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.

41 responses to “Case-Shiller Tiers: Low Tier Intensifies Gains as Others Slow”

  1. Ajax

    I see a new bubble forming. No fancy analysis leads me to this. Just common sense.

    Did your wages go up as much as Seattle housing did in the last year?

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  2. David Losh

    Actual slowing would mean that all tiers should drop below that 150 line. We are close to what the trend lines should be, as adjusted for inflation.

    The question is if it is affordable enough for today’s consumers?

    It seems to be we should have much more affordable housing available given the number of housing units we have built, and are continuing to build.

    A more normal market should find buyers in control after we have some month over month declines.

    Once sellers realize we are at the “top” of the market, they may be more willing to sell. As we provide more housing in the form of apartments, there will be more alternative choice.

    There are places in the country where retirees can move, and live much cheaper than here, and they don’t need to go that far.

    I see a lot of movement coming to the housing sector that will make housing more affordable.

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  3. Ira Sacharoff

    What happened shortly before the bubble burst in ’07 was that the low tier started leading the pack, and people were talking about how places like Skyway and Delridge were great places to invest in.
    And sometimes, the overwhelming compulsion to buy a house just takes over. That prices have gone up a lot in the last year, and that interest rates have risen just means that if you have to buy a house, you might only be able to afford a house in the low tier.
    It may be a pattern that towards the end of a rise in prices, the laggards start leading. I’m not expecting a cataclysm like we saw six years ago with price declines, but to expect prices to keep rising for much longer is unlikely. It’s much more likely that we’ll be seeing flattening and some declines. Exactly when, I’m really bad at predicting.

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  4. softwarengineer

    RE: Ajax @ 1

    My Millenial Aged Daughter and Her Significant Other From Kansas

    Are getting the Hades out of the Seattle area high rent and scarce job market [made much worse by Millenilas and such working two scarce low paid jobs to afford the high Seattle area rents]….job availability isn’t much better there either; but an central air conditioned rambler on a half acre rents for $600/mo [their's too].

    Even the $15/hr proposed minimum wage for Seattle won’t fix it…..they’ll just reduce the weekly hours some more.

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  5. corndogs

    Hey, TeenErik!

    Why don’t you remind us what Corndogs prediction was?.. I thought you said you were going to keep your eye on it and keep us informed…

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  6. mike

    By Ajax @ 1:

    I see a new bubble forming. No fancy analysis leads me to this. Just common sense.

    Did your wages go up as much as Seattle housing did in the last year?

    I would not be surprised to see incomes having rose among the people buying houses, but I’m not necessarily sure that will show up as a wage increase.

    An example would be someone that was working two part time jobs, then get hired full time at the job paying the higher wage. His wage didn’t go up, but his hours at the higher wage increased.

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  7. Erik

    RE: corndogs @ 5
    Corndogs predicted that that the low tier would be the last to recover since low tier is dumb money. The low tier is now increasing faster, but it hasn’t caught up yet to low and mid tier.

    Now that I have your attention, please tell me if you either did or did not use Fannie Mae homesteps program to buy your house in gig harbor. I saw that your house was Fannie Mae owned and foreclosed. Those foreclosed Fannie Mae homes use Homesteps to get those homes off the books. I imagine you are a government leach like Losh and I. If that’s the case, you should stop beating on the less fortunate like Losh and I for sucking off the government. You come on here and bust on me for taking government handouts, but it looks like you did as well if you took part in the government subsidized homesteps program.

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  8. corndogs

    RE: Erik @ 7 – “Now that I have your attention, please tell me if you either did or did not use Fannie Mae homesteps program to buy your house in gig harbor”

    Last time you called it homepath, now you are calling it home steps. I don’t know what you’re talking about homie. Corndog has no idea how loans are partitioned to low income individuals such as yourself. When I buy things, I pay cash or take temporary loans against my own investments for a slight margin over LIBOR. In the case of this last house, I did in fact take a conventional loan product at about 4%. The amount of money I put down was more than enough to buy your condo for cash. When people have money, they are not in a position to take a loan at the given interest rate at the time of purchase. I elected to do so this time because the money is right and I personally feel comfortable with the amount of debt I took on. I can pay my mortgage without having to work within the next 20 years, I felt that was appropriate. I also have enough cash to pay the mortgage off if I decide to. I am not in your situation.

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  9. softwarengineer

    RE: corndogs @ 8

    Obama’s New Housing Reform Bill Soon at a Theater Near You Too?

    Kills Freddie and Fannie subsidies too…..I don’t always agree with Obama, but this Reform Bill makes sense with our crippling federal debt.

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  10. Erik

    RE: corndogs @ 8
    Oops, I meant homesteps.

    We all know that I am poor and pathetic. I have confirmed that on this site repeatedly. We are talking about your situation right now.

    “When I buy things, I pay cash or take temporary loans against my own investments for a slight margin over LIBOR. In the case of this last house, I did in fact take a conventional loan product at about 4%.”

    Since you paid over $100k downpayment you did not use homepath. You took out a conventional loan, got it.

    I know you are financially in a much better position than I am. I would like to learn from you, so I can have a financial position more like yours. All jokes aside, I think you are very smart and are right a lot. I pay close attention to your predictions because you are consistently correct.

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  11. Erik

    RE: Erik @ 10
    I did it again… homepath. Tough day. I have been applying for graduation from my masters degree and have been a bit frazzled. MSME UW 3.51. Time to start stacking chips.

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  12. jld

    The ‘the full methodology pdf’ link in the second paragraph is a broken link. Anyone know the correct URL?

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  13. Erik

    RE: corndogs @ 8
    I thought you may have had to jump on a government subsidized like I did to get a better interest rate. I forgot that the program only lowers the down payment for us poor people and not the rate. I don’t think I will be needing government handouts moving forward. I fully plan to be a capitalist moving forward and save the handouts for people that need them like Losh.

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  14. toad37

    Ira @3

    Thanks for this perspective. Never thought of it that way but it sure makes sense.

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  15. Peter

    I am HOPING it will slow down. Real estate in Seattle has been on a torrid pace for the past 18-24 months. If it is going to sustain I think it needs to slow down. We still have a ways to go to get back to 2008. But we don’t have to get there all this year!!!

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  16. mike

    By Peter @ 16:

    I am HOPING it will slow down. Real estate in Seattle has been on a torrid pace for the past 18-24 months. If it is going to sustain I think it needs to slow down. We still have a ways to go to get back to 2008. But we don’t have to get there all this year!!!

    I’ve been tracking bubble era resales in my area (NW Seattle) and here’s what I’ve found. This applies to houses priced less than double the median, so under ~$1M:

    Non distress sale (not bank owned, short sale or “as-is”)

    – New construction 2006-2008: Above original sale price
    – Older house, not updated: 3-8% below peak sale price
    – Older house, extensively updated: Above original sale price (difficult to quantify unless you know when the remodel happened)

    Distress sales:
    – All over the board, some as much as 25% below previous sale price

    In general though, it appears prices are back at 2006 or 2008 levels, but a bit below the peak on houses that are outdated. If I had to guess, because it’s more difficult to get an equity line now people aren’t as willing to take on remodeling right after purchase.

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  17. sam

    active listings Inventory needs to grow to atleast 6000 to see price drops. Looks like we have 7% net growth in Aug, barring a lot of homes coming into market in the next two days. At 7% net growth it will take until end of 2013 to get there.

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  18. Erik

    RE: sam @ 18
    If inventory grows from September to December, it would be the first time that has happened that I know of. We have one more month of possible growth. After that we are heading for a shrink in inventory. So we would have to grow at about 28% just to finish the year off at the current inventory. If Inventory increases 56% next month, then we may finish the year off over 6000.

    http://seattlebubble.com/blog/2013/08/06/nwmls-inventory-increases-again-pending-sales-fall/

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  19. sam

    RE: Erik @ 19

    There was a post by Tim on when he projected inventory to reach the 7/2012 levels. Sept or Oct. Its going to be an interesting fall/winter because the real effect of interest rates is not yet seen.

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  20. doug

    There are at least 40000 houses in Seattle that have not been released on the market. These beaten down foreclosures and barely holding on mortage holders will saturate the real estate market for the next ten years at least.

    Real Estate in Seattle and everywhere else is on its last gasp and the fall will be massive frome here. If you have a 300,000.00 residence prepare to have a 150,000.00 residence this time next year.

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  21. mike

    By doug @ 21:

    There are at least 40000 houses in Seattle that have not been released on the market. These beaten down foreclosures and barely holding on mortage holders will saturate the real estate market for the next ten years at least.

    Real Estate in Seattle and everywhere else is on its last gasp and the fall will be massive frome here. If you have a 300,000.00 residence prepare to have a 150,000.00 residence this time next year.

    Let’s do some math here. There are round 300,000 housing units in Seattle, roughly 50% are owner occupied. So let’s say 150,000 owner occupied units. Roughly 2/3’s of those have a mortgage – so 100,000 units – of which you’re saying 40% are in some stage of the foreclosure process?

    If we’ve got 40,000 households about to switch over to renting, I expect to see 1 bedroom apartments in Ballard going for $3K/month by next year with all that demand!

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  22. Corndogs

    RE: doug @ 21 – Hey ‘The Tim” starting to lose interest in the site here. You should make a way for us to extract cash from guys like Doug and Losh who say stupid things. We need a way to make bets on these predictions.

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  23. whatsmyname

    RE: doug @ 21
    40,000 units is about 9 months’ KC closed sales at last month’s level. Together with the current inventory, that would put us about as far over a “balanced market” as we currently are under one. This is kind of problematic for your 10 year saturation, yet eerily appropriate. You don’t say where you pulled your facts from, but we can guess. I hope you are using soap and water.

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  24. drshort

    RE: doug @ 21

    The idea that banks are purposely holding foreclosed properties off market is just wrong. Most of the time, the bank that is servicing the loan and responsible for foreclosing (like BofA) is different from the entity that takes the loss (the GSEs or MBS). The servicers want to be done with the distressed property as soon as possible — it costs them money to keep them going. Missing papers, regulations, and loan modification programs slow down the foreclosure process, but its generally not some purposeful tactic to keep homes off market.

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  25. really

    RE: doug @ 21

    Where did you pull that out from? nose picking, ass probing? Don’t want to know! What eff’ing losers…

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  26. grandrobyn

    RE: Ira Sacharoff @ 3
    That is why corndogs calls low tier dumb money. It is a cheap shot at poor people, but it rings true. Poor people buy more when prices are up. They buy less when prices are down and they should be buying, hence dumb money. That is why they are poor. They are not smart about money.

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  27. One Eyed Man

    RE: grandrobyn @ 26

    Were low end buyers dumb? Are they dumber than high end buyers? Or was their risk/reward calculus commonly just as rational and reasonable as the high end? Even if the low end buyers were “dumb”, were they’re decisions the dumbest of the participants in the bubble momentum lottery?

    Is the last lemming over the cliff dumber than the first lemming? To be perhaps even more rhetorical if that’s possible, Is it better to be a fool, or a follower of a fool? Or is that cliché even too hard on the low end buyer?

    How about if we change the question to the following: Would you follow the herd of momentum players if someone gave you 97% in essentially non-recourse financing to buy a lottery ticket whose odds for payout said you might win 100K and if you lost you would most likely land with a few bruises (to your credit) and 10K or more of somebody else’s cash (in the form of 6 months or more of free rent and/or cash for keys)? If those were the potential risks and rewards, whose the dumb money now? If your answer depends upon who bears most of the risk of loss on the low end homes, the answer probably isn’t the low end buyer.

    In total dollars, the banks, the mortgage insurers (private and public) and the MBS buyers were the biggest part of the dumb money. The low end buyer had the risk to take the “first loss” on a few percent in down payment money but the bankers, mortgage insurers and MBS buyers were at risk for virtually 100% of the down side on low money down homes.

    Ironically, I may be financially well to do, and I might think I’m smart, and my investment calculus might have been more complicated, but I was part of the truly “dumb money” and I probably lost more in the bubble bust than most low end buyers. For those who think that banks were bailed out and didn’t suffer, I lost close to 70K in WAMU stock (before selling out at $7/sh because on the way down I thought the worst case would likely be a slow recovery (perhaps after a bailout that didn’t happen for WAMU, Country Wide, Wachovia etc.).

    Note that the above calculus for financial stupidity doesn’t take into consideration the non-pecuniary emotional and psychological toll suffered by families who lost homes and endured all the difficulties that can entail.

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  28. softwarengineer

    RE: One Eyed Man @ 27

    Yes One Eyed Man

    When I bought a cheap home in 1999 the realtor told me, hey, you qualify for twice the debt, are you nuts. My 2014 property tax statement only came in 12K below what I paid in 1999, who’s the nut, the realtor or me?

    Imagine if I paid double the principle, it would have been like -24K. That’s 1999 to now folks on a $117K home; not some absurd allegation prices are now at the peak bubble 2007 levels. These 2007 prices are back home buyers should give Seattle Bubble the data in writing substantiating their “wild allegations”.

    I at least have the property tax statement(s).

    BTW, I’m quite wealthy too; I started buying low priced “mutual fund” stock after 911….why has the “mutual funds” stock market sky rocketed in the last 4-5 years? IMO its protected; hardly no one can sell off, hardly no one has money to buy it.

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  29. David Losh

    Consumer Confidence went down for August from 8.5 to 8.3, and the stock market is having a fit.

    It’s interesting that in this bubble the economy is worse than it was in 2008, the price per barrel of oil is going up, and beyond 2008 levels, but the housing market is just a red hot investment going up 10%? a year.

    We’ve built more new housing units than have been sold, we have many more apartments, but that darn price of housing just keeps reaching for new highs.

    It makes absolutely no sense.

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  30. softwarengineer

    RE: softwarengineer @ 28

    Update to Blog Above

    My peak 2007 property tax statement was peaked at $160K value BTW; that’s a -56K [about 33%] drop to the $104K 2014 valuation.

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  31. softwarengineer

    RE: David Losh @ 29

    Yes David

    If I’d listened to my realtor in 1999 and bought the $234K home, my loss from the 2007 peak would have been $110K today, instead of $55K.

    The bull Bubbleheads think a 10% increase YOY is gravy….let’s do the real math, if it lost like 50% from 2007, a 10% increase is really only a 5% increase using 2007 as the base worth.

    The stock market needs more bad economic news, it means the QE tapering will be mitigated and stocks rise then. Today’s economy is a house of cards and the rules are as clear as coal polluted Chinese air.

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  32. Ira Sacharoff

    RE: grandrobyn @ 26
    No. Poor people aren’t poor because they make bad investment decisions. They’re poor because they don’t have money.

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  33. David Losh

    RE: Ira Sacharoff @ 32

    Well, the idea about lowering qualifying standards for mortgages was to make investment in Real Estate available to a broader base of people.

    I think that idea is also coming back today, but think the Real Estate market will correct before as many get caught this time around.

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  34. Ira Sacharoff

    RE: David Losh @ 33
    Depends who you listen to. Some say the lowering of qualifying standards was just to be able to allow lower income people to be able to buy a house to live in, not invest in a house as an alternative to their investments in tech stocks. Others say that the lenders were very eager to embrace this, because they could charge a higher interest rate, and unload the dud before it went into foreclosure. Others blame it all on Barney Frank.
    Face it: The investment choices available to rich people are much more plentiful than the investment choices available to poor people. And if you’ve never had any investment choices available, and then there is one, and you are more busy trying to keep your family fed than to acquire a financial education, and you’re being bombarded by real estate agents, lenders, and the media about how you better buy a house right now …what do you think is going to happen?
    There just seems to be this sentiment that rich people are better because they have more money. You can’t hate Black folks anymore, or gays and lesbians. But you can sure make fun of the poor.

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  35. ARDELL

    RE: softwarengineer @ 31

    SWE said “If I’d listened to my realtor in 1999 and bought the $234K home, my loss from the 2007 peak would have been $110K today, instead of $55K.”

    You lost me there. Why would you have a loss from 2007 vs a gain from 1999, if you had bought it in 1999?

    Wouldn’t you have a gain plus a lot of equity produced by your payments from 1999 to date? You would have had to refinance given rates were 7% give or take in 1999. If I add the cost of refinancing a couple of times down to 5.5% and then again down to 3.5%, assuming you had the savvy to refinance and capture the rate declines, you would now owe about $165,000.

    What do you think it is worth now?

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  36. mike

    By softwarengineer @ 28:

    RE: One Eyed Man @ 27

    Imagine if I paid double the principle, it would have been like -24K. That’s 1999 to now folks on a $117K home; not some absurd allegation prices are now at the peak bubble 2007 levels. b>These 2007 prices are back home buyers should give Seattle Bubble the data in writing substantiating their “wild allegations”.

    I at least have the property tax statement(s).

    Tax assessments are not necessarily accurate. Here are some non-distress resales that clearly show prices are near or above peak levels. Wild allegation, eh?

    http://www.redfin.com/WA/Seattle/8374-Loyal-Way-NW-98117/unit-C/home/22070611\
    http://www.redfin.com/WA/Seattle/614-NW-85th-St-98117/unit-A/home/100997
    http://www.redfin.com/WA/Seattle/9632-Mary-Ave-NW-98117/home/97258
    http://www.redfin.com/WA/Seattle/8717-18th-Ave-NW-98117/home/100582
    http://www.redfin.com/WA/Seattle/8727-13th-Ave-NW-98117/home/101230
    http://www.redfin.com/WA/Seattle/8035-13th-Ave-NW-98117/home/498374
    http://www.redfin.com/WA/Seattle/8349-19th-Ave-NW-98117/home/164968
    http://www.redfin.com/WA/Seattle/9231-View-Ave-NW-98117/home/289325
    http://www.redfin.com/WA/Seattle/8747-Dayton-Ave-N-98103/home/99245

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  37. One Eyed Man

    RE: Ira Sacharoff @ 34

    ” You can’t hate Black folks anymore, or gays and lesbians. But you can sure make fun of the poor. ”

    Everybody needs somebody to look down on.

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

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  38. doug

    The real estate last gasp bubble is officially over. There are 58 million americans on food stamps. 60% of houses are underwater on their mortages in king county. Banks and investors are holding at least 40,000 foreclosures and shadow inventory in the Seattle area.

    World War 3 is about to start thanks to the worst president in history Obama. And we all thought GW Bush was so bad tskkkk. Obama will soon push his illegal Obama care on all of us.

    the low tier goes up because no one can afford the upper tiers but only for so much longer
    soon all houses will be in the low tier

    MEGA CRASH coming up,,,, get out of the big cities

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  39. Lo Ball Jones

    How Cheap Are Houses In Detroit Right Now?

    This articles has photos of some dirt cheap, yet nice homes. These prices are full purchase, not mortgage or monthly rent.

    1,419-square-foot, two-bathroom home with trees in the front: $1,250

    Four-bedroom, one-and-a-half-bathroom, 2,690-square-foot colonial: $5,500

    All-brick three-bedroom colonial, 1,412 square feet: $9,000

    http://www.buzzfeed.com/summeranne/detroit-cheap-houses

    And it goes on and on ….

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  40. sam

    Where is the shadow inventory? Why doesnt anyone write about it? Everyone talks about it. How long is the inventory going to remain in a shadow state?

    As long as the inventory is going to be ~4600 SF homes in King county, market is going to be in seller’s favor. We need to get to 6000 SF homes for market to change further.

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