Seattle Bubble

A number of people pointed me toward a “white paper” recently released from real estate brokerage John L. Scott titled “Why Now Is A Smart Time To Buy” (pdf). It purports to be “an objective assessment of the housing market as it stands at the end of 2007″ designed “to help home buyers assess the facts of the real estate market objectively.” With a title like that, it sure sounds “objective” to me…

Let’s have a look inside.

Three factors caused this decade’s housing boom to spiral upwards: 1) a run-up in home price valuations that spurred a high sense of urgency in home buying and selling; 2) poor lending practices, which caused many homebuyers to secure loans that they ultimately couldn’t afford over the long term; and 3) speculative purchases of homes also increased, with buyers investing in real estate with the hope of a quick return-on-investment.

Actually it doesn’t start off too bad. That’s an accurate assessment of the boom, with a rare admission that speculative purchases played a part, implying that this is even the case in our area (since Seattle is where JLS is based).

Like the dot com bust, the housing market has begun to correct itself after a number of years of unwise purchasing, but unlike what the media would have us believe, a correction in the housing market doesn’t equate to a crash. Unfortunately, the ongoing negative news about the troubled areas in the U.S. has caused a ripple effect, with home buyers and sellers on a national level exercising caution before making a decision.

Ok hold on. Did you catch what they said just there? “Unfortunately… buyers and sellers [are] exercising caution…” (emphasis mine). Huh?!? How is it “unfortunate” that people are being more cautious? Oh, right. John L. Scott sells real estate, so they would prefer it if all caution was thrown to the wind. Also, they’re blaming the downturn on “negative news.” That is so laughable it’s not even worth a detailed rebuttal. Here’s a hint though guys: it’s the other way around—the downturn is real, so the news is negative.

The rest of the paper focuses on superficial points that are unlikely to sway any but the most gullible (page numbers refer to the number printed on the page, not the actual pdf page number):

• We’re not as bad as Arizona and California! (p. 2)
• High inventory means more choices for buyers! (p. 2)
• Mortgage rates are low! (pp. 2-3)
• Did we mention we’re not as bad as California? (pp. 3-4)
• Subprime is like practically non-existent. For reals. (p. 5)
• We are so much better than other places in the US like, say… California. (p. 6)
• Never mind the fact that you could wait a year and buy at a lower price—real estate is a long-term investment. (p. 7)
• Here, look at some historical price drops in which the factors of the preceding booms were nothing like they were recently. Those weren’t so bad, so this drop won’t be bad either! (p. 8)
• In summary: Buy, buy, buy! (p. 9)
  

Take a few minutes to read through the pdf. It’s not that any of the things they’re saying are necessarily untrue, it’s just that this is definitely not an “objective assessment.” It’s quite clearly a marketing document intended to dupe cautious home buyers into throwing their money into a freshly-declining market. I hope nobody takes this document seriously.

I’ve added this paper to the library for future reference.

Aubrey Cohen comes at us today with a frank and sometimes amusing look at real estate agents’ habit of massaging the English language to attempt to make their listings stand out in an increasingly larger sea of properties for sale. Of special note in today’s article is the copious quoting of local agent Ira Sacharoff, a regular commenter here on Seattle Bubble. Congrats, Ira!

It’s harder to lure buyers these days thanks to an increasing number of listings and a smaller pool of buyers — five homes listed for every pending sale last month in Seattle, up from three listings per sale a year earlier.

So in addition to lowering prices, throwing in TVs and cars, and doing their best to spiff up homes before putting them on the market, sellers and their agents are reaching new levels of creativity with the first thing agents and potential buyers usually see — the listing blurb.

…agents tend to emphasize the positive. Another Central District listing, for instance, leads with its location, proclaiming: “Here’s the opportunity to live in one of the most sought-after neighborhoods in the Seattle area.”

Then, a spin on the less-than-stunning interior: “Seller has left you to your own imagination!”

Another listing promises an “excellent location” close to shopping, schools, a bus line and Interstate 5. They’re not kidding: I-5 is 50 yards away.

Skyline Properties agent Ira Sacharoff is blunt in his assessment of listing descriptions: “They’re mostly lies.”

Less-than-truthful assertions can include a “Ballard” neighborhood home that’s really in Crown Hill, a basement “bedroom” that’s just big enough for a cot and has no exit window, and “gleaming hardwood floors” that are actually fir (a softwood) or laminate.

You know what they say, though. You can put lipstick on a pig, but it’s still a crappy little dump on a tiny plot in a bland neighborhood with a half-million-dollar asking price. Er, well, the saying is something like that, anyway.

If the subject of this article, and the “listing language decoder” at the end of the piece sound familiar, it may be because we’ve discussed this subject before, almost exactly one year ago. Be sure to check out Eleua’s Real Estate Agent Rosetta Stone.

(Aubrey Cohen, Seattle P-I, 11.21.2007)

The post you are about to read is true. The names have been change to protect the… Well, mainly because I don’t want to start a blog war. For this same reason, I have not provided links to the posts I mention. They are available for verification upon private request.

By now, most sensible people know that the proclamations of national real estate sales spokespersons should be given little to no weight. The most visible example of course is NAR “Economist” David Lereah, who consistently spews positive predictions, despite market realities to the contrary.

Of course, “all real estate is local,” right? So David Lereah’s national predictions are fairly meaningless to us anyway. To get a feel for the local market, most people are inclined to turn to their friendly neighborhood real estate salesperson. However, is the friendly neighborhood real estate salesperson any more likely to be open, honest, and/or correct about what is happening in the local housing market, and where it is headed? Let’s take a look at a few recent examples.

As January drew to a close, area Realtor “Marzipan” stated of the local housing market that inventory had “shrunk over the last month” and that supply was “tighter, not in excess of the demand.” When the data for January became available from the NWMLS, it turned out that (King County res + condo) inventory actually rose 11.7%, with 3,744 new homes coming on the market (supply) and just 2,492 pending sales (demand). Keep in mind that as a member of the NWMLS, Marzipan has access to the data before it is published to the general public. Why she chose to make a verifiably false statement about inventory and demand is anyone’s guess.

In another recent episode, real estate agent “Homestar” reprinted a verifiably false headline from the Seattle Times, and used it as the subject of an entire post. Referring to October - December of last year, the headline claimed that “Housing sales fall in 40 states; but not in Northwest.” In reality, year-over-year sales declined 8-12% in the last three months of 2006 over the entire region covered by the NWMLS, continuing a trend that began in November 2005.

When called out on his inaccurate assertion, Homestar did not step up to correct the error. In fact, he appeared to ignore the issue all together. However, another local real estate salesperson, “Carol” readily stepped up in an apparent attempt to defend Homestar. Her tactic was to mount personal attacks and divert the discussion to home sales price, which she continued to harp on despite repeated attempts to point out the simple fact that the headline was in error. Carol utterly refused to acknowledge that the headline claim about sales was demonstrably false.

These are just a few of the most recent examples. Anyone who cares to spend some time reading the archives of the near-innumerable local real estate sales blogs is sure to find many other instances of verifiably false data being presented as fact to an unwitting public. In my experience, local real estate “professionals” are no more reliable than national PR talking heads when it comes to providing honest, accurate assessments of the present housing market.

If they can’t even manage to honestly convey things that have already happened, why should we believe their predictions of what is going to happen? In my opinion, we shouldn’t.

It seems that every time the local press prints a story that is slightly less than 100% “rah-rah, go home prices” people come crawling out of the woodwork to accuse them of using “doom and gloom” or “sensationalism” to sell papers. Accusations like that really amuse me, since (as regular readers of these pages know well) the vast majority of real estate stories printed by Seattle’s two dailies are overwhelmingly positive about the market, despite looming signs of a slowdown.

Case in point. Take a recent AP story about the nation-wide housing slowdown. The P-I reprinted the story in its original form: Housing sales drop in 40 states. However, over at the Times, they couldn’t let a headline like that slip by. No, that just won’t do. So they whipped up their own version (additions in bold): Housing sales fall in 40 states; but not in Northwest

The slump in housing deepened in the final three months of last year with sales falling in 40 states and median home prices dropping in nearly half the metropolitan areas surveyed.

The Pacific Northwest bucked that trend, with the Seattle-Tacoma-Bellevue area prices rising 11.3 percent in the fourth quarter, the National Association of Realtors reported today. Spokane prices were reported up 12.2 percent, and Portland up 11.2 percent.

At this point I imagine the Times was pretty proud of themselves. But apparently after going to print, someone thought: “You know, adding just one paragraph might not be enough to get the message across. The Puget Sound housing market is so blisteringly red-hot that it deserves more than that. Let’s add a bit more and print it again.”

The slump in housing deepened in the final three months of last year, with sales of existing homes falling in 40 states and median prices dropping in nearly half the metropolitan areas surveyed.

Although Washington state’s sales of houses and condominiums declined 16 percent, prices continued to climb, thanks to a generally strong economy.

In the Seattle-Tacoma-Bellevue area, prices rose 11.3 percent in the fourth quarter compared with a year earlier, the National Association of Realtors reported Thursday. Spokane prices were up 12.2 percent, and Portland up 11.2 percent.

Formerly red-hot areas were among the hardest hit as the five-year housing boom cooled considerably in 2006.

While some economists think the worst may be over for housing, others predicted more price declines to come in some areas until near-record levels of unsold homes are reduced.

The Puget Sound area is not now reporting an excess housing supply.

At the end of January, King County had a three-month supply of unsold homes, according to the Northwest Multiple Listing Service.

There, that’s better.

You want another example of the sensationalist doom and gloom reporting we are subjected to by the local press? Okay, how about Aubrey Cohen’s twist on the AP story, appearing in today’s P-I: Area’s housing prices still strong

Whatever is happening to the region’s housing market, its home prices held up better than in much of the nation.

The price of a typical house in the Seattle-Tacoma-Bellevue area was $372,900 in the final three months of 2006 — up 11.3 percent from the same period in 2005, according to data the National Association of Realtors released Thursday.

The association did not release figures just for Seattle, but the Northwest Multiple Listing Service reported the city’s median price for houses and condos increased by more than 9 percent in each of the final three months in 2006, compared with the same months the year before.

I do have to give Mr. Cohen some credit though, as he did manage to bury a little bit of a warning in there between the sub-headline “Homes here buck national trend” and all the starry-eyed cheerleading:

Seattle isn’t in the clear, however. The number of homes on the market increased for seven straight months, compared with the same months in the prior year, while year-over-year sales declined for six straight months before going up in January, according to the Northwest MLS.

The rate of price appreciation slowed in recent months, with a year-over-year increase of just 0.8 percent in January. January’s median was down 9.5 percent from December. Some analysts have speculated that Seattle will see year-over-year price declines.

What can you say. They’ve got to throw in a little “doom and gloom” to sell the ‘papes, right?

(Martin Crutsinger, Natasha Metzler, Elizabeth Rhodes, Seattle Times, 02.16.2007)
(Aubrey Cohen, Seattle P-I, 02.16.2007)

Check out this absolutely delightful paid advertisement masquerading as a “guest editorial” in today’s Seattle Times. It’s penned by Mr. Samuel L. Anderson, the executive officer of the Master Builders Association of King and Snohomish Counties.

The media have been all abuzz over the past year about the softening in the housing market.
…
At the same time, local analysts point out that even though home sales in the greater Puget Sound region have slowed, now is still a good time to buy a home, particularly in our area.

What does this slowdown really mean for consumers? Is it wise to sit back and wait for a home in the hopes that prices may drop? Most real-estate experts in our region say don’t bet on it.

Oh really? Okay, well why is that exactly, Mr. Executive Builder Man?

One reason we have not experienced the steep decline seen in other markets is that while other parts of the country face an oversupply of housing, we do not.

So you’re saying that supply is not growing faster than demand, so we’re not headed for an oversupply? Interesting… very interesting.

Here in Washington state, the Growth Management Act (GMA) actually limits the supply of new housing entering the market by directing where new development can occur. As long as GMA is in place, we are very unlikely to find ourselves in a housing glut.

Growth management act, huh? You don’t say.

Another key factor is that the area in and around Seattle has a healthy supply of jobs and a strong regional economy — factors most experts agree help keep prices from falling.

What a compelling argument.

Sitting on the fence waiting for the absolute best deal is a gamble that prevents consumers from taking advantage of buying a home, while prices are moderating.
…
In today’s housing market, the real risk is in waiting to buy a home.
…
Unlike some cities where the real-estate market is in a slump, the Seattle area is healthy and analysts feel certain it will stay that way. As a result, the deep discounted prices some consumers have been hoping for simply won’t be happening here.

For consumers sitting on the sidelines, the bottom line is simple. Homeownership is always attractive. Besides being a stepping-stone to a future of financial security, homeownership provides a sense of community and personal satisfaction. In fact, studies show that homeowners are more content with their lives, enjoying a stronger sense of belonging and increased activity in community groups.

The equation is simple: Since housing is always a smart investment and interest rates are still near 40-year lows, savvy consumers know this is a great time to buy a home.

Well dang, I’m convinced. Now is a great time to buy, and I’d better be quick about it or else I’ll be priced out forever, doomed to be a miserable, broke, dissatisfied loner, renting from the man for the rest of my life.

(Samuel L. Anderson, Seattle Times, 01.24.2007)

The general purpose of this blog is to post only stories relating specifically to the Seattle real estate / housing bubble, but Ben Jones pointed out an article on Bankrate.com that was just too good to pass up. It highlights people who have sold their homes and are renting while they wait out the bubble.

The American Dream comes with a twist for Dean Baker. Convinced that he lived in a housing bubble and that property values would crash, the economist sold his condominium and rented a similar condo two blocks away. Now he waits for prices to plunge so he can scoop up a new place at a bargain price.

Call Baker a bubble sitter. He and others have taken themselves out of the homeownership game. Now they sit on the sidelines, renting and waiting for a housing bubble pop.
…
Amid their diversity, bubble sitters have something in common: They think home values have risen too high, that they will fall, and that homeowners will get burned. So they sell their homes and become renters.

The article goes on to quote various economists on both sides of the bubble debate, but my favorite quote is by far this one (emphasis mine):

High home prices… worry Alan Greenspan, chairman of the Federal Reserve. In his June testimony before the congressional Joint Economic Committee, Greenspan said: “Although a bubble in home prices for the nation, as a whole, does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.”

Froth. Not a bubble. A bunch of cute, tiny bubbles.

Harmless little bubbles, enthuses David Lereah, chief economist for the National Association of Realtors: “Yes, there’s froth in the markets, but froth can be healthy,” he says. “It’s not necessarily a bad word. When I think of froth, I could think of effervescence rather than some popping of bubbles.“

I actually laughed out loud at that one. Yes, Alan Greenspan’s “froth” comment wasn’t warning us about bubbles, it was pointing out the fabulous “effervescence” of today’s market! That’s the ticket. I don’t know if I’ve ever seen a more amusing example of someone in denial. Of course, the “economist” portion of his title is not quite as important as the “Realtors” portion, so it’s pretty much expected that he’s going to twist things in that direction.

Also be sure to check out their interactive map, where you can compare the price increase in houses over the last five years to the price increase in rent for various cities across the country. You can see on the map that Seattle is actually one of the saner markets in the country, where prices have increased “just” 38.7%, vs. rent’s increase of 9%. Compared to many other markets, like the Bay Area’s 66.8%/16.3% or Honolulu’s 71.8%/9.6%, our market looks positively pedestrian. I think it is still a bubble of course, just not as big of a bubble.

There, see? I guess I did relate this post to Seattle after all. *wink*

(Holden Lewis, Bankrate.com, 08.25.2005)