So much could be said about this issue. One of the most fascinating developments to see unfold and the one theme I keep coming back to is how powerful blogging has been in shaping the mind-set of the public when it comes to the real estate market, both nationally and locally. Not only is it powerful in the psyche of the buying or selling consumer, but also to those who actively work in real estate.

For example, there has been an enormous effort within the real estate community to combat negative housing sentiment. It is understandable. But, I also think that the effort serves two purposes. First, it is to combat a deteriorating market perception for the public. Second, it is to thwart the potential fallout from within the rank and file who work in the industry.

What’s so different about our market correction today than last time?

• Access to information.
• Bloggers vs. NAR. (real estate industry unable to counter bloggers using both video and blogs)
• Bloggers vs. Newspapers.
• Bloggers breaking down data.
• Bloggers sharing news or breaking news.

Rather than have circa 1990 technology to obtain information regarding all things real estate related, today we have what I consider information overload. I can’t keep up with it myself. It’s overwhelming.

Zillow.com, for my money, was instrumental in removing the price curtain from the real estate machine. This forced an entire industry to change or adapt. While people will argue about current value accuracy or Zestimates, the compelling number of immeasurable value is the disclosure of what a property recently sold for. Armed with this information, consumers can make decisions along with their real estate agent as to how to best position offers or whether or not purchasing is best for them at a given time.

In a classic case of blogging for mind share, I see countless references by real estate agents locally and around the country arguing to “put the market into perspective, only 1 percent of all outstanding mortgages are in default.” Quite swiftly, a contrarian blogger responds, that’s “good news, because if it were more than one percent, I can’t imagine how bad things would be. Bear Stearns would be only one of scores of financial players to collapse, and who knows, maybe we will have more to come?”

To conclude:

If contrarion bloggers on Seattle Bubble find that the market has shifted in a positive direction, it could very well be that those very contrarions will lead the charge to a swift and meaningful recovery, one of which could rival anything we’ve seen to date.

And then, The Tim will have a conundrum on his hands. What then to do with the “bubble” part of the title.

S-Crow

If anyone would like discounted ($2 off Adult admission) Seattle Home Show coupons for weekday admission, please e-mail me with your contact information and I’ll get them in the mail to you. Show is from Feb 16-24. Weekday show hours: Monday 10am -8:30pm and Tues.-Friday from 11am -8:30pm.

Bonus: you all can get a t- shirt from Ray at the show. (teasing Ray, just teasing.)

Nationwide, home prices are falling, sales are sluggish and the number of foreclosures is mounting. Ask any economist and you’ll hear that things are bad, and likely to get worse.

Unless you live in Seattle, where the market is slowing but fundamentals remain strong.

“Fundamentals remain strong” appears to be nothing more than code for “prices haven’t fallen… yet.” Here in Seattle, things aren’t yet “bad,” but they are almost certainly likely to get worse. I guess being “barely ok, and likely to get worse” is enough to catapult us to the top of the list.

The Emerald City has experienced strong price appreciation over the last six quarters, and that’s expected to continue in the new year, though at a slower pace. In addition to a very low housing inventory and a strong sales rate…

Wait, did he just say “a very low housing inventory”? That’s a riot. And while sales have been slowing YOY for 21 of the last 22 months, I will grant that through July, it could still be described as a “strong sales rate.” July’s sales were higher than every year outside of 2003-2006. Of course, with the tightening mortgage market, sales in August came to a screeching halt, coming in lower than any August since 2001… but we’ll let that slide, since Forbes probably isn’t working off of data that current.

…there are few non-conforming and high-risk loans on the books than in other cities, which means the area will likely see fewer defaults in the coming months than the rest of the country’s markets.

Really? I suppose with a statement as vague as “than in other cities,” it’s true. But the list of qualifying “other cities” is frankly pretty short. We’re right up there with most of the other cities that started experiencing increasing foreclosures once the appreciation music stopped. For more on the loan picture, check out this and this.

To arrive at our list, we teamed with Moody’s Economy.com to develop three prediction models based on a range of factors that affect how prices move. These include, among other things, the state of local economies, new construction contracts, foreclosure rates, local credit markets, sales rates, affordability and inventory.

[From the slide show:]

Median home price:$395,000
Annual price change from 2006: 8.9%
Projected price change to 2008: 3.09%

Moody’s Economy.com sure seems to be fickle with these predictions. Just last month CNN reported on “an analysis conducted by Moody’s Economy.com” that showed prices in “Seattle-Bellevue-Everett” declining 2.9%.

Also, it’s not at all clear from the article what specific geographical area they’re referring to when they say “Seattle.” It’s definitely not just the city of Seattle, where the median home price sat at $439,000 last month. It’s also apparently not King County, where the median is $415,000. My best guess is that they’re using some combination of King, Pierce, and Snohomish counties—which makes the prediction of continued price increases seem even more unlikely to come true.

In related news, the author of this piece and the previously-featured “Best Places to Flip a Home,” Matt Woolsey, contacted me after my post about that article:

I came across your blog while looking for information on Seattle real estate and I must say a lot of the analysis looks great. Your apparent desire to punch me in the face regarding the flipping story is of some concern to me for my next visit to your city, but I nonetheless will continue to follow your site. For future consideration, you should know that all of our stories are comprised of data driven analysis

For the record, my comment that I would “really like to gut-punch these reporters” was tongue-in-cheek. You have nothing to fear in Seattle, Matt. Well, not from me, anyway. I can’t speak for anyone that giddily jumped into the market to flip a house after reading that article, only to find that the time for flipping in Seattle is long gone…

(Matt Woolsey, Forbes, 10.01.2007)

I just happen to look up at the ticker when I was in Times Square about a week or so ago (8/17) after a quick subway train ride up from Wall Street. Then shortly after, the following message in the picture below showed and I quickly took a shot of it. This was on Friday after the Fed injected another round of Billions into the market. These photos pretty much sums up the market over the last couple weeks.

Click to enlarge

After arriving home at 2:30AM Wednesday last week I had but a few hours of shut eye and then promptly drove all the way to Idaho. On the way back home this past weekend I felt the urge to take it slow and go HWY 2 and visit the Grand Coulee Dam and then onward to the North Cascades Highway via the beautiful Methow Valley and Okanogan countryside. I told my kids that one of the trips this summer had to include some historical background for a bit of education. The Grand Coulee Dam was it.

Well, during the visit I came away absolutely awestruck. We all went upstairs to the visitors center Theater and watched a 50 minute documentary on why the Grand Coulee Dam was built: It was part of the New Deal by President Franklin D. Roosevelt to put people back to work after the devastation created by the Stock Market Crash of October, 1929. The documentary spent several minutes discussing, with actual 1929 footage of the floor in a frenzy at the NYSE, the events leading to the New Deal by FDR and subsequent Federal backing of building the Grand Coulee Dam.

While only a handful of people were in the Theater, I noticed an old couple sitting two rows down from us and I could not help but notice they were knodding there heads up and down (presumably in agreement with what was being said) and from side to side (presumably in agreement and disbelief that they or people they knew went through that period) during some intense footage of the desperation across America.

During the documentary I could not help but think, my gosh, I was at ground zero (Wall Street) just a few days ago where it all began, and then to see this monumental icon of American engineering, ingenuity, brutal work and symbol of both the dark days of America and at the same time the symbol of what is great about this country. Some of the quotes in the documentary by the financial elite are eerily similar to what we hear today about the economy and health of the banking system. There was even mention of how the FDIC was created back then to guarantee deposits and thus reduce the possibility of there ever being a run on banks.

The Grand Coulee Dam took many years to build and 12 Million Cubic Yards of concrete. It produces the most electrical power in North America and it currently is the largest concrete structure in America and the third largest Hydroelectic plant on earth. Excavation began in 1933 and it was essentially complete in 1941. Subsequent upgrades and pumping stations followed and now irrigates roughly a half million acres of farmland in what is today the Columbia Basin. It is a must see if you ever get a chance.

Click to enlarge

Photo of the Grand Coulee Dam (a mile long) this past Saturday. A symbol of both the dark and bright periods in American history. Sorry this post too long, but I hope some find the symbolism, as I did, very educational.

There are those that treat the lack of hard data regarding speculative buying as evidence that there is little to none of it occurring in Seattle. I highly doubt that is the case (for reasons discussed here numerous times before), but even if we assume that it were true up to this point, I’m inclined to think that speculation in Seattle is on the rise.

Exhibit A: Thursday’s Seattle P-I front-page story about a local flip:

The last time Al Johnson was inside the house at 4425 Cascadia Ave. S. in Columbia City, there were no walls.

“You’ve done a nice job,” Johnson told owner Thomas Loeser after touring the rehabilitated 1911 Craftsman house Monday.

Johnson, an associate broker with Windermere Real Estate, was the listing agent who sold the “extreme fixer” in February to Loeser and his brother, Derek — lawyers when they’re not fixing up houses.

In recent years, many developers have fixed up run-down houses and then put them right back on the market. The Loesers’ house offers an extreme example.

They paid $315,000 for the run-down abode Feb. 20 and put it back on the market for $549,000 last weekend. Thomas Loeser wouldn’t say how much they spent on renovations, but acknowledged that one agent who said back in February the house would take $150,000 in work wasn’t far off.

Johnson speculated just before the sale that the house, once fixed up, could fetch $150,000 over the sales price in the current market — at most.

So, $549,000?

“Let’s see what happens,” Johnson, who is not representing the house this time, said Monday.

Exhibit B: #1 on Forbes’ latest list, “Best Places to Flip a Home“? You guessed it… Seattle!

Flipping—in which an investor buys a home, makes quick improvements and resells at a higher price—”was a rage in the housing market surge,” says Anthony Sanders, a professor of real estate finance at Arizona State University. “But it is not as popular in this flat housing market.”

It’s easy to understand why. With prices falling quarter after quarter, the prospect of buying low and selling lower doesn’t sound nearly as appealing as buying low and selling high.

However, those looking to make a quick buck may do so in a number of markets ripe for a well-spotted flip.

Best among them is Seattle. It landed atop our list based on a number of measures.

I’m not a violent person by nature, but part of me would really like to gut-punch these reporters that are encouraging people to go out there and jump into Seattle’s already-stalling housing market to try to turn a quick buck. The days of easy money from flipping real estate in Seattle are over (if they were ever even here to begin with).

Exhibit C: Anyone seen or heard from “Seattle Eric” lately?

(Aubrey Cohen, Seattle P-I, 07.25.2007)
(Matt Woolsey, Forbes, 07.26.2007)

P.S. (For those not in the know, Seattle Eric was the proprietor of a blog titled Tales of a Seattle Real Estate Investor (formerly located at this address), where he chronicled his quest to flip houses in Seattle for fun and profit. He was also a contributor over at Rain City Guide for a short while. The last time anyone heard from him, he had gotten out of the flipping business to become a real estate agent, and was still having trouble unloading a few of his houses.)

Addendum: Be sure to check out a relatively new Seattle-area blog that focuses specifically on local flips: ReMuddle. I have added a link to them on the sidebar under Bubble Sites -> Regionals. Thanks to RedmondJP for pointing them out in the forum. Speaking of the forum, also be sure to check out the long-running thread on this very subject: Audacious Flips and Renovations.

The Methodology
To measure inventory glut, we used Moody’s Economy.com and National Association of Realtors data that tracked a market’s current sales rate by projecting the amount of time it would take to sell off the excess housing stock at the current rate of sales.

We also looked at the change in sales rate over the last year to measure the relative tightening or loosening of the market. Finally, a measure of price stability was applied so as to prevent the list from being a rundown of upstart markets.

The measurements left out a few cities that lacked comprehensive data. Seattle, for example, has incredibly strong market fundamentals—the lowest vacancy rate of major metros at 0.9% and is a small geographic area not conducive to overproduction. It is a good seller’s market, but for tracking what we were after, Seattle data was incomplete for our analysis.

I’m not sure why their data was “incomplete” for Seattle, and I imagine that if they had access to everything they were looking for, it probably would have been on their list. However, while Seattle might be a better sellers’ market than most of the country, all indications are that we have been granted only a temporary reprieve.

While the language in the article makes their calculations sound fancy and complicated, it would appear that their primary measure of whether a city has a good “sellers’ market” comes by dividing the total monthly sales by the current number of homes for sale. This is commonly referred to as “months of supply” (MOS), but they are referring to it as the “rate of sales.” Here’s a graph of King County’s SFH from 2005 to the present:

Click to enlarge

Forbes mentions that they “also looked at the change in sales rate over the last year to measure the relative tightening or loosening of the market.” As you can see, the Seattle market can only be described as “loosening.” At the end of May, MOS stood at 3.02, up 59% from last May’s value of 1.89, which was itself up 18% from the May 2005 value of 1.61.

Sales have been declining at an average rate of 10% year-to-year for the past 19 months:

Click to enlarge

While inventory has been increasing by over 24% year-to-year for over a year:

Click to enlarge

Is Seattle presently a seller’s market? Probably. Will it still be a seller’s market by the end of the year?

“Outlook not so good.”

(Matt Woolsey, Forbes.com, 06.22.2007)

Q: There is an entire group of people today who’ve never gone through a major recession. How will home prices be affected if we do have a recession like the pullback of 1974?

A: The recession of 1974, caused by high inflation and an oil crisis, took the wind out of the housing market. Homebuilding dropped 33 percent, according to Time magazine’s Dec. 9, 1974 cover story. The Federal Reserve clamped down on the money supply. Mortgages became harder to afford.

But if we were to have a repeat of 1974, much more would happen because recessions cause widespread economic damage.
…
Exactly what that meant for house prices is hard to know because data from that decade is sketchy.

We can say, however, what the local fallout was from two milder, more recent recessions: 1990-91 and 2001-2003. The rate of appreciation fell, but house prices in general didn’t. Here are the numbers:

After rising 28.9 percent in 1990, King County single-family home prices basically flat-lined for the next three years, rising just 1.2 percent in 1991, 0.1 percent in 1992 and 1.7 percent in 1993. Then they began rebounding, culminating with 10.1 percent appreciation in 1999.

It would appear that whenever the answer to a question is a bit too difficult for Ms. Rhodes to swallow, she decides to answer a completely different question that wasn’t even asked. In this case, the question she appeared to be answering was actually “what is a recession, and how would Seattle be affected in a very mild one?”

Of course, the answer to that question is both reassuring and ultimately useless.

(Elizabeth Rhodes, Seattle Times, 04.14.2007)

Office space, meanwhile, remains harder to fill. Cushman & Wakefield and Colliers International commercial property firms reported that 17 to 18 percent of the county’s premier office space was empty last quarter.

“The cause and effect of this is that tightening in King County tends to push people up I-5 to Snohomish County,” Hoban said, though he said there are also a few new businesses sprouting up locally that have leased offices in Everett.

I suppose one could argue that just because there is a good chunk of office space available for small business (who typically drive the economy with job creation), that does not mean that hiring is slowing. Mixed signals?

Doing business in Edmonds recently, I noticed the sign-carrying-day-workers holding large signs on the corner of 205th & Hwy 99. “Comp USA Closing: everything 30-50% off.” I also recently read that Circuit City is laying off staff. If consumer products are flying off shelves at these stores, why are these stores closing and laying off staff? What businesses will be taking over these large stores once they vacate?

Here are a few obligatory quotes:

The typical house in the Seattle metropolitan area was 31.7 percent overvalued in the last quarter of the year, up 6.4 percent from the prior quarter and 24.3 percent from the end of 2005, according to Monday’s joint report from Global Insight…
…
“You’re sort of on the edge,” [Global Insight talking head Jim]Diffley said. “We would say you’re not in the riskiest group of metro areas.”

Seattle’s strong economy and the fact that its prices started their recent climb later than many areas further diminish the risk, he said. “We’re not forecasting a 31 percent decline by any means.”

Local experts question the idea that Seattle houses are overvalued at all.

“Sure, prices have gone up, and they’ve gone up rapidly,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University. “But we’re still in a situation where the market fundamentals are extraordinarily strong.”

Matthew Gardner, a local land-use economist, said Seattle did not see the 100 percent to 150 percent appreciation or the overbuilding that occurred in places such as Southern California.

“We’ve got high incomes, we’ve got a job growth rate twice the rate of the country as a whole, we’ve got growth management,” he said. “Will we see a slowdown in appreciation? Absolutely, and that’s appropriate.”

Randy Bannecker, a consultant housing specialist for the Seattle-King County Association of Realtors, said there just are not enough homes available to cause overvaluing.

“The overwhelming supply shortage is really what’s keeping the prices where they are,” he said. “It’s hard to see where just kind of a run-up for run-up’s sake is in play.”

But my favorite quote actually comes from the “Sound Off” comments section attached to the article, posted by a user calling himself ravennaboy:

Its no longer a matter of “Californians willing to pay premium prices for our houses”….now its a matter of a vibrant high tech economy that has created massive amounts of wealth, drawn talented individuals and families from around the world whose high paying tech jobs allow them to afford high priced houses.

In reality, Microsoft and other employers have made Seattle much more of a meritocracy — where the talented earn much more than those unskilled in high-demand technical knowledge. These higher paid folks see the value in Seattle housing, and are willing to pay high prices for this ideal location.

So, instead of blaming Californians, blame highly skilled microsofties for pulling Seattle out of its historic “boeing dependent manufacturing economy” with its boom and bust cycles.

How delightful for us to have an economy that has evolved so vibrantly.

Getting back to the article itself, I find it interesting that the 31.7% figure is said to be “up 6.4 percent from the prior quarter,” when the last report I saw out of Global Insight had Seattle at 33.8% overvalued. Anyone know what’s going on there?

Anyway, make of this report what you will. Personally, I don’t need some “global leader in economic and financial analysis” to tell me that homes prices in Seattle are seriously out of whack. It seem pretty much self-evident to anyone willing to do half an hour of research.

(Aubrey Cohen, Seattle P-I, 03.19.2007)

Industry Extreme Makeover

Our state has recently enacted new rules by our Department of Financial Institutions to have loan originators get licensed, undergo testing and have background checks. Jillayne Schlicke, industry insider and commenter to this blog and Rain City Guide, is tuned in to this segment as her organization provids training, classes and pre-testing for those within the industry. Now, the candidates have to undergo testing (not in place yet, but coming later this year) and background checks ‘a la finger printing. Um, how about including credit checks, like required of escrow ownership? Real estate agent candidates take coursework and have to pass an exam to be licensed by the Dept. of Licensing.

The industry needs an extreme makeover. It has a public relations problem that has been ongoing for years. It truly boggles my mind why many industry insiders do not drop by this blog and others not hosted by insiders. It is a laboratory! Bloggers offer gems of information about frustrations, housing issues, buying issues, etc….the very best cross section of existing homeowners, past homeowners, renters, those looking to buy now or in the future—people of all walks of professional and personal life! I digress. An earlier blogger comment I read really hit home for me:

“in my line of work, the MOST bankruptcy’s I see on credit reports are from loan officers! hahaha, unbelievable. It’s just amazing that people who deal with this amount of money can’t keep their own finances in good standing. How can someone who cannot control their own situation give sound advice to anyone else?” – Matt

Here are some thoughts on what I would encourage to help mend the image of the real estate profession:

1. Minimum of a 4 yr college degree (a far cry from a GED or high school diploma)
2. Institutional training specific to the sub-set industry: financing, escrow, title, agents, etc..
3. Background check on all agents and loan officers INCLUDING meeting minimum credit scores—this would include screening for derogatory lates such as 30-60-90 lates, prior foreclosures/ NOD’s etc…do this ANNUALLY at the licensee’s expense.
4. Passing state licensing exams and annual continuing ‘ed classes.

I agree with Matt’s comment. There is nothing more dishonest and revolting than for those within the industry to market themselves as “trustworthy,” “would help you like I would my own family member,” “integrity filled,” etc…. when their own house is out of order.

How would you like ownership in an escrow company or mortgage brokerage/loan officer to have financial distress or have suspect backgrounds, counseling you on a major transaction? Real estate is not like buying a stereo on credit at Magnolia Hi-Fi or a car at your local dealership. It is a big deal. Can you discern who really needs a commission vs. those that don’t? I think you can. People can read body language, demeanor and professional image.

Now, before my colleagues get ready to write more hate mail to me, please know that not EVERY loan officer or agent has their house out of order. Realtors complain of weeding out the industry with new entry benchmarks, but they seem to be suggesting just softballs—increasing study hours etc….

If the industry wants respect, start giving it to consumers first by making it a profession, not a hobby. I truly believe that if as much time and money was spent on fundamental real estate knowledge and core customer service coursework vs. as much money and time is spent at a sales seminar on overcoming buyer/seller objections, this industry would be better off.

In December 2005 Unit #6 was bought for $300,000. It is now on the market for $350,000, a 16.7% price increase. Given that the most recent county-wide data (pdf) shows condos up 21% from a year ago, perhaps the asking price is too low?

Since county-wide data is based on an ever-changing data set of new homes, remodeled homes, sub-divided lots, condo conversions, and so on, same-unit sales are the best way to gauge the actual appreciation in the market. It will be interesting to see how long it takes to sell this condo, and what the eventual sales price is.

Thanks to yet another reply by Ms. Reed as well as a series of replies from Ardell, it has finally gotten through my thick skull that “cancel and relist” is different from “let expire and relist.” Ms. Reed is guilty only of the latter, which is technically not a violation of NWMLS rules.

Although I now understand the difference, it seems to me like a trivial distinction. Ardell claims that a seller’s agent that uses a short listing agreement in order to be able to re-list an unsold property “takes the risk of being replaced as the seller’s agent by having short contracts.” However, it seems to me that once the benefits of re-listing (falsely appearing to be a “fresh” listing) are explained to the seller, they would be more than happy to keep the agent on board, knowing that this is an agent that is willing to pull whatever kind of tricks are necessary to sell their house.

In fact, Ardell had an awful lot to say on the matter. Here are a few quotes that I found most interesting:

The general public’s perception [of the MLS], the one most focused on here…is really the least of our concerns.I am sorry that no one wants to understand that the mls system is not meant for the public to use as a means for purchasing property without an agent.

The public’s view [of the MLS] is an “advertisement” for the most part, and not a “sharing of the agent tool”. … It is just a small view of the big picture and one to give the public an “idea” of what is out there…not the whole story.

If the publicly-accessible portion of the MLS is an “advertisement,” shouldn’t it be held to truth in advertising standards? When a property appears as “new on market” despite having languished non-stop on the market for months upon months, how is that not a deceptive practice? To simply brush off such concerns by saying that the MLS is “not meant for the public” seems a bit cavalier to me.

Ms. Reed’s tactic, which Ardell describes as both something that “we [agents] hate” and “an excellent job” appears to have paid off. As Ardell pointed out, the listing has gone to “subject to inspection,” presumably meaning a twenty-five to thirty-five thousand dollar payday is in the beleaguered Ms. Reed’s near future. When the transaction shows up in the public records, I’ll post the last update on this house.

Even though it ended on a somewhat muted note, 2006 was still the best year for job creation in Washington in nearly a decade, according to figures released Tuesday by the state Employment Security Department.

The state averaged nearly 2.87 million nonfarm payroll jobs last year, a gain of 3.2 percent, or 91,500 jobs, over 2005’s average. That was the most nonfarm jobs added in a year since 1997, when 98,600 were created.

The year-end figures also show that 2006 conclusively marked the Puget Sound region’s full recovery, in terms of total jobs, from the dot-com collapse and subsequent recession of the early 2000s.

The article included a nice graph showing the number of jobs in the four-county region since 2000. It has been well demonstrated in other markets that job growth or loss does not directly relate to home prices, but I thought it would be interesting to compare the Seattle Times graph with some data from the Seattle Bubble spreadsheet to see how well the more jobs = more demand = rising prices claim has held up in King County over the last five or six years. To obtain data about the number of jobs in King County I went to Workforce Explorer, the source cited in the Times article.

First I present you with the graph that comes closest to supporting the view that jobs are the primary source of demand.

Click to enlarge

When you compare the percent change year-over-year in both the number of jobs and the median (residential only) home price, the curves actually almost line up, with both job and home price changes being increasingly positive from about early 2003 to the end of 2005. However, the total change in home price increases during that time went from +7.3% to +20.0%, while the total change in jobs went from -1.9% to +2.3%. Despite the similar curves, I think it would be difficult to argue that such a slight change in the job situation drove the major price increases seen over the same period.

Here is same data presented in a slightly different way:

Click to enlarge

At the end of 2006 there were roughly 4% more jobs in King County than January 2000, yet home prices had increased a whopping 85%. I’d like to hear the logic that tries to argue that such a paltry increase in jobs will cause that large of a price increase in homes.

Now let’s take a look at home sales. Supposedly the improving job situation is driving demand, and demand is measured by sales, so let’s see how the two compare.

Click to enlarge

Hmm. It would appear that sales were experiencing the strongest growth during a time when the number of jobs was actually declining. In the summer of 2003 sales were up by as much as 45% over 2002, and yet the job market was still declining by roughly 1.5%.

Looking at the raw numbers of jobs versus sales the disparity becomes even more clear:

Click to enlarge

If jobs are supposed to drive demand, why is it that once the number of jobs began to increase in early 2004, sales actually leveled off? And why have sales been dropping off so steeply in the last year despite what the Times reports as “the best year for job creation in Washington in nearly a decade”? Could it be, perhaps, that the number of home sales and prices of sold homes in fact have very little to do with the number of jobs in a region?

I challenge anyone out there that still believes more jobs = more demand = rising prices to show me the data that supports any sort of correlation between those data sets. Lacking that, I hope we can finally put this dead argument to rest.

All of the above graphs—and the data behind them—can be downloaded in Excel format.

(Drew DeSilver, Seattle Times, 01.17.2007)
(Workforce Explorer, Industry Employment: Historical Series, 01.2007)

One thing that always struck me about San Francisco was the homeless. Not simply the sheer volume of homeless but the lengths at which they’d go to siphon a dollar out of you. It wasn’t enough to have a gimmick, but your gimmick had to be different or more creative than those of any other panhandlers in the downtown area.

There were singers, poets, rappers, jugglers, one-man marching bands, balancing and other forms of sidewalk gymnastics as well as some of the most creative signage anywhere (maybe the dot-comers could have hired these guys as marketing executives).

This story from the Seattle PI illustrates to what length some local realtors have gone to attract new clients.

Puck is upfront about his job.

“Let’s face it, I’m a marketing ploy,” the 5-year-old English bulldog writes on his page of Realtor Phoenix Rudner’s Web site, seattlehousehound.com.

The Seattle-King County Association of Realtors has about 8,800 active members — up more than 80 percent from 1999. The state Department of Licensing reports there are 13,747 licensed real estate salespeople in King County.

Many agents carve out a niche by focusing on a location, home type or a group of buyers and sellers. Others wear costumes, serve pie or distribute handy gifts.

“There are so many dog owners who need someone who understands their needs,” he explained.

What the dog is really saying: “Ruff!” (What the next five to ten years of homeownership may be like as equity fades and people struggle to make their ballooning toxic loan mortgage payments)

RE/Max Northwest Realtor Ross Adams aims for a more exclusive group of buyers on his Web site, realestateforcops.com, which touts itself as the No. 1 Web site for law enforcement-friendly real estate services.

There’s a picture of Adams, a reserve police officer, in his blue uniform, wearing his badge.

“In my years working as an officer, I’ve had the opportunity to get to know the men and women of law enforcement,” the site says. “In addition to the great experiences I’ve shared, I’ve also grown to understand and appreciate the needs of the people in this profession.”

Is it even possible for someone in law enforcement (or nearly everyone else for that matter) to purchase a home these days in this environment? How many police cars do you see parked outside Ballard 3/2’s these days?

Realtor Melanie Meyer of Century 21 North Homes Realty puts a different slant on the cop angle at her site: specialagentrealtor.com.

Meyer, a former sheriff’s deputy in Charleston County, S.C., also has pictures of herself in uniform. But rather than aim for any particular group of clients, she proclaims on her site that she’s “solving the real estate mystery” for the general public.

Meyer gave up her law-enforcement career and moved to Seattle in 2003 to marry a man she met playing “Dark Age of Camelot” online. She started working in real estate two years ago.

Meyer’s business card shows her wearing a fedora and trench coat and carrying a magnifying glass.

Her Web site also notes that she has a pit bull named Megan and is a freelance writer for “Today’s Astrologer” magazine.

I see a trend developing here. I wonder if King County is struggling to keep deputies that have been lured away by the “lucrative” Seattle real estate market.

Meyer claims to be Seattle’s “first and only Special Agent Realtor.” It seems she didn’t have the scoop on Serena Heslop.

Photos illustrating various sections of her Web site show her in a trench coat, fedora and dark sunglasses; a safari hat (holding binoculars); a hard hat, fake mustache and overalls; and a wetsuit.

Heslop said she’s been a “Special Agent Realtor” for four or five years but just got her Web site up a few months ago. It’s a way to liven up the dry, boring world of real estate advertising and give prospective clients an idea of who they’d be dealing with, she said.

News of a competing special agent Realtor didn’t seem to rattle Heslop or Meyer.

“I’m sure I’ll run into her someday,” Meyer said. “I hope she’s as silly as I am.”

“I’m gonna scratch her eyes out,” Heslop joked.

One thing is for sure – in the coming months and years it’s going to take a real sleuth to find more Greater Fools willing to buy at these prices. Maybe these three are on to something.

When Mary Schile switched to real estate two years ago, the former House of Blues contracts negotiator called herself the “Rock-and-Roll Realtor.”

Schile, of RE/MAX Mutual Realty, now claims the title of “Pie and Coffee Realtor,” as illustrated by the apple and cherry pies she served at a Phinney Ridge open house Sunday, and the espresso cart.

“I love pie,” she said

Mmmmm. Pie.

Does it work?

Dominic Canterbury, owner of the Seattle marketing and public relations firm D/C Strategic, said niche real estate marketing can work, if done right.

“Most agents are awful with their marketing,” he said. “That’s why they’ve sort of become the used car salesmen of our time.”

(Aubrey Cohen, Seattle PI, 12-26-2006)

It may be hard to overstate the significance local real estate professionals put on a 55-acre South Seattle industrial site that hit the market Friday.

“It’s a once-in-a-lifetime opportunity in the city of Seattle,” said John Sullivan, a vice president in the Seattle office of CB Richard Ellis.

“It’s larger than anything else that’s sold in recent years,” said John Vernon, Seattle-based broker with Colliers International.

Associated Grocers Inc. announced Friday that it was selling its site to cash in on the significant appreciation since the company set up its wholesale food distribution operations there in 1952.
…
Sullivan and Vernon expected the site to fetch more than $90 million.

This is probably a good move on Associated Grocers’ part. I imagine there’s nothing going on there that can’t be done just as efficiently in a cheaper location, and I’m sure they can come up with plenty of good ways to invest a cool $90 million that provide a better return than sitting on big piece of land that might well lose value in the coming years.

(Aubrey Cohen, Seattle P-I, 12.19.2006)

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.

Several years ago, on a stroll around my Ballard neighborhood, I stopped to gawk at the huge price tag on a For Sale sign in front of a modest 1920s-era bungalow. A young woman joined me, grinning ear to ear. “Isn’t it great how all our values are going up?” she said.

“Actually, I rent,” I said.

Her smile vanished. The woman cleared her throat and we shuffled awkwardly away from each other.

I walked back to the tiny house my husband and I were renting nearby, and felt a little seed of bitterness taking root in my stomach. I thought about the guilty look on the woman’s face. She had been crowing about the same rising prices that might keep me out of the market, and I had caught her red-handed.

I was in my early 30s, newly married, and we had just started talking about buying our first house. Our friends were meeting with real estate agents. Everyone we knew was getting hungry for equity. A lot of people were starting to talk about getting “left behind” and we wondered if we might already be too late to the home-owning game.
…
With friends who have also been lucky enough to land a Columbia City cottage or a Shoreline rambler, there’s a sense of shared joy and relief. I remember feeling like this in fifth grade when my best friend and I landed parts in the school play: “Thank God we both got in.” We toast our hefty mortgages and spend long evenings discussing hardwood floor finishes, crown moldings and our all-important soaring equity.

But with friends who have not yet “squeezed in” to the housing market, I am reminded of how I felt when I got accepted by my first choice for college and my best friend got nothing but rejections. What do you say to each other? I try to offer soothing assurances: “I hear there are still some great deals up north.” “600 square feet is plenty of room!”

But no matter what I say, I know we all feel like they have probably missed their chance, like they didn’t buy their ticket on the last spaceship flight off a planet that’s about to explode. I fear they’re doomed to move back to Missouri in order to afford more than a studio condo on the fringes of the city.

Hah! That is probably my favorite analogy so far of Seattle’s housing market—a planet that’s about to explode. Only, I have a feeling that Mrs. McCormic may have it backward, about who has missed what chance.

I just don’t understand the appeal of spending 2-3 times as much money (or more) for less space and more upkeep. Throw in the very real possibility that all of that “all-important soaring equity” could easily disappear into thin air, and I just don’t see how “owning” (aka renting from the bank) is at all more desirable than renting in Seattle right now.

Is it just people’s mindset that owning is always better, no matter what? At what point do you step back and say: “wait a minute, renting just makes a lot more sense right now”? If mortgage payments were 5 times comparable rents, would that do it? 10 times? When does the home ownership above all else mindset finally apply the brakes?

Congratulations on your “little house in Ballard,” Mrs. McCormic. May you still be so elated about your purchase three years from now.

(Sarah McCormic, Seattle P-I, 10.20.2006)

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)