The New Normal: 25 Percent of Pending Sales Don’t Close

The New Normal: 25 Percent of Pending Sales Don’t Close

Let’s take a look a the latest data on pending sales volume versus closed sales volume.

For this series I roll the pending sales and closed sales data up by quarter, with pending sales offset by one month. In other words, the second quarter numbers below represent pending sales from March, April, and May and closed sales from April, May, and June.

Pending & Closed Sales of King Co. SFH

As of the second quarter, one in four pending sales (25.2 percent) were still failing to ever show up in the closed sales numbers.

With the housing market as hot as it has been for most of the last year and a half, I had been expecting this number to shrink down to closer to 10 percent, but it has instead actually risen since this same time last year, when 23.8 percent of pending sales failed to close.

Apparently one in four pending sales falling out of contract for one reason or another has become the new normal for the housing market. This is likely due to a combination of various factors, including the NWMLS’ redefinition of “pending” in July 2008 as well as buyers simply becoming a lot more picky.

This is good news for buyers, since many homes that quickly go pending may end up back on the market, giving buyers a second chance.

It will be interesting to see if this number changes much over the next year, but given how long we’ve seen it at these ~20%+ levels, I’ve become doubtful that we’ll be seeing it drop down to 10 percent any time soon.

  

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.

37 comments:

  1. 1

    Are all varieties of pending included in that statistic? Are short sales? If short sales are included, then it skews things a little bit. I know that short sales don’t constitute a significant part of the closed sales, but I’m just venturing a guess that among short sales that do go pending, maybe 80% of them don’t close.

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  2. 2

    RE: Ira Sacharoff @ 1 – I think most of it is likely the Pending Inspections flipping–note the change on the graph. 20% of properties dropping out on inspection wouldn’t be that surprising.

    As to short sales, I can’t tell you how many flip, but in 2012 roughly 75% of SS listings were successful (comparing solds to some sort of failed), but only about 66% in 2013 and only just over half so far this year. Way back in 2010 only about 25% were successful! Note that those are with greatly decreasing numbers of short sales for 2014.

    Numbers from NWMLS sources, but definitely not compiled by or guaranteed by the NWMLS.

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  3. 3
    Deerhawke says:

    Could someone discuss the broadening of the definition of pending that occurred in July 2008? It seems to have been a pretty significant change.

    Without any real data on this topic, I would assume that part of the reason for the failure of these sales is tougher underwriting requirements that have led to 1) more stringent appraisals and 2) more thorough analysis of the buyer’s ability to pay off the loan.

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  4. 4

    RE: Deerhawke @ 3 – There’s not much to discuss. Including Pending Inspections in the Pending data was a huge change. I don’t remember their rational for making such a change, not that it matters–they did it.

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  5. 5
    Deerhawke says:

    In addition to the change in what the MLS counts as pending, might the fact that 1 in 4 deals does not close as written be a good sign?

    There doesnt seem to be a good reason why more buyers are suddenly changing their minds and deciding not to buy, especially in a seller’s market.

    So it seems likely that appraisers are being tougher in their appraisals and/or banks are serious about credit and underwriting standards. That is causing sales to fail.

    If that is the case, the system is working the way it is supposed to. Maybe this is another reason why not to see the beginnings of another bubble quite yet.

    Rate this comment: Thumb up 4

  6. 6
    guy dahlke says:

    RE: Deerhawke @ 5 – Is it a consensus that we are not experiencing a housing bubble? I am curious why with home prices near the same levels as 2006 and 2007 that it is not considered a bubble only 7 years later.

    Rate this comment: Thumb up 5

  7. 7
    Deerhawke says:

    I don’t think there is any consensus on this topic. Some people assume there is a bubble because there has been a rapid runup in prices. But there is no definition of what it means to have a bubble, what leads to a bubble, or how to prevent a bubble. A rapid runup in prices might be sustainable and not a bubble at all.

    I lived in New York and when prices hit $100K for a Harlem Brownstone the papers were full of speculation about a bubble. Want to guess what they sell for now?

    Rate this comment: Thumb up 2

  8. 8
    Mike says:

    By guy dahlke @ 6:

    RE: Deerhawke @ 5 – Is it a consensus that we are not experiencing a housing bubble? I am curious why with home prices near the same levels as 2006 and 2007 that it is not considered a bubble only 7 years later.

    The book “Extraordinary Popular Delusions and the Madness of Crowds” covers most of the signs and symptoms of speculative bubbles. One of the key measures is not price increases, but whether the price increases cause a rise in demand which then further increases price pressure.

    [Current market however sees flat or slightly decreasing demand after price increases]

    That condition was certainly met during the last housing bubble, but I see little evidence that it is going on in the current market. Back then, a lot of vacant inventory was being held for appreciation then flipped more or less as-is, which had the effect of removing supply from the market. Now, most of the flipping seems to be driven by supply imbalances – IE: houses that weren’t updated or maintained during the downturn are being renovated and re-sold to owner occupiers or investors buying cash flow positive rentals. In which case, the primary purpose is to provide housing for someone not, a speculative investment vehicle held for appreciation.

    Now another question is whether the lack of inventory is causing people to overpay for certain properties. This could be the case, however as long as the homes people are overpaying for are bought to live in and not primarily an “investment” that has to be unloaded prior to some future short term event (like a loan reset/recast) these overpriced homes are unlikely to be back up for sale any time soon. This is quite unlike what we saw in 06-07 when speculative buyers were forced to sell or refinance en mass after the homes stopped increasing in value.

    Rate this comment: Thumb up 2

  9. 9

    RE: Deerhawke @ 3

    As of today there are approx 6,000 pending sales in King County of which two out of three are marked as fully expected to close. So if 3 of 4 close vs the 2 of 3 as currently marked, that is not a surprise if you pay attention to the type of pending status.

    There are five different types of pending: PF, PS, PB, PI and the fifth is P for Pending. The first four are clearly market as having a high potential to not close. PF is Pending Feasibility meaning the buyer will ONLY close IF a change they want to make to the property turns out to be feasible. PS is a short sale with no guarantee that the price and terms the buyer and seller have agreed to will be acceptable to the lender. In fact the lender may not approve the short sale at any price and foreclose instead. PB is the place where you should find the ones expected to have trouble getting financing and only 57 of the roughly 6,000 pending sales are marked in that manner. A PI will move to P if and when it is fully expected to close. Some of the PIs are short sales. Some of the PIs are people who will cancel for reasons other than the actual inspection who are using the inspection period to have more time to think about whether or not they really want to buy the house. So until a PI moves to P, it is not in the “expected to close” 2 out of 3.

    So of the 6,000 or so (more like 6,100) pending sales today in King County, only about 3,850 are marked as fully expected to close. The remaining are in various stages of discovery and are clearly noted as such.

    To answer your question, the PI category is technically the old STI category, but given the higher number of short sales post 2008 vs prior to 2008, there is not a one for one trade out. If you strip the pendings down to real pendings, eliminating the “pre-pending” statuses, you would not need to make any adjustments and the % closing would be much higher.

    Only 40% to 42% of the pendings under $300,000 are marked as fully expected to close.
    75% of the pendings over $300,000 are marked as fully expected to close.

    When you lump all of the pending statuses (or is that stati) together and say only 3 of 4 close, you need to acknowledge that only 2 of 3 were marked as expected to close in the first place.

    Required Disclosure: Stats in the post are not compiled, verified or published by The Northwest Multiple Listing Service.

    Rate this comment: Thumb up 4

  10. 10
    Mikal says:

    What is going on now is pent up demand and the fact that Amazon has changed the downtown and surrounding neighborhoods so much. There is so much money chasing close to downtown that neighborhoods are actually changing in less than 10 years. Queen Anne used to be full of dive bars. The people that could afford to live there are being pushed out, and so is everyone else that can’t afford the new rents or mortgages, and that is pushing everyone else further out. If you missed out buying at the bottom the last couple years you screwed yourself.

    Rate this comment: Thumb up 3

  11. 11
    The Kraken says:

    RE: Mikal @ 10

    I’m now realizing I’ve been priced forever, again.

    Rate this comment: Thumb up 1

  12. 12

    By Mike @ 8:

    By guy dahlke @ 6:
    RE: Deerhawke @ 5 – Is it a consensus that we are not experiencing a housing bubble? I am curious why with home prices near the same levels as 2006 and 2007 that it is not considered a bubble only 7 years later.

    The book “Extraordinary Popular Delusions and the Madness of Crowds” covers most of the signs and symptoms of speculative bubbles. One of the key measures is not price increases, but whether the price increases cause a rise in demand which then further increases price pressure.

    [Current market however sees flat or slightly decreasing demand after price increases]

    That condition was certainly met during the last housing bubble, but I see little evidence that it is going on in the current market. Back then, a lot of vacant inventory was being held for appreciation then flipped more or less as-is, which had the effect of removing supply from the market. Now, most of the flipping seems to be driven by supply imbalances – IE: houses that weren’t updated or maintained during the downturn are being renovated and re-sold to owner occupiers or investors buying cash flow positive rentals. In which case, the primary purpose is to provide housing for someone not, a speculative investment vehicle held for appreciation. .

    Lots here.

    First, as to Deerhawke’s quoted material, it is at least interesting that prices in many areas are now higher than when Seattle Bubble was started. How many of the people who advocated timing of a home purchase actually purchased when prices were lower (and REOs and short sales priced even lower)? Some did, but many were just perma-bears expecting things to go even lower.

    As to your comments, there are two things driving prices that weren’t present back then: 1. Lower interest rates; and 2. Pent-up demand from the years of declining prices making people afraid of buying. It was really only about 4 years of reduced demand, but that’s a significant amount of demand, and almost 10% of the average persons significant earning years (in other words a significant portion of a person’s adult life). Also I think one thing lacking is a lot of variety in the demand. Before the demand was causing price increases affecting most of Western Washington, where now the demand doesn’t even affects all of King County and parts of Snohomish and Tacoma are pretty much like they were 2-3 years ago.

    But beyond all that, I think people concerned about a bubble are looking at the wrong thing. It wasn’t high prices in Western Washington that caused the crash, it was national or even international economic conditions. In 2007 Washington was only getting started on the type of rapid price increases seen in places like California, Arizona and Nevada. But for the Great Recession we probably would have had our own crash eventually based on too high of local price, but we didn’t get that chance (as if that is disappointing). And the same thing may very well be true again. The biggest threat to our market probably isn’t too much demand, but instead a national or international economic event, particularly one that affects tech stocks. Worrying about local prices may be like worrying about local crime during a nuclear war. Probably not a focus on the greatest risk.

    RE: Ardell DellaLoggia @ 9 – I don’t have the same opinion of PB (Pending Backup). It just means the seller would like backup offers. There may or may not be reasons for that. Seemingly though, any seller should want a backup offer, it’s just a matter of whether you ask for one.

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  13. 13
    whatsmyname says:

    By Kary L. Krismer @ 11:

    It was really only about 4 years of reduced demand, but that’s a significant amount of demand, and almost 10% of the average persons significant earning years (in other words a significant portion of a person’s adult life).

    It is interesting how reframing your reference point like this can provide a surprising impact on your perspective. Years come and go, but it is really kind of a shocker to think that someone who has been waiting, say 10 years, to time the market has invested 25% of their adult working life into the effort.

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  14. 14

    RE: whatsmyname @ 12 – It probably also depends on your age. If you’re 30 then four years seems a lot longer than if you’re 60.

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  15. 15

    RE: Kary L. Krismer @ 11

    Since less than 1% of all Pending sales show up in PB, not including those subject to 3rd party approval, perhaps you would reconsider your position that ALL pending sales should be in Pending Backup. :)

    The status loses its value if it does not include only those sales where there is a reasonable expectation, based on the instant facts, that the backup buyer could in fact end up in first position. To treat the status otherwise is misrepresentation to the buying public and dilutes its value as a status option. I understand your legal position and have heard it many times. However PB is a working world vs legal status, and should be used in the spirit of its general intent. (speaking here of all mls systems with this status option and not merely the local one.)

    99% plus agents and sellers agree with my position based on the real data, though I fully understand your legal training may force you into that “odd man out” thinking.

    PB is meant to be a secondarily “active” status with a reasonable expectation that the transaction in first position might fail. Likely the main reason not to use it willy nilly is it is insulting to the buyer who is in escrow to actively seek someone to replace him in escrow. More of a “bird in the hand is worth two in the bush” scenario.

    Backups are often selected when there are multiple offers at the get-go, just because they are in hand. But to continue to show the house while it is in escrow, and accept offers, will in most cases PO the buyer in escrow. May not matter…unless there is a hiccup in the transaction and not having treated the buyer in hand with all due respect could clearly backfire on the seller. Greed is not always good. Proceeding in good faith is a mainstay of real estate practices and quite often the driving force behind most real estate transactions.

    Rate this comment: Thumb up 1

  16. 16

    RE: Ardell DellaLoggia @ 14 – I said that sellers should want a backup offer, not that they would necessarily want to deal with getting one. If you live in an occupied listing it’s probably a relief to not have people come through your house, so that would need to be balanced against the benefit of a backup offer. And there are other reasons not to seek one out. I’m not by any means suggesting every listing should be taken pending backup, only that being pending backup doesn’t necessarily mean what you indicated (that the existing offer is weak).

    But seriously, are you suggesting anyone should base their standard of practice on what other agents do? The percentages are irrelevant. Probably 90% of offers send over a copy of a client’s check without even asking the client if that’s okay, (the better practice is to just send a copy of a receipt for the check). And my wife and I were perhaps the only agents often using Form 22AA after the NWMLS changed 22A to eliminate the appraisal provisions if the financing contingency was waived (they’ve since changed it to be a negotiated term of 22A). Should we have not benefited our clients because no other agents were doing that? Or how often do you see an offer with 22T? It’s more often than 22AA, but I had one transaction a couple of years ago where having both 22AA and 22T were critical. But I guess that was a mistake because less than 1% of offers have both those forms attached. /sarc

    And finally, I can see that taking a listing PB might bother a buyer, but it really shouldn’t. They can’t be bumped, although it is conceivable it might cause a seller to later request waiver of the financing contingency.

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  17. 17

    RE: Kary L. Krismer @ 15

    It’s a mistake if your buyer client loses the house in multiple offers by adding something unusual or if your seller client loses the buyer because they are offended by the sellers’ lack of confidence in their sincerity and ability to purchase. It’s insulting Kary, and should only be used when appropriate.

    I guess I would be safer if I wore one of those germ masks every day and every where. But lacking a good reason to don one, I’m going to respect the fact that most people NOT wearing them…does not mean they are stupid and I am smart if I wear one all the time. Less than 1% agreeing with you DOES mean something Kary…and it doesn’t mean that less than 1% are “smart” and the rest of the people are idiots.

    Rate this comment: Thumb up 1

  18. 18
    wreckingbull says:

    RE: whatsmyname @ 12 – You keep bringing up this mythical sideline sitter who now is in year 10 of waiting. I think this is a fictional character you use to cheerlead and deliver your too-bad-so-sad-routine. Will someone who is on year 10 of ‘market timing’ please speak up? Anyone?

    Rate this comment: Thumb up 1

  19. 19
    whatsmyname says:

    RE: wreckingbull @ 18 – I don’t recall bringing up anyone 10 years in the waiting before, so that right there might make your character mythical. Still, I do recall a fellow writing in late last year or early this year to proudly tell Tim that he and his wife had just then called off the house hunting, just like they did in 2005. So maybe him. And maybe Sniglet, if he hasn’t been institutionalized. Out of Matthew, Shoe Guy, and No Name Guy; I would guess at least one. There used to be a fair number here warning buyers in 2012-2013 that they would get burned on “the next leg down”. You would think at least a couple of those would have walked their talk. I doubt you will see many of them rush to self identify in answer to your question right now, though. I know I wouldn’t.

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  20. 20
    Oahu Realty says:

    My first thought was that a lot of buyers are cash-strapped and not qualifying for loans. Then I read Ardell’s comment – FIVE different types of Pending status? Does that seem like too many?

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  21. 21
    Mike says:

    Hi Tim, what do you think of the article below? Are we back in a (pre?)bubble because of inventory issues? If I’m a prospective buyer should I wait it out and risk rising mortgage rates?

    http://www.washingtonpost.com/business/downside-of-low-us-mortgage-rates-less-selling/2014/07/11/db83cde8-0900-11e4-ba5b-b9d8a4daba13_story.html

    Rate this comment: Thumb up 0

  22. 22
    Erik says:

    RE: Mike @ 21
    I would like Tim to answer the question as well. I can give you my opinion, but I know that is not what you are looking for since I am mostly here for a good time.

    My guess is that housing prices just keep increasing at about 3-5% for the next few years. We will most likely not have another crash in the next 10 years.

    If you subscribe to both those ideas, someone should buy a house now as opposed to later.

    I don’t know what you mean by back to pre bubble because of inventory issues. Please explain.

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  23. 23
    whatsmyname says:

    RE: Mike @ 21
    Hi Mike, I know you didn’t ask my opinion either, so I won’t give it to you. I will offer you one analytical track to consider in your process, though: If you buy the premise of this article, and you choose a wait it out strategy, are you “waiting out” 30 year mortgages that are not more than two or three years old? And what would that imply for you?

    Rate this comment: Thumb up 0

  24. 24
    Mike says:

    I hadn’t intended to make it sound like I was only soliciting opinions from Tim; sorry about that.

    What I meant was: how do I know whether the current price level is supported by economic fundamentals, or inflated because of irregularities in supply such as the one described in the article. If it was the second case, I’d be more willing to “wait it out” until the irregularities correct themselves, hoping for a lower price point even at the expense of slightly higher interest rates.

    I’ve been following the market since 2012, and only recently became financially comfortable enough to seriously think about buying. In the market that I follow (Eastside between I-90 and NE 85th St, preferably West of 148th Ave NE, 800K), houses are selling at least 100K more than 2013 comparables. I see lots of high-700K to 800K that a year ago would have sold in the 500s. And I thought to myself, surely fundamentals couldn’t have changed that quickly. There is also evidence that flipping is back.

    For example, these:

    http://www.redfin.com/WA/Bellevue/12159-SE-14th-St-98005/home/507831
    http://www.redfin.com/WA/Bellevue/13826-SE-10th-St-98005/home/507113 (this seems like a flip)
    http://www.redfin.com/WA/Bellevue/156-131st-Ave-NE-98005/home/507182

    are all listed above 750K, but I fail to see how they’re better than the following 500K — 650K from 2013:

    http://www.redfin.com/WA/Bellevue/12227-SE-12th-St-98005/home/507243
    http://www.redfin.com/WA/Bellevue/2141-168th-Ave-SE-98008/home/428238
    http://www.redfin.com/WA/Bellevue/16519-SE-31st-St-98008/home/429569

    That’s why I asked whether we’re in a new bubble. If we are, I don’t mind waiting for a 200K drop.

    Thanks, and sorry for the long post. I’m not in the industry, so I only know about the few listings that I follow. I’d appreciate your insights about larger trends.

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  25. 25
    Shoeguy says:

    RE: whatsmyname @ 19 – I’ll happily own the 10 year sidelined buyer meme.

    I moved to Portland in 2005, a year and a half or so before the peak of the bubble, first real job out of college making $45,000 a year ($13,000 over per capita Portland income by TODAY’S standards, by the way. Sad.) and started looking at houses.

    I saw that just about every house advertised as “starter” was being listed for a hilarious $289k price tag, or almost a 5:1 price to median income ratio. I instantly knew something was wrong. I was one of the few people screaming “housing bubble” back then while friends and family were begging me to “just get into something” before “being priced out forever”.

    Common sense should have told all of you that in the year 2046 there won’t be High School classes teaching students that their grandparents were the last people able to afford a home and that for the last 40 years everyone everywhere has rented.

    So i waited it out and for the next five years watched that knife fall as the Obama administration tried desperately to hand sellers $8,000 (did any of you really think that cash was for buyers?) in bonus cash before house prices dropped $10,000 after the rebate ended, and watched the Fed drop interest rates to zero to artificially drive up prices to try to stop the bleeding until the market “bottomed” in 2011 thanks to nothing more than shenanigans from the government and Fed instead of from fundamentals.

    After watching prices sit in 2011 (and switching jobs with a 6 month non compete as well as having a baby), and seeing prices appreciate about 3% in 2012, we decided to jump back in near the end of 2012 since it looked like the waters had FINALLY calmed. So we got our finances together, and in early 2013 started looking again in earnest figuring that we’d look carefully, and if prices rise another 3%, oh well, it was still manageable.

    Well, you know what happened next. The Feds ZIRP encouraged an investor feeding frenzy, driving prices in 2013 up about 20%.

    Now i’m getting outbid on every reasonable property i look at by a swarm of investors. Prices are back to 2006 levels yet people are making less money than they did back in 2006, and inventory is half of what it should be and absolute garbage. The housing market is back to madness

    So I am frustrated, but only at bad timing. If I had bought in eight of the last ten years though, I would currently be underwater in a mortgage that I’m over paying on, so while i have “lost money” on rent the last decade, millions of others have “lost their house” or are stuck paying on something they don’t necessarily want because they can’t sell and are underwater.

    Meanwhile I have complete freedom to jump this time when things go back to “normal”.

    Rate this comment: Thumb up 6

  26. 26

    By Erik @ 22:

    RE: Mike @ 21
    I would like Tim to answer the question as well. I can give you my opinion, but I know that is not what you are looking for since I am mostly here for a good time.

    My guess is that housing prices just keep increasing at about 3-5% for the next few years. We will most likely not have another crash in the next 10 years.

    If you subscribe to both those ideas, someone should buy a house now as opposed to later.

    I don’t know what you mean by back to pre bubble because of inventory issues. Please explain.

    Erik,
    i was about to bet the farm on your prediction of a 2016 crash, and now you’re telling me we won’t have a crash for the next ten years? Make up your mind.

    Rate this comment: Thumb up 4

  27. 27
    whatsmyname says:

    RE: Shoeguy @ 24

    Shoeguy, thanks for writing with your story. I believed in you, even if wreckingbull did not.

    To be honest, I don’t know anything about the Portland market, but I have visited a number of times, and it is a lovely city.

    I am a little unclear on the math. If prices are back to 2006, would there be only two years (2007 and 2008) where a purchase would have you underwater? Up here, at least; the other eight years had lower prices than 2006, and that that would put you in the good today.

    Either way, I wouldn’t worry about lost rent. I am more interested in the quality of the experience. Is owning a major goal for you, or is it more take it or leave it – got more to do than decorate and maintain a house? Do you think about it a lot? Have you found good places in the rental market where you are happy to spend your time? Would you be OK doing that for the next 10 years? That kind of thing.

    Rate this comment: Thumb up 0

  28. 28
    Ron P. says:

    Mike, just under spend on a house if you are worried about the overall market. Get something smaller, or on a busy street, or something you can make much better with paint, hammer and nails, trips to Home Depot, and occasional carpenter help on more complex tasks.

    This strategy would not have helped you in Las Vegas in 2007, but in many other markets it will work fine. Obviously not for everyone — you will not have an impressive house for friends, family, and your visiting boss, you have to work on it at night and weekends, but you will get equity, and pride of accomplishment.

    Rate this comment: Thumb up 0

  29. 29
    whatsmyname says:

    Well, I’ve got one post left, and I’d like to do one that is on topic.

    I don’t know how new construction shows in these stats, but I have seen something this year that I have never seen before. In early spring (maybe March) I went by a single builder tract development with about 40-45 lots. Nearly every lot had a sold sign on it, although there were only about 5 or 6 houses under construction. There was a big parcel adjacent that looked to be in early utilities work. I went by again in July. There are maybe 10 finished homes, and probably 25 under construction. The adjacent property is all marked out, but no sold signs. I went into their show home because I was curious. What I learned is that the new “division” will be released this month. (There are no unclaimed lots in the old division). A person who bought a lot in the new division right away could expect a house in March-April – an 8 or 9 month turn that is consistent to a stretch from the current crop of houses.

    Again, I don’t know how these sales are counted. If they are counted at signing, that would represent a fair number of houses coming in with a 3/4 year pending period. A relative increase in this type of sale (which appears to be happening) could explain the widening gap in pending to closed sales. Alternatively, this might have nothing to do with those stats. Can someone with direct knowledge comment on this?

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  30. 30
    Yaj says:

    RE: whatsmyname @ 12 – You keep bringing up this mythical sideline sitter who now is in year 10 of waiting. I think this is a fictional character you use to cheerlead and deliver your too-bad-so-sad-routine. Will someone who is on year 10 of ‘market timing’ please speak up? Anyone?

    I think I came close. Home prices stopped making sense to me in ’02 (incomes and prices clearly out of whack). Shortly found that all other metrics had also started to diverge massively from trend values, figured out that it was loose money driving a speculative mania – even used the famous “You are here…” ARM-reset chart to plan for a home purchase in 2012 (looked like things would have gone critical ~2 years before then). Were basically on track to execute but had a life event drop our income for a few months and had to wait until 2014. Glad we held out until we had adequate cash on hand – much nicer to actually be able to buy the stuff you need to make your house your own without eating top-ramen or going into more debt.

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  31. 31
    Erik says:

    RE: Ira Sacharoff @ 26
    Hahaha. I thought the market was going to spiral out of control because I couldn’t get approved for a loan to buy a house. Now that I am approved to buy again, I think we are going to increase at a slow rate. I sold my home based on your prediction and then a couple weeks later you denied making any prediction at all. I really did make life changes moves based on something you didn’t even mean. I think it has worked out so far, and it was a good decision.

    I do not believe you would listen to me. You are much smarter than that. price increases have really cooled down. If prices kept increasing like they did in 2012/2013, I think we would have had a crash in 2016. Conditions changed and so did my prediction. I think that is fair. I think saying what you think is much better than all the people on here that are too scared to say anything at all because they are scared to be wrong. We tried to get Tim to comment on what would happen in the future, but he didn’t respond. Probably a good move in his case. On this site, we beat people down if they are wrong. We would especially beat down our fearless leader Tim.

    What do you think about buying in Alki, fixing, and holding a couple years. Prices seem low in that area and I want to get in while prices are down. Do you see that area jumping back up in price in the next couple years?

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  32. 32
    Erik says:

    RE: Mike @ 24
    I think that area has to be near a peak. I would be cautious of buying on the eastside. Once these software companies figure out they can get people from India to do the same job for pennies on the dollar, they will outsource the whole thing and the Eastside will crash just like it did after the first Software bubble. Buy South of Seattle.

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  33. 33
    Erik says:

    RE: Mike @ 24
    I think that area has to be near a peak. I would be cautious of buying on the eastside. Once these software companies figure out they can get people from India to do the same job for pennies on the dollar, they will outsource the whole thing and the Eastside will crash just like it did after the first Software bubble. Buy South of Seattle. There are still deals in that area. That area isn’t very nice, but like corndogs said back in 2012, “dumb money reacts last.” That is a mean way of saying the poorer areas are the last to recover. It seems like the poor areas are going to recover last. Buy in Renton if you can stand living there. Renton is probably better than the surrounding areas atleast, so people from the areas around will conglomerate there if they can get off government assistance.

    You are talking about $800k homes, so I don’t think you would lower your standard of living to get a good deal. I wouldn’t either. I buy condos in nice areas so I can hangout with people that buy $800k homes at a fraction of the cost. I have my sights on a fixer in West Seattle. Prices are low there. Don’t worry, if I get it, I will talk about it daily for 2 years until I sell it for double what I paid for it.

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  34. 34
    boater says:

    RE: Erik @ 32

    All those software companies did try outsourcing to India or at least open R&D / Dev offices. India’s engineers have gotten more expensive vs their productivity such that in many cases outsourcing is a wash. The India offices work on isolated stand alone projects just like an other non HQ office.
    The Eastsides greatest competition is Seattle. But the Eastside is much more business friendly than Seattle so I expect you will still see significant investment by tech cos in the Eastside.

    You don’t have kids so I think you underestimate the allure of the Eastside.

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  35. 35
    Erik says:

    RE: boater @ 34
    I love the eastside. I have consistently been the biggest fan of that area on here. You have no arguments from me on how nice it is over there. I bought my condo there in Kirkland in 2011 and sold it 2 years later in 2013. It was a nice place to live. If I had children, I would want to live there. I do understand the allure of the Eastside. I lived in north everett for 6 years man. When I finally got out of there, I moved to Kirkland and I finally saw what living was about. I was happier and my life got better as a result. I realized that living in a dumpy area is not worth it. It sucks the life out of people. I feel sorry for people that don’t understand that.

    I did live in Fremont for a few months. Fremont is really nice in my opinion. I liked Fremont better than the eastside. It seemed pretty safe there to me, but it is expensive to buy there. If I could afford to buy a nice place there, I would.

    I didn’t know that india got so expensive. India could lower their price and these software companies will outsource jobs again, right? I have no crystal ball, but it seems like when things go up quickly, they come crashing back down.

    The eastside is not near the job center, so if the software companies close up shop, Eastside real estate will be dead. Does that not worry anyone else. Eastside is a boom bust area and anyone buying there should proceed with caution. I pulled $130k out of there on my remodel. When I buy again, it will be in Seattle. I would feel much safer having a rental in Seattle near many industries than I would on the Eastside near a bunch of software companies. Too much risk.

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  36. 36
    drshort says:

    By Ron P. @ 28:

    Mike, just under spend on a house if you are worried about the overall market. Get something smaller, or on a busy street, or something you can make much better with paint, hammer and nails, trips to Home Depot, and occasional carpenter help on more complex tasks.

    While there’s nothing wrong with buying a house that needs some cosmetic fix up, buying a house with fundamental issues (like a busy street, too small) is a terrible way to hedge against a drop in housing prices. Those are the houses that get killed when the market softens. They only sell when nothing else is available.

    A better strategy is to leverage time. Buy a house you feel like you will be happy in for 10+ years. That way you can ride out any downturn. If you buy a house you’re going to outgrow in 3 years, then you’re at much greater risk to short term market forces.

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  37. 37
    drshort says:

    By boater @ 34:

    RE: Erik @ 32

    All those software companies did try outsourcing to India or at least open R&D / Dev offices. India’s engineers have gotten more expensive vs their productivity such that in many cases outsourcing is a wash. The India offices work on isolated stand alone projects just like an other non HQ office.

    Completely agree. The outsourcing of IT to foreign countries didn’t turn out to be the great cost savings that would seem to be apparent from the lower wages:

    + You lose a LOT when those doing IT know little of your business, its processes, or other systems.
    + You have to write specs that are so tight you might as well code it yourself.
    + Foreign wages have gone up.
    + Lack of control.

    What it’s good for is that you can get a lot of labor fast and then drop it in a second when a project ends.

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