Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'predictions'

Home Prices Going Back Down in 2010?

By The Tim on November 20th, 2009 at 6:44 AM · 4 Comments

An interesting post on Calculated Risk this morning points out a few notable near-term home price predictions:

Housing consultant Ivy Zelman via the New York Times:

…home prices are going back down.

Moody’s chief economist Mark Zandi via Bloomberg:

I think we’re going to see another leg down.

And Goldman Sachs chief economist Jan Hatzius:

Our current working assumption is a 5%-10% drop in home prices through the middle of 2010.

Note that these forecasts are all nationwide. In most parts of the country home prices began falling a good year before Seattle, and had fallen further than Seattle before the inefficient, expensive, and economically stupid tax credit put the brakes on the full return to affordable housing.

If nationwide average home prices do indeed drop another 5-10% in the coming year, I suspect that Seattle area home prices will probably be down 10-15%.

Oh and by the way, in case you didn’t see the news; as expected, a couple weeks ago Congress passed an extension and expansion of the idiotic tax credit. The move was tacked onto a completely unrelated extension of unemployment benefits to assure that no congressman could vote against it (crap like that should be illegal), and is estimated to cost another $10 billion that we don’t have (so you can expect it to cost at least $20 billion). Oh, and just for kicks they threw $33 billion in tax refunds to homebuilders into the bill, too. Because the national debt just wasn’t big enough already. Super!

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Reporting Roundup Flashback: September 2007

By The Tim on October 9th, 2009 at 9:00 AM · 33 Comments

Let’s look back a couple years to see what local real estate agents were saying a few months after the price peak in Seattle, and about a year into the housing decline across most of the rest of the country. Here’s a selection of choice quotes from some October 2007 articles. Note that local home prices are down roughly 15% ($60,000 on a $400,000 home) in the two years since these articles were published.

NWMLS press release, October 5, 2007:

Trying to time the market is “a fool’s game,” remarked one MLS director. “If you are buying a home to live in for more than three years, then buy the one you love, not the one that you can save $25,000 on,” advises Matt Deasy, general manager at Windermere Real Estate/East Inc. in Bellevue.

J. Lennox Scott, chairman and CEO of John L. Scott Real Estate said now is “an ideal time for buyers.”
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“The time is right for buyers on the sidelines to step forward. They have many more home choices now than in the past few years,” observed [Windermere broker] Marcie Maxwell.

Seattle P-I, October 5, 2007:

One month of lower prices doesn’t mean much, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

“I think it is suggestive that there is some real softness in the (Seattle) market,” he said. “But at the same time, I think we’ve got a more resilient housing market than in many parts of the country.”
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Matthew Gardner, a Seattle land-use economist who works with developers, does not put much weight on the Seattle median-home price, particularly because it excludes most sales of new condos, he said Friday.

Actually, year-to-year increases of about 4 percent in the median price across King County and the 19 counties in the listing service were higher than Gardner anticipated, he said. He expects a leveling off — with increases of roughly 3 percent — for a couple of years.

“We need to get through this backlog of inventory,” he said. “Also, we need to start allowing time for wages to catch up.”

Tacoma News Tribune, October 6, 2007:

Agents on Friday, however, largely portrayed Pierce County’s one-month price decline as more anomaly than trend and what’s to be expected in a market normalizing after the boom years of 2004 and 2005.
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Buyers shouldn’t view one month of lower prices as a sign that more are on the way, said Bill Riley, owner of Gateway Real Estate. Riley is vice president-elect of the Washington Realtors, which plans to launch a campaign this month encouraging buyers to purchase now rather than wait.

“This is not a start of a decline. We’ve never seen a decline in such a strong fundamental market,” he said, pointing to expected job growth…

Everett Herald, October 6, 2007:

“It looks like the market has kind of taken a deep breath and just corrected itself a little bit,” said Nathan Gorton of the Snohomish County Camano Board of Realtors.
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“It’s a good time to be a buyer right now.” … “I talk to a lot of buyers’ agents whose customers are saying they just want to sit back right now because they don’t think it’s a good time to buy a home,” he said. “They think, ‘Oh my gosh, the market is falling apart.’ Nothing could be further from the truth.”

For comparison, here were my comments about these stories at the time:

It will be interesting to watch the increasingly ridiculous gyrations of local real estate salespeople as the market continues its downward path, and they come up with more and more outrageous statements that fly in the face of reality. It looks like the bubble deflation show has finally rolled into town.

Indeed it has been an entertaining show, and trust me; it ain’t over yet.

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Crosscut: Seattle Population is Nowhere Near Current Capacity

By The Tim on August 11th, 2009 at 1:04 PM · 44 Comments

Interesting article over on Crosscut today: Why Seattle won’t grow as fast as planners say

If Seattle’s current estimated population is 602,000 and we add the hypothetical 180,000 and you get 782,000 people by 2040 — considerably short of the 1.2 million that some claim are on the way.
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The assumption is that right now, without changing or increasing any zoning at all, Seattle has the capacity to provide housing for up to 800,000 people without changing the rules to make buildings more dense like the proposed multifamily update or up zoning single family neighborhoods. Theoretically the capacity is already there.

Whichever means of calculating you use, it turns out we aren’t anywhere near capacity.
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According to Seattle’s own numbers from January 2005 through March of 2009, over 28,000 housing units have been added to Seattle’s stock either built (16,504 units) or permitted and at various stages of construction (11,721 units). Seattle in just 51 months has reached 60 percent of its 20-year target. At this rate we’ll add over 110,000 units under current zoning by 2024, over twice the rate needed to fulfill our targets.

It should be noted that this article is focusing on Seattle proper, not the entire metro area. That being said, the author points out some interesting facts that would seem to point to continued downward pressure on home prices, even in the “close in” in-city neighborhoods.

It is also worth mentioning that I made similar points back in 2007 that apply on a county-wide basis.

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Bottom-Calling Checkup: No Bottom In Sight Yet

By The Tim on July 31st, 2009 at 6:00 AM · 58 Comments

Back in February while the market’s deep freeze was leading some observers to anxiously declare that we had reached the bottom, here at Seattle Bubble we sliced and diced the market in Bottom-Calling Week. In the series we explored six different analytical methods for predicting when real estate around Seattle would hit “the bottom.”

Six new months of Case-Shiller data have been released since that series and two potential bottom dates are now in the rear-view mirror. It seems like good time for a little checkup.

First up, Method 0: Blind Optimism. Our “Blind Optimism” forecast method was based on a mere gut feeling that January was the peak for year-over-year drops. This method predicted a bottom in February at 16.9% off the peak. Let’s see how that turned out:

Bottom-Calling Method 0: Blind Optimism

I guess we can put that one to bed. February was definitely not the bottom.

Next, let’s check in on Bottom-Calling: Inventory-Based Forecast, which was based on the relationship between standing inventory (”active listings”) and home prices that Deejayoh explored in his post Why Inventory Matters, and predicted a bottom in April at 20.1% off the peak.

Bottom-Calling Method 1: Inventory-Based Forecast

Looks like April wasn’t the bottom either. Although, in fairness, in the time since we made this forecast, we discovered that the NWMLS changed the definition of “active listing” back in July 2008 a way that resulted in lower inventory being reported at the end of the month. So it’s no real surprise that this method turned out not to be very reliable.

Lastly, let’s check in on a summary of where we’re at so far with respect to all six of our bottom-calling methods:

Bottom-Calling: May 2009 Update

Our official February 2009 call was for 36% off the peak in December 2010. Six months later, I’m still comfortable sticking with that guess.

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Are Home Price Drops Around Seattle Mostly Over?

By The Tim on July 27th, 2009 at 8:30 AM · 218 Comments

I was thinking recently about the claim that we’ve been hearing lately from some sources that Seattle home price declines are over. The primary evidence they seem to provide for this hypothesis seems to be the slight bump in some Seattle-area median prices, and the uptick in sales.

I’m not convinced, but rather than just dismissing these predictions out of hand, I thought I’d try to compile a list of factors for and against the notion that local home price drops are over.

Seattle-area home price drops are probably over because:

  • King County’s single-family median price rose over $30,000 from March to June
  • Pending sales are up around 25% from a year ago.
  • Closed sales are up slightly from a year ago.
  • Inventory is down around 20% from a year ago.
  • There’s a lot of wealth in the Seattle area.
  • Mass psychology could suddenly turn and drive up prices again (i.e. – Robert Shiller’s Animal Spirits)

Seattle-area home price drops are probably not over because:

Personally I’m not convinced that home price drops are over, despite the slight upticks we’ve seen this spring and early summer. There are just too many factors at play that continue to put downward pressure on home prices, and too few factors pushing them up.

Of course, it’s entirely possible that I may have missed something, so let’s hear from some of you who believe that price drops are mostly over. What am I not considering? What’s your best argument for the claim that the bottom is in? What about those of you that think prices will continue to fall even further—have I left anything out of that side of the argument?

Let’s hear the best comprehensive arguments from both sides, so we can come to an informed conclusion.

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Weekend Roundup: Empty Condos, Story Updates, & a Rosy Forecast

By The Tim on June 20th, 2009 at 11:57 AM · 35 Comments

Got a few interesting stories for you today.

First up, from the Puget Sound Business Journal: Seattle, Bellevue luxury condominium towers are slow to fill up

Three-quarters of the new condos at five major buildings in Seattle and Bellevue are unsold, leaving developers in a high-stakes battle to unload millions of dollars worth of homes.

The units — at Fifteen Twenty-One, the Four Seasons Private Residences, Olive 8, Bellevue Towers and Washington Square Towers — represent the majority of large condos that have opened here in the past 18 months. In many cases, dozens of pre-sale agreements booked by developers have failed to come to fruition.

County records show just 317 units have recorded closed sales out of the 1,321 offered at these five projects, which is fewer than some of the developers had expected to sell at this point.

The monthly NWMLS stats really don’t give us a complete picture of just how over-supplied the local condo market truly is. I’m still working on compiling the Condo Sales Status Project. There’s a lot of info out there.

You may recall the free advertising given by the Seattle Times to the Thorton Creek condos back in March for their “if you lose your job we’ll pay your mortgage” promotion. Another story about the development in yesterday’s paper contained an interesting bit of information:

Seattle Public Utilities recently completed the stream-restoration channel as part of a new development that brings more than 100 condos, 278 apartments, senior housing, a 14-screen movie theater and more retail space to the North Seattle neighborhood.

Lorig and Stellar Holdings say they’ve rented about 50 of the apartments, which exceeds their goal to date. The market has been slow for the condos, however, with only one unit sold, said Stephen Holt, partner at Lorig in charge of the project.

No word on whether that one sold unit was a result of their big promotional push in March. A representative for the developer has offered to talk with me, but unfortunately I have yet to find room in my schedule.

Here’s another update. Recall the October ‘08 post Former WaMu Pres. Tries to Flip Mansion. As it turns out, he was finally successful: Ex-WaMu exec unloads Seattle mansion

Looks like former Washington Mutual President Steve Rotella has been given a lesson in lost value, sort of like the shareholders who watched their stock tank in the months before the bank collapsed last year.

Rotella and his wife, Esther, just sold their Capitol Hill mansion for $4.7 million, according to King County property records, about $1.5 million less than they listed it for after WaMu failed nine months ago.

We’ll end today’s post on an upbeat note from BusinessWeek.

Two big factors will help bolster Seattle housing prices in the next few years: stringent building restrictions and basic geography.

City officials kept a tight rein on development during the boom. … An isthmus, Seattle is hugged by the Puget Sound on the west and Lake Washington on the east.

With such constraints, Seattle doesn’t have a significant supply of homes on the market.
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Some areas of Seattle are on the mend already, with houses even sparking bidding wars.
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Building restrictions—and the city’s unique geography—should help lift prices.

It would appear that the writers of BusinessWeek seem to think that the city of Seattle proper is completely insulated from real estate trends in Snohomish County, the Eastside, or south of Lake Washington. Interesting theory. Good luck with that.

(Jeanne Lang Jones & Kirsten Grind, Puget Sound Business Journal, 06.19.2009)
(Michelle Ma, Seattle Times, 06.19.2009)
(Kirsten Grind, Puget Sound Business Journal, 06.18.2009)
(BusinessWeek, 06.18.2009)

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