Let’s take a look at our friend Elizabeth Rhodes’ more lengthy article in today’s Seattle Times, where she paints a picture of a Seattle area real estate market that is still super-hot and doesn’t know the meaning of slowdown. I usually try to limit article quotes to just a few paragraphs but this one has so many gems I’m going to have to break my usual rules.
Ann Dickhoff’s house purchase typifies a milestone in more ways than one.
Like many other parents of adult children, Dickhoff was afraid her son would be priced out of homeownership in his hometown.
So last month she helped him buy a North Seattle rambler, gulping as she paid $409,000 — or $89,000 more than she shelled out a year earlier for a nicer house half a block away.
In doing so, Dickhoff helped fuel the buyer frenzy that’s pushed the median cost of King County single-family homes past $400,000 for the first time.
Still, median prices in some neighborhoods are much higher than that, seriously undercutting affordability and turning the hunt for a moderately priced home into blood sport.
Where to start? First off, for her “typical” example, she’s choosing someone who has no problem plunking down for a $400,000+ house that’s not even for them, but for their kid? Maybe I’m just really out of touch with King County, but that doesn’t seem at all typical to me. Secondly, is there really still a “buyer frenzy” in King County? Again I direct you to the NWMLS March data. Here are the pertinent figures for March in King County:
| Listings | Pending Sales | Closed Sales | Sale Price | |||||||||
| ’06 | ’05 | % chg | ’06 | ’05 | % chg | ’06 | ’05 | % chg | ’06 | ’05 | % chg | |
| Comb: | 6,359 | 6,731 | -5.53% | 4,106 | 4,469 | -8.12% | 3,219 | 3,791 | -15.09% | $365,000 | $324,950 | 12.32% |
| Res: | 5,100 | 5,244 | -2.75% | 3,044 | 3,405 | -10.60% | 2,386 | 2,858 | -16.52% | $405,000 | $362,000 | 11.88% |
| Condo: | 1,259 | 1,487 | -15.33% | 1,062 | 1,064 | -.19% | 833 | 933 | -10.72% | $249,950 | $205,990 | 21.34% |
Ms. Rhodes seems to be talking only about the “Res.” figures in her article, so look at those figures in particular. Specifically, check out the double-digit negative numbers in the “Pending Sales” and “Closed Sales” “% change” columns. Despite the fact that the number of listings was down just 2.75%, the number of sales decreased by at least four times that amount. That sure doesn’t look like a “buyer frenzy” to me. Moving on.
Dickhoff and her husband, Walton, an administrator for the National Oceanic and Atmospheric Administration, had to pay $320,000 last year to snag a small Greenwood-area bungalow for her mother. “That was our wake-up call,” she said, to climbing prices and the possibility that homeownership for her kids was in jeopardy.
Indeed that’s a serious possibility for many residents, according to Washington State University’s Center for Real Estate Research. Average-wage workers, in particular, are susceptible to the double whammy of rising house prices and rising interest rates.
In the past year, the average interest rate on a 30-year, fixed-rate loan has climbed half a percentage point to 6.5 percent.
The WSU center’s latest affordability index reveals that King County buyers earning median wages have just 80 percent of the income needed to afford a median-priced house. First-time buyers have 45 percent.
In January, Ann Dickhoff, a nurse at Swedish Medical Center, began hunting for a house to buy for son Paul, 21, a cheese maker at Pike Place Market, to live in with roommates. A real-estate agent warned her the first one she bid on would sell for more than its $400,000 list price.
So the Dickhoffs bid $416,000 — and added a $30,000 escalator clause in case a bidding war broke out.
It did, and they lost that house to a $450,000 all-cash offer.
That made clear to her that “the market was taking off, and if we were ever going to buy something for the kids to live in, we’d better make a move.”
They quickly did, landing for $409,000 a newly refurbished 1950s three-bedroom with a spacious new garage.
Still, if the market weren’t so hot, “we wouldn’t even have looked at it,” Dickhoff confided. The house is on busy Greenwood Avenue North, and the street noise is significant. Plus a newer townhouse development has consumed its entire backyard.
Did you notice in there how she barely made a passing mention to the fact that first-time buyers making median wages have just 45% of the income necessary to afford a home? Do reporters like Ms. Rhodes not see that as a huge problem? Granted my perspective may be a bit skewed being a potential first-time buyer and all, but doesn’t that deserve more than a half-sentence mention in an article like this? Furthermore, did this example family, the Dickhoff’s, do any serious research into the current market before jumping in with both feet to buy their kid a house? Seriously, “the market was taking off”?!? Sweetheart, the market took off two years ago, and it’s been riding the appreciation wave since, but sooner or later (probably sooner) it is going to land. Maybe it will be a soft landing, but if people like the Dickhoff’s truly “typify” the King County home buyer, I’m afraid it’ll be rough indeed.
(Elizabeth Rhodes, Seattle Times, 04.07.2006)