Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

23 responses to “NWMLS: Inventory Inches Up as Home Prices Near Peak”

  1. The Desponder

    Prescient words from The Tim:
    ‘How do you know when the real estate market might be facing a bubble? Wait for agents to say “there are no signs of a bubble.” I’d say that over two years of home price appreciation in excess of five percent is definitely cause for some concern on that front.’

    Another way to know is when panic over future events is used to push people into the market, such as this piece from bloomberg.
    http://www.bloomberg.com/news/2014-08-06/house-punting-the-cost-of-waiting-to-buy-in-hot-markets.html?cmpid=yhoo

    Surely interest rates will eventually rise, and, yes, that will impact affordability in the near term. However, that impact can be more than made up by potential declines in housing prices. Prices might not decline in the future in and of their own, but panic-based rationales for home purchases (i.e. over the future potentiality of interest rate changes/you’ll be priced out forever) suggests to me that we are near some sort of bubble territory which would then make housing price declines/stagnation more likely.

    Rate this comment: Thumb up 2

  2. Kary L. Krismer

    Tim wrote: “Sales moved up from June, but not by quite as much as they did last year (+7.7 percent vs. +9.3 percent). However, the increase was still enough to keep sales just barely above last year’s levels.”

    Wow, the highest sales volume since June, 2006, and that’s all you can say?

    The median is still $13,000 off the peak, but the mean is still over $30,000 less than the peak. What’s odd is the median pendings are not telegraphing these increases. They peaked at only $439,000 recently.

    As to the bubble comment, I wouldn’t put the number at 5%, but those double digit increases earlier were concerning.

    Numbers from NWMLS sources, but not guaranteed.

    Rate this comment: Thumb up 2

  3. BacktoBasic

    Low interest baby. American buy house base on monthly payment. As long as you have a job and can afford your mortgage. The thing is, if the rate back to normal 6~7%) and job change force you to move, then less people will afford peak price anymore. If another recession hits, there will be another crash. The US economy is still in slow recover (the so called mid cycle). Many profits we generated are from sells are to overseas.Wait Chinese economy hit recession and stock market tanks again. Good time to sell at the peak.

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  4. The Kraken

    RE: The Desponder @ 1

    That bloomberg article hurt me when I read it. Though, it shouldn’t be surprising. More often than not I seem to remember feeling like their writing is drivel after reading one their articles. I wish FT subscriptions were a lot cheaper.

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  5. Erik

    Wow, Tim is calling a peak, which means housing prices will have to decrease to make a peak. Put this on your calendar. Tim, I dare you to show a projected home price curve. I remember when you showed inventory skyrocketing into the stratosphere. Boy was that ever wrong. Inventory has followed almost the same path this year as it did last year. I don’t foresee prices declining for about 2 years. You heard it first here folks. Prices will continue to increase in the area until August 2016. The rate of increase will be less for sure, but prices will be up year over year for 2 more years. If I am right again, I want to be allotted 6 comments per post instead of the 5 standard comments per post. You don’t need to admit defeat, but just go into your code and crank me up to 6 comments per post please. I have a lot to say.

    Rate this comment: Thumb up 3

  6. whatsmyname

    The median price and number of sales were both bigger than I expected, but then I read the attached newspaper summaries: Seattle proper has now exceeded its old 2007 median price peak (and by a lot) – With $543,500. But without liar loans, or option arms, or growing percentages of home ownership, or even people saying, “house prices always go up”, (except sarcastically). Ouch.

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  7. Ira Sacharoff

    In February 2012, the median home price was around 310,000. In July of 2014, the median home price was 468,000. So in 29 months, the median home price has appreciated about 50%, and actual selling prices in the more sought after areas like Greenlake or Queen Anne or Sammamish or Kirkland are at or above the peak prices of 2007.
    it seemed obvious to some of us in ’07 that home prices were unsustainable, that a pin was going to burst that bloated balloon. Still, lots of people were saying that Seattle was different, that we have Microsoft, Amazon, Boeing, Amgen, etc.
    Now Microsoft is laying off, and Amgen’s leaving Seattle. There aren’t any indications that the local economy is going to crash anytime soon. But if over the long haul real estate generally tracks the inflation rate, inflation’s about 3% a year, and home prices have gone up 50% in a little over two years? What do you think’s going to happen?

    Rate this comment: Thumb up 4

  8. whatsmyname

    RE: Ira Sacharoff @ 7
    So long as we’re cherry picking our dates, median price in May 2007 was $469,000.
    Tracking at 3% increases annually, we would be over $577,000 today: County, not City.
    Perhaps we have some room to go.

    Rate this comment: Thumb up 1

  9. Erik

    RE: Ira Sacharoff @ 7
    Microsoft is mostly laying off people in Europe. I read something like 18.5k jobs were over sees adn 1.5k were in the seattle area. I imagine that jobs will increase at Microsoft. I don’t know a lot about these software outfits, but they don’t seem to be leaving. Boeing will leave, I do know that.

    Here is how I would estimate where housing prices should be if you assume a 3% increase:
    Assume the insanity began in 2003.
    2014-2003=11 years
    Price of houses in seattle in 2003 on this month was $300k.

    Use the old fashioned simple interest formula…
    P(1+i)^n=$300k(1+.03)^11=$300k(1.03)^11=$300k*1.3842338707= $415k

    Our current median is $468k.
    $468k-$415k=$53k
    We are $53k higher than we should be assuming 3% increase.
    $53k/11years = 4.82

    The crazy bubble was 2003 to 2007, which was 4 years.

    Use the old fashioned simple interest formula…
    P(1+i)^n=$300k(1+.03)^4=$300k(1.03)^4=$300k*1.126= $337.8k

    The median in July 2007 was about $480k
    $480k-$337.8k=$142.2k
    We were $142.2k higher than we should be assuming 3% increase.
    $142.2k/4years = 35.55

    35.55 was the rate of change from 2003 to 2007. The rate of change from 2003 to 2014 was 4.82. That is over 7 times as steep as an increase than we are seeing today! Of course we bounced off the bottom. That’s what happens after sharp decreases in prices like we saw from 2008-2012. I do not think the bounce off the bottom should be taken as a huge upswing in prices and a crash will happen.

    Let me reiterate:
    2003-2007 rate of change is 35.55
    2003-2014 rate of change is 4.82

    We are not out of control.

    Rate this comment: Thumb up 3

  10. Blurtman

    RE: Ira Sacharoff @ 7RE: whatsmyname @ 8 – I think you have to ask when the ninja, no doc and speculators’ home purchases inflated the median home price by creating false and unsustainable demand. By May 2007 that would certainly have been the case, and so the median home price in May 2007 is likely a specious indicator. Expectations of a stable or rising market likely provides encouragement to potential buyers. If home prices are the result of unsustainable demand, then buyers become bag holders, as we have recently seen with the case of underwater owners. Some believe that artificially low interest rates have inflated asset prices, and that this is unsustainable. But it is hard to make predictions, especially about the future.

    Rate this comment: Thumb up 2

  11. Kary L. Krismer

    By Ira Sacharoff @ 7:

    In February 2012, the median home price was around 310,000. In July of 2014, the median home price was 468,000. So in 29 months, the median home price has appreciated about 50%,

    The non-distressed median had been within $400,000, plus or minus about $20,000 since the end of 2010. For example, in February 2012 it was about $385,000. February 2014, about $450,000.

    The difference is because in February 2012 almost 39% of sales were distressed sales. In February 2014 only just over 18% were distressed.

    If you look at the non-distressed median, we are now over the peak, and that’s a fair comparison since very few homes were distressed in July, 2007.

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

    Rate this comment: Thumb up 1

  12. Eastsider

    Calling a peak or a bottom is a fool’s errand. That said, based on your affordability index, we are nowhere near the peak. Am I missing something?

    Rate this comment: Thumb up 0

  13. BacktoBasic

    If you own a house, it donen’t really matter the daily or monthly price change. If your plan to buy or sell, it matters. In the long run, housing price follows the affordability which consists of income, interest rate. Do we anticipate wage increase? yes we do expect a min wage increase to $15. That will translate to increase inflation and cost to most of the home buyer. Rate increase, sure we do. Do we anticipate a big hiring boom in Seattle? We don’t. Microsoft is cutting work force, Amazon is not making profit, Amgen is leaving for California, Boeing is shift to southern states. I can’t say it is the peak, but the general feeling is that the bubble will pop up again in the foreseeable future.

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  14. BacktoBasic

    All tie to interest now. We are eating future gain now. Fed and current administration don’t care about future gain. They are doing as much as possible to pull the economy out of the muddy recession. The bond purchased now will be sold at lost in the future. Who will bear the lost?

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  15. Blurtman

    RE: BacktoBasic @ 15 – If you hold to maturity there is no loss but for inflation related losses. And if yields rise, and you buy the newer higher yielding bonds, your periodic returns are higher. Kind of like dollar cost averaging if you are an investor in bonds. But someone must pay the higher yields, and so it is within the Fed’s interest for war to be encouraged, and the resulting flight to safety and lower Treasury yields the result.

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  16. BacktoBasic

    RE: Blurtman @ 16
    Hold 2% interest bond 10 years till maturity and pay your marginal tax at the end when inflation runs at 4~5% in real term. No thanks.

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  17. Blurtman

    RE: BacktoBasic @ 17 – It’s not for everyone, surely. But some folks apparently are keeping money in negative interest rate accounts. I have pointed out that by manipulating the risk free rate, the Fed is cheating investors in Treasuries by forcing those seeking safety to receive artificially low yields. And of course when the spring can no longer remain compressed….. But if you look at 10 year yields, in spite of an expectation of rising rates, they are dipping, due to fears of war, and a flight to safety. Go figure.

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  18. BacktoBasic

    Maybe the rate will stay lower forever. Just set rate lower and use new bond to pay the old bond. Like Madoff scheme, the last person hold the bond will pay for the loss. Let’s see.

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  19. Deerhawke

    I tended to be an optimist and have thought a lot of the talk about another bubble was hype.

    On the other hand, watching Seattle median prices jump nearly 10% or $44,500 ($499K to $543.5K) in one 31-day period makes me pause to reassess.

    If this is the sustainable new-normal, then buying and selling real estate in Seattle is like being a day trader.

    Rate this comment: Thumb up 1

  20. Erik

    RE: The Tim @ 14
    Thanks for clearing that up. To me a peak means there will be a decline. You just mean that we are in an area that could be overvalued since we bounced off the bottom so quickly. I compared the rate of increase from 2003 to 2007 and 2003 to 2014 above. I showed that the rate of change is much much smaller now than it was during the bubble. What is happening now is a trait of recovery where we have a quick run up. This is part of the recovery process. Prices should begin to level off at some point, but I foresee no risk of bubble trouble. I was tired when I did that quick calculation above, but you see my logic, right? We are not at crazy price increases when you take out the bubble.

    Just had a good idea for a post… You could simply draw a straight line from prebubble to now and look at the slope. Then compare that slope to a time periods you would consider normal. That would show us how close we are to normal times without the bubble.

    The reason it seemed like a prediction was because you drew the line and said “if.” That isn’t the whole story Tim. After you drew a hypothetical line, you plotted actual inventory rises until the rises stopped following your line. When you draw a line and plot actual results next to it, that sure seems like a prediction to me. That’s what engineers like yourself are suuposed to do. You make a theoretical guess, plot actual values against it and see how close you were. That is what you did, and I call that a prediction. Just because your prediction or theoretical values didn’t match the results doesn’t change that it wasn’t a prediction. We all know you are smart. Smart people are wrong all the time.

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  21. Erik

    RE: Erik @ 21
    Okay, I will stop cranking you about the inventory hypothetical line. In mechanical engineering, a hypothetical line is a prediction. Maybe it is different in software. Johness agreed with you and he is a software guy. Corndogs agreed with me and he is a mechanical guy. Let’s just say it is a difference of what we have learned in school and just be peaceful. :)

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  22. whatsmyname

    By Blurtman @ 10:

    I think you have to ask when the ninja, no doc and speculators’ home purchases inflated the median home price by creating false and unsustainable demand. By May 2007 that would certainly have been the case, and so the median home price in May 2007 is likely a specious indicator.

    I agree; quite like the absolute trough month in a financial panic would be a specious indicator. The point of the post was what happens when you cherry-pick the numbers.

    Interestingly, those creators of false demand mentioned above are currently absent, or at least very minimal. You seem very concerned about artificially low rates affecting asset prices, and their sustainability. But what about the artificially high rates the Fed has more than frequently used to fight inflation and overheating during these past three decades? Have they held asset prices back? Are we just equalizing? Are poor victim treasury buyers maybe getting back a little of what they’ve been giving?

    Rate this comment: Thumb up 2

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