation as an unhealthy sign…

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  52. David Losh

    RE: Blake @ 51RE: corndogs @ 13

    Thanks, I’ll file that information along with your other “I read a get rich quick” book commentary.

    The number of $273K is the top, but I would put low tier in the $120K range, how about you?

    Blake’s comments on the other hand have a very resounding point. He brought in an article from the Florida market place that shows the housing “recovery” isn’t universal.

    Many people are struggling to make ends meet while speculators continue to drive up revenue.

    The consumer however is tapped out, with personal debt neck, and neck with government debt. Each Consumer Confidence report is coupled with an increase in credit card use, as far as I can tell.

    I just don’t see how piling on more debt with a mortgage, is going to help anyone, especially at these prices, like the low end topping out at $273K.

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  53. enatailurker

    We (my husband and I) bought a house in the winter of 2012. We’re still very grateful to Seattle Bubble for convincing us to cancel the house search in 2010. We bought a much better place for the price by waiting two years.

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  54. whatsmyname

    By Blake @ 51:

    RE: whatsmyname @ 30
    I gave up wagering years ago…

    Very wise. I didn’t really think you’d bet. I just wanted to see if you meant what you said.

    The recovery is admittedly very slow and weak, but there is a lot of inertia to overcome, plus Congressional anti-stimulus under the sequester.

    You are right that the rich always get theirs first, and get the most too. But the asset price base they are driving is not middle range single family housing.

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