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.

21 responses to “April Reporting Roundup: Red Hot Catch-22 Edition”

  1. Ira Sacharoff

    If I remember correctly, Yossarian wanted out of flying combat missions during WWII. He figured he could ask for a mental exam, and show that he was too crazy to be fit to fly. Catch 22 was the rule that if you were trying to get out of flying combat missions, that showed that you were sane. Or something like that.

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  2. Kary L. Krismer

    Contingent offers work mainly in balanced markets. If it’s too slow, people aren’t going to want to risk their sale on another property selling. If it’s too hot, there’s no reason they should! There will be another offer.

    But more to the point of the comment, this really is a market where you will likely need to buy first if you’re in one of the hot areas. So you’ll need to have the financing to pull that off, which isn’t necessarily that difficult, but it obviously depends on the person. It was just over two years ago that I noted that was now possible/safer to buy first, but in many areas it’s now necessary.

    I really like the “from red hot to slowly healing” comment. That really describes this market because you don’t need to get too far north or south of Seattle/Bellevue for the market to become a more balanced market and then if you go a bit further it’s still a seller’s market. Since the NWMLS covers all of those areas, that’s a great comment.

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  3. mike

    From the Tacoma News Tribune: “James Bendt, a agent at Long and Fosters Lakewood office reports – We’ve recently come to the realization that people just do not want to live in Tacoma, or most of Pierce County for that matter. Anyone with a lick of sense or two nickles to rub together has left or is planning on leaving.”

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  4. Another Mike

    It saddens me that one has to explain the term ‘Catch-22′.

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  5. redmondjp

    By Another Mike @ 4:

    It saddens me that one has to explain the term ‘Catch-22′.

    Yup. It means we’re all getting OLD!

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  6. Kmac

    RE: mike @ 3

    Do you have a link to that article?
    I searched the TNT site and couldn’t locate it.

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  7. Kary L. Krismer

    By Another Mike @ 4:

    It saddens me that one has to explain the term ‘Catch-22′.

    Well the book is over 50 years old and the movie over 40. Unless it’s common reading as part of a high school curriculum I could see why the term would need to be explained.

    I was surprised to see that the movie was from 1970. I would have expected it to be slightly older than that.

    As to the topic of the post, odd to see how there are no fear mongers or cheerleaders in this market.

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  8. Tim Deerhawke

    By Kary L. Krismer @ 2:

    I really like the “from red hot to slowly healing” comment. That really describes this market because you don’t need to get too far north or south of Seattle/Bellevue for the market to become a more balanced market and then if you go a bit further it’s still a seller’s market. Since the NWMLS covers all of those areas, that’s a great comment.

    Kary, this is a perfect summary of the current situation. I am told by a couple of agents with listings in both areas that suddenly West Seattle has cooled off but central neighborhoods north of the ship canal see rapid-fire sales with multiple offers, many all cash offers. As they say, in real estate the three things that matter are location, location and …. what was that other one?

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  9. Blurtman

    RE: Tim Deerhawke @ 8 – Granite countertop. I was going to answer “Hype,” but without that countertop, it wouldn’t matter.

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  10. mike

    By Kary L. Krismer @ 2:

    I really like the “from red hot to slowly healing” comment. That really describes this market because you don’t need to get too far north or south of Seattle/Bellevue for the market to become a more balanced market and then if you go a bit further it’s still a seller’s market. Since the NWMLS covers all of those areas, that’s a great comment.

    I can’t help but think some of this is due to a secular shift away from the suburbs/exurbs back towards previously undesirable urban areas. When you look at price gains over the past decade in the CD, Columbia City, and other “bad” neighborhoods and contrast those with suburban neighborhoods priced similarly at the time, it’s clear people with greater means are moving in. The CD is almost as expensive as Ballard when comparing like properties.

    Those buyers came from somewhere, and chose the old, run down homes in an up and coming neighborhoods over something newer and more suburban.

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  11. Kary L. Krismer

    RE: mike @ 10 – There may be some of that with gas at almost $4.00 a gallon, but I think it’s more due to Seattle’s economy being better than the rest of the state, particularly for companies that are moving people into the state. The closer property is to a job center the more sought after it will be, except for those who like more rural settings.

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  12. Tony D

    “thanks to still-crazy-low interest rates, homes are far more affordable today than they were in 2005-2008.”

    The problem with this assumption is that it ignores the signifant proportion of loans during the last housing bubble (2003-2007) that were fianced with exotic loan products. Your statement about affordibilty can only be correct assuming that the same amount of loans in both periods were financed with convention 30-year loans. This certainly was not the case.

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  13. Azucar

    By Tony D @ 12:

    “thanks to still-crazy-low interest rates, homes are far more affordable today than they were in 2005-2008.”

    The problem with this assumption is that it ignores the signifant proportion of loans during the last housing bubble (2003-2007) that were fianced with exotic loan products. Your statement about affordibilty can only be correct assuming that the same amount of loans in both periods were financed with convention 30-year loans. This certainly was not the case.

    No… a 4% ARM that is going to start adjusting up after 3 years is not as affordable as a 4% fixed mortgage, and I don’t think that the exotic loan products were being factored in to the affordability calculations. I think that the formula for “affordable housing” has always used a fixed rate mortgage (30 year?), but the fact that people were using exotic loan products (ARM’s, no principle mortgages, etc.) was allowing them to spend more than they should have. So, more people who really couldn’t afford the homes were in the market… driving prices up and helping to inflate the bubble faster. I don’t think that there is as much of that going on now with this bubble (but it does seem to be starting to get a bit bubble-like again to me).

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  14. mike

    RE: Azucar @ 13 – In *some* cases the exotic loans were being factored in. IIRC, in 2006 the California Association of Realtors had listed a 5-1 IO ARM with 5% down as the benchmark for affordability for first time home buyers.

    The other thing to consider with the bubble era loans is you weren’t actually expected to pay them back. You could re-finance every few months and take out equity to pay the monthly, then when it became unaffordable you simply stopped paying altogether. What’s more affordable than $0? Certainly not these 4.25% 30 year fixed mortgages that one actually has to qualify for!

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  15. Roy Smith

    I have been seeing the catch-22 holding back potential listings, and have been routinely advising sellers that one of the most important pieces of their planning is figuring out where they intend to live after they sell (and, if possible, having that all in place before listing), because with proper pricing, it is highly likely they will sell fairly quickly.

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  16. wwdesi

    What is the reason for low inventory in the first place? Looks like we had good/high inventory couple of years back (2011-2012). The prices have gone up significantly since then… why the inventory is not going up? What is effect of low interest rate and HARP on the inventory?

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  17. Kary L. Krismer

    RE: wwdesi @ 16 – Buyers started crawling out of the woodwork last year and ate it all up. It hasn’t been replenished.

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  18. Tim Deerhawke

    RE: wwdesi @ 16 – What is the reason for low inventory in the first place?

    Let’s also remember that there really wasn’t much permitted and built during early 2008 to late 2011. Most of the in-city builders were too busy going through foreclosure, bankruptcy, deed-in-lieu and all the related fun. A lot of the best Seattle builders are now making their living in North Dakota. Some started to get back into the game in 2012, but banks either don’t lend to builders or have very tight lending requirements. Lots are hard to come by or very expensive. Planning and permitting take 6 months or more.

    So all in all, when demand picks up and new sources of supply are limited, it is reasonable to expect that you would see
    1) standing inventory getting eaten up, followed by
    2) a rise in prices

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  19. wwdesi

    So in 2-3 years we went from “over supply” to “shortage”? Did we have a significant population growth? (all over the country for that matter of fact). It does not make sense to me.

    The last bubble was fueled by easy money. I think the new one (it is in the starting phase) is fueled by cheap money.

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  20. Kary L. Krismer

    RE: wwdesi @ 19 – Again, it’s change in demand. More people wanted to buy. 2-3 years ago fewer people wanted to buy. It’s a herd mentality sort of thing. People do what they see other people doing.

    2-3 years ago some people here thought Tim was crazy to buy when he did. Doom and gloom. Now the outlook of people is much better, plus you have somewhat of a built up demand because so many people did wait.

    Trying to look at population growth really won’t get you to an answer because at any given point in time only a tiny portion of the houses built are available at market prices.

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  21. mmmarvel

    By Azucar @ 13:

    By Tony D @ 12:
    “thanks to still-crazy-low interest rates, homes are far more affordable today than they were in 2005-2008.”

    The problem with this assumption is that it ignores the signifant proportion of loans during the last housing bubble (2003-2007) that were fianced with exotic loan products. Your statement about affordibilty can only be correct assuming that the same amount of loans in both periods were financed with convention 30-year loans. This certainly was not the case.

    No… a 4% ARM that is going to start adjusting up after 3 years is not as affordable as a 4% fixed mortgage, and I don’t think that the exotic loan products were being factored in to the affordability calculations. I think that the formula for “affordable housing” has always used a fixed rate mortgage (30 year?), but the fact that people were using exotic loan products (ARM’s, no principle mortgages, etc.) was allowing them to spend more than they should have. So, more people who really couldn’t afford the homes were in the market… driving prices up and helping to inflate the bubble faster. I don’t think that there is as much of that going on now with this bubble (but it does seem to be starting to get a bit bubble-like again to me).

    While not as exotic as the the ‘bad-old-days’ (I remember 50 year loans being peddled and zero down using a 2nd mortgage to be the downpayment for the first mortgage). Recently here in Houston, a credit union has been advertising on the radio about zero down, no PMI mortgages. Don’t really know how they are doing it. They are advertising that you don’t need to be a member to get this deal. Don’t know what interest rate is being charged, but it did harken me back to the pre-bubble days.

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