Not too surprisingly, they put a pretty positive spin on the whole thing. The word they were getting from all the real estate “professionals” that they spoke with was essentially “buy now, look how low rates are!”

I didn’t say that now was a bad time to buy, because it isn’t. However, I also didn’t say that everyone should just jump in now and buy buy buy. Prices are still falling in Seattle, and will likely continue to fall for the next 6-12 months (at least). If getting the lowest price is important to you, now is probably a good time to take a “wait and see” approach.

I also gave the reporter the following examples of the monthly payment math based on low interest rates vs. falling home prices. The payment below refers to the total monthly payment of PITI (Principal, Interest, Tax and Insurance).

• $400,000 home, $40,000 down, 5% interest: $2,366 payment
• $400,000 home, $40,000 down, 4% interest: $2,152 payment
• $360,000 home (10% price drop), $40,000 down, 5% interest: $2,113 payment
• $360,000 home (10% price drop), $40,000 down, 6% interest: $2,314 payment (still lower than the first scenario)

In short, jumping into the home buying decision primarily because of low interest rates does not make any sense. Refer again to my five self-examination questions:

• Do you like the home well enough to stay there for at least 5-10 years?
• Do you feel that the home is priced fairly?
• Can you afford it using a conventional 30-year fixed-rate loan?
• Do you have a minimum 3-month emergency fund that is not part of your down payment?
• Would you be able to handle it both financially and emotionally if the value of your home dropped considerably after purchase?

If the answers to all of these are yes, then maybe now is the time to buy for you. Note that interest rates only factor in to one of the above questions.

Addendum: Jillayne makes an excellent point in the comments below:

I’d like to lobby hard to add one more thing to Tim’s list: What’s your plan B if you decide that you need to sell the home (for a million different reasons) but cannot sell.

Can you RENT it out for enough to cover the payment so you can move someplace else?

Having a plan B helps a person sleep at night but maybe I’m just too fiscally conservative.

I don’t think that’s too conservative at all. You should definitely have a “Plan B.” Again, keep in mind that my five questions are a minimum. Ideally, my personal preference is to plan on stay ten years or more, have 6-12 months of cash reserves, and even be able to afford the house on a 15-year mortgage.

It’s starting to look like we may be special after all… just not the way some folks imagined.

Note that I do not personally consider myself to be a “real estate guru,” as the TV folks seem to have become fond of calling me (though I am flattered).  While this program got some minor points of fact incorrect, the piece as a whole is good, and I feel it did a good job of accurately reflecting my views on today’s housing market in Seattle.  I’d like to extend my thanks to Jamie Ross for inviting me to be on the program.

The crew also interviewed Jillayne Schlicke of Rain City Guide fame, as well as Mack McCoy from SREP.  Apparently those segments will be aired at a later date.  When they do air, I believe you should be able to find them at this link.

First let me say that while I am flattered that John Curley and Jim Dever referred to me as a “real estate guru,” that is not a title that I have ever or would ever give myself. As I said in the segment, “I’m just a guy doing all this research, and putting it out there for you to see as well.” I hope that you find this resource to be of use.

Seattle Bubble is the Seattle area’s top resource for news, analysis, commentary, and community discussion on the local real estate market. We focus on productive discussion, improving understanding, and dispelling myths.

Please take a moment to look around the site. Drop by the About Page for a brief summary of what we do.

Here are some recent stories that summarize what’s going on in today’s real estate market around Seattle:

• Case-Shiller: Seattle Prices Rewound to Summer ‘06
  This link shows that despite John Curley’s apparent skepticism about falling home prices in Seattle, the best available index indicates that as of February, prices have fallen back to levels last seen in July 2006.
• NWMLS: Anybody seen my spring mojo? I can’t find it.
• March Neighborhood Months of Supply Update
• Puget Sound Counties March NWMLS Update

For anyone that is interested but didn’t catch Evening Magazine tonight, you can view the video on the KING 5 website, or right here (if you don’t mind YouTube’s lousy quality).

Update: Sweet, you can view a much higher-quality version on YouTube itself (but I can’t embed it).

You can listen to the full three-minute segment on NPR’s website. Here’s a little clip of my appearance:

[See post to listen to audio]

The house Mr. Kaste and I were standing in front of, which he says “may be the last gasp of Seattle’s bubble” is 145 NW 76th St, 98117, which I mentioned on the Audacious Flips and Renovations thread in the forums. Bought for $315k in 2005, now asking $800k.

At the end of the segment he used a quote where I talked about housing braggarts getting what’s coming to them. He was definitely fishing for a comment like that during the entire interview, so I’m not surprised that it ended up on the air. However, taken alone, it sounds like I’m cheering for people’s financial destruction, which is not the case.

Yes, I admit that I’ve got some schadenfreude with respect to one specific set of people: blowhards that simply would not shut up about their home’s ever-rising “value” during the bubble years (such as…). But do I take pleasure in seeing anyone foreclosed on or losing their job due to recession? Of course not.

All in all, I think it was a good segment. The UW professor quoted in the piece does make a good point that more people than just bubble-buyers are going to suffer as this unwinds. However, I agree with Sniglet’s comment in the forums that a bailout “will prevent the economy from properly re-balancing itself and clearing out mal-investments.” Recessions suck, but sometimes they are necessary to get the economy back to a solid foundation. I made this point in my interview with Mr. Caste, but obviously that clip didn’t make the final cut.

The UW professor said that “people depend on their home equity,” which is certainly true, but should they? This needs to be allowed to play out naturally so we can get back to a rational, sound economy.

You can listen to the full segment at the link above. Here’s a short excerpt from the beginning:

[See post to listen to audio]

It seems that most of the people that called in were against a government bailout, despite the fact that both Hilary Clinton and Barack Obama would like to spend billions to do just that. I don’t like to get too much into politics on here, but I have to wonder if the democratic candidates really have their finger on the pulse of their base when so many people from a town like Seattle call in to say that they disagree with both of them.

Anyway, the program is an interesting listen. I wish I would have known about it while it was airing and could have called in.

Please take a moment to look around the site. Drop by the About Page for a brief summary of what we do.

Here are some recent stories that may interest you if you want to know what’s going on in today’s real estate market around Seattle:

• Will Higher Government Loan Limits Boost Seattle’s Market?
• NWMLS: Inventory Skyrocketing, Sales in the Gutter (Still)
• February Neighborhood Months of Supply Update
• Puget Sound Counties February NWMLS Update
• $100,000+ Price Cuts in Suburbs Around Seattle

If you’re looking for more content that gets to the heart of Seattle’s real estate market, I recommend you take a look at the following posts:

• Rent vs Purchase: A Comparison
• Gangbuster Job Growth, Lackluster Incomes
• Big Picture: Supply vs. Demand
• or, if you’re a number-crunching kind of person, any of the posts in the stats category

For those of you that aren’t new, and didn’t catch KING 5 news tonight, I will update this post later with the video clip. For now you can view the video on the KING 5 website here. Check back later tonight or tomorrow morning for an embedded video on this post.

Update: Here’s the video that I uploaded to YouTube:

Update 2: Neat, I found out that you can view a noticeably higher-quality version of the YouTube video by going to this link. Unfortunately I can’t seem to embed this version without it stretching it vertically. Oh well.

For regular readers who did not catch my segment on the radio this morning, here it is. FYI, although I was on for the whole hour, the actual length of the segment is only about 33 minutes after removing the news breaks and commercials.

[See post to listen to audio]

For a limited time, you can also grab an mp3 of the segment directly from 710 KIRO.

I felt a lot better about this appearance than the last time I was on the Dave Ross show. Probably because I was the primary guest for the entire hour, so I had a lot more time to make my points. There are of course still some things I would have liked to get in but was unable to, such as addressing the “they’re not building any more real estate” arguments that some of the callers brought up, but on the whole, I think I presented the facts well.

For regular readers who did not catch my short segment on the Dave Ross show this morning, here it is:

[See post to listen to audio]

I was caught a bit off guard at how short it was, and was hoping to make some additional points. Hopefully next time I can actually join Dave in-studio for an entire hour-long segment. I’d love to be able to have more time to discuss the issue with Dave and respond to calls.

The Bottom Line: Now is not a good time to buy a home in Seattle.

Here’s why:

• Irresponsible, loose lending drove prices to artificial highs, pricing out responsible individuals and families that just want to make a decent down payment and get a traditional loan on a reasonably priced house.
• We are presently seeing a return to responsible lending standards, as the banks experience the consequences of writing loans to people who did not have the ability to pay them off. As lending standards continue to tighten, further downward pressure will be placed on home prices.
• Macro-economic factors drove home prices up, and will in turn bring prices back down (yes, even in Seattle).
• Home prices in Seattle did not rise as fast or as far as other places in the US, and likely will not fall as far. However, they will most likely fall.
• Why will prices fall? Because the current level of local home prices is not supported by any of the fundamentals that drive a healthy housing market:
  • Incomes (1, 2, 3, 4)
  • Employment (1, 2, 3)
  • Population (1, 2, 3)
  • Rents (1, 2)

  All of these factors are indeed positive for the Seattle area, but prices began to rise out of control while Seattle was still recovering from being hit particularly hard by the dot-com recession. Thanks to the aforementioned easy lending, home prices during and since Seattle’s economic recovery have risen much faster and higher than these positive fundamentals support.

There are lots of people (like myself) who have little to no debt, great credit, and a good down payment, but are not willing to buy into an inflated housing market. We are not against home ownership. We are against taking out massive, dangerous loans to finance an otherwise unaffordable and overpriced asset. We are perfectly content to wait out the declining market, and will not be suckered by real estate salespeople who perpetually repeat claims that “now is a great time to buy.” They said that about the national housing market, and they were wrong. Once the home price drops were irrefutable, they began declaring that “the market has hit bottom” every three to four months.

Don’t take anyone’s word when it comes to what will likely be the largest financial decision of your life. Do the research, and determine if the market is right for you. That’s what Seattle Bubble is for: providing a resource where regular people can assess the local housing market on their own.

P.S. (I’d like to improve / refine this post and make a copy to link at the top next to “Home” and “Forum” as an “About” page. If anyone has any suggestions for improving this post with that end in mind, such as additional posts that should be linked or main points that I left out, please share your ideas in the comments. Thanks!)

* I tried to record the interview through the online stream of KOMO 1000, but halfway through they cut into the feed with an ad for a casino that ran for the entire remainder of the call. KOMO host Nancy Barrick is going to email me the audio tomorrow morning, and I will post it here sometime thereafter.)

Update: Here’s the audio from the interview on KOMO today:

[See post to listen to audio]

Please take a moment to look around the site. I recommend you take a look at the following posts:

• Rent vs Purchase: A Comparison
• Gangbuster Job Growth, Lackluster Incomes
• Big Picture: Supply vs. Demand
• or, if you’re a number-crunching kind of person, any of the posts in the stats category

For those of you that aren’t new, and didn’t catch KING 5 news tonight (as of this post, you can still catch it at 11:00 PM on KING 5), I’m hoping to update this post later with the video clip. Check back later tonight or tomorrow morning.

Update: Here’s the story on the KING5 website: Housing prices predicted to drop (thanks Deejayoh!).

Update 2: Here’s the video. I apologize for the lousy quality. I had some issues with my TV capture card last night and had to use a roundabout method to digitize this.

Oh, one more thing… Here’s the Fortune article they’re referring to in the newscast: Real estate: Buy, sell, or hold?, and here’s their specific take on Seattle. It’s the same article I mentioned (but didn’t yet have a direct link to) a few days ago in the post: Fortune: Price-to-Rent Correction Forecasting.

Update: I was on the air for roughly the first five minutes of the program. The discussion was primarily driven by Brian’s questions, so I wasn’t able to work in as many points as I would have liked, and I certainly could have said “uh, um, er…” a bit less, but this site definitely got some decent free advertising.

Here’s the portion of the program I was on for:

[See post to listen to audio]

Only three callers were able to get in a word before the topic transitioned to something else. Here are a few highlights:

John in West Seattle:

I conduct six or seven real estate purchases a week and I see the problem with your guest, the facts of the Seattle market do not fit his theory. … Real estate values are subjective, they’re based upon what people want for their own reasons. There is no objective value that can be placed at any given location or time. … Housing prices go up because that’s what people are willing to pay. … People are speculating when they buy real estate, they hope it will appreciate in value over the years, but in a strict sense of speculation, that would apply to investment properties.

He sounded fairly angry, and he also called the Global Insight study “hogwash.” If I had been able to respond to “I conduct six or seven purchases per week” John (i.e., a real estate agent), I would have pointed out that he is correct, real estate values are subjective. However, home prices have very suddenly spiked up at a historically unprecedented pace in the last five (or so) years.

Has Seattle suddenly become far more subjectively desirable during that time? No. I have covered this nonsense argument in a number of posts, most notably A Question Of Affordability, last November.

Gary on a cell phone:

The “hogwash” comment is absolutely dead on. It’s just a function of the market. People pay what they’re willing to pay, and people sell what they can sell for. A couple factors that make our market higher than a lot of other areas are at least two things: One is a lack of transportation infrastructure, and the other thing is the Growth Management Act

The transportation argument would perhaps partly explain why Seattle proper is so expensive, but unfortunately for Gary’s argument, pretty much the entirety of King, Pierce, and Snohomish counties have seen similar spikes in home prices over the last five years. As far as his Growth Management claim, I’ve covered that here and here.

Scott on a cell phone

I’ve been in the lending side for the last ten years. … Seattle is over-inflated. If you talk to any banker, lending institution, they will tell you, their biggest worries are the big metropolitan areas: San Francisco, Seattle, Los Angeles… where you’ve had such growth in the appraised value. … There are a lot of realtors out there who are over inflating the value of these homes. … The bubble may not burst, but there will be a serious deflation in the next few years, and it’s gonna be based on the fact that the lenders have had enough.

Scott’s points were pretty much right on. He sounded like somebody that has a pretty good grasp of what’s going on before our very eyes with the interplay between home prices and lending.

I have audio of the segments of the show with the callers. If you’re interested in hearing it shoot me an email. Hopefully I’ll have another chance in the future to get the word out.

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