Seattle Bubble

October market statistics from the NWMLS are here.

Public press release and data pdfs have not yet been posted, but I will update the post with a link once they are. Update: Here is the NWMLS press release, with links to the public pdfs.

Here’s your King County SFH summary:

October 2007
Active Listings: up 36.76% YOY
Pending Sales: down 29.88% YOY
Median Closed Price*: $443,950 - up 0.90% YOY

Yes, that’s zero-point-nine percent. The median price dropped month-to-month for the third month in a row—the first time this has happened since before 2000, and only the third time since 1993. But again, let’s not focus too much on the median price, since it is a liar and doesn’t really tell us what’s going on.

The growth in inventory slowed just a little, from the 40%+ YOY growth of the last five months to just under 40% YOY. Expect inventory to continue to decline through December, as it does every year, only to pick back up with a vengence in January.

The total number of sales in October was up slightly from September, as it is most every year. This caused the Months of Supply to drop back slightly from last month, however it still remains in record territory at 6.29.

Update: Here’s the updated Seattle Bubble Spreadsheet, and here’s a copy in Excel 2003 format.

Here’s the supply/demand YOY graph:

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Here’s the chart of supply and demand raw numbers:

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And just because the incredibly steep drop at the end is so dramatic, I’ll bring the SFH Median YOY change graph back this month:

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Here’s a new graph for you. It shows the total amount of SFH inventory on the market at the end of each month, with each year since 2000 overlayed on top of each other, so you can more readily compare them.

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And here’s the same graph for pending sales:

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Check back tomorrow for the news roundup. This should be fun…

As I’m sure you all know by now, yesterday the Federal Reserve cut the benchmark interest rate again. While this move will no doubt feed the false hope for a speedy end to the housing slump, there is likely nothing the Fed can do that will stop the bubble from deflating.

However, when I step back and look at the big picture, I can’t help but be a bit concerned about the effect the recent rate cuts will have on my dollars. Over the past year, the value of the dollar has already fallen over 10%, with the steepest declines immediately following the September Fed cut of 50bps:

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Meanwhile, the government is reporting mild inflation in the 2-3% range, but when calculated using the method from 1980, we’re actually sitting on over 10% inflation.

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So on the one hand, you have the government telling us that basically everything is fine, the economy is humming along nicely, inflation is under control, and housing—while definitely a bit of a drag right now—is sure to pick back up soon. On the other hand, you have bloggers and economic commentators that see us moving toward hyper-inflation and dollar “destruction.”

I’m not trying to be alarmist here, because frankly, I don’t follow this big picture stuff closely enough to have a good handle on what is really going on. However, given the unimpressive recent record of “economists” and government mouthpieces when it comes to predicting the direction of housing and the economy, I’m inclined to believe that the bloggers may be closer to the truth.

So let’s say that extreme inflation / dollar devaluation is indeed around the corner (or already upon us). What do we as financially responsible, saving individuals do to avoid having our savings become worthless? Socking away all the money we’re saving on rent into a 5-6% CD doesn’t do much good if inflation is 10% (or higher). Knowledge is power, and if we have the knowledge of major economic changes headed our way, we should use that to our advantage. The only question is how.

I don’t have any good answers here. I’m just thinking out loud, and hoping to spur a discussion that can be productive for all of us. So, what are some answers?

It’s been about a month since I introduced the Distressed Sellers Index, so I thought it would be a good time to check in with another update.

Here’s the latest graph:

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As you can see, since our last update the DSI has jumped nearly 20 points up into the 70-80 range, where it has been holding somewhat steady. The latest reading came in at 77.

Again, I’d like to remind you that the DSI is non-scientific, and is provided merely as a curiosity. A value of 77 has no particular “meaning” other than the general theory that higher index values means more distressed sellers in the Seattle area. I’m not attempting to make any claims regarding predictive or even descriptive qualities of this index. We’ll need more than a few months’ worth of data before we can begin to form any such hypotheses.

Continuing with the excellent suggestion from the previous DSI post, here is the current DSI for select additional cities as of today:

• Boston: 83
• Las Vegas: 148
• Sacramento: 153
• Miami: 137
• San Diego: 206
• Los Angeles: 138
• Phoenix: 201

I’ve noticed a few posts in the comments and over in forums regarding inventory levels - which appear to be flat to down over the last couple of weeks. Given these I thought it was worth laying out a historical perspective on inventory levels.
If you’ve delved into the Seattle Bubble spreadsheet, you know that The Tim has collected NWMLS stats for KingCo SFH back to January 2000. Based on this data, you can get a pretty good feel for how inventory levels rise and fall over time, and what today’s market looks like compared to previous years.

First, lets have a look at seasonality. The chart below compares normalized inventory levels for each year - relative to inventory at the beginning of the year (or, more precisely - versus December 31 of the prior year). As you can see, fluctuations by month are fairly predictable across the years - lowest at the beginning of the year, growing steadily through fall, and then dropping off in Oct-Dec. For the 69 months of data charted below, the standard deviation from the BoY inventory is +/- 23% of the average change of 130% of BoY inventory. So if my recollection from stats class is correct - 68% of the time inventory change falls within one standard deviation of the average change (red dashed line), and 95% of the time inventory changes fall within 2 standard deviations of the average change (blue dashed line)

What is atypical about the market in 2007 is that since July of this year, the inventory growth has been more than 2 standard deviations higher (<3% probability) than the 2006 year ending inventory - and the September change was 3.2 standard deviations outside the norm - an event which I think has about a 0.1% probability of occuring! So while inventory is following a typical pattern - the swings in inventory have clearly been far outside the norm, and only to the upside.

The next chart shows the absolute inventory levels, and compares them to sales. On this chart, you seen the same seasonal fluctuations as above, but in context of the yearly swings of the market. You can also cleary see that it’s not just the relative inventory level that is an issue - the number of homes currently on the market is almost 3 standard deviations above the average for 2000-2007; an event which again, has about a 0.1% probability of occuring. The dashed black line shows the rate of absorption - calculated as pending sales/active listings for each month. As you can see, the growth in inventory is not in any way being met by an increase in sales. The level of inventory absorption has dropped to its lowest level in seven years.

So, while some may argue about how much impact all this inventory will have on prices, it seems pretty clear that any arguments that the market is just returning to “normal” levels of inventory are coming from sources that either haven’t looked at the data, or that are just plain bad at math…

September market statistics from the NWMLS are here.

As usual, when a public link to the usual monthly press release with links to the recap pdfs becomes available, I’ll post it here. For now, here is a link to the data on the NWMLS Marketing page

Here’s your King County SFH summary:

September 2007
Active Listings: up 40.21% YOY
Pending Sales: down 32.14% YOY
Median Closed Price*: $450,000 - up 5.88% YOY

Pop quiz: What happens to home sales in an inflated housing market like Seattle when you cut the legs out from under the jumbo loan market? Apparently, you get plummeting sales and wild swings in the median. The 32.14% drop in pending SFH sales was the largest year-on-year dip on record, while the 26.4% drop month-to-month, was the third-largest. Only four months on record (which goes back to 2000) had fewer pending sales than last month, and every one of those was in the dead of winter (Jan-00, Dec-00, Dec-01, Dec-02).

Inventory continued the now-normal rate of a 40%+ YOY climb, putting the total number of houses on the market at nearly double what it was two years ago.

The big story this month (aside from the wild swing in the median) is Months of Supply, which reached a new record high of 7.21. That’s the first time the number has been above six since some time in the early ’90s, and quite possibly the first time ever over seven. Even I was surprised to see it jump so high so fast. Wow.

While the median price dropped nearly $30,000 (6%) from August, giving up almost all of this year’s gains, I think this is largely due to the jumbo loan tightening. Keep the previously-discussed shortcomings in mind when looking at the median. Of course, it seems likely that the media will latch on to the median and headline their stories with it.

Here’s an added bonus. The Seattle Bubble Spreadsheet is now in Excel 2007 format, with new pretty colors on many of the graphs, and additional customization options. Those of you with older versions of Excel should still be able to open it using the free converter provided by Microsoft. However, if you still want the old 2003 format, shoot me an email.

Here’s the supply/demand YOY graph:

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Wow, that’s a steep drop at the end of the red line…

Here’s the chart of supply and demand raw numbers (note that I had to adjust the right-side vertical axis for the record-high MOS):

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I’d like to introduce a new statistic to Seattle Bubble: the Distressed Sellers Index (DSI). This is a metric I have been recording since May, and while I don’t have enough data to do year-over-year comparisons yet, given the recent action, I thought it was a good time to bring it in.

The DSI uses an original proprietary algorithm to measure the ratio of listings using distressed language compared to the total number of listings in the Seattle area. It is most definitely not scientific by any means, but rather is provided as a point of general interest.

When I started taking data in May, the DSI sat in the upper 20s. In mid-July, it broke through the 50 mark, and the most recent measure places it at 61. What does a value of 60 mean? Who knows! What is interesting when looking at the DSI is the trend. Increasing values mean a market in greater distress, and vice versa. I would also point out that the seasonal effect that you generally see in most housing market measures is automatically accounted for in the DSI since it is derived from a ratio of total homes for sale.

Here is a graph of the DSI action since I began taking measurements:

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I’ll probably pop in with an update to the DSI every month or two. It will be interesting to see how this correlates with other available measures and indices out there.

Update: An excellent idea was posted in the comments by reader “on topic”, who asked: “could you track the same index for markets in other stages of their bubbles?” Here is the current DSI for select additional cities as of today:

• Boston: 86
• Las Vegas: 111
• Sacramento: 121
• Miami: 136
• San Diego: 168
• Phoenix: 170