April Reporting Roundup: Red Hot Catch-22 Edition

April Reporting Roundup: Red Hot Catch-22 Edition

Late again with the monthly reporting roundup, but at least it’s finally here. Time for you to read my wry commentary about the news instead of subjecting yourself to boring rehashes of the NWMLS press release (or in addition to, if that’s what floats your boat).

To get this party started, here’s an excerpt from the NWMLS press release:

Housing activity ranges from "red hot" to "slowly healing"

Brokers report some skittishness among both buyers and sellers, but the latest statistics from Northwest Multiple Listing Service indicate the housing market is continuing to rebound.

“The residential market is red hot,” reported J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. He said multiple offers are the “norm” for new listings, with about two-thirds of homes near job centers selling in the first 30 days. That’s about twice the normal rate, according to Scott.

“We are still desperate for inventory in spite of statistics indicating we have more listings,” commented MLS director Kathy Estey. Inventory is being held back because potential sellers fear they will sell their home and not find one to move into, said Estey, the managing broker at John L. Scott in Bellevue.

The result is a catch-22 situation “because nearly no one will accept a contingent offer,” according to Estey. Also, she explained, “bridge financing is scarce and risk tolerance is low” as a result of the hangover from the recession.

It’s a RED HOT CATCH-22! The market’s simultaneously rebounding and being held back. Black is white, up is down, and slow is fast!

It's a Red Hot Catch-22!

Read on for my take on this month’s local news reports.

Seattle Times

Sanjay Bhatt: No thaw in home inventory despite April’s rising prices

Rockwell Realty’s Bui said the inventory is so tight in some areas that he’s seen houses sell for $100,000 over their list price in close-in Seattle neighborhoods like Capitol Hill and Madison Valley. Brokers are supposed to list property at fair-market value, he said, so it’s hard to see how lenders would approve financing deals so far above list price.

“Just on the face of it,” he said, “it makes you think, ‘Bubble.'”

Glenn Crellin, associate director for research at the University of Washington’s Runstad Center for Real Estate Studies, said he was pleased to see that April’s annual price appreciation in King County was in the single-digit range.

“I think it needs to come back down a bit more to be a balanced healthy market,” he said.

More great reporting from the Times. There are two main reason I’m not super-concerned about a bubble… yet.

First, volume is just too low. Sales volume at the height of the frenzied housing bubble around when I started this site was 40% higher than it is today. In April 2005 2,841 single family homes sold in King County. This April just 2,016 homes sold, and that number is down from last year, when 2,096 homes sold.

Second, thanks to still-crazy-low interest rates, homes are far more affordable today than they were in 2005-2008. The affordability index for King County sits at 99.7 as of April. In the year before home prices peaked during the bubble, the affordability index averaged 71.8, and hit a low point of 65.2. If home prices rise a lot more without incomes rising, or rates start to fall and home prices keep increasing, then I’ll start to get concerned.

Seattle P-I

Aubrey Cohen: Local home supply inches up, but remains tight

With the peak home-buying season approaching, there are signs that this year may be just a little less frenzied than last spring.

“It’s still an extreme shortage of product,” said Glenn Crellin, associate director of the Runstad Center for Real Estate Studies at the University of Washington.

Shorter story than usual this month in the P-I, but it’s nice that at least they’re still reporting, and their stories are more than just regurgitations of the NWMLS press release.

I couldn’t find a story in the Everett Herald this month.

Tacoma News Tribune

John Gillie: High percentage of distressed home sales negatively affect home prices in the South Sound

A high percentage of foreclosed and short sales home transactions last month in Pierce and Thurston counties caused median prices to take a dip in both locales, new figures from the Northwest Multiple Listing Service show.

Those statistics show the median home sales price in Pierce County last month was $215,000 in April compared with $217,000 a year earlier. That’s a 0.92 percent decline.

That’s unusual, considering that distressed sales had been decreasing in overall share of sales volume for quite some time, falling to just 14 percent the last time we checked in on those stats.

The Olympian

John Gillie: Foreclosures drive down home prices in Thurston County

A high percentage of foreclosed and short-sale home transactions last month in Thurston and Pierce counties caused median prices to take a dip in both locales, new figures from the Northwest Multiple Listing Service show.

Doh. Same exact article.

Since we were missing an article in the Herald, and the Olympian and News Tribune were duplicates of each other, here’s an article on this month’s numbers from the Puget Sound Business Journal.

Puget Sound Business Journal

Marc Stiles: Seattle area residential real estate is a Catch-22, Realtors say

Even though more houses are being offered for sale in the Puget Sound region, inventory remains ultra-tight in many areas, and King County continues to have a particularly limited supply.

The situation is exacerbated by anxiety among some would-be sellers. They are torn. While they want to put their residences on the market, they fear they won’t be able to find new houses to buy. That’s a Catch-22 — because it limits supply at a time when the market craves it.

Bonus points for explaining the Joseph Heller reference from the NWMLS press release.

(Sanjay Bhatt, Seattle Times, 05.06.2014)
(Aubrey Cohen, Seattle P-I, 05.06.2014)
(John Gillie, Tacoma News Tribune, 05.06.2014)
(John Gillie, The Olympian, 05.06.2014)
(Marc Stiles, The Olympian, 05.06.2014)

  

About 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 comments:

  1. 1

    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. 2

    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. 3
    mike says:

    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. 4
    Another Mike says:

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

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  5. 5
    redmondjp says:

    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. 6
    Kmac says:

    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. 7

    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. 8
    Tim Deerhawke says:

    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. 9
    Blurtman says:

    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. 10
    mike says:

    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. 11

    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. 12
    Tony D says:

    “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. 13
    Azucar says:

    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. 14
    mike says:

    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. 15
    Roy Smith says:

    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. 16
    wwdesi says:

    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. 17

    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. 18
    Tim Deerhawke says:

    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. 19
    wwdesi says:

    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. 20

    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. 21
    mmmarvel says:

    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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