Posted by: 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.

32 responses to “July Stats Preview: Ongoing Inventory Recovery Edition”

  1. Erik

    -Inventory is still below where it was at the same time last year.
    -There are lots of buyers that are waiting around for more inventory.
    -Buyers want to buy a home before interest rates go down.
    -Traditionally inventory shrinks in the winter.

    I don’t see a good reason why inventory would increase other than if prices increase, some people like myself would consider selling. I don’t see inventory increasing to normal levels next year.

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  2. Dave0

    RE: Erik @ 1 – I agree. It seems pretty clear to me that prices will continue to increase. Sales are taking off because the market generally believes that the economy is recovering (i.e. demand is high). Inventory is still low because prices are so low that many people are still underwater on their loan (i.e. supply is low). That is a classic recipe for prices to rise. As prices rise, more people will come above-water on their loans and put their home on the market. I hope that the higher prices and higher inventory tamper demand, bringing us back to a normal stable market. The trick will be for The Fed to end quantitative easing at just the right pace to prevent interest rates from rising too fast to stop this recovery

    P.S. Tim, this monthly post has become my favorite series since it gives us the first glace at the latest supply and demand indicators, which are the leading indicators into how prices will trend. Keep up the good work!

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  3. SG

    While I don’t dispute that there are many underwater homeowners who might consider selling as prices rise and lift them above the water mark, but where would these sellers go? Won’t they just turn around to purchase another one and add to the pool of buyers? Unless the Seattle area is experiencing a net population loss and I don’t think that’s the case either.
    In fact with the growing confidence in RE investments, many homeowners I know are considering purchasing a second rental unit. So, overall I see an increasing pressure on available inventory going into the near future especially as buyers rush to lock in a sub 5% rate.

    The only factor that might cool the market is interest rates in the 6-9% range that will keep away the mover uppers and investors.

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  4. SMW

    Pop the champagne!

    This feels like 2005 with all theses un-founded theories as to why Real Estate can’t go down.

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  5. Erik

    RE: SMW @ 4
    Nobody said that… I will argue with you since that seems to be what you are looking for, but nobody said that. I think everyone knows real estate can go down. What I am claiming is that if you add up all of the hints, it looks like real estate prices will continue to climb for the next year. That isn’t a rule for the rest of eternity dum dum.

    If you disagree tell me why. Otherwise you can join up on the goon squad and try to hurt me with your thumbs down.

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  6. Blurtman
  7. Erik

    RE: SMW @ 4
    Just remembered, you are the guy that feels the blackstone meeting to sell shares and mitigate risk is a indicator the market is about to tank. I don’t follow that same logic. This could indicate the top of the rental market, but not the top of housing prices. Your logic is flawed.

    You also think that you have discovered a big secret that the fed is propping up the housing market with artificially low interest rates. This has been stated on this site more times than I can count. Now all of a sudden you think you think you are sherlock holmes and you have made a discovery.

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  8. SMW

    Erik,

    Sorry…I don’t get onto the site much and haven’t been witness to these arguments regarding interest rates….apparently there are a lot of smart people who do comment because that argument is absolutely correct as the next few months will show now that rates have spiked.

    I think I’ve been pretty clear as to why the market will fall again (too much debt, rising interest rates, economic conditions do not warrant such an increase when considering employment/ income). This won’t happen overnight, but it will happen.

    I’ll put the onus on you: what is it about the general economy that makes everyone so confident that real estate is going to continue to boom? (are jobs more prevalent? Are incomes rising? Are graduates earning enough to support a family? Are local governments not strapped for cash?)

    I just don’t buy that the stock market (driven by the fed) and housing (driven by low interest rates) are an accurate reflection on the actual economic conditions.

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  9. Kyle

    RE: SMW @ 8

    I don’t get the impression that Erik thinks it will “boom”, only that it will not necessarily tank. I happen to agree. The large gray area between boom and bust is rarely the prediction but the most common outcome. My guess is reality will be boring for some time as the economy muddles along.

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  10. SMW

    Kyle,

    Hard to say…its all dependent on government support and the political will. If we continue as is, I agree that we’ll muddle like Japan for the indefinite future. If we stop the printing press, it would get ugly (but we’d have a real recovery sooner).

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  11. Erik

    RE: SMW @ 8
    I agree. We have flushed most of those bad loans down the drain, so there will be some kind of recovery, but not the recovery we have seen. It is being called another bubble because it is not being supported by economic fundamentals. The market is inflated, but I think this will continue next year based on supply and demand.

    Kyle is right. My prediction is for a year. After a year, we are at risk again for a small decline or flatline prices. I am selling next summer because I don’t believe this recovery is real. I will wait for prices to decrease again after I sell and then I will try to buy low again with more cash in hand.

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  12. Matthew

    Erik,

    You are going to fly too close to the sun, melt your wings, and plunge into the Puget Sound. By next summer it will be too late. The top is in. July/Aug prices will have topped out. Mark my words.

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  13. David Losh

    RE: SMW @ 10

    I’m in the camp that says the printing has become a big problem for the middle class, and is adding to the wealth disparity. The price of all property has gotten out of control, and no matter how low the payments the debt is still real.

    I think sellers will downsize, or make lateral moves into comparable properties that will be listed for less as the market continues.

    The point about hedge funds securitizing the investments they have is to mitigate the risk. The hedge funds will already have a return on the purchases they made, and less of a risk as they liquidate, which I think they will, and should.

    The global economy has a ton of cash, and if the Fed leaves the bond market other investors will step in.

    The Fed could, and should be done.

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  14. Erik

    RE: Matthew @ 12
    Certainly possible. I hope that is not the case though. I hope for a slight incline in prices or flat. if it is flat, I save 15k in capital gains tax and reward myself with a used 350z for 15k. Otherwise I will keep driving my clunker.

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  15. Matthew

    The housing market Kool-Aid drinkers are out in full effect right now.

    Riddle me this Batman, why do we have regional markets with 30% YOY appreciation while wages/incomes have remained flat? Does that sound like a recovery based on fundamentals? Please speak to me about a real housing recovery when the Federal Reserve is not intervening in the free market. If everything was copacetic there would be no need to keep the rate on the 10 year at artificial lows by buying bonds.

    The entire U.S. economy is based on an orgy of debt. This can only be sustained as long as interest rates remain low. Once rates start to rise, borrowing becomes more expensive, and the deck of cards comes crashing down.

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  16. patient

    RE: Matthew @ 15 – ZRE: Matthew @ 15

    Yup that pretty much sums it up but there is still plenty of gas in the tank and the real “I’m going to be priced out FOREVER!!!!!!!” hasn’t hit the fan yet. We need 15% YoY first.

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  17. whatsmyname

    By Matthew @ 12:

    Erik,

    You are going to fly too close to the sun, melt your wings, and plunge into the Puget Sound. By next summer it will be too late. The top is in. July/Aug prices will have topped out. Mark my words.

    Awesome imagery. Better pay attention, Erik. Did Cassandra research this?

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  18. ARDELL

    RE: whatsmyname @ 17

    No. Cassandra said list in January. :)

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  19. whatsmyname

    By Matthew @ 15:

    Please speak to me about a real housing recovery when the Federal Reserve is not intervening in the free market.

    Awesome graphatar, but the Federal Reserve has been intervening in the free market (by design) since 1913. Has there has been no “real” recovery from the Great Depression, or at least one that could be spoken about to you?

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  20. whatsmyname

    If you add the number of King County trustee deeds and the number of King County warranty deeds, the awesome total of properties transferred during the month exceeds the total of active listings. Do you think that has ever happened before?

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  21. ChrisM

    RE: Erik @ 11 – “We have flushed most of those bad loans down the drain”

    Feeding the troll, but I can’t resist. Check out CACB if you think we’ve dealt with bad loans. This is a bank that should have been shut down four years ago. Additionally, there will most likely be lawsuits from FRM/FRE regarding the bad loans they acquired.

    http://finance.yahoo.com/q/bc?s=CACB&t=5y

    Bend, Oregon was one of those ludicrous bubble locations. I’m in Clark County, and still see a significant number of properties that are delinquent (have begun the foreclosure process) but haven’t hit the trustee sale. So… obvious that the banks are still playing games. I don’t have a way to tell how late the banks are delaying until beginning the foreclosure process, so things are even worse than what I can see.

    Sort of related, Go Seattle!!!!!
    http://www.ibtimes.com/shareholders-freddie-mac-fannie-mae-weak-legal-ground-lawsuit-against-us-government-1305175

    “Seattle-based law firm Hagens Berman Sobol Shapiro, which filed the suit on behalf of the shareholders of Fannie Mae and Freddie Mac said, that while the takeovers were “beneficial to the economic welfare of the nation, destroyed the value of Fannie Mae’s and Freddie Mac’s common and preferred stock and trampled the private ownership rights and property interests of shareholders.”

    Unrelated, while listening to NPR tonight their ludicrous business news reported on demographic trends in real estate, and pointed out the obvious that the Baby Boomers were downsizing, and there weren’t enough young families to buy the Baby Boomer’s starter homes. This points to a national trend of migration to retiree-friendly locations (such as Phoenix/Vegas/Florida). This URL isn’t what I heard tonight, but might as well be. I wonder if it is really an attempt at preserving the mortgage interest deduction…
    http://www.npr.org/2011/06/21/137303327/will-housing-take-another-hit-as-boomers-sell

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  22. Lo Ball Jones

    Look at this $96,000 house in Tacoma.

    http://www.redfin.com/WA/Tacoma/6428-Fawcett-Ave-98408/home/2946805

    Now tell me that it doesn’t look exactly like the same home in Seattle selling for a lot more!

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  23. Jonness

    By Matthew @ 15:

    The housing market Kool-Aid drinkers are out in full effect right now.

    Riddle me this Batman, why do we have regional markets with 30% YOY appreciation while wages/incomes have remained flat? Does that sound like a recovery based on fundamentals? Please speak to me about a real housing recovery when the Federal Reserve is not intervening in the free market. If everything was copacetic there would be no need to keep the rate on the 10 year at artificial lows by buying bonds.

    The entire U.S. economy is based on an orgy of debt. This can only be sustained as long as interest rates remain low. Once rates start to rise, borrowing becomes more expensive, and the deck of cards comes crashing down.

    OK, I’ll play devil’s advocate.

    True, once rates double, the interest payment on the government’s debt will double and send us all to Hades. Knowing this, the Fed will turn the printing presses on full force to counteract the hurricane. This will provide Uncle Sam with the cash flow necessary to keep from having to give up heroine, and the increased Fed action will drive borrowing costs back down. Ad nauseam, until we all get old and die.

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  24. Corndogs

    http://seattlebubble.com/blog/2013/07/31/case-shiller-tiers-low-tier-surged-most-in-may/comment-page-1/#comment-202516

    Wreckedbung said…

    “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……I’ll put the view out my living room window up against corndog’s any day….. ”

    Ah yes, . some old school modesty indeed,…… That’s what i love about this site… Don’t worry Wreckedbung I’m sure you’re in awe of your territorial view at night the same way we our with ours as we walk from room to room looking over the city lights of an historic fishing village which gives the impression that the house is floating in the air. I’m sure when you sit outside at night next to your fire pit, it’s very similar to sitting on an isthmus of land in the Puget Sound where you can walk out your back door at 10 pm, or midnight or 1 am and just sit there and enjoy your view without the need of any additional light at all. I’m sure there’s a breeze at your place that keeps your deck warm in the winter and cool in the summer exactly the way it would if located in the middle of the Puget Sound. I’m sure it’s very similar, if not much better as you say. Remember that next time you go to bed smelling like a campfire covered with mosquito bites on your way to a bud light hangover. Don’t forget to park your rig in the garage or you’ll be scraping those windows in the morning.

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  25. Matthew

    Whatsmyname-troll,

    We didn’t have a fiat currency in 1912 or during the Great Depression. Our money was actually backed with gold and this prohibited the Fed Reserve from maintaining a balance sheet of trillions of make believe dollars.

    Jonness,

    I don’t think the Fed can do QEinfinity but I’m surprised they have been able to prop the markets up as long as we have. Eventually a credit event will occur that the Fed is powerless to stop, (downgrade, bond market vigilantes, etc).

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  26. wreckingbull

    RE: Corndogs @ 24 – Hey now, nothing wrong with GH. Don’t worry, you don’t have to frantically defend it. It is a quaint little retirement village. A little dark and gloomy on cloudy days, but I agree it is quite peaceful.

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  27. whatsmyname

    By Matthew @ 25:

    Whatsmyname-troll,

    We didn’t have a fiat currency in 1912 or during the Great Depression. Our money was actually backed with gold and this prohibited the Fed Reserve from maintaining a balance sheet of trillions of make believe dollars.

    Ad hominem PLUS goal post moving. I’ll take that as a concession of my point – which was, after all, a point of fact.

    Since we are splitting hairs, even without fiat currency, your philosophical predecessors got their pants just as wet over deficit spending in the new deal. Limited-supply- gold as a store of wealth is a great way of limiting total wealth – except by deflation. You are welcome to the 19th century. The rest of us need a bigger economy.

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  28. whatsmyname

    RE: Lo Ball Jones @ 22
    There you go. It was always ridiculous to circle the higher end part of the metro map, and whine about house prices for the lower than median income. Lot’s of people commute to Seattle from Tacoma. You have found the solution to your problem. However, one thing to be careful about when you call the realtor about seeing that house: Be sure to say “drive to” and not “drive by”.

    (This is my last available post, so let me say, “Sorry Tacoma, just kidding”, right now.)

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  29. Corndogs

    RE: wreckingbull @ 26RE: whatsmyname @ 27 – Whatsmyname needs to change his name to wheresmyboot. Answer – in Matthews as$. I’d say KaBoom, but I’m not sure that type of thing even makes a sound.

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  30. Matthew

    I will type very slowly and use small words so cornholed and troll can understand.

    The ad hominem was not an attack but merely a reply to whatsmyname’s screename. He wants to know what his name is so I have given him one fitting of his SB persona. What else do you call a person that never really adds to the discussion and just attempts to flame everyone else and belittle everyone’s points? I’ve never seen him add anything intelligent to The Tims posts. Very Kary like.

    I’m not advocating a return to a gold standard. I was merely pointing out that the difference between Fed intervention now and Fed intervention during the Great Depression is that we now have a fiat currency. Having a fiat currency gives the Fed far greater flexibility to expand its balance sheet. In the right hands this is a usefull tool. Put in the wrong hands or used recklessly, it creates bubbles.

    The reason we got out of the Great Depression had nothing to do with the New Deal. It had to do with the fact that deflation finally ran its course and inflated asset values corrected to the levels they should have been in the first place. This coupled with increased manufacturing from ww2 finally got us to turn the corner. FDRs policies were a well documented failure.

    Like I have said before, we are in uncharted territory. All I know is that the current increase in housing we have seen over the last 12 months is not sustainable without a increase in jobs and wages. Maybe housing moves sideways for 10 years like Robert Shiller thinks. Maybe it drops to pre bubble levels and then recovers. I don’t know. But I’m willing to bet that it doesn’t go up from this fall. I was off on my last housing market top in 2007 by only two months! That is well documented on this blog.

    Look at new construction and the home builders stocks. They have been getting crushed. That is a definite tell. Builder stocks leas the way. Rates have risen and are putting pressure on the middle and upper tier. How long do you think Blackrock and the other Wall St. big boys are going to keep their homes without liquidating them once they smell the winds of change?

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  31. bingo

    RE: Matthew @ 30

    While I agree 100% that homebuilder stocks are a great “tell” I don’t think that they have “told”…yet. Since the Oct 2011 low of $8, ITB (the homebuilder ETF) rose 225%. Since the May high of $26 it has dropped 13%. So far, a normal correction. However, It “bears” close scrutiny.

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  32. Corndogs

    “But I’m willing to bet that it doesn’t go up from this fall. I was off on my last housing market top in 2007 by only two months! That is well documented on this blog.”

    Well, I called the bottom of this market to the exact month…. also well documented on this blog. I also called Case Shiller to go to 160 and level off….. that is also, exactly what is happening and what you are now trying to ‘predict’ but your a little late to the game….If prices level off now for the next 8 years, in 8 years the people who got 3-4% loans will be 25% paid off and they will have a locked in 2o% appreciation if they bought at the right time and roughly another 20% if they picked up a repo… add to this some low as$ payments in the interim and it’s a pretty good deal indeed. so you have no need to be a drama troll. This market has been absolutely predictable and calling a top in July/August is no revelation, history tells us this is quite often the case. If you want to be Mr Prediction be a little more specific and then we can put some money on it.

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