Forty-seven percent of Seattle’s adults hold bachelor’s degrees, the strongest proportion of college-educated residents in any big city.

However, a new study by Forbes lists America’s ten most educated cities (again mis-titled as the “smartest cities”), and Seattle is nowhere to be found. Here’s the complete list:

#1 Boulder, CO
#2 Bethesda, MD
#3 Ann Arbor, MI
#4 Cambridge, MA
#5 San Francisco, CA
#6 Durham, NC
#7 Fort Collins-Loveland, CO
#8 Washington, DC
#9 Bridgeport, Stamford, and Norwalk, CT
#10 San Jose, Sunnyvale, and Santa Clara, CA

The methodologies of the two studies sound fairly similar, so I’m left wondering how Seattle went from #1 to below #10.

Using data from Sperling’s BestPlaces, we looked at data from the 200 biggest metropolitan areas in the U.S. and ranked them based on the percentage of the population age 25 and over with at least a bachelor’s degree.

Whatever our percentage of degreed adults truly is, I don’t think that an “educated” populace is some kind of magic bullet that will keep housing prices rising. I only really bothered mentioning this because some people made such a big deal about Seattle’s #1 position in the April study.

Personally, I don’t put much stock in Forbes, but I know a lot of people do, so being left off of their list probably comes as a bit of a blow to the collective ego of our city. Oh well. At least we were the reigning champions for eight months.

(Elisabeth Eaves, Forbes, 12.15.2006)

Almost every dollar Todd Asher earns is spoken for. He has one daughter in college, another in high school and a toddler in diapers.

“We made a decision to have my wife stay at home with our 18-month-old son, so we’re living off my income, paying for tuition, diapers and everything else,” said Asher, of Sammamish. “We’re all about making money go as far as possible.” Asher, 39, has found a way to save a little each month through an interest-only mortgage loan. He diligently puts the savings into his 401(k), an individual retirement account and mutual funds.

“My goal when we purchased our current home was to buy the most house for the least amount of money and then save, save, save,” Asher said.

Does this logic sound a bit off to anyone? What happened to the idea of living below your means?

Some mortgage specialists and financial planners believe unconventional home loans could be good tools to help consumers put away money for their future — if they’re disciplined enough to invest the mortgage savings.

If homebuyers invest the extra $160 to $200 they save each month on an interest-only mortgage, then it “absolutely makes sense,” said Jeff Tisdale, a broker at Skye Mortgage in Bellevue.

Totally, Jeff.

But Paul Merriman, founder and president of Seattle-based Merriman Capital Management, said every dollar a young homeowner invests now from mortgage savings will make a surprising difference when he or she retires.

Consider this scenario: A 30-year-old homebuyer invests $200 a month in a Roth IRA for five years. With a 10 percent compound rate of return (based on the S&P 500), he will have $15,312 in five years. Then, because he faces a higher mortgage payment of principal and interest, he stops contributing to the IRA. Even if he adds nothing more to the investment, the money continues to multiply.

“They will have $267,185 at age 65 and they will be able to take tax-free distributions of $16,031 (6 percent) the first year,” Merriman said. “If they continue to earn 10 percent while taking out 6 percent, they will take out over $500,000 and have $585,435 left at age 85.”

Consider this scenario: Based on the last 35 years of inflation, $267,185 will only be approximately $53,034 in 2042 dollars, which probably won’t even buy you a Hyundai (assuming there are any fossil fuels left in which to operate it)

I think it’s also safe to consider that whatever McMansion they purchased will be worth much, much less than their purchase price in years to come. Money isn’t free and without exception debt -always- must be repaid. How will this paycheck-to-paycheck family ever get out from under this house?

“Most people want everything now, and they come back every two years looking for more money,” he said.

He also has families who “come back a little richer” each time with more money in the bank.

“I can’t keep track of what people do once they walk out my door,” Tisdale said. “I can tell you that the ones who are committed to investing their savings are rare.”

The home ATM has all but dried up. The American public is now in their 19th consecutive month of negative savings. This family and many like it are are literally living on borrowed time. What’s the point of an interest only loan when you can rent a suitable home, closer to work, for much less than “buying”. Why put yourself under such pressure, especially when you aren’t building any equity?

A house has become more of a consumer product than an investment, especially based on current false valuations and the way they are physically built today.

This family is only one job loss, sickness, or interest rate hike away from a CH13 bankruptcy. The American Dream is looking more and more like a nightmare. The suburbs with their large McMansions will be the slums of the future.

(Linda Thomas, Seattle Times, 12.16.2006)

Redfin, Zillow, Zip Realty, For Sale by Owner in the MLS companies, these all represent the newer “alternative” business models… Why should “Traditional Brokers” HELP the Alternative Business Models to succeed? Because WE NEED them, now more than ever, all of us. The consumer needs them. The industry needs them. We need a whole lot more flavors of Kool-Aid out there.

That’s right, you read it straight from the agent’s keyboard: traditional brokers, real estate websites, discount brokers, FSBO tools… they’re all just different flavors of Kool-Aid! So drink up, consumers. Drink up!

In other RCG-related news, contributor Galen Ward has finally launched his fancy real estate search site ShackPrices.com. I have to admit, it’s got a sharp interface on top of zippy functionality and lots of nice features. I could definitely see it becoming my favorite real estate search tool.

Now if only there were some real estate out there worth searching for…

(Ardell DellaLoggia, Rain City Guide, 12.12.2006)

October
[A]: “I fully expect things to pick up the first part of the year.” Although the pace of sales has slowed, there are no clear indications that overall prices are going to decline, real estate analysts say. Data released yesterday support their view.

November
[B]: …industry analysts said [the] housing boom seems to be coming to a quiet end. The balloon isn’t bursting, they said, but it’s losing steam.

[C]: …sales of existing homes and condominiums declined … last month. Even with the decline in sales, the median price of an existing home sold last month rose [year-over-year].

December
[D]: sales … declined in the month of November. … The median price for a home sold last month was up from a year ago. … “The current pace of home sales activity remains historically strong. … I truly believe the housing market will continue to expand. But rather than the double-digit price appreciation we’ve seen, we might see that drop to a 5 or 6 percent appreciation sometime toward the end of next year.”

Nothing new, right? It’s pretty much more of the same—what we’re used to reading whenever the local rags start talking about real estate in the greater Seattle area.

Only, there’s a few details I didn’t mention about the above quotes. They’re from last year, they’re not from the local rags, and they’re not referring to Seattle.

On a suggestion from reader John Law the II, I went searching for news reports from a year ago about the nationwide housing market (quotes C & D), and for good measure I pulled a few quotes from San Diego as well (A & B). What I found bore an eerie similarity to the kinds of things we’ve seen printed in the local press regarding the Seattle market the past few months.

So, a year ago the “experts” were predicting continued (but slowing) appreciation, with no price declines. Let’s see how well those predictions held up.

San Diego, October 2005: “Although the pace of sales has slowed, there are no clear indications that overall prices are going to decline, real estate analysts say. Data released yesterday support their view.”

San Diego, December 2006: “San Diego County housing prices slipped 6.9 percent last month, the biggest year-over-year drop on record.”

Nationwide, December 2005: “‘I truly believe the housing market will continue to expand. But rather than the double-digit price appreciation we’ve seen, we might see that drop to a 5 or 6 percent appreciation sometime toward the end of next year.’”

Nationwide, November 2006: “…the median price for a home sold dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record.”

Obviously this doesn’t prove anything about what is going to happen here in Seattle in the coming year. However, given the theory that the housing market in the Northwest lags California (or the nation as a whole) by about a year, I think it’s an interesting comparison.

At the very least it just goes to show you that the so-called “experts” either didn’t know what they were talking about, or were intentionally misleading the press. So why should we believe what they’re saying today regarding Seattle’s market, when the numbers seem to be saying something else?

(Emmet Pierce/Roger M. Showley, San Diego Union-Tribune, 10.18.2005)
(Emmet Pierce/Roger M. Showley, San Diego Union-Tribune, 11.12.2005)
(Martin Crutsinger, Associated Press, 11.28.2005)
(Charlie Herman, ABC News, 12.29.2005)
(Roger M. Showley, San Diego Union-Tribune, 12.13.2006)
(Martin Crutsinger, Associated Press, 11.29.2006)

Although few experts predict home values will fall dramatically in 2007, many economists say prices throughout the West – particularly California and the Southwest – won’t improve for 12 to 18 months. The Pacific Northwest, where home prices are enjoying double-digit appreciation, is a rare exception.

Building booms in many markets over the past half-decade, combined with mortgage interest rates that have increased about 1 percent in the past year, have resulted in residential real estate stagnation in most markets.
…
One of the few exceptions to the nationwide slowdown is the Pacific Northwest.

In Washington, the number of houses sold in the third quarter of 2006 dropped 16 percent – but the median price surged nearly 12 percent from the same period last year, to $300,900, according to the Washington Center for Real Estate Research. In Seattle’s King County, the median price surged 14 percent to $432,600.

The dot-com bust of 2000 hammered the region, which shed a disproportionate number of manufacturing and technology jobs in the following half-decade. Homeowners there haven’t enjoyed the same run-up as investors elsewhere, said Glenn Crellin, director of the WCRER at Washington State University.

“Our real estate market essentially came to the party a little late. As a result, we’re going to be able to have a softer landing than many of the other communities nationwide,” Crellin said.

Speaking of the WCRER, while their latest report (pdf) shows building permits down across much of the state, King County is the glaring exception, with the number of units that building permits have been issued for up sixty-two percent. What was that they said about building booms leading to stagnation? Hmm…

I just love how skyrocketing real estate prices are always described in such positive terms in the media. “Home prices are enjoying double-digit appreciation,” and our market “came to the party a little late.” It’s always so fun when the price of goods increase faster than the consumers’ ability to pay!

We may have come late to the “party,” but apparently we’re not going to learn any lessons from the markets that were first to the party, and first to experience the hangover.

I also loved this little gem in the article:

About 97,000 Californians moved to Washington in 2005, making it the fourth most popular destination for Californians after Texas, Arizona and Nevada. Oregon was fifth, with more than 83,000 ex-Californians, the department reported.

California’s departing homeowners typically use their substantial equity to fund their next real estate investment. Although some Seattle and Portland residents grumble about “Californication,” the trend has helped keep home prices there rising, said Brian Kreick, broker for Lynnwood, Wash.-based Kreick Realty Group.

“I have clients from southern California who can’t believe what they can get up here for the money,” Kreick said. “I showed one guy a house in Redmond that was $830,000 and still needed a new kitchen. He thought it was a great deal.”

Oh yeah, that sounds like a great deal… What’s that saying about a fool and his money?

(Rachel Konrad, Associated Press, 12.11.2006)
(WCRER, Housing Market Snapshot, 11.2006)

First off, although I haven’t mentioned it explicitly before, Seattle Bubble is available in an RSS feed. If you use a service such as Bloglines or Google Reader, you can subscribe to either the RSS feed or the Atom feed to get your daily Seattle Bubble fix. For your convenience, I have added these links as well as a few subscription buttons for specific online readers to the bottom of the sidebar on the right. If there are additional services you think I should add buttons for, let me know.

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Median Closed Sales Price (Res): $435,000
Median Closed Sales Price (Condo): $260,000
Active Listings (Res): 7,250
Pending Sales (Res): 2,000

If the numbers come out close to those, that would pretty much fall in line with my expectations for the close of this year. YOY listings would be up ~32% and sales down ~14%, while the median price falls back slightly to early summer levels (but up ~12% YOY).

I also predict that if pending sales are in that ballpark, there will be no shortage of claims in the press that the slow sales are “due to the unusually wet weather.”

What are your predictions?

Do you steam when you follow up on a newspaper advertisement for “cozy cottage” and find a falling-down fixer? Can the term “waterfront access” accurately describe a public boat launch three miles away?

Advertisements sometimes are too complimentary and do not accurately describe the property for which they were written. Some homeowners and creative real estate agents, like many people in the sales game, dress up a product prettier than it actually is to lure the largest number of potential buyers — especially when the market has slowed in many neighborhoods.
…
In Washington state, Puget Sound residents are spoiled and often take for granted the number of properties with amenities in this region. The numerous bodies of water coupled with terraced hillsides offer area residents view opportunities not available in most areas of the country.

But don’t get carried away if you are a seller attempting to write an ad. A “peekaboo Sound view” should be more than standing on a toilet and cranking your neck to get a glimpse of water through the neighbor’s trees in winter.

Now check out this quote (first posted as part of a comment, then in a separate blog post) from one of Seattle Bubble’s most vocal prognosticators, Eleua:

“peakaboo view” = in the dead of winter, during a 50 knot gale, you may, if conditions are perfect, be able to use a 500 power telescope from the upper windows in the laundry room, and be able to see more than 1/4 mile for half of a second.

Granted, not exactly the same wording, but Inman’s story certainly sounds to me like it was “inspired by” Eleua’s “Rosetta Stone.”

What’s the most egregious example that you have personally seen of an overly-rosy property description?

(Inman News, 11.29.2006)

Summer, the prime time for selling a home, was approaching and Jeanne and Eric Mehan wanted to sell fast.

In the rush to sell before fall, the Woodinville couple acted on some bad advice.

Put it on the market, full of clutter, not cleaned, at top price, even if it’s not ready, advised their real estate agent. Let’s market your home to a flipper, someone who wants to buy it, fix it and resell. Let’s see if we get a nibble and you can work on it in the meantime, the agent told them.

Wow, that was some bad advice. Weren’t the flippers mostly gone by fall?

The agent took marketing photos of the laundry room with the toilet seat up and dirty clothes piled on the floor – with his cell phone camera.

The Mehans’ house got some foot traffic and a few offers for half the $475,000 asking price. Meanwhile, the precious summer season faded. The agent suggested pulling the property off the market and re-listing.

Half of the asking price! Now we’re talking…

“At that point I wanted nothing more to do with him. I fired him,” Jeanne Mehan said.

Now it was fall and the holidays were around the corner. Could they sell their home quickly during a traditionally soft market?

The months before Christmas are often considered a difficult time to sell a home. Potential buyers are hunkered down for the holidays and sellers don’t want to mess with listing a home during those busy months, the thinking goes.

Fewer people are buying single-family homes and condominiums in November, December and January, according to statistics kept by the Northwest Multiple Listing Service.

Pending sales were at their highest last year in June, with 8,896 recorded in King, Snohomish, Pierce and Kitsap counties. By December, sales had dipped to almost half of that, with 4,837 recorded.

That doesn’t mean selling is going to be a cakewalk. Houses need to be priced what they’re worth, agents need to market homes aggressively and sellers need to be willing to clean and fix problems, Deptuch said.

Buyers are pickier than ever, she said. Buyers expect the walls to be painted and the carpet to be in good shape. They want homes clean and free of clutter. Buyers want to walk into a home and feel like it could be theirs, she said.

The Mehans moved extra belongings into storage and hired professional cleaners. They painted the house in and out, replaced dated garage doors and put in a new lawn. The house got new light fixtures, doors and carpets.

The result: the couple put their house on the market for $429,999. Within a dozen days they received three offers and a sale is pending.

Don’t you just love a happy ending?

(Debra Smith, HeraldNet.com, 11.26.2006)

Percentage of Reduced Listings Per Market.

Ventura County:
10/22: 51.3%—> 11/18: 50.3%

Sacramento Metro:
1/30: 30.5%—> 10/20: 49.0%—> 11/18: 49.0%

Orange County:
1/30: 22.8%—> 10/20: 45.8%—> 11/18: 45.0%

San Diego County:
1/30: 26.3%—> 10/20: 43.9%—> 11/18: 42.9%

Phoenix Metro:
1/30: 28.0%—> 10/20: 43.2%—> 11/18: 42.2%

Riverside County:
1/30: 27.3%—> 10/20: 40.2%—> 11/18: 39.5%

Las Vegas Metro:
1/30: 21.0%—> 10/20: 40.0%—> 11/18: 39.9%

Los Angeles County:
1/30: 21.8%—> 10/20: 39.6%—> 11/18: 38.8%

Seattle Metro:
1/30: 17.1%—> 10/20: 33.0%—> 11/18: 33.9%

Santa Clara County:
1/30: 13.6%—> 10/20: 30.8%—> 11/18: 32.7%

2006 Price Reduction history in Seattle, showing the clear trend.

11/18: 33.9%
10/20: 33.0%
09/14: 28.1%
08/13: 25.2%
07/13: 24.0%
06/13: 21.8%
05/13: 20.3%
01/30: 17.1%

(data courtesy of ziprealty.com)

Click to enlarge

The decline in affordability from Q2 to Q3 was relatively minor, due to lower interest rates in Q3, combined with a smaller increase in the price of homes than previous quarters.

WCRER Director Glen Crellin is quoted in the Associated Press article about these latest figures as saying “home ownership depends on the ability to purchase the first home, and too often that is more a dream than a reality.” First time buyer affordability in King County also reached a new low, coming in at 38.8 for the quarter. In a “normal” market in King County, first time buyer affordability tends to be in the 60’s. If first-time buyers really do get priced out forever, who will existing homeowners sell their homes to when they want to upgrade?

I don’t see how this trend can possibly continue for much longer.

(Nicholas K. Geranios, AP via Seattle P-I, 11.22.2006)

Imagine buying a home and moving in, only to find out later that the house was never yours at all.

It’s a mortgage scheme that’s caused financial pain and heartache for many families in Western Washington.

It’s a scam so bizarre it’s hard to believe anyone could pull it off.
…
How can you possibly buy a house and find out later it’s not yours? After studying hundreds of pages of real estate records, e-mails, and phone logs, the KING 5 Investigators have figured it out.

Liza Bautista, a polished mortgage broker, who routinely touts her churchgoing ways, is at the center of it all.

Bautista often tells clients she’s a Christian who likes to help people with rocky credit buy their first home.

Mary Pelayo is one of those people.

She saw an ad for Bautista’s business that sounded perfect: “Want to buy a house, credit problems? We can help.”

“It was awesome,” Pelayo said, “until it all started falling apart.”

The bombshell that showed something was wrong was name on the mortgage bill, not Pelayo, but Lydia Pagdilao.

Lydia Pagdilao says someone must have forged her signature. The documents show she owns the Pelayo’s house, but she says she’s never heard of it.
…
Every person whose signature was forged, like Lydia Pagdilao, had given their financial information to Liza Bautista in the past for deals that were legitimate.

Later, when Bautista couldn’t get loans for families with credit problems, like the Pelayos, she secretly replaced their paperwork with information she took from clients with good credit.

With the deals pushed through, she collected her commissions.
…
“Shame on them, how can you do this to innocent hard working people?” Pelayo asked. “I mean, it’s everybody’s dream to own their own home.”

Although the article says “it’s hard to believe anyone could pull it off,” I don’t find it hard to believe at all. It’s really just a small step beyond the risky (but legal) financial situations that a large number of people are willing to put themselves in so they can “own” a home. I wonder what percentage of people actually read and (mostly) understand the mountains of paperwork that they’re required to sign during the home buying process, versus the number of people that just sign whatever the mortgage broker puts in front of them.

I think that as long as people are blindly enthusiastic about getting into a home (whether or not it’s the right decision for them at the time), there will be ample opportunity for shysters to pull this kind of garbage.

As an aside, it really pisses me off when people like this call themselves Christian and yet have no qualms with taking advantage of their fellow man. That’s about the furthest thing from Jesus’ message that I can think of. However, that’s a subject for another blog.

(Susannah Frame, King 5 News, 11.20.2006)

I choose to present this particular dataset for the following reasons:

1) SFH prices tend to be less volatile than condo prices.

Since 2001, the YOY change in SFH median price has ranged from 0.35% (Mar-01) to 20.00% (Oct-05), a total spread of just under 20 points. Condos: -5.21% (Aug-02) to 22.08% (Jul-06), a total spread of over 27 points. The maximum month-to-month change in the SFH YOY figure was a 6.32 point drop (April to May ‘01), with 10 months experiencing a greater than 5 point change from the previous month. Condos: a 21.54 point jump (Dec-01 to Jan-02), with 19 months experiencing a greater than 5 point change.

2) Consistently quoting SFH figures provides an easy comparison.

The monthly reports in the newspaper often seem to cherry-pick whatever statistic supports the “angle” that they chose to take for the story. By picking one dataset and sticking with it, I feel that I provide the readers with a better baseline for what’s really going on.

3) Frankly, I’m just more interested in SFH’s.

I make no value judgments regarding any person’s choice of whether to buy a condo or a SFH, but for me personally, I’m just not all that interested in condos. That is not to say that a condo buyer and a SFH buyer are “not equal in [my] eyes,” or that condo purchases aren’t “worthy,” just that what goes on in the condo market doesn’t interest me as much. That being said, I do have a number of charts of the condo numbers in the Seattle Bubble Spreadsheet, which is always available to anyone who bothers to click the link on the sidebar.

“St. Louis Fed president William Poole said, according to Bloomberg News. ‘As long as the housing problem remains confined to housing, there’s really nothing the Federal Reserve can or should do.’”

Realistically, I don’t think this will be the case. From a business perspective, I’m watching cash flow more intensely than ever. Will it trickle down to my Holiday spending? No question.

Another comment:

“I don’t think we’ve seen the bottom yet, and I don’t see anything that says it’s going to get significantly better in 2007,” said Bob Nardelli, Home Depot’s chairman and chief executive officer.

Mr. Nardelli said job losses in the home construction market are the worst he’s seen in 35 years, and the pain is starting to spread to the home renovation market.

“The loss of jobs . . . in the home construction market is at unprecedented levels,” Mr. Nardelli told analysts on a conference call yesterday. “Home builders [are] basically writing off earnest money and liquidating land. We’re starting to see a lot of that unemployment find its way over to the small repair and remodel contractors.”

Problems in the housing sector have also begun to affect how consumers spend their money. In October, U.S. retail sales fell at an annual rate of 0.2 per cent — the third consecutive monthly decline, according to a U.S. Commerce Department report yesterday.

My east coast bureau chief (brother & family from Massachusetts) is coming home for the Thanksgiving break next week. I’ll get his housing report.

Is there an “economic” levee built around Puget Sound & vicinity strong enough to withstand the clear real estate correction going on outside our state lines? Or, are there leaks showing up locally? Speaking of leaks… anyone else experience the Snohomish river flooding and shutting down HWY 9 last week? Unbelievable traffic. Took me 1 hour 50 minutes to get my kids to school in Everett.

Belltown – Experience fine dining while warding off homeless and addicts

Capitol Hill – Enjoy wearing your fauxhawk while calling 9-11

Denny-ile – Denial over the negative appreciation in your recent downtown Seattle condo purchase

Eastside – Close to Microsoft. Location, Location, Location

Fremont – Hippies have been displaced by hipsters

Goldilocks – Seattle RE is not too hot or cold – it’s just right!

House poor – A condition many Seattleites may find themselves facing in 2007.

Irrational District – Someone needs to open a pizza joint up in this mug and fast

Jobs – Becoming increasingly scarce in any field related to real estate and other sectors tied to consumer spending starting in 2007

Klondike Gold Rush Museum – History of yet another asset bubble

Lake Washington – It’s great if you have the $2M entrance fee

Mudslides – Increasing property values since 1901

Neighborhoods – If you can afford them, Seattle has some nice ones

Occidental Park – see Belltown

Pike Place Market – Much ballyhooed place for bruised fish and pan handling

Queen Anne – In need of a 40% haircut

Renting – A wise alternative to buying in this market. Have a little patience and buy beautiful Queen Anne view homes for pennies on the dollar by 2009.

Sailboat – A great place to live after your house capsizes

Tooth & Nail – How you’ll be fighting to make the payments on your 1960’s boxy Ballard money pit

Unemployment – What goes up when consumer spending goes down as a result of the housing bust

Vulcan – A company that consistently makes wise investment decisions

Weather – A major draw for the “equity locusts” of California

XXX – A city so liberal it proposes ridiculous laws (4 foot rule)

Y – Why not buy a house today?

Zoning – New zoning laws will finally allow all those Vancouver-like condos to be built downtown, thus cementing our bubble-proof status .

A parody of this post.

People will go to great lengths these days to own property, especially packages with added value. Despite the high cost of housing — a 38.3 percent increase in Skagit County alone in the past year — buying activity is up and inventory down.

Bzzt—three lies in one sentence. According to the most recent NWMLS figures, Skagit County home prices were up just 5.27%, sales were down 27%, and listings were up 51% in September vs. a year earlier. August figures are similar.

Skagit home sales have been driven by three principal demand sources, according to Jim Scott, president of the North Puget Sound Association of Realtors and owner of Windermere Real Estate/James Scott Associates in Mount Vernon.

“One is the continued growth of our county’s work force, another is the desirability of our county as a place to live and raise kids, and the third is pressure from tight housing supplies south and north of us,” he states. “We value our climate and our culture so much we’re willing to pay a premium to protect and enjoy it.”

Inventory in Snohomish County (south of Skagit): up 28% YOY. Inventory in Whatcom County (north of Skagit): up 72% YOY.

According to the latest figures from the 17-county Northwest Multiple Listing Service (NWMLS) in Kirkland, the average price of a home in Skagit County in August was $318,454. That was a drop of 8 percent from July when the mean was $344,440, but considerably above that for the previous August, when it was a mere $230,250.

You might be wondering: “why are they referring to average prices instead of median, and why are they using August numbers, when September statistics have been out for a month?” Well I don’t know why they would choose to print average prices, but it is rather convenient that the average they quote is considerably higher than the August median of $270,000. As far as the August vs. September question, the median dropped about $5,500 from August to September, which doesn’t really fit well with the title “Staying Strong” subtitle.

Where in many locations around the country the housing boom shows signs of slowing — the so-called “bubble” bursting, as some pundits would have it — sales activity in Skagit County has increased appreciably over one year, from 645 units in August 2005 to 972 in the same month this year, even though pending sales dropped from 259 to 209 in the same period and new listings decreased from 307 to 300.

While they did manage to sneak a little bit of truth into this paragraph (pending sales drop & new listings) the author apparently needs to take a course on how to read the NWMLS report. What the writer refers to as “sales activity” is actually total number of active listings—inventory.

Our real estate reporting here in Seattle usually leaves a lot to be desired, but at least the local papers don’t waste our time with completely false data like this. Of course, if they do, rest assured that I’ll be here to call them out.

(Skagit County Business Pulse, 11.2006)

‘It’s a great time to buy or sell a home,’ says $40 million marketing push

It might go down as the “Got milk?” moment for the housing sector.

Just as dairy associations, with their widespread ads, have tried to convince Americans of the many benefits of milk, the National Association of Realtors will begin promoting the notion that buying a home is an unalloyed good. Their $40 million campaign boldly declares: “It’s a great time to buy or sell a home.”

The ads will try to counter the drumbeat of dour housing data and news by making the case that historically low interest rates, a large supply of homes on the market and the group’s forecast of rising prices next year make now an ideal time to buy a home.

The campaign, developed by the Most Agency, based in Newport Beach, Calif., starts today with full-page ads in The Wall Street Journal and USA Today. It will make its way into other newspapers, including The New York Times, over the weekend and onto television and radio networks early next year.

“In visiting our local associations and state associations, we were hearing our members saying, ‘We are getting beat up out there,’” said Thomas Stevens, president of the trade group that represents 1.3 million real estate agents and owner of a real estate brokerage firm in the Washington, D.C., area.

“We think we need to tell them that the stars are aligned right now, and the conditions are ideal for buyers,” he added.

Independent economists, however, are somewhat more skeptical. Many predict that sales and prices, as measured by the association, which fell in August and September from a year ago, might decline further because there are too many homes on the market and because the rapid run-up in prices has put home ownership beyond the financial reach of many people.

“You can make the case that prices will rise in areas of the country that did not have a bubble,” said Ethan Harris, chief U.S. economist at Lehman Brothers. But “in the hot markets, I would say you are in for a two- to three-year adjustment in prices, not a collapse but a steady drop in prices.”

So far, prices have not dropped in the Puget Sound area. In September, the median price in Pierce County was up 1.35 percent from a year ago.

Harris recommends that buyers base their purchase decisions on whether they intend to live in an area for a few years, not on the outlook for home prices.

(Vikas Bajaj, The New York Times, 11.03.2006)

The plan was to buy a steal-of-a-deal house on the east side of Olympia, remodel it and resell it quickly for a tidy profit – pretty much like they do on TV.

But that was 10 months ago, back when South Sound’s real estate market seemed almost un stoppable. After nearly four months on the market – and a few painful price reductions – Arle and Elisa Seaton of Tumwater, and their agent Craig Gunn, recently decided to enlist the services of staging professional Karen Nielsen.

Her mission: to bring the vacant, architecturally dated 80-year-old house to life – to help make it look more like a “home” by employing rented furniture, plants and accessories.

“I thought if anything is going to sell this house, that’s what’s going to do it,” said Gunn, who has worked as an agent with Olympia Real Estate for about four years.
…
“Your house is a commodity now,” said Sterling Stock, an agent with Windemere Real Estate in Olympia.

“Yeah, you’re staying there until it sells, but it’s a competition, and you are competing for a limited number of buyers. They’re going to compare your house to all of the other houses they’re looking at.”
…
Earlier this year, Stock hired Nielsen to stage a home that had sat on the market for about four months. It didn’t need much work.

“We added some window treatments,” he said. “We took out a bunch of their furnishings that just didn’t lend itself to showing very well.”

The outcome?

“It sold in seven days,” Stock said.

The Seatons are hoping for similar results after they host an open house from 2 to 4 p.m. today. The 2,375-square-foot home at 1008 Tullis St. in Olympia is listed for $329,900.

Since the story was posted ten days ago, I was curious to know whether the magic bullet of staging did the trick for the Seatons. Apparently not, since the home is still listed as “active” on the MLS. Bummer.

Unfortunately, I get the feeling that the Seatons (who paid $239k for the home last November) are going to need more help than a staging can offer. The most recent (September) MLS statistics for Thurston County show residential listings up 95% from last year, sales down 17%, and a median sold price up just 2.4% since they purchased the home—essentially stagnant since hitting $250,000 in February. Furthermore, a search of the Thurston County assessor’s office shows that just three properties in the neighborhood have sold for more than $300,000 so far this year.

I do think that the business of staging stands to increase as the real estate market continues to slow, but it’s definitely not a cure for a house that is just plain overpriced. Incidentally, my wife recently completed the Residential (Interior) Design program at the Art Institute. Maybe she should start her own staging business.

(Lisa Pemberton, The Olympian, 10.22.2006)

In recent years, economic development boosters both in Seattle and on the Eastside have increasingly focused their efforts on attracting biotechnology companies, citing their potential for creating high-paying jobs.

But banking on biotechs can be as risky as betting on dot-coms, or, for that matter, betting on racehorses.

One local stock analyst told the Journal recently that he and his colleagues refer to early stage biotechs as “casinos” because of their 90 percent failure rate.

But conversely they are also referred to as “The Promised Land” by analysts like Paul Latta of McAdams Wright Ragen in Seattle. That’s what he calls biotechs that can successfully bring multiple drug products to market because of the profits they generate.

Biotechs that fail to reach the “promised land,” however, are bound to either eventually disappear, along with the jobs they provided, or get sold, which often also results in layoffs.
…
Despite the long odds facing early stage biotech ventures, industry observers and local economic development boosters say the benefits to the area that those companies provide, even if they are sometimes short-lived, far outweigh any the risks.

“It is worth it,” said Maura O’Neill, the former president of Explore Life, a regional economic development group that teamed up with the city of Renton a few years ago in an effort to establish a “Science City” hub for biotechs on land that Boeing was thinking of selling off.
…
The good news, O’Neill said, is that many of those soon-to-be-former Icos employees will likely elect to remain in the area and either go to work for other biotech companies, which will strengthen them, or perhaps even start up new biotech ventures.

As long as the Puget Sound region is home to outstanding medical research institutions such as the University of Washington and the Fred Hutchinson Cancer Research Center, it will continue to attract biotech and lifesciences companies, and/or birth new ones, O’Neill said.

I don’t personally think that the presence or absence of bio-tech companies in our area is going to be what makes or breaks the real estate market. This article appears to support that opinion. There are people that like to throw that into the debate though, and I thought this article was worth pointing out.

(Clayton Park, King County Journal, 10.29.2006)

Those were the days, back in the spring when the flowers bloomed and the housing market sizzled.

Washingtonians had such confidence last spring that they spent with abandon on computers, hotel rooms, jewelry and other items.

They spent 10.5 percent more than they had a year earlier, the largest increase for taxable retail sales in Washington since 1990, according to April-to-June data released Monday by the state Department of Revenue.

Rising gas prices didn’t wreck the mood and are not included in the retail-sales data.

Economists say the spending has calmed since then, doused by a slowdown in the housing market and slower employment growth.
…
The state’s economic growth and therefore the spending are propelled by employment gains, particularly in high-wage sectors such as aerospace, software and construction, Sohn said.

So, the spending is “propelled by employment gains,” but when it “calms” it’s because of a slowdown in the housing market? What a delightful contradiction. I fail to see how a 10.5% retail spending increase can be attributed to “employment gains.” Were 10.5% more jobs added? Did everyone get a 10.5% raise? Smells like false assertion to me. I think it’s much more likely that the spending increase is primarily the result of home equity extraction and a declining savings rate.

Maybe it’s just me, but the news that people are spending increasingly more as incomes stay practically flat doesn’t seem like something to celebrate.

(Melissa Allison, Seattle Times, 10.31.2006)

Research company Morgan Quinto released its latest “safest and most dangerous cities” rankings today, and overall, the Puget Sound did not fare particularly well. The Associated Press story reprinted in the P-I explains a little bit about how the 371 cities were ranked:

Cities are ranked based on more than just their crime rate, Morgan said. Individual crimes such as rape or burglary are measured separately, compared to national averages and then compiled to give a city its ranking. Crimes are weighted based on their level of danger.

While no city in Washington showed up on the “25 Safest” or “25 Most Dangerous” lists, the only Puget Sound city that managed to break out of the bottom third of the list was Bellevue, at #57. Seattle came in at #262, more dangerous than 70% of the cities that were ranked. Federal Way, Everett, & Kent fared even worse, ranking 277, 283, and 289, respectively. However, in what probably comes as no surprise to most of us, the lowest-ranked city in the Puget Sound (and even the whole state of Washington) was Tacoma, coming in at a miserable 324 (more dangerous than 87% of the ranked cities).

Here’s a table with all the cities from Washington State that were ranked:

Rank	City
57.	Bellevue, WA
134.	Spokane Valley, WA
188.	Vancouver, WA
220.	Spokane, WA
262.	Seattle, WA
277.	Federal Way, WA
283.	Everett, WA
289.	Kent, WA
304.	Yakima, WA
324.	Tacoma, WA

I just thought this would be worth pointing out in the context of the “Seattle is a hugely desirable place to live” argument that we frequently hear regarding home prices. For the record, seventeen cities in California ranked higher than Bellevue, our area’s safest city on the list.

Seattle is a nice place to live (I like it here, really!), but I think we would do well to remember that it’s not some kind of perfect paradise.

(Christopher Leonard, Associated Press, 10.30.2006)
(Full Rankings: Associated Press, 10.30.2006)

Imagine checking on a vacant rental house you own, only to find a family you don’t know living there.

It happened this week to a King County man. But the people who were living on his property insist they paid another man they thought was the owner nearly $6,000 to move in.
…
Mike and Lia Lester claim that they and another couple rented the house after seeing an ad on the Craigslist web site.

They met a man they thought was the owner of the house and paid him $5,700 in rent and security deposits and he gave them the keys to the home.

Now, they say they’ve been scammed.
…
Sean Stewart doesn’t know who they paid — but it wasn’t him. Stewart owns the house and he’s never met the Lester’s.

“I feel sorry for anyone who gets screwed like this,” he said. “There’s no doubt about that.”

The problem is Stewart has other renters moving in next week, so he says the Lesters have to go.

Doh. Seriously though, that would really suck. How would you even protect yourself from a scam like this? Demand to see the title to the property before moving in?

Of course, if the Lesters had just gotten on the equity escalator, they wouldn’t have put themselves into such a vulerable situation to begin with.

(KOMO Staff, KOMO, 10.28.2006)

Thanks to the reader / college mate that sent this in. Seattle got a mention in yesterday’s Wall Street Journal story: Home Prices Keep Sliding; Buyers Sit Tight.

The air continues to seep out of the U.S. housing market, according to the latest data, and some economists are warning that prices will keep declining through much of 2007.

The National Association of Realtors yesterday reported the biggest drop in home prices since the trade group began compiling price data in 1968. Specifically, the association said the median price for home sales completed in September was $220,000, down 2.2% from a year earlier. That matched a revised 2.2% decline in August. In addition to being the largest price drops in at least 38 years, the back-to-back declines are the first time median home prices have fallen since 1995.
…
Seattle has been one of the strongest markets in recent months but is showing signs of losing some steam as inventories of unsold homes rise. In 17 counties of western and central Washington State covered by the Northwest Multiple Listing Service, the median price in September was up 9.4% from a year earlier, the first single-digit increase in two years.

Mike Skahen, owner of real estate brokerage Lake & Co. in Seattle, says inventory is still lean in good neighborhoods near the area’s biggest employers. But the overall market is slowing to a more normal pace as “buyers are feeling they can be more selective.”

That seems to be the line I’ve been hearing a lot around here lately. We’re just “returning to a normal market.” That is certainly possible, but with the increasing rates of declining YOY sales and building YOY inventory, I’m not quite ready to accept that assertion.

(James R. Hagerty, Wall Street Journal, 10.26.2006)

Here is a glimpse into the local Puget Sound market from an individual heavily immersed into building and who I would characterize as exceptionally credible. Below are a few of the weekly e-mail updates I’ve received over the past several weeks. The individual works for a large builder and has agreed to let me post some of the e-mails:

End of September update:

…and I don’t ever read about the builder’s side of things on your blog or any blog about Seattle. The newspapers never talk about it. It is very wierd. Our inventory around the sound has increased 85% from last year. Sales have totally fallen off. Some builders are planning on functioning on fewer neighborhoods but increasing their sales rates to stay at the same level. So instead of have 8 communities selling 5 a month you have 4 selling 10/month. The problem with that is that you have 1-3 field managers per neighborhood and 1-2 sales agents and so on. We just had just about every sales agent buy a new 35k-60k car in teh last 8 months. The average age is probably 30.

1st week of October Update:

Last week, we had 8 sales and 7 cancellations. This is beginning to be the story everywhere. We still have quite a bit of traffic but for other builders it is different. It has dropped off 75%. Builders are using incentives but it is not working. They can’t even get people to show up. The poeple that didn’t buy contingent I feel sorry for. Land prices have come down, but it still doesn’t pencil

2nd week of October Update:

….Standing inventories are becoming a big problem for some.

3rd week of October Update:

They have a lot of inventory down there. We aren’t planning on buying anything unless it is of compelling value. I have been tracking standing inventory, specs, which is getting interesting. Most site agents I talk to all say the same thing. Traffic has stopped, not declined, stopped. The further out markets are feeling it first. 80% of our buyers are on ARM’s, not the toxic kind. It’s the only way they can afford to buy.

Today (Oct. 25th) Weyerhauser announced a decline in earnings.

“While anticipated, the housing market decline was more abrupt and drove wood products prices and demand into a deeper plunge than expected,” said Weyerhaeuser Chief Executive Steven Rogel in a statement.”

So, if there are any small builders, contractors or supply side people that would like to comment on local experiences, please fill us in.

In other news

Our escrow office has experienced a lot more refinances lately. I am seeing more fixed rates than in months past, but ARM’s are still king. Refinance business has sustained our business over the last two years. While our market share has increased by taking baby-steps and being very fiscally conservative, we do know of companies (escrow & mortgage) that are showing the earmarks of struggling.

Today, Fidelity National Title announced it will eliminate 650 jobs. Personally, while I understand they answer to Wall Street, I find this hard to stomach because title companies have been absolutely raking in obscene amounts of income while riding the appreciation wave over the past few years. For those new to purchasing, title insurance premiums are based upon the sales price of a home, generally speaking. When home prices go up, premiums tag along for the ride.

In contrast, when you close a home sale at a escrow company like ours, our price is generally fixed, irrespective of the sales price. In other words, there is not necessarily more work in closing a $250,000 home vs. a $800,000 home. Same goes for refinances. I just can’t understand why consumers fall for all the fluff out there. I don’t care where people go to do business, just shop for crying out loud. Sorry for the rant, I just can’t believe some of the settlement companies are charging people $250.00 for loan document e-mail fees. In years past, loan documents were delivered overnight by UPS or FedEX. Today, they are e-mailed which is highly streamlined to save time. So now you see these junk e-mail fees. Total garbage. I wonder what junk fee will be invented next?

This week I had the pleasure of telling some clients that they would not be receiving more money back than anticipated when their cash-back refi closed. Why? $10K ‘n change pre-payment penalty. That takes the cake this month.

More to come…

About the last place a prospective homebuyer might want to peruse MLS listings these days is in one of the country’s most expensive markets, like San Francisco, where the median cost of a single-family dwelling has jumped 37 percent since 2003. (It’s now more than triple the national figure.)

A couple of leading economists, however, think buyers shouldn’t be intimidated, even if prices in these markets go into a slump. San Francisco, New York, and a small handful of other big cities may suffer dramatic swings in a downturn, but their long-term trends “are so strongly upward that if you’re willing to buy and hold, it’s a good strategy,” says Todd Sinai, an associate professor of real estate at the Wharton School and coauthor of a recently released study called “Superstar Cities.”

The same logic, Sinai says, applies in other inflated markets like Boston, Los Angeles, and Seattle.

Given the admission that there may be “dramatic swings in a downturn” I guess I don’t really understand the “bubble-proof” label. If they were making the usual claim, that the worst case scenario is for prices to level off for a few years, then it would make sense. It seems more like they’re just pointing out the cities with the best long-term growth prospects, and I actually don’t disagree with their assessment. Seattle is a desirable place, and will likely take a less severe beating as the housing bubble busts. However, that hardly makes us “bubble-proof.”

Their reasons for including Seattle on this list are all the ones we’ve heard dozens of times before:

Seattle has a lot going for it physically, with its green landscape of towering trees laced with bays, inlets and rivers connected to Puget Sound.

But what makes the city effervesce is its status as the epicenter of the software industry, courtesy of Microsoft, and the birthplace of other marquee giants like Starbucks and Amazon.com. As these companies have grown, so has their demand for workers.

Other attractions include access to natural beauty, an active lifestyle and a lively pop music scene: Seattle is a home to numerous heavy metal and grunge bands. All this spurs demand for Seattle’s tight housing supply.

Not to mention historically low interest rates and loose lending standards…

(Paul Kaihla, Business 2.0 Magazine, 10.25.2006)

First off, you may have noticed that the “About This Blog” section on the right has been transmogrified into “Read These Posts.” I realized that there were some posts that I was consistently referring back to, that I feel really do the best job of getting across the major points we’ve explored on this blog. The idea behind the “Read These Posts” section is that if a newcomer to the blog reads through each of those posts, they’ll have a pretty good summary of what’s going on in the Seattle housing market, with respect to the bubble. If you have any additional posts that you think should be included, or if you think that one of the posts that are included shouldn’t be, please let me know. It’s a work in progress.

Secondly, although Synthetik has already pointed this out in a comment thread, I wanted to draw attention to the fact that the domain name / link SeattleBubble.com is now functioning. For now, it just forwards to the “old” address (seattlebubble.blogspot.com), but my not-too-distant plan is to migrate to a fully-hosted WordPress blog, which would just use the address SeattleBubble.com. So get a head start, and change your bookmarks now.

Lastly, I thought I would point out the “tip jar” link on the right side. Believe it or not, I added this only because it was privately requested by readers. I started this blog primarily as a way to keep track of the changing Seattle market conditions for myself, but it has morphed into something much bigger. As a result, I do spend quite a bit of time finding interesting things to post, and working on original content. Unlike many of the other “bubble blogs,” I have not resorted to advertising, and I intend to keep it that way for the forseeable future. Honestly, writing this blog is its own reward, but I definitely don’t mind getting a few dollars out of it now and then. So, if you like what you’ve been reading, and have been wishing for a way that you could repay me, now you have it. Unfortunately, for those of you that despise what you read here and wish I would just shut up and go away, I haven’t yet figured out a way to make an “un-donation” link, so I guess you’re just going to have to keep leaving snide comments.

That’s all for now. If you have any suggestions of ways to make this blog better, this thread would be a good place to speak up.

Seattle-based Washington Mutual blamed a 9 percent drop in its third-quarter profit Wednesday on a slowdown in its mortgage business.

The drop was more severe than Wall Street analysts had expected, and shares of WaMu stock fell $1.70, or 3.89 percent, to $42.01 in after-hours trading.
…
WaMu has eliminated nearly 10,000 jobs in the past year as it tries to become more profitable.

“The housing market is clearly weakening, with the pace of housing price appreciation slowing in most regions of the country,” Chief Executive Kerry Killinger told analysts and investors in a Wednesday conference call, held after the close of regular trading.

“We are also experiencing somewhat higher delinquencies and loan losses,” he said.

WaMu reported a profit of $748 million, or 77 cents a share, for the July-through-September period. That was down from $821 million, or 92 cents a share, a year ago, marking the second consecutive quarter in which WaMu has failed to report a profit increase.

Analysts had been expecting a profit of 93 cents a share, according to a poll by Thomson Financial.

“Patience is running out,” said Fred Cannon, an analyst at Keefe, Bruyette & Woods. “2007 is really going to be a watershed for the company.”

It is important to note that $748 million is still an awful lot of money. I’m not trying to say that WaMu is in dire straights, I’m just pointing out that Seattle’s economy is most certainly tied to nationwide events. If housing (or the economy as a whole) takes a serious downward turn nationwide, Seattle will not be unscathed. We’re not that special.

(Amy Martinez, Seattle Times, 10.19.2006)

It’s not as if the bubble bloggers are going to pick up the slack with full page ads sticking their thumbs at the real-estate industry, and encouraging to general public to stop buying.
…
Hey, the quickest way for the bubble bloggers (like us) to influence the editorial policy of our local papers is to start taking out negative advertisements about our housing markets.

As soon as anti-bubble content becomes the biggest financial contributor to the paper, we will see a complete about face in article bias.

Maybe Tim should start holding out a tin cup for donations to place anti-bubble ads in the Times?

The conversation just took off from there:

Nolaguy: If we paid for it, I wonder if the Times or PI would run a full page add that was “anti real estate”?

Mikhail: …for a 6 inch by 6 inch ad we would need to raise $17,438.4… Seriously, if we really could pull something like that off (i.e. getting enough people to donate to a Puget Sound housing boycott advertisement) that would likely generate a lot of publicity, beyond publishing the ad itself. And if the papers really were silly enough to decline the ad, we would have an early Christmas, and be able to take our story to the national media and get a LOT of coverage.

synthetik: $17K is a lot of scratch. I think it might be possible if a website was created around this endeavor and then posted on all the national blogs (HB, HP, etc). Might be fun to try… If they wouldn’t run the ad we could donate the funds to charity.

However, not everyone has warm fuzzies about throwing around that kind of money. Plymster suggested some other possible activities:

$17K? You guys are saving waaaayyyy too much money renting.

I disagree with handing $17K to one of the key creators of the bubble. Why not just hand WaMu a giant novelty check for $1 trillion dollars to cover next year’s ARM resets?

If you really want to raise awareness, build up a fund that donates money to debt education, and then send a press release to the appropriate news rags. Then you’d be doing some good and not contributing to the problem.

Or you could buy me a ladder so I can get off my high horse. ;-)

A few people suggested some cheaper methods of advertising:

msrelo: Maybe I don’t have a full understanding of how the ad sales work but it seems like a single page insert is cost effective.

Wanderer: Alternative to the PI: I just called Seattle Weekly and got the following quotes: 1/2 page = $1471, 1/4 page = $732, 1/8 page = $389. Those rates are for a single week and there is ~10% drop for 4 weeks consecutive.

Wanderer takes it a step further and starts proposing fundraising methods and ad print subjects:

Wanderer: I personally would put in $200 toward a 1/4 page add the first week to get some attention and then follow it up with a 1/2 page add the next. I am relatively new to the scene, but I would trust synthetik and Tim to put together a well thought out and RATIONAL explanation of:

real estate fundamentals

where the current market stands relative to them

current trends locally

what the REI wants you to believe

Many, many, people will dismiss it as paranoid anyway, so it really needs to be conservative and not over the top.

There are of course still questions of whether this would even be a valuable exercise:

synthetik: If you were firmly plugged into the matrix like most people, wouldn’t you simply dismiss the ad? Wouldn’t people wonder what we all had to gain?

Wanderer: It would be hard to convey motives in a 1/2 page article, so it probably isn’t worth trying anyway. Anyone that is going to ask, “What do you have to gain from this?” probably can’t answer the same question about the writers of the RE section. For me, there is value in just putting out good information where very little currently exists.

Which brings me back to ad print and to Eleua’s comment:

If all of you are serious about this…

It would probably be best to collect all the turbo-Bull quotes from late ‘05 early ‘06, and string them all together. Show just what REIC shills all these bulls have been.

Then you ask if you would spend $500K on the wisdom of those Carnacks. If not, why not?

Perhaps you can also include quotes from all the Wall Streeters back in the late 90s. Let the inquisitive reader draw his own conclusions.

I think before anyone gets too serious bandying about large sums of money, we would need to come up with a simple way of getting people’s attention. Printing a half-page essay about “fundamentals,” “unprecedented run-ups,” and “ARM resets” would be a waste of money. Very few people would read it, and of those that did, you would probably convince about 0.1%. I think Dilbert creator Scott Adams neatly sums up what is necessary in a situation like this:

The challenge was that the bad ideas sounded terrific to the uninformed person. You couldn’t kill these particular bad ideas with logic because the arguments against them would be too complicated. You had to go in through the back door.

I suggested a few cleverly designed, hypnosis-inspired phrases that were the linguistic equivalent of Kung Fu. They were simple (that’s my specialty), and once you heard these phrases, they made any competing ideas seem frankly stupid.

I think that Shiller’s home price graph is a good example of the kind of thing that Scott is talking about. So that’s the challenge. Come up with a simple phrase, image, or series of phrases that make buying a home at the peak of the bubble “seem frankly stupid.” If we can do that, then I think we can consider buying some ad-space.

“With all the dismal reports about the home real-estate market, don’t lose track of something critically important: Mortgage interest rates have been falling quietly but steadily for weeks, and are now at their lowest level in half a year, barely a percentage point above 40-year lows.”

New mortgage applications are up sharply, the number of pending home sales is up, the national economy continues to expand moderately, and the rate of unemployment just declined again — to 4.6 percent. All of which begs the question: Just what kind of housing bust is this anyway? With gloom-and-doom purveyors forecasting imminent crashes in dozens of metropolitan areas, how could such key fundamentals as jobs, interest rates and even pending home sales simultaneously be trending in the opposite direction?

Kohn sees no imminent bust or crash in housing at all. It is a “correction” that’s under way — a cyclical rebalancing of a marketplace that got too hot for too long in some parts of the country, and is now heading back toward more “normal” conditions, where prices are more in line with what consumers can afford.

Not all home sellers have fully grasped the altered realities in their markets — that they’ve got to reduce their asking prices if they truly want to sell — so the process is still unfolding. Re-priced houses, in turn, should stimulate greater numbers of potential buyers to get off the sidelines and make offers.

The nationwide 4.3 percent increase in pending home-sales contracts, reported Oct. 2 by the National Association of Realtors, could be a sign that Kohn’s prediction is already taking shape.

Second, said Kohn, the housing correction — expressed through new home
starts — “may be closer to (its) trough than to (its) peak.”

A final key factor, Kohn said: “Continuing growth in real incomes should underpin the demand for housing, and as home prices stop rising, help erode affordability constraints.”

Mike Moran, chief economist of Wall Street’s Daiwa Securities America, minces no words: The financial press and TV news shows are overly dramatizing what is a normal and long-predicted cyclical rebalancing, and “portraying it as a catastrophe.”

“[Housing] is going through a correction that’s badly needed,” Moran said. “The key issue is whether it is orderly or disorderly.” And all signs point to a continued orderly process, not a breakout bust or panic.

Doug Duncan, chief economist of the Mortgage Bankers Association, points out that national housing-sales numbers are merely rolling back to 2003 levels — “and that was a record year.”

Serious sellers and buyers shouldn’t be misled by predictions of imminent crashes, Duncan says. Not only do the doom reports ignore the positives out there in the marketplace — mortgage rates in particular — but “the rhetoric is just way overwrought.”

In this fable, will the Bears will eat Goldilocks in the end?

(Keith R. Harney, Seattle Times, 10-14-2006)

• Home prices, though high, are affordable when compared to those in California markets.
• Because of the strong increase in home prices over the past two years, mortgage debt servicing costs have risen significantly. Nonethless, [sic] the debt service cost relative to household income stood at 23% — only a tad higher than the national average of 22%.
• Local job growth has been strong. The three-year job growth of 3.5% easily tops the national pace. Gains have been particularly strong in 2006.
• Job growth attracts additional potential homebuyers to the market and limits the number of “forced home sales” (as was the case in the early 1980s and 1990s). This suggests that any price decline will likely be short lived given the additional buyers ready to enter the market.

Granted, none of these statements are necessarily false, but it’s clear that they’re being very careful which facts they choose, in order to paint the rosiest picture possible.

• However, the biggest risk is the drastic slowdown in home sales activity that could result from further measurable increases in interest rates. Should the 30-year average fixed rate approach 8% (from its current 6.8%) as a result of too much monetary tightening by the Federal Reserve, home prices in the region could well decline.

Newsflash guys, a slowdown in home sales activity is already under way. But hey, at least we’re making a little bit of progress toward the truth. If you recall, a year ago they were saying that price declines would occur “only under extreme unlikely scenarios” such as “mortgage rates rising to 10.5% in combination with 3,000 job losses could lead to a price decline.”

• A more relevant measure [than home prices] for assessing the risk of a home price bubble is the median mortgage servicing cost relative to the median income. This ratio is at near the local historical average. It implies no widespread financial overstretching to purchase a home in the region.

What they conveniently fail to mention here is that this is only possible because of the wide variety of risky, “exotic” loans that are now available.

• Only 3% of new loans had a loan-to-value ratio of greater than 90%. Therefore, prices would have to decline by more than 10% to have a measurable impact on foreclosure rates.

That number sounds really low to me… too unbelievably low. I have a feeling that when they say “of new loans,” they’re counting 80/20 loan combinations as two individual loans that are neither one for more than 90% of the value of the home that was purchased. How convenient.

Oh, and if the “Additional Discussion Points” on page 8 sound familiar, that is because it is the exact same drivel that they included in last year’s PDF on page 7.

All in all, what we have here is another disappointing showing from the NAR. If they’re going to have any chance of convincing a thinking person of a strong, resilient Seattle housing market, they’re going to have to come up with something more than this steaming pile of tired catchphrases and misleading statistics.

(National Association of Realtors®, 07.2006)

With the number of homes for sale rapidly increasing the last few months, and the pivotal month of October now nearly halfway over, I think it is a good time to take somewhat of an in-depth look at inventory. I refer to October as “pivotal” because as far back as I have reliable data (2000), inventory has always decreased from September to October. If inventory increases this month, I believe we will have truly turned a corner.

Some of the local papers in the last few months have claimed that the Seattle area is becoming a “buyer’s market.” Personally, I think that’s malarkey. I’m a potential buyer, and there’s still no way I’d touch this market with a ten foot pole. It has been said by some commenters on this blog that in order to see any significant slowdown in price appreciation and a return to a “balanced market,” the Seattle area would need to experience a two-to-three-fold increase in homes for sale. Let’s take a look at some historical inventory data to see how that claim holds up, and to explore the following questions: What does a true buyer’s market look like for the Seattle area? How soon will we at least experience a balanced market?

Unfortunately, I have been unable to obtain solid MLS data on inventory & sales any further back than the year 2000 (if anyone out there can help me on that, I’d love to hear from you). However, I was able to locate a number of data points back through 1993 via the Seattle Times archives. All of their reports from that time period give numbers from the “Puget Sound Multiple Listing Service,” which includes all of King, Snohomish, and “North Pierce” counties. When I refer to record highs below, the time period under consideration is from 1993 to the present. For the purposes of comparing current (post-2000) data to these historical figures, I’ll be assuming that 75% of listings and sales in Pierce county take place in “North Pierce.” With that introduction, here are some of the interesting data points I found.

Record High Inventory (pre-2000)

As well as I can tell, the record high inventory in the two-and-a-half county region was 17,292 homes in July 1996. (The Seattle P-I claims that the summer of 1994 had 23,000 homes on the market, but that figure is not corroborated by the Times—which put the number at 14,000-15,000,—and is so far outside of every other number I can locate, that I believe it to be a typo.) That month saw 3,315 pending sales, making the Months of Supply (MOS) 5.22, while YOY appreciation stood at 5.1%. For the most part, it looks like that was a fairly “balanced” market.

Record High Inventory (post-2000)

The all-time (since 1993) record high inventory appears to have been in the summer of 2003, just as housing mania was really taking hold in Seattle. Specifically, June 2003 had 20,807 homes for sale in King, Snohomish, and North Pierce counties. While the number of homes on the market was quite high, so was the number of pending sales: 6,396. The MOS for June stood at 3.25, and appreciation hovered around 3-5%. I’d call that a seller-friendly market.

Record High Months of Supply & Record Low Pending Sales

Going back a bit further we find that late 1994 to early 1995 had an even more balanced market than 1996, possibly even tipping slightly in the buyers’ favor. MOS exceeded 6.0 from October ‘94 through March ‘95, while YOY appreciation was 3-4%. The record high MOS was 6.89 in December 1994, a month that also saw the record low pending sales of just 1,726.

Current Situation

So where do we stand currently? Last month there were 19,173 properties for sale in King, Snohomish, and North Pierce counties. Note that this is very near to the record high inventory of 2003, while the 5,530 pending sales are slightly fewer than June 2003. September’s MOS comes in at 3.47. A year ago, the 2.5-county region had an MOS of just 2.13.

The Future?

If September’s YOY trends (+36% listings, -17% pending sales) carry through to 2007, next September we will be looking at approximately 25,994 properties for sale, 4,595 pending sales, and 5.67 MOS. Of course, no one really knows whether the current trends will continue. Looking at the trend of the last few months’ YOY numbers, it would be fairly easy to make the case that inventory will increase even faster, while pending sales decline faster.

	YOY % Change
Month	Listings	Sales
May-06	10.20%	-6.27%
Jun-06	17.17%	-10.14%
Jul-06	19.29%	-13.08%
Aug-06	23.91%	-13.29%
Sep-06	28.79%	-20.59%
King County SFH only

So does inventory need to double for Seattle to be a balanced market? No. Even if sales held steady where they are (not likely), we would only need approximately 70% more inventory to reach a balanced market. Personally, I think we are likely to see the elusive 6.0 MOS balanced market as early as next spring, and no later than next winter. Will it stop there? What will happen if the greater Seattle area sees 8.0, 9.0, 10.0 or even higher MOS? I think it’s possible, and based on the historical data, I think it could push “appreciation” into negative territory.

Your thoughts, corrections, and analysis are welcomed.

You might have seen Rain City Guide’s recent post by Galen Ward, “There will never be a real estate bubble” and the comments that followed.

It appears that Galen posted the above article simply as a joke about the heat over Susan Ryan’s post “Just Say No to Bubble Talk” post as well as others over on the Seattle PI-sponsored Seattle Real Estate Professionals blog.

Side Note: Notice how Susan Ryan’s latest posts do not allow comments and contain very long images that scream “Get thee behind me, and much further down the page ye satanic bubblehead posts!”

Rain City’s Galen e-mailed me, wanting to know why his post had irritated me so. I responded that I felt the blog appeared to be a REIC cheerleading forum (seems like a reasonable assessment if you take a gander at their authorized bloggers) My apologies to Galen for misinterpreting his post as potentially malicious.

Here is part of his response:

“My take on our blog is this: we have 2 tech people (myself and Robbie) who rarely talk about real estate specifics, a lawyer who talks about lawyer crap, Dustin who has posted one negative story in his life, and Ardell and SeattleEric.”

I accept this and move on until this evening when I find this puff piece posted on Rain City. Ardell writes a completely benign article about the shocking truth of banks owning a large portion of our assets (unless you happen to be wealthy).

I noticed this quote right away:

“I was perusing The Tim’s blog while writing something on my blog earlier today, and ran into the comments regarding King County median income and median home prices, again. I never seem to draw the same conclusions as other people.”

She fails to link Tim’s blog but does a nice job of linking her blog post (which takes aim at Tim’s “In A Nutshell” post, which she apparently believes is poorly written and hard to understand) as a “oh by the way”.

My point is this: If the “Rain City Guide” is not a Real Estate Cheerleading blog, then why is Ms. Ardell DellaLoggia allowed to use it as a pulpit?

When I first moved to Seattle, the Rain City Guide was the first blog I came across. “Great resource!” I thought. I’m just a tad upset because I know how many hits this site gets.

How many people with homeowner envy are reading these articles? How many will be pushed into Greater Fooldom after reading it? Would you be interested in hiring Ardell as your realtor when you are ready to enter the housing market?

Me, not so much.

Note: If you do choose to post on one of the above mentioned blogs, please be civil and think your arguments through all the way. I realize it can be difficult, however it won’t go far in helping persuade potential home buyers from understanding our position. Thanks ;)

(Ardell DellaLoggia, Rain City Guide, 10-10-2006)
(Galen Ward, Rain City Guide, 10-09-2006)
(Susan Ryan, Seattle Real Estate Professionals, 10-08-2006)

This PDF was attached to the e-mail.

Hi Chad:

The bubble isn’t bursting here!

Please see this breakdown of renting vs owning.

I thought you might find it of value.

Hope things are well.

:)

Jen

Jennifer Fisser
REALTOR (R)
ZipRealty, Inc.
Licensed in California
Licensed in Washington
jennifer.fisser@zipRealty.com
Toll Free: 1.800 CALL ZIP x4824
Cell: 206.890.0131
Fax: 206.508.0848
My Profile: http://www.ziprealty.com/agent/jfisser

Pick any complete sentence out of that PDF, google it, and you’ll see that this article is being circulated all over the place.

Can you smell the desperation?

“Nearly a full third of households are still renting…but if you are one of them, you could be paying a hefty price. Additionally, the children of the baby boomer generation are close to or at the home buying age, but these “echo boomers” could mistakenly decide to put off the purchase of a home because of all the noise about a “bubble” in home prices.”

Another Darren Meade quote, from his website

“No one should ever have to lose there [sic] home and live on the street, especially when you have already spent half your life building your career”

Irony at its finest.

(Darren Meade, American Chronicle, 08.19.2006)

Seattle’s median home price in September was up just 4.4 percent from a year ago and down from both July and August, according to new statistics. It’s the lowest year-to-year increase and the first time prices have dipped two months in a row since January 2004.

The median home sold for $400,000, down from $405,000 in August and $420,000 in July, and up from $383,000 in September 2005, according to numbers the Northwest Multiple Listing Service released Friday. The number of homes on the market shot up 30 percent from a year ago, while sales were down by nearly 16 percent.

One caveat is that condominiums made up slightly more of September’s home sales than a month ago and significantly more than a year ago. The typical condo sold in September cost 32.4 percent less than the typical house, pulling down the median for all homes combined.

Are they suggesting that the median price went down because more condos were sold? Seems plausible if you don’t believe in bubbles…

The slowing market means buyers can take more time to find just what they want, Crellin said. “A year ago, the environment was such that if you could afford a property you almost had to make a bid on it, no matter how much you liked it.”

Crellin’s message for sellers? “Don’t panic.”

“Yeah, it’s going to take a while to sell a home,” he said. “The mere fact that it hasn’t sold in the first couple of weeks is not an unusual situation.”

The slowing market means buyers watch television, read articles online and listen to radio broadcasts. The slowing market means buyers may decide not to buy at all. If someone is telling you not to panic, that generally means it is time to panic.

During peak times in the market, buyers might have set aside qualms about the floor plan and jumped at the place, she said. “Maybe that sense of total urgency has lessened a little bit.”

Realtors also say stories about the slowing market, particularly nationally, have some holding off.

Now we’re getting somewhere.

Realtor Marty Grasa, also of Windermere, said he had two clients who held off on buying through the summer and now can’t afford what they want.

“They waited themselves out (of the market),” he said.

One is Cat Cabalo, a lawyer who said she originally started her condo search in 2004, then suspended it later that year because she “was convinced the bubble was going to burst.”

One condo with everything that Cabalo wanted sold for $188,500 in 2004, she said. “Now if I were to find something comparable I would have to spend, I would say, at least $250,000.”

She missed the equity train by sheer dumb luck.

After watching her friends buy homes and gain equity, Cabalo looked again this spring. By August, news of the slowing national home market, evidence of Seattle condos taking longer to sell and her busy schedule led her to suspend her search again, despite regrets about her previous decision.

“I just told myself I’d rather wait,” she said, adding that she planned to do more research on the local market.

Crellin expects the region’s home market to settle into year-over-year price increases near the rate of inflation, which tends to be about 3 percent. He also cautioned against applying national stories to the region.

I like this Crellin person. Really tells it like it is. I used to have a computer integration business and sold quite a few PC’s. I had a few customers that would hem and haw over buying a new computer and then wouldn’t go through with it because they knew the price was going to come down soon after they purchased.

In the world of the computer PC, it’s always been like that. Prices always go down, so to some it never seems like the right time to buy. Those people forgo the productivity gains of a faster system to try to save a little, then end up wanting the newer, more expensive model with more bells and whistles – then the process starts all over again.

Realtors love to create the fear in buyers that if they don’t commit quickly, they’ll never be able to get in the game. Or, as we see above, to insinuate that she not only missed the boat but prices are going to continue to increase – although at the slightly moderate rate of inflation.

“We have to be very careful not to assume that trends that are taking place in Florida and California are going to be replicated locally,” he said. “I think our market is more resilient.”

I would think that Crellin needs to be more careful in the words he uses and in the direction he is taking the reader.

(Aubrey Cohen, Seattle PI, 10.07.2006)

“More reductions are possible,” said Tim McGarry, vice president of corporate public relations. “It is true that there may be more in the future.”

While South Sound home sales year to date are running 6 percent ahead of sales through all of 2005, higher inventories continue to slow the pace of sales, according to preliminary data released Wednesday by the Olympic Multiple Listing Service.

Active home listings have nearly doubled since September 2005, rising to 1,764 homes last month, compared with 991 last year, the data showed.
…
In September, 380 homes were sold [in Thurston County], compared with 443 last year, resulting in a preliminary 14 percent decline, the data showed.
…
Wells Fargo Home Mortgage Consultant Jeff Devlin said the market’s cooling effect has been necessary because home price increases were beginning to outpace incomes.

“Homes on average were appreciating no less than 10 percent in the last few years,” he said. “Well, incomes haven’t increased with it. We just do not make as much in South Sound. Something had to extinguish the fire a little bit.”

Just “a little bit,” mind you… so far anyway. Olympia has been experiencing the biggest inventory surge in the Puget Sound area. Between King, Snohomish, Pierce, Kitsap, and Thurston, I expect either Thurston or Kitsap will be the first to experience an actual drop in year-over-year prices. I wonder what Jeff Devlin will be saying then.

(Rolf Boone, The Olympian, 10.05.2006)

Beau Betts (Seattle RE Professionals blog contributor and a local “Accredited Buyer Representative”) kicked things off with a post on his blog questioning the viability of Progressive Homesellers’ flat listing fee business model.

I’m really not sure how this business model is going to work out. I know that there would be no way John L. Scott would allow me to work as a discount agent while under their roof. If I came to my broker with a listing agreement for 3% + $3,995 (which I’m sure Progressive Homes takes a cut of) and said that the service I’d be providing would be absolutely minimal, I’d be show the door with a list of discount brokers to call (Redfin, Assist-2-Sell, Sutton, etc). Working for John L. Scott I’m expected to provide a full range of professional marketing services to my clients to get their homes sold. Just putting a sign up and adding the listing on the mls with a few lousy pictures taken by the Seller is not allowed.

In the comments to the post, Marlow Harris—also a Seattle RE Professionals contributor, and more importantly, a licensed Realtor™—laments the fact that licensed Realtors™ operating under established brands are out there undercutting the sacred 6%.

The unfortunate truth however, is that some well-known companies have bought a franchise and are operating as almost ‘rogue’ agencies out there, offering limited service for as low as 1%.

Have you seen 4% Real Estate? It’s a John L. Scott agent!

At this point, Trevor Smith—the 4% Realtor™ himself—joins the discussion in defense of his business:

Thank you for taking notice of my business model: 4% Real Estate. However, I ask you review my website for clarity. I am a full service real estate agent. I give all my clients the same treatment that my peers charging 6-7% are giving. Remember, real estate agents received a 30 – 50% raise over the last 3-4 years due to the increase of housing prices. Do you know any other profession that received that sort of pay raise?

Rather than directly address Trevor’s points, Marlow resorts to name-calling:

If the National Association of Realtors was a labor union, and we were union workers, you’d be a scab, my friend.

Aside from Marlow’s misuse of the term ’scab’ (unless there’s a Realtor strike that I’m not aware of), her comment is quite interesting because of its extremely anti-competitive undertone. As Trevor rightly points out on his blog, fixing real estate commissions is against the law. In fact, the National Association of Realtors is in the midst of defending itself against an antitrust lawsuit brought against it by the Department of Justice:

…challenging a policy that obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers. The Department said that NAR’s policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting.

Marlow’s comment would seem to indicate that she is in favor of exactly the kind of anti-competitive practices that have gotten the NAR into hot water. Seeing as how I’m not “in the industry” per se, I’m not really qualified to offer a very educated opinion on the situation. However, a Seattle Bubble reader that is an industry insider made the following comment to me via email:

Her comment is the most stupid, arrogant and glaring comment by a Realtor I have ever seen in print. I cannot imagine why on earth she would place herself in such a dire situation by saying that. This is just the type of anti-competitive behavior that the Dept. of Justice is suing over and is clear ammunition they are looking for.

It will be interesting to see how this all plays out. With credit tightening, sales slowing, listings growing, lawsuits brewing, and new technologies emerging, it would seem that the squeeze is on for the traditional 6% real estate agent.

(Beau Betts, Seattle Real Estate News, 09.22.2006)
(Trevor Smith, Seattle – Tacoma Real Estate, 10.02.2006)
(Press Release, Department of Justice, 09.08.2005)

The percentage of Seattle residents who … own their homes increased over the past five years — even though home values and mortgage payments rose much faster than incomes, data the U.S. Census Bureau released today shows.

According to Census numbers, the trend in Seattle also was true in the county, state and nation, although the chasm between income and home values widened more in the city.

Local economists said low interest rates were the biggest reason more people were able to buy their own homes between 2000 and 2005. They also worried about what the trend might mean for coming years.

During that period, “we got home ownership levels nationwide really at record highs, to a point where I’m not sure it’s sustainable,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.
…
Crellin expects nationwide homeownership rates to stagnate or even drift downward in the next several years.

“Obviously, we can’t sustain the disparity between incomes and housing prices that we have at the present time,” he said. “What I am expecting is prices are going to remain pretty much on a plateau for a period of time as incomes catch back up.”

Ah yes, don’t anybody worry about the historically unprecedented run-up that home prices have experienced in the last 3-5 years. The much-lauded soft landing will save the day. Depending on what Mr. Crellin means by “pretty much on a plateau,” and how quickly incomes actually increase, his scenario would mean stagnant home prices for anywhere between six (totally flat home prices, incomes increase by 5% per year) and twenty-five years (1.5% per year home price increases, incomes increase by 3% per year).

It would seem to me that if home prices stay stagnant for even three or four years, there will be repercussions that will put downward pressure on prices. People can’t refinance out of suicidal financing when they don’t have any magical equity. And who wants to buy an asset that isn’t appreciating at all? The soft landing just doesn’t seem to add up.

(Aubrey Cohen, Seattle P-I, 10.03.2006)

A post by Susan Ryan over at the PI’s RE Blog proclaims “Just Say No to Bubble Talk”

“As I’ve said repeatedly, stock market terms do not apply to real estate. There is no real estate bubble and never will be. A decrease in acceleration is not an implosion (or even a pop).

Kendra Todd of the Apprentice has a (sic) article on Yahoo Real Estate about the non-bubble. It’s a pretty good explanation of what’s happening around the country in real estate.”

Even more absurd than the idea of her post is her mentioning of Apprentice star Kendra Todd. Her new book “How to Make Millions in Real Estate” is really making a splash over on Housing Panic.

Just say no didn’t work for Nancy Reagan either…

Update: The Tim here, reminding you that if you choose to leave comments on Susan’s post, please keep it civil. There’s nothing wrong with passionate discussion and disagreement, but there’s no need to be mean or spiteful about it. Thanks.

(Susan Ryan, Seattle Real Estate Professionals, 10.02.2006)

Home builders are advertising more incentives. “Price Reduced” placards hang below “For Sale” signs. And the house down the block that you’d thought would sell in a few days? It’s been on the market for a few months. For buyers, it’s great news. They can be more picky. They have an easier time negotiating prices. They can ask for – and probably get – the washer and dryer with the house or a few items knocked off the inspection report.

For sellers, now isn’t the time to mess around.

Woo. Throw in a washer and dryer and we’ve got a deal! These people don’t get it. It’s not a buyer’s nor a seller’s market. There will be many GF who follow the market down – they’ll get taken to the cleaners as well.

And … what do they say is the cause?

A rash of condominium projects and new home developments have caused a spike in Pierce County’s inventory, said Dick Beeson, a broker with Windermere/Commencement Associates in Tacoma and a director with the Northwest Multiple Listing Service. The county currently has 6,225 homes and condos for sale – a 53 percent increase from last year at this time and the highest inventory for at least the last five years, according to MLS data.

“If you drive through Tacoma now, you’ll see a lot of ‘For Sale’ signs that you didn’t see last year,” Beeson said. “It slows everything down. It means buyers are taking their time.”

Cathy Reed put her brick Tudor in North End Tacoma up for sale in May. In the two years she’d owned the home, Reed did a lot of work, including finishing the basement and painting several rooms. But the competitive market forced her to pay even more attention to details – and reduce her price three times, from an asking price of $479,000 to the sale price of $399,000.

“Every little detail had to be right,” Reed said. “That wasn’t the way it was last year.”

Just give it a few months ;)

(Kelly Kearsley, Tacoma News Tribune, 09.30.2006)

In my opinion, of all the pieces written on the market, this one by syndicated columnist Ken Harney has the potential to really put the hammer down on mortgage qualifying under no-doc, low-doc or ’stated-income’ loan products (‘oft referred to as liar loans). The impact and ramifications of this little change initiated by the IRS is surely going to, at minimum, put concern into borrowers who have purchased a year or so ago and are looking to refinance again in the near future (read: those with ARM’s and HELOC’s).

There has been much discussion about the impact of non-traditional loan products that are driving the market, including the article The Tim refers to in the prior post. To pass the muster test, one should really ask the question, “if you take away the stated-income and 100% nothing down purchase loans used to purchase scores of homes across the country, where would the market be?” It would be a much different market and my income including many allied real estate professionals would be, well, less.

On Monday the IRS will be initiating an electronic mechanism to speed up audits on Form
4506 -T, which every borrower signs just prior to closing (and of which I am very familiar with in assisting clients with signing closing and lending paperwork).

The form authorizes the lender or the investor providing the money for the mortgage to obtain transcripts from the IRS summarizing the borrowers income and tax data for four years. The form must be signed by the borrower and can be used only during the 60-day period following the date of signing.

This development is huge.

By electronically (via secure internet I presume) allowing lenders to obtain IRS tax data on the borrower in only a business day or two will dramatically speed up audits and could potentially stop refinance and purchase closings dead in their tracks BEFORE the transaction closes—if data from the IRS is “curiously” different from what the borrower claims as income. This is huge. And, it is huge in that it will reduce F-R-A-U-D.

And it is big news for the following observations:

1) I think back on all the 100% borrowers that closed purchase transactions through our own office and across the country. Many will be refinancing again.

2) I think back on all the refinance business closed over the last three years, 2005 in particular. Many refinanced into other ARM products and increased their base loan amounts higher than that of their original mortgage Note (for debt consolidation, among other things of bling bling nature).

3) Forget about market conditions for the moment: If these borrowers refinance again, they will no longer be able to go ‘no-doc or stated-income’ without the potential for scrutiny by a quick IRS electronic audit, prior to closing. In other words, many will not be able to refinance, due to income discrepancies–including the potential to see prior IRS 1040 income which may not have jived with the EXISTING loan in which the borrower is trying to refinance again. In other words, it could trigger the potential to see earlier fraud.

If that’s not enough,lending standards, outside of the IRS audit conduit, may make it difficult enough. Read below!

Federal Banking Regulators are poised to tighten lending standards as guidelines were published last week by the Office of the Comptroller of the Currency.

From Inman News: Testifying before members of the Senate Banking Committee last week, Kathryn E. Dick, deputy comptroller of the Office of the Comptroller of the Currency, said, “Underwriting standards that do not include a credible analysis of a borrower’s capacity to repay their entire debt violate a fundamental principle of sound lending and elevate risks to both the lender and the borrower.

That could mean fewer borrowers will qualify for nontraditional loans that many in the banking and real estate industry say have helped buyers purchase homes they would not have been able to afford using a traditional mortgage.

Obviously I’m no fan of a difficult market, but it appears that the “perfect storm” analysis just might have more merit than I’d like to believe. This is one call where I really hope to be wrong.

Evidently, Susan Ryan at the P-I Real Estate Blog thinks so…

An article in today’s PI on the institutional investor interest in Seattle, highlights one of the reasons the local residential real estate remains strong.

Low office vacancy rates and investor/retailer interest in commercial property means more people working dowtown and wanting to live near where they work. If you’re not one of them — as in you can’t afford a home or condo close in — it seems hard to believe that there are enough folks who can afford to live in town to sustain the prices. But there are.

The problem is that there aren’t enough houses to buy. It’s kind of a weird point in the market cycle. There are both more buyers actively seeking homes that are still in short supply with other buyers afraid to buy right now, scared by what’s happened in other parts of the country and the unrelenting news coverage of the real estate downturn in those places. They don’t want to get stuck with a property bought at the top of the cycle.

But with the strong Seattle economy, in order for there to be a downturn, there has to be a flurry of homes coming on the market — like when sellers trying to cash out before prices drop. It is that glut of homes for sale that that makes them get cheaper. So far there’s no flurry, no glut.

It’s like a collective holding of breath with buyers and sellers both waiting to see who will blink first.

Blink. Blink.

(Susan Ryan, Seattle Real Estate Professionals, 09.29.2006)
(Andrea James, Seattle P-I, 09.29.2006)

NEW YORK (CNNMoney.com) — Home price increases have slowed nationwide and even reversed in many markets. Inventories are up and new home builders are cutting back. More and more sellers are having difficulty selling their properties.
…
For some sellers selling their old home quickly is critical: They’ve already made other plans.

Tom Shipp, Seattle: “My partner and I purchased a new home in Seattle, before we listed our current home on the Eastside. Our agents were confident that our current home would sell in 2 weeks and advised that we not make a contingent offer on the new house. . . . [the bid] was quickly accepted.

Ninety plus days, a second mortgage, and a bridge loan later we are still trying to sell our Eastside property! We just made our first double mortgage payment and are feeling desperate and depressed. We are supposedly still in a “hot” market and our property has what the agent’s say are the three mandatory factors for a quick sale; price, location, and condition.”

(Les Christie, CNNMoney.com, 09.28.2006)

“…living with mom and dad, or mom and dad-in-law, is just practical. The Gwinns are using would-be rent money to pay off debts and save up to buy into Seattle’s out-of-reach housing market. And they are not alone.

While moving home with a spouse has been common in many cultures, now it seems to be hitting the U.S. mainstream for economic purposes — at least in pricey cities such as Seattle.

More than 22 million adult sons and daughters were living in a household maintained by one or both parents in 2005, compared with 15 million in 1970, according to Census Bureau statistics. Fourteen percent of all U.S. families included at least one adult child in 2005 — up 3 percentage points since 1970; a Census analysis attributed the increase to delayed marriage and increasing costs to set up and maintain a household.

Kate Gwinn, 26, said some of her friends moved back in with their parents for a while before they bought houses, and these are young people with good jobs.
“It’s like what all the cool kids are doing,” she joked.

“The problem is, home prices outpaced income growth,” center Director Nicolas Retsinas said. “Moving in with mom and dad gives you that sort of breathing room to catch up.”

This USA Today article provides slightly different statistics.

“Since 1970, the percentage of people ages 18 to 34 who live at home with their family increased 48%, from 12.5 million to 18.6 million, the Census Bureau says.”

Peronally, I could never move back in with my parents. My dad watches Fox News 24/7 and my mother would insist on washing my underwear… ew.

(Aubrey Cohen, Seattle P-I, 09.28.2006)

“Traditionally, in real estate, you’d have to go to the county records office or the police station, and pore through dusty file cabinets, to get the information that a Web site such as Redfin.com can display in a couple of clicks. “We want to organize information geospatially,” says Redfin CEO Glenn Kelman, “so people seeking a home can capture the gestalt of the neighborhood.” For example, the home seeker can ask why a house is more expensive than others in the rest of the neighborhood, and the seller can respond by adding information to the map about recent renovations, even posting before-and-after pictures. Such features keep the average user on Redfin for an impressive 72 minutes a week. “The map is basically a centerfold–it’s pornographic,” Kelman says.”

This -is- pretty cool, but does the geospatial gestalt image capture all the neighbors with toxic loans, or provide a ratio of the likelyhood your suburb will become the next shantyhood?

“From 15,000 feet, the $2.5 million house at 123 Highland Drive in the Queen Anne district of Seattle doesn’t look like much. The roof is a nondescript gray square; the yard, a tiny patch of fuzzy space. This doesn’t bother Matt Bell, a 33-year-old sales executive in the market for a new home. He is focused on the numbers flickering at the bottom of the Web browser two feet in front of him, the constantly refreshed statistics such as average property value, county tax records, local schools, and previous selling prices. “Eh,” he sighs. “It’s $538 per square foot, but the neighborhood average is only $420.” Opting not to leave a comment on the house’s open blog, Bell abandons 123 Highland and zooms back out over the city, the neighborhood numbers blurring to keep up with him.”

Only $420 per square foot! You’ve got to be smoking something.

I have two questions. One, how does a 33 year old “sales executive” purchase a 2.5M home, and two, how do you think this crash will impact Redfin? Personally, I like Redfin. Any company that seeks to simplify the home buying process and rid of us realtors deserves respect.

The apartment market continues to tighten in King and Snohomish counties, thanks to robust job growth and a trend toward converting units into condominiums, according to a new report from Seattle-based Dupre + Scott Apartment Advisors Inc.
…
Overall, landlords are optimistic, the research firm said, with three in four surveyed planning to raise rents by 4.7 percent over the next six months. Buoyed by the economy, the average rent for the Puget Sound area is rising, up 5.6 percent to $856 from $811 a year ago.

In preparing its apartment vacancy report, the research firm surveyed roughly 80 percent of properties with 20 or more units. Results do not include new apartments or properties undergoing extensive renovation.

I find it quite interesting that this study only focuses on complexes of 20 or more rental units. What this means is that it totally fails to account for individual condos or homes being rented out. As flippers become unable to sell, and 100%-financed families find themselves unable to afford their homes, it would seem that individual units are likely to come onto the rental market in greater numbers. Also, as I’ve said before, a 5% increase in rent is hardly going to break the bank for most people.

In my opinion, one of two things will have to happen to make owning a better choice than renting once again (the way things should be).

• 15-20 years of 5% rent increases, while home prices stay flat
• a few years of 5-10% home price declines

Or some combination of the two, which is what I believe is most likely.

(Puget Sound Business Journal, 09.25.2006)

Additionally, I’d like to announce that for at least the short-term future, I’m turning off anonymous commenting. If you want to post a comment, you’re now going to need to go through the minimal effort of creating an account on Blogger. You’re not required to in any way associate your real name with a Blogger account, or even make your email address public. I just want the conversations to be easier to follow, and for people to have at least some minimal accountability for what they say.

Lastly, with the addition of a third regular poster, I’ve made some slight style changes in how the posts are presented. Specifically, I moved the “posted by” part from the bottom of the post up to the top, just underneath the headline. I’d appreciate feedback on whether this design provides an obvious enough differentiation between the different post authors.

I hope that you find these changes to be beneficial, but I welcome both positive and negative feedback. Feel free to email me (you’ll find the address in my profile) if you’d like to make your comments off the record. Thanks!

Of course, it’s really none of your business, but inquiring minds want to know.

That’s one of the great (or not so great) things about Zillow. You can pry into someone’s life and be as rude as you please. After all, it’s public information right?

If you wanted to take it one step further, you might already know that you can view the actual deed of purchase online at the King County Recorder’s Office at no charge.

It’s possible to see what type of loan they have, what interest rate and the actual terms.

Do you know anyone that may have bitten off more than they can chew? Who knows, maybe you’ll be able to save them from financial ruin.

Post the story here, sans any personal info of course.

Taking off the top 33.8% of the current King County median single family home price of $435,000 would translate to a new median of $287,970. That would be a roll-back to 2002-2003 prices, which is about when I thought homes were expensive, but priced fairly for the area.

The “Most Overvalued Market in Washington State” prize gets awarded to Bellingham, coming in at 54.3%, followed by Mount Vernon at 45.5%. On the opposite end of the spectrum are Kennewick and Yakima, overvalued by 5.9% and 9.1% respectively.

(Global Insight, 09.20.2006)

Update: Two comments were made regarding my remarks above that I wanted to take a moment to address. I apologize for not getting to this sooner, but this is literally the first time I have been in front of a computer for longer than 2 minutes since making this post.

First, JohnS pointed out that 33.8% “overvalued” is not the same as “take 33.8% off the top.” Indeed, rather than subtracting 33.8%, I should have divided the current median by 133.8% to arrive at $325,112 (25.3% less than today’s median) as Global Insight’s fair value for Seattle. If a $325,112 home were 33.8% overvalued, it would come in at $435,000. $325k is a bit more than I think the median King County home should be selling for, but it’s still a heck of a lot more reasonable than $435k.

Second, Meshugy brought up the following bits from the methodology pdf:

Users sometimes misinterpret the valuation metrics by assuming that a particular degree of overvaluation implies that house prices are destined to decline by that amount.
…
This would not necessarily be correct for the following reasons. First, housing markets tend to adjust very gradually and price declines, when they occur, have historically averaged 14 quarters in duration. Because house prices determinants generally improve over that time (especially population density and incomes) we observe that price declines are about one-half the initial degree of overvaluation (see Appendix C in House Prices in America: Valuation Update). Secondly, we caution against over interpreting the metrics since the historically normal dispersion of valuations is quite wide. Specifically, our model has a standard deviation in house price valuations of +/-13 percent, meaning that any valuation between 13 percent overvalued and 13 percent undervalued should be considered statistically normal.

If you read what I said above, you will notice that I did not say (nor did I claim the study was saying) that home prices would drop 33.8% (or 25.3%, as the case may be). I simply pointed out what home prices would be if they were not 33.8% overvalued. Furthermore, if home prices in Seattle declined by 16.9% (one-half the degree of overvaluation) over the course of the next three and a half years, the median home price in the summer of 2010 would be $361,485, roughly where it was last summer. If you want to derive some comfort from that, be my guest. I think most people would define that as a pretty hard landing.

Also you should note that as per the standard deviation mentioned above, the Seattle market could be anywhere between 20.8% overvalued and 46.8% overvalued. According to Appendix C of the study, historically:

The more severe the overvaluation, the greater the subsequent declines tended to be.

The more severe the overvaluation, the shorter the duration tended to be.

Personally, I think the possibility that Seattle is overvalued by 46.8% is pretty severe, and something we should be paying serious attention to.