Another Real Estate Bubble? Price to Rent Ratio Shoots Up

Another Real Estate Bubble? Price to Rent Ratio Shoots Up

With home prices approaching or even exceeding their 2007 peak levels in parts of the Seattle area, there has been renewed talk about whether we’re in another housing bubble or not.

This week I’d like to go back to the same data I used in 2005 and 2006 to definitively recognize the bubble at a time when most people were declaring Seattle to be “different” and saying that home prices would never fall here.

First up, let’s look at home prices compared to rents. For this post I’ll be using Case-Shiller’s Home Price Index for the Seattle area (which rolls together King, Snohomish, and Pierce counties) and Bureau of Labor Statistics data on rent.

Here’s a look at the home price to rent ratio over the last 24 years:

Seattle-Area Home Price to Rent Ratio

After almost touching the long-term pre-bubble average level in early 2012, the price to rent ratio has been climbing steadily (with some expected seasonal dips), reaching its highest point in nearly four years in May.

That said, we’re well below the levels that this measure saw during the housing bubble. During 2005 and 2006—the height of the housing bubble frenzy—the average price-to-rent index was 42.2, about 32 percent higher than its current level.

Here’s another way of looking at the same data by just plotting each index next to each other:

Seattle-Area Home Prices and Rents

As of May, the Seattle area’s Case-Shiller home price index is 9.9 percent above the BLS rent index. This is the largest difference since mid-2010, but during that time home prices were still falling.

When I started Seattle Bubble in August 2005 the home price index was a whopping 41.2 percent above the rent index. The difference peaked at 57.5 percent in September 2006.

Based on the home price to rent comparison, I’d say we’re not quite “in a home price bubble” just yet, but the direction things are going we could quickly get there if things do not cool off soon.

Stay tuned in the coming days for other metrics such as price to income comparisons and the affordability index.

  

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.

46 comments:

  1. 1
    whatsmyname says:

    Another great set of charts to demonstrate 2011-2012 as the time to buy!

    It sure costs a lot more to rent now than in 2004, but if it would help to prevent another bubble, I could raise my rents.

    Rate this comment: Thumb up 1

  2. 2
    The Tim says:

    RE: whatsmyname @ 1 – The numbers in the first chart are not percentages. They are an index.

    Rate this comment: Thumb up 0

  3. 3
    Macro Investor says:

    Your entire definition of “bubble” is skewed by industry marketing. You say it’s not a bubble because the average family income can make the payments, stretching themselves to the limit and based on the lowest borrowing costs in 50 years. This is no different than the auto dealer finding out how much someone can afford, then jacking up the price/rate to extract that maximum.

    What about saving for retirement, a rainy day fund, college for the kiddies, vacations, health insurance or even maintenance on the house? What about if one spouse has a job loss? Not important, I suppose. Just take your entire paycheck — remove a little food money — and give it to a bank and the tax man. No bubble. Sure!

    A few decades ago, ONE EARNER could make the payments on a decent house. Now it takes 2, or you can move to S. King and commute 2+ hours a day. Everything’s fine because your agent told you you’ll get rich on the appreciation. I believe in candy dropping unicorns too.

    The actual amount of income one can allocate to housing needs to take into account all of the items I listed above. That is just common sense. However, the industry won’t like that one bit because it shows houses are WAY WAY over priced.

    Rate this comment: Thumb up 17

  4. 4
    Erik says:

    I wonder if you tax payers will be forced to bail out risk takers again when this next bubble pops? You better try to pick up some extra shifts at work because the way things are going, we are going to need another bailout in a couple years.

    Rate this comment: Thumb up 4

  5. 5
    Erik says:

    RE: Macro Investor @ 3
    Quit complaining and work harder if you want more money. Get a high paying job. Act like a man instead of a whiny baby.

    Rate this comment: Thumb up 6

  6. 6
    redmondjp says:

    My neighbor, who does interior apartment painting at several complexes across the street from Microsoft, says that one complex is now raising rents by 45% once the existing leases expire. This of course causes just a bit of turnover (and more work for my neighbor). Is this simply supply and demand, or unabated greed? Discuss . . .

    Rate this comment: Thumb up 4

  7. 7
    Erik's Step Dad says:

    RE: Erik @ 5
    Go f*ck yourself.

    Rate this comment: Thumb up 24

  8. 8
    enatailurker says:

    Thanks for this post, Tim! I’ve been wondering what the current price/rent ratios are. We bought in February of 2012, and the temporarily sane price/rent ratio was the major factor in our decision to finally buy. Given the rents in our neighborhood, I’d estimate we bought at a price/rent ratio of 16.

    Why are historical price/rent ratios so high here? Tim’s chart shows ratios above 20 all the way back to 1990. Above 20, your cost of ownership is pretty much guaranteed to by higher than the cost of renting. And yet, people paid those prices years before a hint of bubble.

    Rate this comment: Thumb up 1

  9. 9
    Erik says:

    RE: enatailurker @ 8
    Congratulations on buying at the absolute bottom. You and corndogs nailed it. It was about at 27 when you bought and it is at 31.9 now. That is a difference of 4.1. Not that bad considering it was 45.5 at the top of the bubble. The difference between the bottom and the top is about 18.5.

    I just bought last Friday and I plan for housing prices to continue rising for another year. I think that is a safe assumption that this momentum will continue for atleast one more year. It makes sense to buy, hold for a year, then sell before the bubble pops again. Anyway, that’s why I bought again even though prices are a little high.

    Rate this comment: Thumb up 0

  10. 10
    Blurtman says:

    RE: Macro Investor @ 3 – You are being incredibly selfish. Inflated home values and pensions loaded with student loan backed securities are essential for the good life. Someone has to pay, after all.

    Rate this comment: Thumb up 3

  11. 11
    BacktoBasic says:

    Fed is creating another bubble by bond purchase program for the purpose to rescue the economy. Not only housing, but also stock market are over valued. The only porpose is to help underwater house owner refinance or sell their house without bring cash to the table. The real economy isn’t change much better. Home builder knows this, so new housing start is low. That create a shortage of inventory which further push the price up. Current home owners are either can’t afford to move up or sell their house. The rent is move up quite bit, the interest is also up since last year. So the current home owners are stuck with their house even though they have to waste time and gas on the traffic. We are in the stage of weak mid cycle recovery. If any situation happens, such as rate hike, oil price hike etc, the recovery could derail. The nation’s population is aging and in the next couple of decades, we would see more senior use their housing to finance their retirement. Even though the future is hard to predict, the general trend is clear. The bubble could go on for a while until the rate back to normal. Very hard for saver’s to put money in the bank now. But the lesson has been learned from past, any bubble is burst eventualy, until then we will see who is swimming naked.

    Rate this comment: Thumb up 7

  12. 12
    Blurtman says:

    RE: BacktoBasic @ 11 – There is some analysis to show that rising mortgage rates are compatible with rising home prices, when incomes are also rising and keeping pace in an economic recovery. I think housing bulls will argue that may be the case for the well paid Amazon or Microsoft employee, but certainly not for the general labor force.

    Rate this comment: Thumb up 1

  13. 13

    Tim wrote: “This week I’d like to go back to the same data I used in 2005 and 2006 to definitively recognize the bubble at a time when most people were declaring Seattle to be “different” and saying that home prices would never fall here.”

    So if you had pointed out in 2005 and 2006 that the sun sets in the west, and used that to predict that the market would decline, would we be looking again at where the sun sets?

    As I’ve said before, a lot of people predicted prices would drop, but for the wrong reason. Eleua (I’ve totally forgotten how he spelled his name) was about the only one even close to coming up with the right reason for the decline, but it certainly didn’t occur based on Seattle price to rent ratios. It occurred due to a national economic event.

    Rate this comment: Thumb up 7

  14. 14
    enatailurker says:

    RE: Kary L. Krismer @ 13
    Kary, Are you saying that a steep increase in the price-to-rent ratio is not a sign of overvalued housing?

    Rate this comment: Thumb up 1

  15. 15
    Erik says:

    This curve will follow the prediction I made a couple years back for the price curve. Prices will continue to oscillate with smaller and smaller amplitudes until the curve flat lines. I think we could easily go up to 38 or 40 this time. When it hits 35, nudge me so I can sell for a profit to another software person again before this market tanks.

    Rate this comment: Thumb up 0

  16. 16

    By enatailurker @ 14:

    RE: Kary L. Krismer @ 13
    Kary, Are you saying that a steep increase in the price-to-rent ratio is not a sign of overvalued housing?

    It could be a sign of many things, including imbalances in the rental market. It clearly wasn’t a factor that caused the prior decline in price, so I don’t see how it would be predictive.

    Rate this comment: Thumb up 1

  17. 17
    Macro Investor says:

    By Erik's Step Dad @ 7:

    RE: Erik @ 5
    Go f*ck yourself.

    Hey, Step Dad — It’s great to have someone here who knows Erik personally. I’m guessing he’s a 45 year old virgin, who lives in his mom’s basement and never held a job in his life. After a heavy dose of LSD, he hallucinates about masters degrees and jobs at Boeing.

    How close am I?

    Rate this comment: Thumb up 6

  18. 18
    One Eyed Man says:

    RE: Kary L. Krismer @ 16

    The canary doesn’t create the methane in the mine either but that doesn’t mean the canary’s demise has no predictive value as to the existence of an explosive methane bubble.

    Query: If you use three negatives in a sentence but separate one by a conjunction, is it just a double negative? I was hoping for a triple so I could scratch “use triple negative to flaunt disdain for would-be schoolmarms who correct my grammar and spelling” off my bucket list.

    Rate this comment: Thumb up 1

  19. 19

    Hey, You Bubbleheads Sure Write Exciting/Entertaining Blogs

    This beats MAD Magazine….LOL…

    Or should I say Fortune magazine?

    It may be the emphasis isn’t always higher incomes or general lower incomes that won’t qualify in Seattle….or any other coastal American city [like NYC] for that matter. The scarce coastal city real estate causing bidders’ wars is not generally with incomes, its with rich that don’t work [no skin in the game]….making employment somewhat a moot point, unless you’re leveraging with an income.

    So calm down….much of the old money the Baby Boomers hand to the Millenials will make that MSFT or Boeing job look like a joke in Seattle, where price increases seemingly doesn’t matter and having a good job go down the drain probably doesn’t either? LOL

    I’m thinking of becoming a cash bag landlord in Kansas City for my daughter, then after a few years just hand her the keys for a $1 sales price….LOL

    You can’t take it with you…

    Rate this comment: Thumb up 2

  20. 20
    Erik says:

    RE: Macro Investor @ 17
    I am much more proud of my last remodel than I am of that masters degree. That degree took me years. The remodel was only 2 years and I made a lot of money. I worked full time, remodeled that kirkland condo, fought you on this site, and went to school at the same time. It was intense, but I am in a much better situation now. I would get my phd if I thought it was economically feasible, but I don’t think it is.

    Type my name in there if you know it. I know some people know my full name. Please verify and tell Macro Idiot what you find.
    http://sdb.admin.washington.edu/sisDegreeValidation/Public/default.aspx

    On a serious note, I do read your comments and I can tell you that you are not what I would consider a smart person that understands the market. You should stfu and try to learn. Here is what i did. I did not comment on here for about 2 years. I just read and tried to learn. Once I understood the graphs, cs index, etc, I commented. I am still learning. All you do is repeat what you heard on the radio or whatever. Your comments do not have depth. It is obvious to me you do not know what is going on. Please try to understand or stop filling this site with garbage. A lot of this stuff is not simple, but it isn’t so complex that an idiot like yourself cannot get the just of what is going on. People lacking a math background are not able to fully understand what is happening. Maybe that is your situation?

    Rate this comment: Thumb up 1

  21. 21
    wreckingbull says:

    Please let that be comment #5.

    Rate this comment: Thumb up 6

  22. 22
    The Tim says:

    By Kary L. Krismer @ 13:

    As I’ve said before, a lot of people predicted prices would drop, but for the wrong reason. Eleua (I’ve totally forgotten how he spelled his name) was about the only one even close to coming up with the right reason for the decline, but it certainly didn’t occur based on Seattle price to rent ratios. It occurred due to a national economic event.

    There’s a difference between being able to definitively say that we’re in a housing bubble and predicting when said bubble will burst. I’m not saying that prices will drop soon, I’m just looking at whether or not we’re in a bubble yet.

    Rate this comment: Thumb up 1

  23. 23
    whatsmyname says:

    By redmondjp @ 6:

    My neighbor, who does interior apartment painting at several complexes across the street from Microsoft, says that one complex is now raising rents by 45% once the existing leases expire. This of course causes just a bit of turnover (and more work for my neighbor). Is this simply supply and demand, or unabated greed? Discuss . . .

    The answer is “yes”. Why would you think that describing the same mechanism in two different ways would mean that there were two different mechanisms? Or was that your point, you sly dog?

    Rate this comment: Thumb up 1

  24. 24

    By One Eyed Man @ 18:

    RE: Kary L. Krismer @ 16 – The canary doesn’t create the methane in the mine either but that doesn’t mean the canary’s demise has no predictive value as to the existence of an explosive methane bubble.

    There you have clear causation. Other things are just pure “entertainment.”

    http://seattlebubble.com/blog/wp-content/uploads/2008/10/case-shillerhpi_westcoast200808-tn.png

    Rate this comment: Thumb up 0

  25. 25
    One Eyed Man says:

    RE: redmondjp @ 6RE: whatsmyname @ 23

    To rephrase that, is it just a sly dog’s enlightened self interest to raise the rent 45% if the market will bear it? Or when more dogs bend over to fill out tenant applications is it just a capitalist dog’s nature to demonstrate why his nickname is “Top” if the market will bare it.

    And of course from a property management prospective, will Top Dog’s “trusted” Realtor entice prospective tenants by advertising that the amenities include a large closet, off street parking, easy access, and a lease term supply of lube.

    But perhaps more to the point of this blog post as opposed to economic philosophy and tawdry attempts at humor, if fundamental (income based) valuation from a commercial real estate appraisal perspective says that valuation is directly proportional to net operating income at a constant Capitalization Rate (“CAP Rate”), is an increase in valuation based upon the rent increase less likely to be a “bubble?”

    I’ve always maintained that Finra should have required limits on residential loan appraisals based upon partial incorporation of a somewhat quick and dirty income based valuation rather than just a market comp approach. Use of an income base valuation would help avoid bubbles inflated by speculation, easy money and spiraling market comps. For commercial purposes fundamental valuation is commonly based upon an income approach and not upon a market comp (pure mark to market) approach. Rents can have bubbles too so an income approach doesn’t entirely eliminate the potential for home price bubbles. But it likely would have helped limit the bubble of the last financial crisis.

    The only question in my mind would be whether the increased cost to incorporate an income based valuation would be economically worth while as it would require a data base of residential rental values which is not currently as available as commercial rent information.

    Rate this comment: Thumb up 2

  26. 26
    One Eyed Man says:

    RE: Kary L. Krismer @ 24

    While I would agree that renting isn’t a pure substitute for owning a home, it is a substitute product and will at some price be considered a substitute supply of housing. When rentals are viewed as a substitute supply there is causation for rental price to affect ownership price in market theory. When renting (perhaps with some discount or premium) is an acceptable substitute product, supply is effectively increased. If the lower price of the substitute product will essentially increase the supply, the price one will pay to own should drop. In commercial real estate, net rental income is the primary basis for valuation and for the determination of loan value.

    Rate this comment: Thumb up 1

  27. 27
    Peter Witting says:

    RE: Macro Investor @ 17 – I imagine Erik as a pre-teen, simply based on his belligerence, but I appreciate your description, as well.

    Rate this comment: Thumb up 5

  28. 28
    Erik's Step Dad says:

    RE: Macro Investor @ 17

    It’s scary how accurate you are. As you can imagine it’s pretty difficult to get him out of the house when my Cialis kicks in…

    Rate this comment: Thumb up 4

  29. 29
    Marc says:

    You were so close. Here’s the triple:

    By One Eyed Man @ 18:

    The canary doesn’t create the methane in the mine either but that doesn’t mean the canary’s demise “hasn’t any” predictive value as to the existence of an explosive methane bubble.

    Rate this comment: Thumb up 0

  30. 30
    Dirty Renter in Banjo Country says:

    Now that’s entertainment.

    Rate this comment: Thumb up 2

  31. 31
    BacktoBasic says:

    Owning a house in Seattle costs more than average. The wet weather is the main reason. The house is mostly wood structure. If you ever visit any of the pacific northwest park you will sense the similar smell rotting lumber. A house is a living organic. It is decaying day by day unde cover of paint. 80% of the houses I visited has a rotting wood smell in the area. Any estimate to replace a piece of siding and wood deck? If you rent, then that’s the problem to landlord. If you happens own one wood box, then you have to budget to replace these.

    Rate this comment: Thumb up 1

  32. 32
    whatsmyname says:

    By Macro Investor @ 3:

    …. The actual amount of income one can allocate to housing needs to take into account all of the items I listed above. That is just common sense. However, the industry won’t like that one bit because it shows houses are WAY WAY over priced.

    The first statement is correct, but there is no evidence that the last statement follows from the first. It only evidences that you are apparently looking at houses that are WAY WAY over your budget. Why are you blaming anyone else for that?

    Rate this comment: Thumb up 1

  33. 33
    BacktoBasic says:

    By Macro Investor @ 3:

    Your entire definition of “bubble” is skewed by industry marketing. You say it’s not a bubble because the average family income can make the payments, stretching themselves to the limit and based on the lowest borrowing costs in 50 years. This is no different than the auto dealer finding out how much someone can afford, then jacking up the price/rate to extract that maximum.

    What about saving for retirement, a rainy day fund, college for the kiddies, vacations, health insurance or even maintenance on the house? What about if one spouse has a job loss? Not important, I suppose. Just take your entire paycheck — remove a little food money — and give it to a bank and the tax man. No bubble. Sure!

    A few decades ago, ONE EARNER could make the payments on a decent house. Now it takes 2, or you can move to S. King and commute 2+ hours a day. Everything’s fine because your agent told you you’ll get rich on the appreciation. I believe in candy dropping unicorns too.

    The actual amount of income one can allocate to housing needs to take into account all of the items I listed above. That is just common sense. However, the industry won’t like that one bit because it shows houses are WAY WAY over priced.

    It is true that American buy house based on affordability or income they received. House price is a unique asset unlike other things. How can you say this lost cost such and such price? I estimate the cost to build a house material and labor. And there is also a supply and demand issue. At current environment, both rental and housing inventory are very tight due to the last recession. We are seeing both rent and sale price increase until the builders are comfortable to build more to increase the supply. Currently, I don’t see this happen. The only thing I observe is that rate is artifically pushed very low and the current owners ask more for their rotten woodbox. There is only 2 months supply on the market remember.

    Rate this comment: Thumb up 0

  34. 34
    One Eyed Man says:

    RE: BacktoBasic @ 33

    I think part of the problem is also something The Tim occasionally used to talk about a little. That’s inflated entry buyer expectations. Today’s entry buyers seem to be spoiled by entry market builders selling expensive luxury bubble S-Boxes with granite, stainless and travertine when all most entry buyers can afford from a job with a liberal arts degree is a six pack of Schmidts with pictures of fish on the cans. Entry level builders don’t build inexpensively any more with formica and builder’s white appliances perhaps because spoiled red wine and micro brew drinkers can’t afford the travertine but are only willing to rent the Schmidts and the house with the builder’s white.

    Rate this comment: Thumb up 2

  35. 35
    ongsomwang says:

    So when do people see this current bubble bursting? When is the best time to sell a home right now? I am talking mid tier between 330K and 380K.

    I currently own a piece of property in SE King County that I am looking to put on the market in the Spring of 2015. (I need a good agent).

    One thing I have noticed, is that prices in SE King County have been quite a bit slower to rise compared to you lucky owners who live along the I-90 corridor. I don’t put much stake in Zillow, but this is the first year since the collpase that my home has been showing significant gains in price.

    Comments appreciated!

    Rate this comment: Thumb up 0

  36. 36

    RE: BacktoBasic @ 33

    “I estimate the cost to build a house material and labor.”

    You are forgetting the cost of the land to build that house on and the profit for the builder above “cost”. The rule of thumb is 3 X lot value for a new home. Over time the land value is supposed to appreciate while the house value depreciates.

    An updated over time and well maintained home should rest at 2 X lot value. If the home is left to deteriorate greatly, or becomes functionally obsolete due to the manner in which people use homes over time, the value will change to lot value + 0 to ??? So to say your “home price appreciated” is really a misnomer. Land appreciates…houses can become “more improved” or simply depreciate down to zero value.

    “…current owners ask more for their rotten woodbox.”

    The value and price of a truly “rotten woodbox” is the value of the lot plus salvage value of maybe the foundation or less the cost to demo. That value and price is set by the builders based on the original “3 x lot” equation. If a new house on that lot can be sold by a builder for $900,000, then the lot is worth $300,000 and the “rotten woodbox” can’t sell for less than $300,000.

    If you look at all of the new houses sold in the immediate area, say Green Lake or Kirkland vs major subdivisions out in the sticks, take 1/3rd the price the new homes sold for to ascertain the minimum price of a rot-box.

    If the price an owner occupant buyer will pay for the rot-box is not more than the price a builder will pay to tear it down, then the seller opts for the builder. No inspections…no after sale problems…that is why it costs more to buy a rot box to live in the rot box than it costs a builder to tear it down. $50,000 more is the rule of thumb if it is a true “rot-box”.

    Hope that helps.

    Rate this comment: Thumb up 2

  37. 37
    BacktoBasic says:

    By Ardell DellaLoggia @ 36:

    RE: BacktoBasic @ 33

    “I estimate the cost to build a house material and labor.”

    You are forgetting the cost of the land to build that house on and the profit for the builder above “cost”. The rule of thumb is 3 X lot value for a new home. Over time the land value is supposed to appreciate while the house value depreciates.

    An updated over time and well maintained home should rest at 2 X lot value. If the home is left to deteriorate greatly, or becomes functionally obsolete due to the manner in which people use homes over time, the value will change to lot value + 0 to ??? So to say your “home price appreciated” is really a misnomer. Land appreciates…houses can become “more improved” or simply depreciate down to zero value.

    “…current owners ask more for their rotten woodbox.”

    The value and price of a truly “rotten woodbox” is the value of the lot plus salvage value of maybe the foundation or less the cost to demo. That value and price is set by the builders based on the original “3 x lot” equation. If a new house on that lot can be sold by a builder for $900,000, then the lot is worth $300,000 and the “rotten woodbox” can’t sell for less than $300,000.

    If you look at all of the new houses sold in the immediate area, say Green Lake or Kirkland vs major subdivisions out in the sticks, take 1/3rd the price the new homes sold for to ascertain the minimum price of a rot-box.

    If the price an owner occupant buyer will pay for the rot-box is not more than the price a builder will pay to tear it down, then the seller opts for the builder. No inspections…no after sale problems…that is why it costs more to buy a rot box to live in the rot box than it costs a builder to tear it down. $50,000 more is the rule of thumb if it is a true “rot-box”.

    Hope that helps.

    Does it mean it is better to buy a newly construction than a rot-box? I look some of the houses on the maket in a good neighborhood. Don’t want to spend my hard earned money on a money pit. Beaside, there are so many house build before 70s are out building standard on an uneven ground (which might have water issues). Really don’t like the split level house here. May cause fall hazard when getting old.

    Rate this comment: Thumb up 0

  38. 38
    BacktoBasic says:

    By ongsomwang @ 35:

    So when do people see this current bubble bursting? When is the best time to sell a home right now? I am talking mid tier between 330K and 380K.

    I currently own a piece of property in SE King County that I am looking to put on the market in the Spring of 2015. (I need a good agent).

    One thing I have noticed, is that prices in SE King County have been quite a bit slower to rise compared to you lucky owners who live along the I-90 corridor. I don’t put much stake in Zillow, but this is the first year since the collpase that my home has been showing significant gains in price.

    Comments appreciated!

    Can you maintain positive flow if you rent your house out? Or future gain potential make still make it a solid investment even of the cash flow is negative. What’s is the risk level you would take?

    Rate this comment: Thumb up 1

  39. 39

    RE: BacktoBasic @ 37

    It means a new house, with the same lot size roughly, will cost about 3 times more than a “rot box” in the same basic location. Most people don’t have that option due to the cost factor. Just trying to help you understand the reason a “rot box” appears to cost a lot of money…it’s the value of the land it sits on.

    If the “rot box” is sitting on a piece of land that will hold 4 townhomes, as example, then the “rot box” will cost 1/3rd the price that ALL FOUR new townhomes would sell for. This is real estate. If you want to understand what you are doing and want to do it wisely…you have to grasp the basics.

    As to what you should do…it depends where you want to live. Different areas will afford different options. As to old houses and water issues from the lot and new houses with water issues from the lot…as a wise inspector once said…look for what was on that lot before the new house was there. If no one in the history of the Pacific Northwest ever chose to build a new house there until now…you have to ask yourself why not. Just because it is new does not mean it won’t have water issues. Why was that land still available for building homes? Sometimes there is a good answer…but you need to take that into consideration.

    Rate this comment: Thumb up 1

  40. 40
    Shoeguy says:

    2006 wasn’t the start of the Housing Bubble, it was the end. We were in a bubble in 2005, 2004, 2003….

    Don’t measure the start of the next bubble using the end of the first.

    Rate this comment: Thumb up 0

  41. 41
    redmondjp says:

    By BacktoBasic @ 37:

    Does it mean it is better to buy a newly construction than a rot-box? I look some of the houses on the maket in a good neighborhood. Don’t want to spend my hard earned money on a money pit. Beaside, there are so many house build before 70s are out building standard on an uneven ground (which might have water issues). Really don’t like the split level house here. May cause fall hazard when getting old.

    I bought a 1977-built rotbox. It still needs a lot of work. It has stained cedar siding that I haven’t done a thing to in 15 years. I have several good friends, all of whom bought new within the past ten years. Almost all of them have had to repaint once (if not 2X 3X on the trim), and one is going through a siding redo because idiot contractor didn’t use Z-flashing on horizontal joints, causing water intrusion into second-story walls. They also have had piping problems (broken PVC), electrical issues (builder-added-last-minute sump pump sharing dishwasher circuit, blowing breaker whenever both were on) and HVAC issues (builders use the absolutely lowest-grade furnaces that they can buy).

    I’d probably lean towards buying new if I had to do it over again, if for nothing else than the fact that most new houses have much better foundation drainage systems than mine (which has downspout drains routed into crawlspace, ON PURPOSE (they must have been smoking some really good stuff back in the 1970s for this to ever have seemed like a good idea). But buying new is certainly no guarantee that you won’t have problems with your house/property. I bought the crummiest house in a very nice area, so it was affordable to me (3X gross income), whereas a new house in the same area wouldn’t have been affordable.

    Personally, I’d much rather live in a dumpy house in a nice area, than vice-versa. The value, as Ardell has pointed out, is in the land/location. I like being able to walk around in my neighborhood feeling safe and enjoy the beauty of it all. And I had absolutely no idea when I bought my house, as a single adult, how big of a plus it was going to be in my future to be located a block away from one of Redmond’s nicest parks that I now take my kids to once or twice a week.

    Figure out what your housing priorities are first, so you know what you can compromise on and what you cannot (e.g. for me, a full 2-car garage was a must). Then do your due diligence, trying your best to keep emotions in check. Find a good inspector, and learn which problems are affordable to correct and which ones you want to run away from fast. Have your good inspector check out a brand-new house first as well!

    my $.02, FWIW, YMMW

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  42. 42
    ChrisM says:

    RE: BacktoBasic @ 31 – “The house is mostly wood structure”

    But why?? 10+ years ago I watched pre-formed concrete slabs get craned into position in Seattle. Why aren’t we doing that by default today?

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  43. 43
    ChrisM says:

    RE: redmondjp @ 41 – Wow, one of the best posts I’ve seen in a long time…

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  44. 44

    RE: redmondjp @ 41 – The worst foundation drainage issue I’ve seen by far was a fairly new house, built by a contractor for himself, so presumably he didn’t take shortcuts.

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  45. 45
    One Eyed Man says:

    RE: Kary L. Krismer @ 44

    Was he a contractor who knew construction or was he one of those guys who has a contractors license but has no clue as to whether the subs and other professionals he hires are doing it right? Even the guys who know construction can get fooled, miss something or be wrong. But some contractors don’t really know construction. They just market the business and rely completely on their subs and other professionals to do the job with little or no quality supervision other than permit inspections and cosmetic items. As contractors those guys are only better than you and I if they have a consistently used network of quality subcontractors they can trust to fill in for their lack of expertise.

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  46. 46
    NewsView says:

    Housing bubble, perhaps not. Rental bubble? Already well underway.

    There is a new financial instrument on Wall Street called the rental-backed security. It was hatched to satisfy the market that arose out of the housing crisis, in which investment groups began to snatch up floreclosed properties in major markets throughout the U.S. — with intent to convert them to rentals. The housing recovery, subsequently, has been driven more by investors than in years past. The upshot? Rental markets are now subject to price trends driven less by local landlords and more by return-seeking investors.

    The New York Times reported earlier this year that 90 housing markets in the United States have seen rising rents, and a Zillow report out earlier this year indicates that rents are at 30-year highs. In some markets, it is cheaper to own than rent, and yet today’s home buyers are less likely to qualify for a home loan — and if they do, outbidding cash-flush speculators is another thing entirely. Add to this the fact that many people who lost their homes during the Great Recession remain in the rental markets, and vacancy rates are at all-time lows in many cities. In spite of the increased demand, supply of new rental housing is often geared toward the luxury market. In some parts of the country, ironically, luxury rentals are so abundant that rates have fallen — even as the rental rates for more affordable housing, as reported by The Financialist, have gone “sky high”. Taken together, these trends add up to a looming rental bubble.

    Among the troubling questions: What will happen when dispossessed renters in Los Angeles, Seattle, San Francisco, Miami and elsewhere have nowhere else to go? Moving away from an overpriced market takes a job offer elsewhere, and yet there’s no guarantee that such an opportunity will come soon enough even for those who are actively trying to reign in their housing costs via relocation.

    Exiting the housing market for the rental market is one thing, but exiting the inflated rental market is not an option for most Americans. In my view, we’re headed toward a perfect storm: Large-scale investors have more power than ever to influence housing trends, whereas the supply of new rental housing consists primarily of luxury units in many major cities. And yet we’re hearing very, very little about the “rent bubble” from the mainstream media. Could it potentially spell as much trouble as the housing bubble that preceded it? I think that will depend, in part, on whether mortgage lending standards are loosened. With more people given the option to buy, the rental markets may cool off. However, an influx of lesser-qualified borrowers into the housing market could also set the stage for another housing bubble. The wild card in either scenario, I suspect, is the degree to which Wall Street investors push speculation — be it ownership or rentership. Unfortunately, the financial crisis did little to inspire limits on the securitization of housing. And so it’s my bet we’ll see the cycle repeat.

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