Bear

State of the Seattle Housing Market: 2016

Bear

It’s been almost a year since we last took a high-level view of the local housing market and considered whether or not we’re experiencing Housing Bubble 2.0. Let’s step back and take another look at the big picture.

Current Market Highlights

  • standing inventory is at an all-time low
  • new listings are at an all-time low
  • pending and closed sales are middling
  • prices are at an all-time high
  • mortgage interest rates are still near all-time lows
  • the Puget Sound economy is booming

The real estate market has been booming (i.e. plenty of sales, low inventory, and surging prices) for most of the last three years. This is likely due to a combination of factors directly related to real estate as well as the booming local economy. During the recovery since the last recession the Seattle area has seen strong migration, low unemployment, increasing wages, and heavy expansion of the local tech scene. Construction of new housing inventory and listings of existing housing has not been able to keep pace with the strong demand from increasingly wealthy home buyers.

Possible Storm Clouds

That said, there are a number of potentially worrying factors to keep an eye on in 2016:

Is it a good time to buy or sell a home?

I am not your financial advisor. I do not know the future. You should not act on my opinions without doing extensive research of your own.

With that in mind, here are my thoughts on the current market. If I were in the market to buy a home right now, I would definitely be waiting. With economic uncertainty on the rise, home prices at an all-time high and selection at an all-time low, the only reason not to wait would be if you’re afraid that prices are going to continue to power substantially higher in spite of all the storm clouds on the horizon. Personally that is not a bet I would choose to make.

On the other hand, if I were thinking of selling my home right now, I would definitely take advantage of this crazy market. With competition from other sellers so low and demand from buyers still strong, just about any home that isn’t a total dump is virtually guaranteed to fetch a very high price today.

I think we may be in the midst of another housing bubble, but this time the booming economy is being propped up by a lot more than just high home prices. My analysis today is basically unchanged from last year.

I think we are probably in the early to mid-stage of another housing bubble, but it the foundations of this bubble are very different from the last one. When and if this bubble pops, it will not play out the same way the last one did. This time around we’re likely to see a slowdown in the overall economy (and the tech economy in particular) that triggers a slowdown in the housing market, rather than the other way around like last time.

Will a slowdown come in 2016? Who knows, but I think there is a non-zero chance that it will.


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.

112 comments:

  1. 1

    Hmmm, a “non zero” chance of a “slowdown” in 2016. Bold! ;-)

  2. 2
    Carl says:

    RE: Craig Blackmon @ 1 – The name of the blog itself tells me that Tim is more likely than not to call bubble. Otherwise it would be called “SeattleUnderpricedHousing.com”

    FWIW – I agree and call bubble as well.

  3. 3
    Blurtman says:

    Have rates moved much?

  4. 4

    RE: Blurtman @ 3

    Rates have been teetering between 3.875% and 4% for quite some time now. Lender’s are warning of change, but I have not seen it. Though some see 4% vs 3.875% as a huge difference for psychological reasons of “3 something” vs 4. Last I saw, which was likely Friday, they were down and back to 3.875%. Jumbo loans are lower at 3.75% or so and FHA-VA seem to be compensating for the higher costs with a lower rate. But the standard, conventional $500,000 or less mortgage seems to be 3.875% most days and 4% once on a blue moon.

    The news about rates has been more volatile than the rates themselves, and expected to increase for quite some time. But it is hard to tell if this is just the lender’s version of “buy now or be priced out forever!” since lenders have been warning buyers to “hurry” for at least 8 months now…because rates are going to go up.

  5. 5
    Azucar says:

    By Carl @ 2:

    RE: Craig Blackmon @ 1 – The name of the blog itself tells me that Tim is more likely than not to call bubble. Otherwise it would be called “SeattleUnderpricedHousing.com”

    FWIW – I agree and call bubble as well.

    Notwithstanding the name of this blog, to give The Tim some credit IMO he usually lets the facts speak for themselves. After all, he DID buy a house a few years ago, so at that point he definitely wasn’t calling “bubble”. I don’t recall him saying “buy buy buy” at the time either – but he did put the facts that he was considering at the time here for us all to think about for ourselves.

  6. 6
    Erik says:

    RE: Azucar @ 5
    Tim said that he was probably buying a little early on the last bubble, but it was somewhere near the bottom. Based on his words, I waited a while and then bought at what I would consider the bottom for the area I bought. In other words, Tim called the bottom last time even though he didn’t buy at the exact bottom himself.

    I think it’s great that Tim is giving us dummies some advice to follow. Trying to read between the lines and get to what he is really saying is the hard part. I think he is saying that the market is too high in his mind because he is ultra conservative. I would go further to bet that if you buy now, prices will likely go up substantially before prices peak. If prices go up, you can easily not pay for a couple years. That is not a bad deal either. Seems like a no brainer to me.. buy buy buy!

  7. 7
    ChristianW says:

    I think Tim’s spot on with the analysis.

    When looking at the 2016 ‘storm cloud issues’ that Tim laid out I was thinking to myself; “what are the potential bright spots in 2016”.

    The possibilities I can think of off the bat are….
    – increased desire for chinese to move money into US (because the US is less risky than China)
    – amazon/msft stock may be down but I don’t necessarily believe that means they’re going to hire fewer employees or pay them any less (just look at all the new amazon office buildings that will be opening in the next couple years, they’re going to fill those seats and bring more people to the area)
    – new apartment inventory will increase significantly in 2016, but it doesn’t seem like sfh inventory will be up much
    – we can assume that all the high paid tech workers that have been living in apartments downtown for the last year or two will want to buy a house soon (downward pressure on rent and upward pressure on sfh prices)

    Looking at both sides here’s what I did and will do….
    – Sold my Capitol Hill condo last month (had been renting it out but the numbers worked out so that selling looked better than keeping it)(bought it 2.5 yrs ago and did a top to bottom renovation)
    – Will sell my 4br/2ba SFH in Bellevue this coming summer (bought it 1.5 yrs ago and did a top to bottom renovation) for a big profit, rather than renting it out for positive cashflow.
    – No immediate plans of purchasing another property

    If you think about where all the money pumped by the fed has gone in the last 7yrs its all been to assets (wages/groceries/etc have not increased in price). Looking at all the positives and negatives I believe we are near the top of a bubble.

  8. 8

    RE: Erik @ 6

    It is a better time to sell than it is to buy.

    3 of my 5 new in 2016 callers are asking if it is a good time to sell. The only reason the other two aren’t asking that is because they were recently hired here from out of state.

    That does not mean the market will not go up another dollar or will plummet to fifty cents on the dollar. But moving into the 5th year of an upswing the odds are it’s a better time to sell than to buy. A few areas have the boost factor of new hires, so any downturn will be less noticeable in that they may instead go up 2% vs 12%. The downturn being hidden, much as it was for most of The Seattle Area back in the mid 80’s recession.

    Watch the outlying areas closely vs the areas with the new hire boost. They should be down slightly by this time next year. Kent-Covington on the South side and Everett on the North side should be the tracking points for general market weakness.

    2016 should open up without much change other than maybe fewer bidders in the bidding wars. But by 4th quarter we should be back to the normal cycle of seasonal dipping after Spring Bump. Some chance that will come earlier and in July or August.

    Way back I noted that 2016 was the weak year for the stock market in the 8 year Presidential Cycle. Consumer Confidence will be the weak point for housing, so keep your eye on that. Interest Rates, if they increase early in the year, will push some people to buy. But that is still a fear based indicator same as Consumer Confidence data.

    For you, the improvements you make to the property will be of more value than the market conditions generally. Fewer people buy property they need to update when the Consumer Confidence drops. They’d rather pay more for a “turnkey” property than put their savings into improvements that could end up being a waste of real, hard dollars. “Fixers” will still be the weak sister for at least a couple of years of owner occupant buyers. That is why the flippers are doing better for the last 18 to 12 months, and still will for the next 18 to 12 months.

    Who do you think will be our new President, Erik? It’s kind of a toss up right now, I think. Once it is a known factor I expect more weakness and not less, given who is running.

  9. 9
    Blurtman says:

    RE: ChristianW @ 7 – Market timing the RE market! What???

  10. 10
    Erik says:

    RE: Ardell DellaLoggia @ 8
    I think Trump will most likely be president. I could see him making some mistakes for sure. Again, this year I don’t like any of the candidates.

    My last condo purchase really hasn’t gone up as much as i’d hoped. I’d like to make $100k profit, but I think my area has some room for growth. The prices in my particular condo complex aren’t really going up that much probably because it is over the water. People are weary to buy on the water. I have been considering renting it out and getting another one. Maybe it would be wise to do a real flip this time and be in and out in a few months?

    I listen to what some people on here say. I listened to your advice on stocks and pulled my retirement out. Thanks for the solid advice. It’s probably about time to get back in.

    If you and Christian both think we are nearing the top, we very well may be. I don’t see it like that, but what do I know? I can see the economy taking a hit and housing prices staying the same for a few years, but another housing bubble pop seems unlikely at the current conditions. If both tech and aerospace dump at the same time, I suppose housing prices could drop. But the chances are that housing prices keep going up. For the record, my prediction is that housing prices keep going up about the same rate as 2015 for the next few years.

  11. 11
    Erik says:

    RE: Blurtman @ 9
    It’s way easier to time the RE market than it is the stock market. If I can get “lucky” and time the RE market right as I did buying at the bottom last time, I will buy in Sammamish next. Buy a beater, remodel it, and sell to a yuppie and be out. That is my goal.

  12. 12
    Eastsider says:

    A few comments –

    If you have been following the 10 year Treasury yield in the past month, the mortgage interest rate will likely move lower from here. (This should be positive for prices.)

    Local housing supply and demand is still totally lopsided. (This should be positive for prices.)

    Stock market has very little correlation with home prices. Recession, on the other hand, will likely have an effect. Will we enter a recession this year? Your guess is as good as mine.

    Construction/completion of new single family homes has been dismal since 2007. If you are looking for a new home, chances are you will pay even more in coming years. There is simply no supply.

    Home prices are expensive but I won’t advise homebuyers to hold off purchasing if they intend to stay here. Just look at how expensive Vancouver, BC home prices have become over the past 2 decades (in Canadian dollars). There is a “non-zero” risk that you will be priced out forever.

  13. 13
    Erik says:

    RE: Eastsider @ 12
    That is all true. I look at it by dissecting a housing bubbles. Average peak to peak between bubbles is 18 years. I would expect buyer’s interest to begin to dwindle atleast a year before the peak. We are seeing buyers very interested in buying. Therefore my guess is that we aren’t near the top of the bubble.

    Someone please convince me otherwise and I will sell. Otherwise I will be perched over my beautiful condo over the water in Seattle until the big one comes.

  14. 14
    Blurtman says:

    RE: Erik @ 13 – A good deal of Chinese buyers in Sammamish. I say hello to a few nice folks when my dog is out walking me.

    Homes are selling like mad up this away. I have always likened the slope (not the plateau) to the Marin hills area, but without the drought.

  15. 15

    Bill McBride (Calculated Risk) updated his column “Predicting The Next Recession” and it’s worth a read:
    http://www.calculatedriskblog.com/2016/01/update-predicting-next-recession.html

    Spoiler alert: No recession in 2016.

  16. 16
  17. 17
    PurplePony says:

    We are looking to buy in a close-in area. We may wait, we may have to as to be honest hardly any homes come up that we like. I also notice a lot of extremely overpriced newly built homes in our neighborhood that are just sitting and reminds me of 2007 so that makes me go “hmmmmmm”. I think we may keep looking but it would have to be a house that had virtually everything we want to pull the trigger. Also work is not in tech or a bubble industry. We have everything cash at the moment so not looking at the stock market but wondering if we are falling backwards into the Dark Hole of Recession.

    We may choose to buy in another nation instead as the strong dollar makes it a good time to pick up a retirement home.

  18. 18
    ess says:

    By Eastsider @ 12:

    A few comments –

    If you have been following the 10 year Treasury yield in the past month, the mortgage interest rate will likely move lower from here. (This should be positive for prices.)

    Local housing supply and demand is still totally lopsided. (This should be positive for prices.)

    Stock market has very little correlation with home prices. Recession, on the other hand, will likely have an effect. Will we enter a recession this year? Your guess is as good as mine.

    Construction/completion of new single family homes has been dismal since 2007. If you are looking for a new home, chances are you will pay even more in coming years. There is simply no supply.

    Home prices are expensive but I won’t advise homebuyers to hold off purchasing if they intend to stay here. Just look at how expensive Vancouver, BC home prices have become over the past 2 decades (in Canadian dollars). There is a “non-zero” risk that you will be priced out forever.

    Eastsider – I think your analysis is spot on.

    Long term interest rates have actually gone down as of the fed’s rate increase, and now there is talk that the fed will raise interest rates two rather than four times this year. And even if interest rates go up a huge one to two percent over the next few weeks, those rates are very low by historical standards.

    There is almost full employment in the Seattle area. Even if un employment numbers increase somewhat, there is still strong demand to purchase housing by those who are still employed.

    There is little available single family inventory, especially in the lower price range. There are very few houses for sale that are not pending under four hundred thousand dollars in the areas I am familiar with (Shoreline, Edmonds, Mountlake Terrace, Lynnwood). In all my years as a home owner and rental property owner, I have never seen so little inventory for sale. And lets face it, modest size and therefore priced single family houses will not be built in those areas, let alone Seattle. Not only are there a lack of buildable lots, but the economics of building houses at that price does not exist with the high price of the few current lots that are available.

    Furthermore, during the last bubble, the rents did not support the high prices that were being obtained. At present, rents are much more in line with the prices for comparable houses that are for sale. If rents remain strong and continue their upward climb, that will support the housing market prices.

    As to foreign buyers – while some may not be doing so well in their stock market, others may bail out and view North American real estate as a safer bet. Seattle and area is viewed as one of those areas friendly to foreign investors. And to the Chinese buyer attempting to escape their incredibly polluted environment, the song “the bluest skies you have seen are in Seattle”, has additional meaningful resonance!

    And Eastsider is correct – no one knows if there is going to be a recession and if house prices will decrease. On the other hand, if prices continue to increase, even marginally, many individuals will forever be priced out of opportunity to purchase a single family home. Having ties to the Vancouver area, I witnessed that phenomena over the years.

    To sum up, it will be an interesting time in the Seattle area housing market this year.

  19. 19
    Seattle native says:

    No bubble in 2016. Rates have not gone up yet. Foreign investing is still high and the median price of foreign buyer putchase is $819,000. With continued employment growth in Seattle, demand will force outlying areas to appreciate as the most affordable. New construction is still 5 years behind the demand. What is narrowing is the affordability index. This will have a negative impact on surging prices even with low inventory. When people’s wages simply cannot keep up with skyrocketing prices,eventual increased mortgage rates, there may be a slow down in prices. Not a slowdown in demand perhaps in 2017.

  20. 20

    I’ve said this before, but the people who should sell are those who own houses that have some feature that makes it less attractive (busy road, small bedrooms, physical defects, etc.). Those houses that might be very hard to sell normally should be much easier, at least in those areas with limited inventory.

    Buyers on the other hand should make sure they are not settling for such a house after getting discouraged.

  21. 21
    m-s says:

    RE: Kary L. Krismer @ 19
    So, put your house up for sale if you think no one will buy it, if they are smart?

  22. 22
    m-s says:

    RE: m-s @ 20
    Ohhhh, I see what you did there. There is one born every minute.

  23. 23

    RE: Azucar @ 5
    You Buy a House

    Because its a free country and its your risk or investment, having said that, would I go into debt since I qualify for like 1/2 my net pay in housing cost? Hades no, I’m living rich on pension, Social Security and 401K lifetime monthly payments now, why would I want to risk “a sure thing” and ruin my life style in house payments?

    I’d be an utter fool.

  24. 24

    RE: PurplePony @ 17
    If Gobs of Americans Moved to Like Central America

    It would soon turn into a modern clean area. As the 3rd world countries traded places with us, America would turn into a Cess Pool and they’d want Central America back….LOL

  25. 25
    Anthony Cacallori says:

    By Craig Blackmon @ 1:

    Hmmm, a “non zero” chance of a “slowdown” in 2016. Bold! ;-)

    I chuckled at this one too. Tim refers to last year’s analysis as being “unchanged”. The title of that post was “Welcome to Housing Bubble 2.0”.

    So when it’s 2020 and we finally get a slowdown does he get credit for calling it all along? ;-)

  26. 26
    seasteve says:

    Close in neighborhoods to downtown core in Seattle will hold value well in my opinion even if there is a downturn. Capitol Hill, in particular, with its new transit light rail and streetcar line service opening in March should keep demand strong.

    What does this board think of close in neighborhoods of Seattle holding value in a downturn?

  27. 27
    Azucar says:

    By Anthony Cacallori @ 24:

    By Craig Blackmon @ 1:
    Hmmm, a “non zero” chance of a “slowdown” in 2016. Bold! ;-)

    I chuckled at this one too. Tim refers to last year’s analysis as being “unchanged”. The title of that post was “Welcome to Housing Bubble 2.0”.

    So when it’s 2020 and we finally get a slowdown does he get credit for calling it all along? ;-)

    Well, he started this blog in August 2005 and the bubble popped about two years later… and I would give him credit for calling the last one.

    In his post last year, he states that he thinks we’re in the early stages of a housing bubble… I suspect that by August 2005 he had thought that we had been in a bubble for a while (who starts a blog about a housing bubble unless they think it has been building for a least a while?)… so I would think that he thought that we were in the early stages of the last bubble maybe a year before he started the blog. So three years from “early stages” to pop last time. I don’t think that this bubble is nearly as volatile as the last one – probably will go on for longer and won’t pop as loudly – so I’ll give The Tim at least another 2 years before I declare that his “early stages of another bubble call” in early 2015 was wrong.

    If we make it to 2020 and then the bubble pops… if it’s just a slowdown then I probably won’t give him any credit – but if prices drop to 2010 levels then I’ll give him some credit.

  28. 28
    Anton says:

    RE: Erik @ 10

    Why are people wary for buying condos over the water?

  29. 29
    Azucar says:

    He actually said “weary”, so I took it to mean that people are tired of reading about his condo here at seattlebubble.

  30. 30

    RE: Anton @ 27

    I don’t think they are allowed to build them anymore in most places. The pilings can cost a fortune to refurbish when they have problems. One over here in Kirkland had a $175,000 or so Special Assessment per unit owner not too long ago. The views can be awesome and unobstructable though. Depends where the unit sits in the complex. The one at the end “on point” is usually surreal as to the views. More like a “floating house” than a condo.

  31. 31
    GoHawks says:

    I wonder if we will get what it seems like nobody is looking for, a sideways year or two. Everyone is calling for more up or a “bubble” bursting. Maybe prices go sideways for a few years.

  32. 32
    Erik says:

    RE: Anton @ 27
    I’m not really sure. As Ardell said, it can cost more in maintenance. At my condo, we had the pilings replaced for 4 million by the insurance company a few years ago. They should last as long as long as I’m around.

    I’m trying to identify why my condo hasn’t gone up that much in value. I would think these condos would be about $600k, but that’s not the case. People being scared of the water is a guess.

  33. 33
    Erik says:

    RE: GoHawks @ 30
    If we have a recession, I think prices will go sideways. Otherwise prices will likely go up.

  34. 34
    Erik says:

    RE: Ardell DellaLoggia @ 29
    Yeah, the end one is probably the nicest location. I’m in the middle, but it still feels luxurious to me. I did a high end remodel, so it is pretty fun living here. I’m designing it now. If you ever wanna drop by and give me some design pointers, call me and drop by. You are welcome to drop by whenever.

  35. 35
    QA Guy says:

    Disclaimer: I work in a tech field, not a professional analytic, but here are some of the thoughts I had lately…

    If someone was to roll a dice to pick an expensive housing market, there is a large chance that this is a city with major software companies in it: Seattle, Palo Alto, San Francisco, etc. There were tons of money going into IT in 2009-2015. There was a giant shift towards online social media and smartphones, hence, tremendous demand for new technologies. Have you seen the news how much summer software engineering intern makes these days at a big name company? Those numbers would make many full-time folks with experience jealous. Lots of tech startups have huge valuations without being profitable. To the point that the market can’t even absorb those billion dollar club unicorn IPOs. There is just not enough money on the market to buy those future shares.

    So, where am I going with this? I have concerns that if venture capital companies reduce investments and global economy slows down (it’s good to remember that large multinational “office” companies are usually located in large cities), then many companies might start laying off people when funds go dry. Top paying jobs would start going away. This would quickly put a downward pressure on a stock market and a housing market. The ball starts rolling down from here: people stop spending money on kitchen renovations. This leads to effect on median-salary jobs (which leads to “I can’t afford this new $600 iPhone 7S++ anymore, dang it!!” –> which, btw, screws some tech folks even more). Some core country problems remain at the same level or worse, such as stagnant real wages, infrastructure investments and national debt. Housing market could very quickly cool off.

    I think the definition of a balanced market being “6 months of supply” is an outdated one. Houses buy or sell much faster these days: houses come and go very quickly — remember that total sale volumes are not as low as inventory. Hence, housing oversupply could be reached very fast – in a matter of a few months.

    My worst case scenario thinking: If a tech company decide to freeze investments and slow down new product development by only 50%, they could easily eliminate 2/3 of the staff. If a tech company switches into maintenance mode (“keep the lights on”), they only need about 20% of the staff. Top paying jobs would be eliminated first.

  36. 36
    redmondjp says:

    By m-s @ 20:

    RE: Kary L. Krismer @ 19
    So, put your house up for sale if you think no one will buy it, if they are smart?

    Exactly.

    Kary has it right – there is so much demand for houses right now that buyers are paying top-dollar for properties with substantial shortcomings that should be reflected in the price. If you have such a property and are thinking of selling, now is the perfect time.

    Example: in Carnation, houses in the 100-year floodplain (requiring flood insurance in order to obtain a mortgage) have been selling for the same amount as their identical twins a few blocks away, in the same subdivision, that are not in the floodplain. In a normal market, this would not be the case.

    I have seen this same thing happen over and over in properties that I have been watching on the Eastside over the past year. Small or odd-shaped lots, poor access, busy street or road, all kinds of properties that normally would be harder to sell (or would sell at a lower price) are still selling for top dollar. We’ll see if this continues into 2016.

    And speaking of pilings in the water (I saw plenty of remnants of them in the Columbia River on my drive to Hood River last weekend), they don’t make them like they used to! That evil, poison creosote just did the job too darn well. You can still find pilings out in the Snoqualmie Valley north of Carnation in the river, for the original logging railroads that ran along the river banks. They can be seen on the satellite maps even.

  37. 37
    Deerhawke says:

    “Will a slowdown come in 2016? Who knows, but I think there is a non-zero chance that it will.”

    Perhaps Tim is positioning himself to be the next head of the Fed. However this is the kind of thing that would have sent the Dow down by 2% if Greenspan had said it. Not that anyone on Wall Street ever understood what he was saying. They sold and then bought back a few days later when they were able to confirm that nobody else knew what the devil he was saying either.

    To quote Orwell, this is about as clear as saying “A not unblack dog was chasing a not unsmall rabbit across a not ungreen field.”

    So how about some real predictions? Here is mine for this calendar year.

    No recession this year, except in places where they drill, frack and pump oil for a living. Locally it will take people another month or so to realize that 1) low oil prices are good for us 2) the stock market volatility makes real estate in a hot tech/ coastal area look more attractive and 3) the Chinese stock market volatility makes real estate in a hot US tech/coastal area look way more attractive to wealthy Chinese.

    So when the rent notice on that 980 SF apartment in South Queen Anne or SLU says it will go from $3495to $3550, you will start doing the math and figure out that at current interest rates, you should actually buy not rent. And then you start reading all the blogs that say that this may be the last best chance to buy before interest rates or prices go up — or both. And then you find a realtor and become part of the chase for the close-in single family home that is not in truly horrible condition. And you keep hearing that dreaded phrase “no inventory”.

    The upshot? Next January my bet is that prices in King County will be up by 7.5% and prices will be up 9% in Seattle. If any of you are more pessimistic and don’t agree, by all means sell. Folks like me are interested in buying.

  38. 38
    Macro Investor says:

    A lot of people have been saying the Fed would NEVER be able to raise interest rates. Well, some of us said they would and it has happened. Most analysts predict the fed will continue to raise rates slowly but surely over the next few years — about a percent a year. They won’t stop and reverse unless another banking crisis develops. That is the red line.

    Usually the start of a rate hike cycle is ignored for 18 months. This time, a tiny 0.25% increase has caused chaos in markets all over the world. Elephants have woken up and started trampling on things.

    How does that apply to Seattle:

    Tech companies live and die on their stock price. This especially applies to companies that make very small profits (or none) and burn through billions coming in from shares sold. If stocks trend down for very long, they will be forced to do layoffs. Similar in aerospace. A lot of airplanes are sold like auto leases. When the money spigot tightens down, only the cash buyers remain. United airlines — yes; those ultra cheapo asian airlines — no.

    Seattle housing:

    I like Kary’s advice. If you have a hard to sell house, get it ready for market. This is probably your 18 month warning that times they are a changing. Oh, and don’t get an adjustable rate mortgage. Lock in these rates for 30 years.

  39. 39
    Cap''n says:

    RE: Deerhawke @ 36

    Amen. I agree. For the close-in centric, I think this is spot on. Even if the rate of SFH YOY price gains drops by 50 percent due to the 2016 gloom factors, that still leaves you with close to double digit increases in the hottest neighborhoods. I just keep watching homes that at first blush seem aggressively high in price sell for 20 percent over asking. And it keeps happening. Over and over again. Even a dramatic reduction in the rate of price increases doesn’t get you to where it’s a bad time to buy in specific neighborhoods. Of course, those same macro economic factors at play could take you into negative YOY territory in other hoods.

  40. 40
    Erik says:

    RE: Deerhawke @ 36
    Good job on making a real prediction. Tim is too scared of being wrong to make a measurable prediction.

    You think next January King County housing prices will be up 7.5% and Seattle will be up 9%.

    I think that prices in King County will be up by 15% and prices will be up 18% in Seattle. I just doubled your prediction. I think housing prices will be up double your prediction based on a few things. 1. As a housing bubble matures, prices increase faster. 2. Almost all the “experts” seems to agree this time that prices will go up. 3. Inventory is extremely low and may get lower.

  41. 41

    By m-s @ 20:

    RE: Kary L. Krismer @ 19
    So, put your house up for sale if you think no one will buy it, if they are smart?

    Is it news that the interests of buyers and sellers are different?

    People make mistakes buying houses all the time by not considering the future sale of the house when they buy. Or maybe they didn’t consider inspection items, or do an inspection at all. Or maybe they didn’t properly maintain the house? This is a good time for people who made those types of mistakes to get out. And it’s a time where buyers particularly need to consider their purchase, and not settle.

    A lot of the talk about the future of real estate has assumed that real estate is fungible, like say stock in a corporation. It is not.

  42. 42
    Dave says:

    Disclaimer: I bought locally in 2011 based in small part on Tim’s data.

    CON:
    I disagree in part on the 2016 outlook consensus here since the downturn has already started.
    http://www.zerohedge.com/news/2016-01-20/global-equity-dead-cat-bubble-bursts
    Yes, real estate is micro but our monetary world is shrinking so macro counts.
    I’d also add the carnage in Canada should result in equal loss and gain in the local market.

    PRO:
    I agree with the points made so far, all reinforce real estate prices.
    – inventory is ridiculously low and can’t move quickly thanks to our incompetent local governance.
    – low 10y/30y interest rates will remain low for the short and mid-term.
    – employment remains strong for the foreseeable future.
    – population growth remains strong, higher rents supporting higher prices.
    – international purchases of local real estate remains strong despite capital controls.

    Real estate and gold are where money tends to flow when markets get weird.
    I think Tim is close, however this is going to be a bumpy ride so do your research.

  43. 43

    RE: Erik @ 39

    DOW is down over 500 points at the moment heading closer to 15k.

  44. 44
    Erik says:

    RE: Ardell DellaLoggia @ 42
    I see that. I’m holding off for a bit. Thanks.

  45. 45

    RE: Erik @ 43

    The last “8 year Presidential Cycle” it got down below 7k. I’m not suggesting it’s “at bottom” by any means.

  46. 46

    RE: seasteve @ 25
    Retirees Just Have to Pay the High Property Taxes, Insurance and Maintenance There

    They should be OK staying a decade or so.

    Stocks Collapsing
    Strong Earning Anyway in Stocks…but based on phony low oil base prices.
    Lay-offs reported all over.
    Oil Plunges causing exaggerated fears?
    Trump puts the Mexicans to work building his Trump Wall [the new Disneyland attraction like the Chinese Wall?]
    Tariffs against China brings 737 manufacturing all back to Seattle?

    What a mess. The establishment joined Trump yesterday?

  47. 47
    Blurtman says:

    By Macro Investor @ 37:

    A lot of people have been saying the Fed would NEVER be able to raise interest rates. Well, some of us said they would and it has happened. Most analysts predict the fed will continue to raise rates slowly but surely over the next few years — about a percent a year. They won’t stop and reverse unless another banking crisis develops. That is the red line.

    What rates have gone up?

  48. 48
    GoHawks says:

    RE: Dave @ 41 – 400 point dow rally. The sky may not be falling quite yet.

  49. 49
    JWS says:

    RE: Blurtman @ 46
    What rates have gone up?

    “…the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.”
    12/16/15
    http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm

  50. 50
    Blurtman says:

    By JWS @ 48:

    RE: Blurtman @ 46
    What rates have gone up?

    “…the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.”
    12/16/15
    http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm

    OK. besides talking it up, what is going on? The 10 year isn’t out of bounds from where it has been. Mortgage rates aren’t heading to the sky. . Do Yellen’s Jedi mind tricks have no effect?

  51. 51
    GoHawks says:

    RE: Blurtman @ 49 – Fed Funds overnight lending rate and consumer interest rates are two different things. Mortgage rates have dropped modestly since the Fed raised.

  52. 52
    Mike says:

    By PurplePony @ 17:

    We are looking to buy in a close-in area. We may wait, we may have to as to be honest hardly any homes come up that we like. I also notice a lot of extremely overpriced newly built homes in our neighborhood that are just sitting and reminds me of 2007 so that makes me go “hmmmmmm”. I think we may keep looking but it would have to be a house that had virtually everything we want to pull the trigger. Also work is not in tech or a bubble industry. We have everything cash at the moment so not looking at the stock market but wondering if we are falling backwards into the Dark Hole of Recession.

    We may choose to buy in another nation instead as the strong dollar makes it a good time to pick up a retirement home.

    What close in neighborhood are you seeing overpriced homes sit? In the north end of Ballard, which isn’t what I’d call ‘close in’ at all due to commute times, new homes are selling like crazy even if they’re on a junky block. The only places that sit on the market are some truly marginal properties that need another 20% thrown in to update them.

  53. 53

    RE: GoHawks @ 47 – I watched the CBS network news last night. Gotta love mainstream news coverage of financial events. They said the Dow was down over 500 points, but almost recovered most of that back, closing down 249. For those of you not math inclined, that would be recovering more than half the losses. (BTW, I haven’t verified those numbers, so maybe the numbers were wrong and the market didn’t quite recover half).

    They also covered the decline in the price of oil yesterday without once mentioning the word Iran.

    Finally, they explained how a 1T loss in stock market value was not that big of a deal because the average future retiree has 90k in their 401k, only 2/3rds of that is in stock, so their average loss is only about 6k, and 6k is a lot less than 1T.

  54. 54
    Blurtman says:

    RE: Kary L. Krismer @ 52 – Keep consuming and quit trying to stir up trouble.

  55. 55
    ARDELL says:

    RE: Kary L. Krismer @ 52

    We are much closer to the 52 week low than the 52 week high. :)

  56. 56
    Deerhawke says:

    By ARDELL @ 54:

    RE: Kary L. Krismer @ 52

    We are much closer to the 52 week low than the 52 week high. :)

    I think this market is just plain uncertain. Lots of drama. Lots of sawing back and forth. No real gain. No real loss.

    So if not stocks, what should people with some extra cash invest in? How about some nice bonds? Hmmm just checked how they have done recently– wow, maybe not. How about a nice CD? Current yields are… ok not that either.

    I think that people will stay on the sidelines a bit and then invest in real estate. Yes, it seems a bit overvalued right now, but if you kiss a lot of frogs, you might find (after some headaches and improvements) … well not a prince or a duke, but some lower form of royalty like a viscount or baronet.

  57. 57
    PurplePony says:

    We are on the Eastside, in admittedly one of the most expensive local areas. It takes us 5 to 15 minutes to get to everywhere we need to go on a daily basis. If we bought an overseas property it would not be in Central or South America. I am not American and don’t intend to retire here. Our American children are also dual citizens who at the moment say that do not intend to stay here as adults. We’ll wait and see.

  58. 58
    Scotsman says:

    Phfffft. Housing prices in the Seattle area will continue to climb. Interest rates won’t be going up any time soon- in fact I still expect them to drop a bit with time. The U.S. economy and Federal government are still trapped in a box. Globalization and ever increasing debt with slower growth mean rates have to stay low or lower to keep any hope alive. Falling oil/energy prices will kill a number of banks and some jobs but won’t have much impact on the NW economy- we just aren’t that involved. Money will continue to flow out of China for some time and some of it will find a home in King County. As a tech and bio center Seattle is still cheaper than and as attractive as other tech centers like San Jose, etc. Washington’s tax environment is favorable to professional level incomes and a wash with many businesses so employment growth will continue. The stock market might have some impact but in my experience folks are seemingly immune to the acceptance of any real threat. After all, look how well it recovered from 2008. I bought 1/2012 at the very bottom and plan to sell at the peak. We aren’t there yet…

  59. 59
    Equalttojake says:

    RE: Scotsman @ 57 – what happened? You used to come on hear and tell us to prepare for the apocalypse.

  60. 60

    By Deerhawke @ 55:

    I think this market is just plain uncertain. Lots of drama. Lots of sawing back and forth. No real gain. No real loss.

    There are entities that make money off the movement. They are not long term holders. The others are just along for the ride, and if they get shaken off at the wrong point, those entities don’t care.

  61. 61
    js says:

    RE: Scotsman @ 57 – what happened? You used to come on hear and tell us to prepare for the apocalypse.

    Here is what happened:

    Scotsman @ 57: I bought 1/2012

    Here is some javascript that sums up most of the posts here:

    function postSeattleBubbleComment (user)
    {
      if ((user.isHomeowner && user.hasMortgage) || (user.isRealtor))
        postMessage (generateRandomPositiveSeattleHousingComment())
      else
        postMessage (generateRandomNegativeSeattleHousingComment())
    }

  62. 62
    GoHawks says:

    With today’s market bounce, MSFT and AMZN are now 6% and 12% off their 15 year and all-time high………everyone is acting like world is ending.

  63. 63

    RE: GoHawks @ 47
    Remember the Real Rally

    Is if the DOW can reach 18000, last Summer’s High.

    Its got a long way to go, same with $31/bbl oil….I’m seeing $1.99/gal Shell gas right now in Renton BTW. Its just like Trump, they think inflation will be back or Trump’s lead will diminish, looks like our Trump’s “very” likely our new President anyway….LOL….the Silent Majority aren’t afraid of FREEDOM OF SPEECH now.

    Same with deflation, you can’t lay off Boeing engineers at Boeing Field and say there’s a shortage anyway. The Establishment Fairy Tales reminds me of Gates and Zuckerberg lying to us about an engineering shortage, so they can bring “high school level” job computer programming H-1B replacements in from India and send our degreed/undegreed American citizens to like flip burgers P/T and live with mom and dad the rest of their lives.

  64. 64

    RE: Scotsman @ 57
    If You Sell, Where Will You Buy?

    There may be some decent listings in Bellingham or Olympia….

  65. 65
    Scotsman says:

    I’m a classically trained economist. What happened was/is the realization that fundamentals don’t apply like they used to. Colluding central banks are running the show to an extent we haven’t seen in the past with the objective of saving their own while smoothing the transition to a more balanced global economy. There’s still way too much debt out there, more than can ever be serviced while maintaining healthy levels of reinvestment and growth. The whole world is slowing down with net growth rates in the 1-2% range becoming the new normal. Eventually things will collapse, most likely through currency devaluations (look at China and Japan) but we aren’t there yet. As for having bought a house it’s a small part of the big picture and doesn’t change my interpretation of the facts as I see them. And in this market, ignoring capital appreciation but including all other expenses it’s still cheaper for me than renting.

  66. 66
    oddman says:

    RE: GoHawks @ 61

    the media lack market news, so they create drama just as our local news send weather experts outside in the parking lot to talk about a windy day. Or the way new presenters often stand with tablets acting as if the 8 hour old news they are talking about just burst forth…

    CNBC etc drive up viewing numbers by shouting crazy talk…

    It would take a major drop in Amazon, google, Microsoft share prices to truly impact home sales , dropping 5-15% is not going to discourage buyers.

  67. 67

    RE: oddman @ 65 – In the past stock market declines have impacted the high end more, because those buyers rely less on loans. Also, it can impact their feeling of wealth and thus their decision process.

    BTW, anyone relying on stock ownership to purchase a house has to disclose that fact using Form 22EF. The very first paragraph (paragraph a) of the purchase and sale agreement (Form 21) has representation that the buyer has sufficient funds and is not relying on contingent funds. Stocks are considered contingent funds. The same would be true of relying on a HELOC against currently owned property.

  68. 68
    ARDELL says:

    RE: Kary L. Krismer @ 66

    I don’t think that would apply if they have $1,500,000 in stock and are using $50,000 of it toward the down payment. Seems it’s only a contingent source if price fluctuation could feasibly influence the transaction.

    There’s a fine line between disclosing and TMI invasion of privacy.

  69. 69

    RE: ARDELL @ 67 – The distinction there is that it’s not likely to become an issue, because the value would have to really plummet. Unless maybe all in one stock that would be extremely unlikely. So a seller is very unlikely to complain. But it does still apply.

    Also though, a seller who doesn’t ask for proof of funds is rather negligent. There was a recent Legal Hotline question about that–I’ll try to find the fact.

    Using a different security, those Auction Rate Bonds from back in 2008 went from being worth millions to being not liquid. That’s what brought down Transnation (???), which was putting its 1031 funds into such securities, thinking they were perfectly safe. Lots of sellers thought they were safe relying on a large 1031 facilitator like that, but were left holding the bag.

  70. 70

    By Kary L. Krismer @ 68:

    Also though, a seller who doesn’t ask for proof of funds is rather negligent. There was a recent Legal Hotline question about that–I’ll try to find the fact.[sic]

    Found it. $400,000 purchase with a 50% loan (so $200,000 of cash needed) and only a $2,000 earnest money. The source of the cash was an undisclosed trust. Later the buyer couldn’t get the trustee to agree to the purchase or the disbursal of the money.

    I’m not sure if that would give rise to a fraud claim, or if it does if that would get you around the election of remedies being forfeiture of earnest money, but if not that would leave the seller with only a $2,000 remedy. All because they didn’t ask for proof of funds.

    So in your scenario of $1.5M in stock and a $50,000 down payment, the seller should still know of the source of funds even if 22EF isn’t used. And when asked and a contingent source pops up, that isn’t going to make the buyer (or the buyer’s agent) look good.

  71. 71
    ARDELL says:

    RE: Kary L. Krismer @ 68

    Seriously? POF for down payment? Haven’t seen that since before we had lender letters.

  72. 72
    ARDELL says:

    RE: Kary L. Krismer @ 69

    Reminds me of the old addage. “What do you call a lawyer who isn’t a pessimist? Negligent.”

    Thank God all agents aren’t lawyers.

  73. 73

    By ARDELL @ 70:

    RE: Kary L. Krismer @ 68

    Seriously? POF for down payment? Haven’t seen that since before we had lender letters.

    I’ll admit I’ll sometimes rely on TALKING to the lender to verify proof of funds, but I would never do that for a sizable down payment amount like in the Legal Hotline situation (or recommend my client accept an offer with a $2,000 EM where the buyer will be putting $200,000 down–that alone should raise eyebrows).

    If I’m representing a fiduciary I’ll may even ask for POF to accompany every offer. But bottom line is I don’t trust lenders that much. Trusting a lender might be what got that one agent into a rather sticky situation.

  74. 74

    By ARDELL @ 71:

    RE: Kary L. Krismer @ 69

    Reminds me of the old addage. “What do you call a lawyer who isn’t a pessimist? Negligent.”

    Thank God all agents aren’t lawyers.

    Lawyers do tend to think of worst case scenarios, because they are often on the hook financially if that situation happens and they haven’t warned their client about it. There’s something called the Rule Against Perpetuties you might have heard of. There the rule is that an interest in real estate has to vest within 21 years of a “life in being”–someone currently alive that has an interest in the property. To test if the transaction violates the Rule Against Perpituties you assume everyone is killed the day after the transaction is effective, or some such thing (it’s been a while). Basically assume a disaster. How pessimistic is that?!?

    That was actually the biggest problem I had when first becoming an agent. I was hopefully aware of all the things that could possibly go wrong in the next 30-45 days after mutual acceptance. Took me quite a while to quit worrying about such things (as opposed to quit being prepared for such things). Other agents would just go along being the proverbial fat, dumb and happy.

    But I can assure you, what happened to the seller in that Legal Hotline situation would never have happened to one of my clients. Or to one of my clients in one of Jessie Jones’ consumer episodes, where an agent had a transaction delayed due to a common name issue because they didn’t know what to do. So in that regard it’s sad that all agents aren’t lawyers. They would do a better job for their clients.

  75. 75

    RE: Kary L. Krismer @ 73

    Yes , I know the Rule Against Perpetuities well. The limitation of dead hand control. I was the hand of the dead for many years of the perpetual trusts. Exception to the Rule Against Perpetuities.

    Reminds me I meant to look up the recent listing of The Playboy Mansion for $200 Million subject to a life estate for Hefner.

    I do find it harder after having no sales fail on financing or cash issues in 25 years to care about changing the way I do things. Personally I think gift funds not yet in hand to be more of a worry. Still, those have worked out just fine as well. I must know better lenders than you. :)

  76. 76

    RE: Kary L. Krismer @ 52
    Maximizing Your Retirements

    I was offered $50/mo more lifetime pension if I paid my agency $1100 in past unpaid deductions with interest, the check was in the mail pronto. When a retiree has a chance to grab even small amounts of monthly income for the rest of their lives….it doesn’t seem so trivial anymore. How much savings interest would that $1100 generate? 2 cents a month? LOL

  77. 77

    By Ardell DellaLoggia @ 74:

    I must know better lenders than you. :)

    Not sure exactly how you control the lenders that the buyers pick on your listings. That’s the biggest problem in real estate, IMHO. One of the questions we always ask the buyer’s broker is whether they are familiar with the lender. The answer to that one question is probably more important than any other single answer to any question.

    Sometimes even your own buyer lenders are problematic if they pick the company they did their refinance through or the one their cousin used. And with the market heating up the situation has only gotten worse the past two years as the marginal lenders get back in the business.

  78. 78

    By Ardell DellaLoggia @ 74:

    Reminds me I meant to look up the recent listing of The Playboy Mansion for $200 Million subject to a life estate for Hefner.

    That property probably violates the Rule Against Perpetual STDs. ;-)

    I saw that too. Gotta love a client that says: “I want top dollar, but I still want the right to live there!” The listing agent is probably beating their head against the wall.

  79. 79
    ARDELL says:

    RE: softwarengineer @ 75

    I was offered double on my 20 year bank pension if I took it at age 62 vs 55. I took that deal and am turning 62 in June. I feel like I’m playing Let’s Make a Deal and wondering what they’ll offer me to wait until I’m 65 or older.

  80. 80
    ARDELL says:

    RE: Kary L. Krismer @ 77

    Life Estates are a handy tool. People don’t use those enough. It is fairly common in CA for buyers to offer them on unique properties that are not for sale. I don’t think it impacts the agent at all.

  81. 81

    By ARDELL @ 79:

    RE: Kary L. Krismer @ 77

    Life Estates are a handy tool. People don’t use those enough. It is fairly common in CA for buyers to offer them on unique properties that are not for sale. I don’t think it impacts the agent at all.

    I would agree, but that doesn’t mean that the particular offering on the Playboy Mansion was good. And that’s the reason I think the agent would likely be banging his head against the wall. I think he was trying to sell it for at or above FMV, while still retaining rights. But if $200M for that property is actually below FMV, that would be a different matter.

    Also, not clear that was a traditional life estate. I think the buyer had rights to use the property too.

  82. 82

    RE: Kary L. Krismer @ 80

    Why would the agent be banging his head against a wall? Nobody forced him to take the listing on those terms. My guess is Mauricio is very happy to “see his name up in lights” right now.

    http://www.prnewswire.com/news-releases/the-agency-and-hilton–hyland-list-playboy-mansion-for-200-million-300201987.html

    Hef is 89 years old. Asking for a life estate at that age isn’t exactly unreasonable. No reason for him to have to move out at this point.

    Since you seem to know that $200 Million is not below fair market value, one has to ask what you think the fair market value is? You can’t say you have no idea now that you’ve claimed to know what is not fair market value. :)

    You show me yours and I’ll show you mine. :) No reason for him to sell it below fair market value either. If he were 25 years old maybe. But not at 89 in an up market.

  83. 83
  84. 84

    By Ardell DellaLoggia @ 81:

    RE: Kary L. Krismer @ 80 – Why would the agent be banging his head against a wall? Nobody forced him to take the listing on those terms. My guess is Mauricio is very happy to “see his name up in lights” right now.

    Because he has an unreasonable client. But the end test will be if it sells. If it sells he will be happy.

    Hef is 89 years old. Asking for a life estate at that age isn’t exactly unreasonable. No reason for him to have to move out at this point.

    Then he shouldn’t sell it. I did run into a life estate situation back in the 90s where an elderly woman sold her house on Perkins Lane for monthly payments for the rest of her life, retaining a life estate. She needed the money. Maybe Hefner is becoming destitute and needs the money, but if not why sell?

    Since you seem to know that $200 Million is not below fair market value, one has to ask what you think the fair market value is? You can’t say you have no idea now that you’ve claimed to know what is not fair market value. :) .

    What I said was: ” I think he was trying to sell it for at or above FMV, while still retaining rights. But if $200M for that property is actually below FMV, that would be a different matter.”

    As to it possibly being overpriced, reportedly it’s the highest asking price for residential real estate in LA ever. http://variety.com/2016/dirt/real-estalker/playboy-enterprises-wants-200-million-for-playboy-mansion-1201676251/ That sounds a bit surprising to me, because I thought they had condos go for over $100M down there. But retaining a life estate, even for someone in their 80s, there would need to be a serious discount in price. You don’t typically get both FMV and retain a life estate, so asking for a record price with a life estate retained sounds excessive. There is of course the intangible of this thing having the history of being the Playboy Mansion. Not sure if that’s a plus or a minus.

  85. 85

    I was looking at LA real estate, and found a news story about what in 2014 was reportedly the most expensive listing ever at the time–$195M. They apparently at one point reduced the price to $149M. FWIW, Zillow only thinks it’s worth $16M. :-D

    http://www.zillow.com/homedetails/9505-Lania-Ln-Beverly-Hills-CA-90210/20533853_zpid/

  86. 86

    This is the condo I was thinking of, but it sold for much less in 2010 than what I remembered–“only” $35M. Although brand new it apparently was a fixer because she (Candy Spelling) later reports indicate she still hasn’t moved in, but in any case it took years. (Actually I think that $35M price might have been just for a shell.).

    http://la.curbed.com/archives/2013/07/first_look_inside_candy_spellings_35million_penthouse_with_pool_at_the_century.php

    Apparently there is a new one under construction where the penthouse is listed at $50M. So condo prices in LA are a bargain!

  87. 87
    whatsmyname says:

    RE: Scotsman @ 82 – Step away from the zero hedge. The returns you seek are not missing; they are in the fx markets.

  88. 88

    RE: Kary L. Krismer @ 85

    The house next door sold a year and a half ago for a hair under $50M on 2.25 acres, and it had a lesser proximity to LACC. That puts the Hefner property at a minimum of $130 Million or so allowing for the extra land value and modest appreciation over the last 18 months.

    From a seller’s standpoint, “You can wait until I die, or we can assume a 10% appreciation per year and that I will live 5 years.” That comes to a total of $209,366,300 (compounded appreciation) over a 5 year period. OR you can have it today for $200,000,000…with a life estate.

    Not saying someone will pay that, but I came up with the same number they did, allowing roughly $10,000,000 discount for the life estate and a 5 year life expectancy for Hefner. If he lived longer and they had to wait for him to die to get the property, the price could feasibly be a lot more.

    A friend of mine bought a “gentleman’s farm” in Connecticut and he sold high end condos in Manhattan and didn’t know much about homes on land. He sent me info every step of the way including photos. I said, “You do realize that after closing you will not get that horse in the barn, but you will get those pygmy goats in the pen, right? He didn’t believe me. He got the goats with the property and not the horse. So Playboy Mansion comes with one old goat. Not a big deal. Pretty common for old goats to remain on the property at time of sale. :)

    As to “Maybe Hefner is becoming destitute and needs the money, but if not why sell?”. It is pretty common for Estate Representatives to ask the competent owner to make solid dispositions of the tangible assets, and convert as much as possible to more liquid assets prior to their death. More money is lost on attorney fees over fights between the heirs regarding tangible assets than liquid assets. I have literally seen someone pay $250,000 in attorney fees arguing that the property, sold for $250,000, was really worth a million. They got nothing. All of the proceeds of the sale went to the attorneys.

    By retaining a life estate he can put feelers out and get a better handle on what the property will sell for, and possibly even liquidate it in advance so as to leave less uncertainty and bickering. Or he may just be striking a hard value so as to leave the younger son as head of all that is Playboy and buy off the other and older son with an equal amount to prevent things being tied up after his death. When you have one son running the business and another son not involved, it can be quite a mess if you don’t strike a solid arrangement before you die.

    Letting the chips fall where they may after you die is the least preferred way to handle large estates, especially ones with a family business run by one of two sons.

    It all makes perfect sense to me. :)

  89. 89
    wreckingbull says:

    RE: ARDELL @ 79 – Life estates are great for the life tenant such as The Hef. They are usually horrible idea for everyone else involved. I am learning this the hard way right now. They are a minefield.

    Most people don’t die in their homes, and often the home must be sold to pay for long term care for the life tenant. Oops, you just gave away 20% in capital gains taxes. A trust is almost always a better tool.

    Don’t listen to me, as I am not a lawyer.

  90. 90

    RE: wreckingbull @ 88

    Life Estates are given to people as part of a Reversionary Estate. The most common that I saw first hand were for mistresses. Not to be thrown out on the street if you died, but limited responsibility beyond that, and never to receive the principal value of monies or property that would revert back to the family after the mistress died or no longer needed to live in the property.

    Usually a life estate terminates if someone is placed into Long Term Care and will never be coming back. It’s been a long time, but I’m pretty sure if the property is vacated permanently that negates the life estate.

    I remember I had one where the son of the mistress was trying to hide the fact that his mother died or left so he could stay. I also had one for a dog and they sent me pictures of the dog for the file every year, but I finally decided there was no way that could be the same dog still alive after all this time. :) It was a Charitable Remainder after the dog died vs a Reversionary Trust.

    Rarely does the person with the life estate have an interest in the property proceeds at time of sale. So they can’t borrow against it or use a portion of it to fund other needs. It is usually funded with enough money such that the interest earned will pay for RE taxes and lienable utilities so the property can’t be lost for lack of payment.

    In Hef’s case he would no longer have an interest as the sale would have been completed and the proceeds already paid to him.

  91. 91
    wreckingbull says:

    RE: Ardell DellaLoggia @ 89 – Please stop this. The amount of incorrect information you are posting could be very damaging to readers here. You may wish to review the law with an estate attorney.

  92. 92

    By wreckingbull @ 90:

    RE: Ardell DellaLoggia @ 89 – Please stop this. The amount of incorrect information you are posting could be very damaging to readers here. You may wish to review the law with an estate attorney.

    The worst advice is that you would base how much you’re willing to pay for a property today on what it might be worth in the future!

    From a seller’s standpoint, “You can wait until I die, or we can assume a 10% appreciation per year and that I will live 5 years.” That comes to a total of $209,366,300 (compounded appreciation) over a 5 year period. OR you can have it today for $200,000,000…with a life estate.

    Or that if you accept that future valuation, the discount would only be about 5% of value.

    Seriously, how absurd is that? If you can make that argument, then a seller could also argue that you should pay $209,366,300 today without the life estate, because it will be worth that amount in the future!

    I just found this table from a quick Google search, so I can’t vouch for the numbers, but it would suggest that a buyer should pay about 80% of value for the property today, with Hefner retaining a life estate. But again, I don’t think this was necessarily a straight life estate situation–I think the buyer might have the ability to use the property.

    https://www.dcf.state.fl.us/programs/access/docs/esspolicymanual/a_17.pdf

  93. 93

    By Ardell DellaLoggia @ 89:

    Usually a life estate terminates if someone is placed into Long Term Care and will never be coming back. It’s been a long time, but I’m pretty sure if the property is vacated permanently that negates the life estate.

    Nope. Has nothing to do with them living there. The person holding the right to live in the property under the life estate can sell that right and allow someone else to live there for the duration of the original person’s life. They can also mortgage their interest, but good luck finding a lender.

  94. 94

    By Ardell DellaLoggia @ 87:

    As to “Maybe Hefner is becoming destitute and needs the money, but if not why sell?”. It is pretty common for Estate Representatives to ask the competent owner to make solid dispositions of the tangible assets, and convert as much as possible to more liquid assets prior to their death. More money is lost on attorney fees over fights between the heirs regarding tangible assets than liquid assets. I have literally seen someone pay $250,000 in attorney fees arguing that the property, sold for $250,000, was really worth a million. They got nothing. All of the proceeds of the sale went to the attorneys.

    To contest that you would need a basis to contest the will. There’s no reason to believe anyone would be more likely to contest a will to fight over $200M of real estate than over cash, except perhaps that the cash might be only $180M after capital gains taxes. But with either type of asset, you need a basis to contest the will. You can’t just come in and say I don’t think they should have given the house (or the money) to Harry instead of Susan.

  95. 95

    RE: Kary L. Krismer @ 93

    Nope. “To contest that you would need a basis to contest the will.” It’s not about contesting the will. It’s about a negligence claim against those who sold it for $250,000 when they “could have gotten” a million. That is why Hef selling it in advance of his death and retaining a life estate is better in many ways.

    Coincidentally I just had a call from a client who is an attorney and he thought $200,000,000 for The Playboy Mansion was a steal. :) He didn’t think the life estate was an issue that would impact value at all. Just funny that he noted that without having read this.

    I guess to some “The Playboy Mansion” has more value than to others. :) I myself was wondering what built in memorabilia might be of considerable value and part of the real property vs personal property. Things you could sell off if you tore down the current 1926 built structure and started from scratch and sudividing the land into two or three separate parcels.

  96. 96

    RE: wreckingbull @ 90

    If you can’t have some fun with The Playboy Mansion being for sale…with a life estate…

    There is no “mis-information”. The anecdotal info is real. People don’t always do things based on best tax plan. Life Estates are rarely granted for tax reasons. Life Estates are a tool to keep a roof over someone’s head who you care about…but not enough to buy them or give them a house.

    I was in the Trust and Estate business for a long time. Not as long as I have been in real estate, but close. Very often my clients would turn to me after the attorney and tax planner made their recommendations and say to me, but that’s not what I want to do with my money! The attorney would look up and the tax planner would be mad and they both would think the client was not acting rationally. Giving your hard earned money away is very personal. Selling your Playboy Mansion is very personal. Yes, everyone can give their recommendations based on tax planning, but rarely is that the most important issue on the table. It’s PART of the consideration, but rarely the most important part to the “soon to be decedent” in the room.

  97. 97

    RE: Ardell DellaLoggia @ 89
    The State Will Grab It?

    I don’t trust trusts…..what’s to stop a greedy state judge from grabbing it all anyway, if you die, as money gets tighter with time. Nope, a hidden pirate’s chest like OJ used is the safest way to distribute left over retirements savings….get an eye patch and a parrot and say….”Ahhhhh”….LOL….use a secret treasure map to your executor family member to find the treasure. No Social Security number attached.

  98. 98

    By Ardell DellaLoggia @ 94:

    RE: Kary L. Krismer @ 93 – I guess to some “The Playboy Mansion” has more value than to others. :)

    Probably more valuable to those who already own black-lights and truck loads of bleach. ;-)

    To me the biggest drawback would be even long after Hefner is dead people will still be driving by to see where the Playboy Mansion was located. You might even get people breaking into the grounds just because of its history.

  99. 99
    ARDELL says:

    RE: softwarengineer @ 96

    A week or so ago when I was was going to win $1.3B in the Powerball I was thinking I’d have to buy a few houses and put two of my sisters and my brother in each of them with a life estate. The proceeds when sold would go to my children and not their children.

    Could be a trust, but when you put the house in a trust there are more requests to change out houses. Had one of those in Seattle not too long ago. The occupant kept wanting to trade for a cheaper house and keep the change. :)

  100. 100

    RE: ARDELL @ 98

    I Have an Adult Son With Moderate Autism [Bottom 5% of Autism Spectrum]

    He lives in a family home now, but I’m his medical representative, care giving case manager, special needs legal adviser and financial manager. I’ve learned the ropes on care givers and the State. Its all changed recently. When you die, the State jumps in to grab your wealth [like a paid for home, etc], so I spend all his money on him….nice clothes, dinners out, drives to restaurants and entertainment, full Blue Cross protection, etc….no savings left. Cash out them homes or you get sick and the State will do it for you [and take it all]….LOL….you could set up a trust fund, but paying someone to run it will suck it dry in nursing home costs, if the State doesn’t get to it first.

    An OJ pirate chest is the only safe way to protect against this.

  101. 101
    ARDELL says:

    RE: softwarengineer @ 99

    Thank you for explaining why a judge would take your money. That did have me confused. Appreciate your sharing more fully.

  102. 102

    Boeing Stock Tumbled -9-10% Today

    I wonder why with cheap jet fuel now available and airlines making record profits?

    http://www.seattletimes.com/business/boeing-aerospace/boeing-expected-to-announce-777-cut-wednesday/#comments

  103. 103
    Eile says:

    Stock was huge this week. I subscribed to redfin, it looks like we have alot more inventory for the last couple of weeks and some house were sold at less than the listed price. Human always create bubble because they unwelling to work with eachothers. Just like oil bubble. I think the only way for another house bubble is for tech companies to tank and a global recession.

  104. 104
    LeschiH says:

    I just met with a couple agents about our home in Leschi a few years ago 900+k now consensus is it will fetch about 1.7-1.9. Nearby neighbor’s went 500k over asking price and another neighbor similar profit margin on a 3 year purchase. One wonders where the top is?

  105. 105
    Jackson says:

    The market will crash and burn before the election. Jobs will be lost and the housing bubble will burst.
    Abandon ship boys, she’s going down.

  106. 106
    PS says:

    RE: ChristianW @ 7

    All cash buy coming from China you mean ?

    How this network working. any person being in US 6 month .. How can afford to buy 900K-1.3 M$ home . How fed allow for big money to come in …No traces ?

  107. 107
    Bubble Burst says:

    This is definitely the best chance in US history to make a lot money by selling your house ! Don’t waste this once in a blue moon chance.
    Currently the buyers from China and CA. are super crazy, they are still kinda thinking the housing price in Seattle is very low compared with in China and CA and has much investment value. So however junk your house is nowadays, you seller can easily get 5-10 offers coming in to bit each other, so it’s not hard at all to ask more 100k than your house is fairly worth. The local buyers are scared by the low inventory and these competitive cash buyers from China and CA., they become desperate about the house market, they fear that they’ll have to pay extra 50k-100k usd to buy the house if they don’t do that right now, so they can’t wait any more.
    This is the reality of Seattle housing market right now.

  108. 108
    Bubble Burst says:

    RE: PS @ 106 – I don’t know how this is working, but they might have their own channel to do that legally. They prefer to invest housing in good school district, good location to these high-tech giant, Microsoft, FB, Google, Amazon, then they rent houses out to these employees in these companies. They use rental income to pay their mortgage (no mortgage for some cash buyer).

    They are even not a green card holder, some of them are just a visitor or traveler, I am wondering they might not pay tax for rental income.

  109. 109
    Bubble Burst says:

    RE: LeschiH @ 104 – You should keep waiting to sell your house 1 billion one day, if you can’t see it just let your son to continue, I swear 1 billion usd will come one day

  110. 110
    Johnny K says:

    How’s this prediction working out for you?

    Yeah, suddenly 30,000 houses are just going to appear on the market and 500,000 people will just up and abandon their jobs and lives here.

    Nope. Not happening anytime soon. Sorry to you so-called “analysts” that keep predicting this fictional bubble will pop. No bubble, and if it pops it won’t be for another 15+ years. Amazon and Microsoft have invested heavily in this city and aren’t going anywhere. Have faith friends, these prices aren’t going down any time soon.

  111. 111
    The Tim says:

    By Johnny K @ 110:

    How’s this prediction working out for you?

    Yeah, suddenly 30,000 houses are just going to appear on the market and 500,000 people will just up and abandon their jobs and lives here.

    Nope. Not happening anytime soon.

    I think maybe you read a different post than what I wrote. I don’t see this alleged prediction. Please elaborate on exactly what I said that you are interpreting as a prediction that inventory will suddenly skyrocket or Seattle’s population growth will dramatically reverse. I have said nothing even remotely like either of those.

  112. 112

    RE: Jackson @ 105

    There were a couple of real ads from real estate agents, starting in Texas, advertising to sell people’s homes so they can flee if Trump is elected. The Broker of one of them made them take it down.

    https://www.buzzfeed.com/craigsilverman/a-realtor-is-offering-to-sell-the-homes-of-people?utm_term=.qhxMynpzl#.diYRVrE8d

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