Seattle Bubble

In what is becoming a bit of a regular occurrence, Seattle’s #1 real estate cheerleader yet again wields her powers of misdirection in response to a probing reader question.

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)

Speaking of small business creating jobs: Snohomish Co. office space is currently showing vacancy at about 18%. In Lynnwood, the office vacancy rate is approximately 25-30%. Industrial space (read: Boeing & suppliers) appears firm.

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?

By now most of you have probably already seen today’s article in the P-I: Homes overvalued by 31.7% in city, report finds. It’s pretty much the usual shtick. “Homes are expensive here, but…” followed by lots of quotes from various real estate “analysts” and “professionals” yammering on about how wonderful the “fundamentals” here are, what with all the high tech job growth, etc., etc..

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)

Side note: What in the heck is up with the FLU bug. I just got over it after my daughter (out of school for 3 days last week) planted one on me and passed it to me. Now my son has been in bed with it. What a great weekend! I understand Blanchet H.S was shut down recently due to the flu–this is nasty. Moving on….

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.

This is at least worth a brief mention. Another unit has come up for sale in the condo complex in my neighborhood that was the subject of my first anecdotal post. Actually, it’s not “another unit” but rather the same unit that sold just over a year ago.

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.

At the risk of beating a dead horse, I’d like to continue Friday’s conversation about the re-listed house on Avondale.

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.