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.

27 responses to “Another Bubble? Affordability Only Sustained By Low Rates”

  1. Erik

    Good post Tim. Affordability is my favorite indicator of whether prices are high or not. Robert shiller said somewhere that when interest rates are super low, a bump in interest rates will not decrease housing prices. I don’t know how low he meant, but I would think under 5% is super low. I don’t foresee increased interest rates decreasing housing prices until we get over 5%. I also don’t think rates will raise by over .75% anytime soon.

    Since interest rates and jobs are the 2 things that could stop this bubble, I don’t see it stopping. Put on your party hat Tim and enjoy another wild ride. I know I will.

    Rate this comment: Thumb up 0

  2. Kyle

    I’m with Erik (anyone ever posted that before?) If I could only pick one of the many charts you put out this would be it.

    I know the 30% is a rule of thumb but I wonder if it will hold in the future. My thinking is that, historically, the mortgage payment accounted for the vast majority of a households monthly debt service. Assuming a household can dedicate a fixed % to debt payments, call it 35%. With cost of education going up, I’m thinking student loan payments are becoming a material part of the 35% and would drive down the % one could allocate to a house payment.

    im 35 and my wife and I pay roughly $2k (combined) in student loans a month. We’re definitely at the upper end of our peer group, but not an aberration. I wonder what this chart would look like if you plotted total debt service / median monthly home payment.

    Rate this comment: Thumb up 2

  3. pfft

    Rates after the financial crises even at zero were actually high according to models. rates should have been well into the negative territory.

    rates are low because people weren’t taking on debt, instead they paid it down and saved the rest leading to an oversupply of savings.

    more savings and less loans=low interest rates.

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  4. pfft

    I forgot to at that low rates during a financial crises is normal. Europe twice tried to raise rates in 2008 and 2011 and quickly had to backtrack.

    Rate this comment: Thumb up 0

  5. whatsmyname

    Even ignoring the much ignored fact that the median income household is not the buyer for the median priced SFR, this is great news. Under the affordability meme, having two super-affordable markets within easy commuting distance should make this market easily sustainable for some time to come.

    Rate this comment: Thumb up 0

  6. Eastsider

    Tim,

    It would be good to include household size data. I suspect household size has been declining even as sq footage has stayed the same or even increased in the period shown.

    Rate this comment: Thumb up 0

  7. Erik

    RE: Kyle @ 2
    All these software people can tell you how to make theoretical money. Oh boy, they can even tell you about theoretical remodeling blah blah blah. You should listen to nothing these fools say. I was more than $100k underwater on my house a little over 2 years ago. I am now about $130k positive from housing. All i did was read Tim’s data, block out what the software people said, and listened to the smart people on here. Ardell knows a lot, you should listen to what she says. Ray Pepper and corndogs where the 2 people that seemed to have the best understanding of what was going to happen in real estate and how to make money in real estate. Unfortunately they have moved on. They pretty much had no emotional connection to housing. They rented houses out and sold them as they felt necessary.

    The point is that most people don’t agree with me on here, but most people on here have no idea what they are talking about. I use to try to sort through their comments and figure out what they were talking about. What a waste of time that was. It turned out they were just diet coke drinking computer nerds with nothing better to do. They really have no interest in real estate, they just like to chat online and count magic cards.

    If you are thinking about buying, you should do it soon. I would be very surprised if this bubble doesn’t stay inflated for atleast a year. After that it will probably flat line. This winter, rates may go up a 1/2-3/4% and nothing will change. Buying outside of the prime areas in seattle and the eastside seems like a good idea to me. The software people have inflated prices in those areas. West Seattle looks pretty cheap still for some reason. It seems like the only decent place that is still cheap, so I bought there. South of that is cheap of course. Everett is still a bargain if you are willing to live with drug addicts and criminals.

    Rate this comment: Thumb up 1

  8. softwarengineer

    RE: Erik @ 7
    Everett is Criminal Free Now

    They legalized pot.

    Rate this comment: Thumb up 1

  9. wreckingbull

    RE: Erik @ 7 – Bulls make money, bears make money, pigs get slaughtered.

    Rate this comment: Thumb up 1

  10. Kary L. Krismer

    As I mentioned in the prior thread, the non-distressed median has not been nearly as volatile as what the data Tim posts would suggest, which is based on either the median of all properties or Case-Shiller which has similar mix problems. A large part of the movement in these graphs after 2007 is simply the reflection of more distressed properties and then less distressed properties.

    But maybe that means the data actually understates the level of affordability that we got to a couple of years ago! If you’re looking at something affordable, bank owned and short sales were the way to go, and there was a lot of opportunity. Now there are still some distressed properties, but not as many and what there is doesn’t tend to be priced at such a discount. That change is probably greater than the change in the overall median or Case-Shiller.

    Rate this comment: Thumb up 1

  11. Shoeguy

    Which will happen first?:

    1)Interest rates will hit 6%

    2)Incomes will catch up to the point where current (or slightly higher) prices can be sustained at a 6% (or slightly higher) interest rate?

    Rate this comment: Thumb up 0

  12. Erik

    RE: softwarengineer @ 8
    E-rot has a meth, and pain killer problem. I have friends I still talk to from there. They start out on pain killers and move on to street drug cause they are cheaper. My best friend from Everett just got out of rehab. There is a good chance he will relapse. I tell him he needs to get the f out of Everett and surround himself with healthy people.

    Wreckingbull, I went from broke to having fat stacks of cash in 2 years by reading and understanding Tim’s data. There is a huge influx of nasty software people on here that throw tomatoes at me everyday. I want poor Kyle to look at who has results and who doesn’t. You and your goons have accomplished nothing grand I have heard about regarding real estate. I have.

    Rate this comment: Thumb up 2

  13. Teacher Greg

    I am a longtime lurker, sometimes poster on this blog. The Tim should get a cut from the money I made following the advice and data presented here. Sold a condo in 2006, rented until 2010 and bought a house in 2010. It added a decade or more of savings to my life and means smooth sailing (hopefully) for the decades ahead. Of course if I had not sold in 2006 I’d have been okay too, but with a lot less square footage and a few 100k less in net worth.

    Rate this comment: Thumb up 2

  14. wreckingbull

    By Erik @ 12:

    RE: softwarengineer @ 8

    Wreckingbull, I went from broke to having fat stacks of cash in 2 years by reading and understanding Tim’s data. There is a huge influx of nasty software people on here that throw tomatoes at me everyday. I want poor Kyle to look at who has results and who doesn’t. You and your goons have accomplished nothing grand I have heard about regarding real estate. I have.

    Easy there, little man. Have you considered that most of us don’t use Seattle Bubble as a daily diary? Your lust for attention is rather odd, but not unlike the kid who ate paste in Kindergarten. Any attention is good attention, no?

    Rate this comment: Thumb up 8

  15. whatsmyname

    RE: Shoeguy @ 11 – What are your inflation assumptions?

    RE: Teacher Greg @ 13 – If you think Tim was advising you to buy in 2010, I’m afraid you get an “F” in reading comprehension. Congratulations, nevertheless, and feel free to give Tim whatever you think you owe.

    Rate this comment: Thumb up 2

  16. Erik

    RE: Teacher Greg @ 13
    I like to hear these kinds of stories. Tim has helped bring us to reality so we can figure out better when and where to buy. We will square up after my next remodel. One successful remodel is luck and 2 is skill. This site helps me make better decisions.

    Wreckingbull, commenting keeps me engaged and thinking about real estate. This is my only source for that. You and the other people that bash me seem to only know theoretical knowledge. Seems like a funny coincidence. I tried for years to get you to add value. I finally concluded you are unable to add value because you don’t have practical real estate knowledge. That is fine. I am sure you made a ton of money writing code for cash.

    Rate this comment: Thumb up 1

  17. Mike

    I have a hard time believing we could be heading into another bubble with residential investment lagging so far behind the long term average. Aside from the pricing pressure, there doesn’t seem to be any indication that a disproportionate or unsustainable share of economic activity is being directed into the housing sector, or that buyers are using unusual amounts of leverage to “invest” in housing.

    The price changes are certainly at an unusual level, but the other (IMHO more important) red flags aren’t popping up yet.

    Rate this comment: Thumb up 1

  18. Jonness

    The King County median house price is completely insane! Thank Goodness we talked Tim out of changing the name of his website back when things first appeared to be improving.

    Rate this comment: Thumb up 2

  19. softwarengineer

    RE: Erik @ 12

    From Your Personal Observation, but Lacks General Seattle Area Demographic Proof

    I’m sure the Seattle Central area is full of drug and alchohol abusers too [homeless vagrants in Pike Place],,,,the cocaine users were always attracted to higher paid tech areas….like the Eastside?

    Its probably more like the foreclosures….equally spread anywhere in the Seattle, Bellevue, Everett area.

    Rate this comment: Thumb up 0

  20. softwarengineer

    RE: Mike @ 17

    Yes Mike

    It was handing out lowered interest loans to anyone that breaths that caused the past bubble; with interest rates pegged down as far as they can be, the banking system is “self-regulated” now to prevent that in the future.

    Rate this comment: Thumb up 1

  21. Mike

    RE: softwarengineer @ 20 – When did that happen? Following the 2003-07 bubble the main way people lowered their effective interest rate was by not paying the mortgage, although the actual fully indexed and amortized contract interest rates offered back were much higher than the fixed rate loans available now.

    You’ve illustrated the misunderstanding that kicked off the flood of foreclosures – the difference between a low starting rate on an adjustable, vs the fully indexed and amortized rate that the contract allows.

    In 2007 and 2012 one could get a “3.5% rate” – the important distinction was that in 2012, that rate would last for 30 years, while in 2007 it would last for perhaps 1-5 years before adjusting upwards.

    Rate this comment: Thumb up 2

  22. evildoggie

    RE: Shoeguy @ 11

    incomes are not going to go up, they are going down long term

    Softwre/ tech is the exception and has fooled many people around King county into thinking things are much better than they really are…

    Vast numbers of people in the USA are doing much worse, they are working longer, harder and for less..

    Rate this comment: Thumb up 0

  23. Teacher Greg

    RE: whatsmyname @ 15

    How very “troll-y” of you. Anyone here want to argue that it was better to sell in 2006 and buy in 2010 than the other way around?

    In the long run, you have have to live somewhere. If we were immortal the time horizon for life choices would be much easier. At any rate, I think buying in 2010 at a 30% discount from peak, and financing it with the cheapest cash in the past 70 years, and being able to pay it off in 15 years was a good decision on my part. Whatsmyname, you are free to draw your own conclusions.

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  24. Erik

    RE: Teacher Greg @ 23
    You did good. You could have done better though. I think Whatsmyname is saying if you came on here more and were more engaged, you could have saved about $40k. I would agree with him on that. The daily commenters bought real close to the February 2012 bottom. I bought November 2011 by reading what Tim, Corndogs and Ray Pepper said. By reading this website, I am in a much better financial position than I was. We are not smarter than you, we have just developed a healthy habit of coming on here daily. You should join. It is worth your time.

    Rate this comment: Thumb up 0

  25. whatsmyname

    By Teacher Greg @ 23:

    RE: whatsmyname @ 15

    How very “troll-y” of you. Anyone here want to argue that it was better to sell in 2006 and buy in 2010 than the other way around?

    In the long run, you have have to live somewhere. If we were immortal the time horizon for life choices would be much easier. At any rate, I think buying in 2010 at a 30% discount from peak, and financing it with the cheapest cash in the past 70 years, and being able to pay it off in 15 years was a good decision on my part. Whatsmyname, you are free to draw your own conclusions.

    I congratulated you on your results. I just disagreed with your implication that the Tim was in any way supportive of making a purchase in 2010. As a teacher, shouldn’t you be able to understand simple English?

    Rate this comment: Thumb up 1

  26. Azucar

    By Erik @ 7:

    RE: Kyle @ 2
    I was more than $100k underwater on my house a little over 2 years ago. I am now about $130k positive from housing. All i did was read Tim’s data, block out what the software people said, and listened to the smart people on here.

    You seem to have forgotten the part about short selling a house, moving back in with your parents, and losing your job.

    Or maybe you just glossed over that part a bit.

    Rate this comment: Thumb up 1

  27. Kary L. Krismer

    By whatsmyname @ 25:

    As a teacher, shouldn’t you be able to understand simple English?

    Apparently you’ve never watched Jay Walking on the now old Tonight Show. ;-)

    Rate this comment: Thumb up 0

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