About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

40 comments:

  1. 1
    T,V & Mr.B says:

    Market reports coming out….Initial claims unexpectedly jump 19K to 342K (highest in 8 wks), possibly signaling a softening in labor market
    Import prices surged 1.7% in March (largest rise in 10 mos.), stirring inflation concerns….Sounds Like Stagflation to me.

    On another note, as the butt-hole Senators Shumer et al…delivered their report to the news, they showed a map of those states in danger of being strongly affected by foreclosures…Washington was on that map highlighted in yellow, with only 11 states being hit harder than Washington. (I simply counted the highlighted states on their cute little map)

    So as the early bird, I give y’all that to ponder.

  2. 2
    T,V & Mr.B says:

    This comment from Diarrhea Lereah cracks me up.
    “‘In August 2005 we peaked,’ Lereah said. ‘That was the end of the boom. We just went down from there. And speculators got caught with their financial pants down.’”

    BECAUSE THEY READ YOUR F’N BOOK YOU IDIOT!!!!!!!!!!

  3. 3
    Sven says:

    Is that comment from Lereah for real? Talk about nuking one’s “credibility”…

  4. 4
    T,V & Mr.B says:

    Funny, after reading the NAR analysis’ done on both Orlando and Seattle, it states facts about job growth etc… Orlando has the advantage on Job growth and net migration over the last few years. It looks like they cut and paste from one report to the other on many areas on predictions etc… and yet Orlando sellers are seeing 100K price preductions in order to sell their homes.

    Hmmm, I guess they got that one wrong.

  5. 5
    Lionel says:

    I don’t even know how to comment on this:

    Anyone in Seattle with free time?

    HOT Female needs deck built/replaced!! Very real…

    ——————————————————————————–
    Reply to: serv-310264686@craigslist.org
    Date: 2007-04-11, 5:28PM PDT

    I am seriously over budget on a remodel of an investment
    property I have. I need a elevated deck of about 700 sq
    feet rebuilt. I will buy the lumber and you supply the labor
    in trade for….. ME… very very real… The home is vacant
    and quiet and perfect for what you need and what I have…
    I am a total barbie doll type female… think Christie Brinkley…

    I am married and have permission to play and I will pick a
    great deck builder who really deserves some extra on the side..
    Married preferred but not required.

    Please explain why I should pick you… I need a good deck built
    first but am interested in making this enjoyable as well… ok?

    Please send a pic, even g rated, but tell me about yourselve.

    I placed this ad a few days ago and plan to interview 2 guys from
    it… I would like to increase that to 4-5 guys/builders…

    Location: Woodinville
    it’s NOT ok to contact this poster with services or other commercial interests

    License info: Unlicensed

    PostingID: 310264686

  6. 6
    Deejayoh says:

    I love this quote from an NAR study of the Orlando Market – still up on their site…

    Home price declines are very rare. In fact, the national median home price has not declined since the Great Depression of the 1930s. Stock market collapses, the OPEC oil crunch, economic recessions, and even wars have not negatively impacted national home prices since the 1930s

    and yet, they are forecasting a decline on a national basis for next year. Tough call, when the numbers already show a national median price decline.

  7. 7
    FB says:

    On another note, as the butt-hole Senators Shumer et al…delivered their report to the news, they showed a map of those states in danger of being strongly affected by foreclosures…Washington was on that map highlighted in yellow, with only 11 states being hit harder than Washington. (I simply counted the highlighted states on their cute little map)

    Yep. This NY dem wants hundreds of millions to bail out those who bought more house than they could afford.

    Legislation coming soon, so I suggest you write/call/email your reps.

    Here is my favorite part of that article:

    The impact on foreclosures falls not just on individual borrowers; it can affect entire neighborhoods.

    According to Allen Fishbein, director of credit and housing policy at the Consumer Federation of America, recent studies have revealed that even a single foreclosure may reduce values of neighboring properties by about 5 percent.

    OH NO! We can’t have prices retturn to normal now, can we. Glad to see our gub’mint is doing everthing they can to keep them artificially inflated.

  8. 8
    wtf says:

    This system of so many highly-specialized individuals involved in a home purchase with a relatively naive consumer base is quite frightening. There are so many areas where an opportunist can take advantage of a consumer who hasn’t taken the time to do their homework with such an important purchase.

    On the one hand, the consumer should know whether they can truly afford a house.

    But, on the other, they are hearing the BS put forth by the REIC about what a great investment RE is, how prices never go down, etc…

    I wish home purchasing could be made simpler – there are too many cooks in the kitchen and they all have their particular vernacular that makes it difficult to protect yourself as a consumer, even if you do your homework.

  9. 9
    Finance says:

    The artist formerly known as Finance Guru.

    Yes I have gone through a minor name change (legal docs to King County in the mail). Mr. Bubble, about two months ago we got into a rant and realized that often times I do act cocky in personal life and can be overbearing. I have toned it down a little in my personal life as well, and currently taking a class called Management of People, its a hard class due to the amount of HW (2.5 inches of reading last week, ugh), yet helping me learn how to interact better with others (end of personal reflection).

  10. 10
    Finance says:

    I was reading in Forbes this morning that the avg CAP rate in America for Commercial RE is ~4% and in the UK it is ~3%…thus the rational for investors building/flocking to Seattle with a CAP rate ~5%. In order for CAP rates to decline to 4% in this region we need Commercial prices to increase by ~20%…Im not saying that I support this, yet just throwing out an interesting observation.

    How do many of you see how Commercial RE is impacting the region, as all RE has at least some direct correlation to each other. As we build taller buildings in Seattle & Bellevue the increased density will create more jobs in these towns, as more companies expand into the city centers (MSFT, which are not new jobs). However it has been shown that over time (many years) it tends to cause property values to increase as the convince of living closer to work and active public places. Thus why I bought in downtown Seattle (98101) since it should insulate downward pressure more than in the suburbs and cool to just walk 5 min downtown…yes I know renting is cheaper.

    P.S. As posted my in recent thread, the largest price decline in Seattle history was -7.8% in 1981 – 1982…last time we truly had stagflation with both interest rates and unemployment triple today’s levels. Yes, lending standards were tighter (you mean you had to make down payments back then? What are those, lol) yet just observing that we have never had a -10% decline in a year.

  11. 11
    EconE says:

    I actually laughed when I read about the bailout.

    didn’t the bleating state something about hundreds of millions for 2.4 million people at risk?

    ok…so…lets say “hundreds of millions” is 500 million.

    500,000,000/2,400,000= Laughably Not Enough to make a difference…and I doubt that a single fliptard will see a dime of that money…if it ever even is ok’d

  12. 12
    Deejayoh says:

    Finance

    1) CAP rates for commercial properties and Residential rentals are two different things. you are mixing apples and oranges

    2) yes, we have never had a 10% down turn. We had an 8% downturn in an era of 4-5% nominal increases. Now we have had multiple year double digit up ticks. At the end of the day, there is always regresssion to the historical mean. More up = more down.

  13. 13
    Dan says:

    Finance,

    As many of you can recall, Seattle experience a major collapse in Commerical RE in the late 80’s into the early 90’s. Many familier buildings (1201 Third, Columbia Center, Two Union Square etc.) were all completed during this time. Many developers, Martin Selig namely, lost their shirts during this contest of “who can overbuild Seattle first”.

    Currently, there is over 3 million of office space under construction in Seattle, with 9 million planned to be completed by 2011. Over 5 million sf is expected to be completed in Bellevue by 2010. Although most of these buildings will not break ground, it is 1989 all over again in Commerical RE.

    The BEST year Seattle has ever had for absorption was 2006, with a little over 1.3 million sf, mainly as a result of Safeco’s lease downtown. Even if this pace continued, we could only absorb 50-60% of planned commercial space.

    As you can see Commercial RE has crested it’s cycle, and is on the downturn just like residential.

  14. 14
    Finance says:

    Deejayoh – I realize that residential RE doesn’t have CAP Rates (yet Apt buildings do), I was just implying that there is at least positive correlation between Commercial & Residential expansion and price appreciation to some degree, not that CAP rates ally to Res RE.

    Rising commercial RE and expansion cant be a bad thing for a region from an economic perspective (increase property tax revenues). They are often counter cyclical, yet not a direct inverse relationship…eventually over the long run office buildings will be filled by workers and workers need somewhere to live. Workers like to live relatively close to where they are employed.

  15. 15
    Dan says:

    Addition…

    The average SF price paid for commerical office towers in 2006 was a little over $325/sf, with some prices cracking $500. Cap rates are hovering between 3-5%, yet instituitional buyers continue to flock to our commerical market.

    Simply put, large buyers have nowhere to put their cash. They are buying towers and raising rents by 10-15% in hopes of recovering the high purchase price, thereby pricing out the very users they hope to attract to stabilize their income stream .

    Just like residential, the medium income buyers have been priced out of the market and are forced to flee to the far away suburbs.

  16. 16
    Comrade Chairman Greenspan says:

    “Yep. This NY dem wants hundreds of millions to bail out those who bought more house than they could afford.”

    Precious metals traders salivate at the idea of the Fed and government trying to fight the implosion.

  17. 17
    Benjamin says:

    More bailout news.

    http://articles.moneycentral.msn.com/News/1BillionToBailOutHomeowners.aspx

    The same lending institutions who encouraged predatory lending are planning on ponying up money for a bailout. Since banks never do anything for philanthropic reasons, it’s clear that Citibank and BOA are now terrified of a housing collapse.

    I think this hurts Seattle. All of this (literally) free money will dry up before most of Seattle needs it. Even $1 billion is less than a drop in the bucket for the housing industry.

  18. 18
    T,V & Mr.B says:

    Mr. Finance, I too will work on how I deal with people, namely you. Glad to see the name change as well. Regarding your comment “yet just observing that we have never had a -10% decline in a year.” I would tell you that Japan had’t either up until the collapse they went through.

    It’s like my neighbor saying, “My house has stood up this long, so any upcoming earthquake won’t knock it down.”

    It hasn’t happened, until it does.

  19. 19
    Patrick says:

    Just did a survey on the real estate listings within a given
    zip code in Tacoma. 98405 has
    196 listings. Of those listings
    between $250,000 – $465,000 there
    are 100 listings, here is how they
    break down 13 Subject to Inspection
    and 4 are contigent. 17% Total possable sales. If you consider that the actual number is 13% this
    is a poor number going into what should be the busy season for RE
    in Pierce County. After reviewing
    what is going on now with what appears to be investor wannabes bailing, My Money is on waiting at
    least another year and see how
    many bullish RE Investors are left
    standing.

  20. 20
    Alan says:

    According the King County, a resonable occupancy standard for a household is two persons per bedroom (although that may not be an upper limit).

    Suppose that a five bedroom house were purchased by members of large but close-knit family. King County thinks is is reasonable for 10 or more people to live in this house. Now assume that each of these occupants work 60 hours a week at $12/hour jobs. That brings their household income to $360k per year.

    Suddenly, that $565k price tag is looking pretty cheap.

  21. 21
    Deejayoh says:

    There is a PNW focused posting over at HBB

    Looks like the bubblicious pedestal on which Seattle sits is built of sand, and it’s being eaten away by the tides…

    Medford
    Cowlitz County
    Olympia

    omg! it’s moving north

  22. 22
    Mike says:

    yet just observing that we have never had a -10% decline in a year.

    This side of the lake didn’t. The Eastside however did see double digit declines in the early 90’s.

    A highschool buddy of mine’s parents (both Realtors!) bought a house planning to flip it in ’89. They ended up holding it until 95.

  23. 23
    Lake Hills Renter says:

    Good for you for caring about self-improvement, Finance. I wish you the best.

  24. 24
    Finance says:

    Thought this was interesting about whats going on in Australia.

    “Brian Redican, senior economist at Macquarie Bank said imminent changes to the tax treatment of retirement savings could be behind some of the trends in housing finance. From July 1, retirement-fund payouts will be entirely tax-free, so housing investors are selling properties and reinvesting in more tax-effective retirement funds. As these investors are leaving the property sector, there is a willing group of new investors seeking to jump into the property market, he said.”

    In 1997 there were tax changes that impacted the residential real estate market. This probably had a large impact on the market. Wouldnt additional tax benefits reduce the volatility (at least reducing the downside) in the market?

  25. 25
    Deejayoh says:

    In 1997 there were tax changes that impacted the residential real estate market. This probably had a large impact on the market. Wouldnt additional tax benefits reduce the volatility (at least reducing the downside) in the market?

    This is something I have been thinking about. The last set of tax changes relaxed the exemptions for capital gains on housing – which I would argue was, when combined with 1% short-term interest rates, a primary catalyst of the bubble.

    Not sure how you get that horse back in the barn. IMO Congress could not backtrack at all on that or mortgage deductability w/o sending the housing market into a worse tailspin. And given the number of people underwater today, further loosening the exemption would have no effect at all – they have no equity to protect!

    BTW – I think the Australian’s hypothesis is complete BS. Their market has been driven same as ours and everyone elses – by the global liquidity bubble.

  26. 26
    T,V & Mr.B says:

    Hear Yee!!! Deejayoh

  27. 27
    flotown says:

    Dan,

    Not to pick nits but I think absorption in 2006 was closer to 1.9 million SF
    http://www.downtownseattle.org/content/download/transient/CBDOfficeReport07.pdf

    and I think the best graphic I’ve seen of the development pipeline is Colliers’, which depicts about 8 million sf in the pipeline:

    http://www.colliersmn.com/prod/ccgrd.nsf/publish/5C1592F669778215882572220080ADB0/$File/Development+Timeline+4Q06.pdf

    Of the 8 million, a solid portion is owner -user, which is not typocally included in commercial reports, including Amgen expansion, and the Gates Center HQ. It important insofar as these users won’t be looking fo rnew space, but once these buildings are occupied they won’t be included in the commercial inventory

  28. 28
    Dan says:

    Flotown,

    Thank you for the compliment…I helped create both the timeline piece, and the new development tracking map that goes along with it. I used to be an office broker with Colliers, and now work on the instituitional side.

    The Gates Foundation and Amgen are included for illustration purposes. Amgen is indeed looking for space right now, as they have not finalized their expansion yet. A majority of the figure (4.5m) sf comes from Greg Smith’s proposed development in Sodo, which is on hold due to the viaduct. My comment said that only 3-5m will probably be built.

    Nonetheless, there is a correlation between residential downturn and commercial downturn, with the former usually happening first. Seattle cannot support rents higher than $35, and they are bound for a downturn.

  29. 29
    Sven says:

    Patrick:

    Wait till next year for all parts of Pierce to buy if you can. Every part of T-town, even the “north and Northeast parts will see price declines. It’s already happening on a micro scale depending no how desperate the seller is (look at 4107 N 24th, 98407; 6 price drops in 5 months…).

    This Fall may even prove to be an excellent time to buy if the spring selling season is as big a flop as it’s shaping up to be.

    Also, about investors in that market, I got outbid by a couple a month or so ago who promptly put the house up for rent on Craigslist before it closed….and it was a flip property.

  30. 30
    Terry says:

    Your taxpayer dollars at work!

    Banking committee members said the federal government should spend “hundreds of millions of dollars” to bail out subprime mortgage borrowers facing foreclosure.

  31. 31
    Terry says:

    Let’s try this again!

    Your taxpayer dollars at work!

    Banking committee members said the federal government should spend “hundreds of millions of dollars” to bail out subprime mortgage borrowers facing foreclosure.

    ..

  32. 32
  33. 33
    NewDad says:

    I’d like advice from Tim’s board: which Seattle neighborhoods are relatively “bubble-proof”, in your opinion?

    We’ll be moving back to Seattle (~July ’08) after a 20 yr hiatus in SF; things have changed so much there that I hardly recognize it anymore. What kind of home purchases are arguably less “bubbly” than others? Should I focus on certain neighborhoods and stick to particular property types (e.g., avoid condos and stick to SFHs in “established” neighborhoods)?

    Thanks for any advice you can give.

  34. 34
    Finance says:

    newdad – First of all what is your price range (as in how much do you want to spend?). Second, you should probably rent for a little while until you get a feel for the neighborhood you want to live in. Third, there are always “motivated” sellers…look for them…people on here will tell you not to buy for 2-3 years.

    I personally bought a condo (conversion) downtown Seattle 5-10 min walk to Pike Place Mkt. For the SFR market a more secure environment or Bellevue would probably be your best option (less taxes in Bellevue as well). As for condos, my rational is that the closer I am to the major workplace (downtown Seattle) the better since there will be stronger demand to live closer to work…

  35. 35
    Deejayoh says:

    NewDad said…
    I’d like advice from Tim’s board: which Seattle neighborhoods are relatively “bubble-proof”, in your opinion?

    Newdad –
    I am sure you well get all kinds of conflicting advice on this. I had to make a rent/buy decision last August. Bid on a bunch of houses, lost them all (never fell victim to the “Winner’s Curse”!). Finally locked in a townhome and then got cold feet and backed out. To date, I am ahead $55k because they keep lowering the price.

    So in my case, renting has worked out really well. I found a nicer townhome in a better location, and am paying 30% less in rent than I would have for a tax-sheltered mortgage. If you check Craiglist, you will find plenty of nice homes for rent. I know others have had different experiences, but I really don’t see any reason to lock in right now. At best, predictions are for appreciation to be flat for a while and at worst – who knows!

    I know if I bought I would have already given back half my down payment to the market.

    Just my $0.02

  36. 36
    JP says:

    finance said: As for condos, my rational is that the closer I am to the major workplace (downtown Seattle) the better since there will be stronger demand to live closer to work…

    I’m not sure I completely agree with you on this one, finance. Sure, up until 15-20 years ago, downtown Seattle was the major employment center. But the Eastside has been the largest-growing area as far as new job creation goes for some time now.

    Want proof? The 520 commute has shifted substantially since 15-20 years ago, when most people were going into Seattle in the morning and out in the evening. That’s why there are fewer westbound exits on 520 from Redmond to 405–they designed it assuming that people were going to be driving all the way into Seattle, which is certainly not true now. Now, there are many nights when traffic is ugly westbound (people going home), but wide open eastbound. [I just checked the WSDOT traffic map, and at 5:05pm eastbound 520 is wide open from I5 to 405, but westbound is stopped from 405 to the bridge.] I attribute this to all of the young, mostly single professionals who work on the Eastside but want to live in the hip neighborhoods in Seattle (it’s not cool to be young and single and live on the Eastside–nothing to do at night unless you want to hang out at Bellevue Square with the spoiled high schoolers, although the Crossroads mall does have live entertainment at times).

    And families with children will rarely want to live downtown for many reasons. For them, a more desirable neighborhood is likely to be a bit further out from downtown.

    So I think that what constitutes a desirable neighborhood varies widely depending upon a multitude of factors. You could say that all of Bellevue is desirable, but then again, there are parts of SE Bellevue which look like another county (no names mentioned, heh heh).

    I desire to live on the Eastside where I do because no matter where I end up working in the greater Seattle area, I can pretty much get there in a 30-minute drive (afternoon commute, a different story however). I’ve worked in Kirkland, Redmond, Tukwila, and now Monroe, all in the past 10 years.

    My $.02

  37. 37
    flotown says:

    Dan-

    Well then nice work. Curious about the comment “Seattle cannot support rents higher than $35, and they are bound for a downturn.” If we were there in 2000 why not in three years?

    Also, my understanding is the bio-tech office rents are signifiantly higher than general office rents. Are you saying Seattle can’t suport a blended average of rents in 2009 won’t hit $40 gross or no development can support that?

    Thanks in advance

  38. 38
    NewDad says:

    okey doke — I’ll expect to rent for at least six mos. We’ll look at the smaller homes on commute-friendly Bellevue neighborhoods (Clyde Hill, Yarrow Pt, where we used to live) first, based on jp’s advice.
    Thanks a bunch!

  39. 39
    synthetik says:

    i was reading in Forbes…

    bwahahahahah!!!!

  40. 40
    Dan says:

    Flotown,

    You are indeed correct…we did have rents at an average of around $39 for Class A office in 2000…look what has happened since then. Starting in mid 2001 until early 2004, prices dropped to a class A average of $22, simply because landlords couldn’t give away space. Yes, the dot com bubble was an outside influence, but is still shows that RE is cyclical. We are on the crest of another downturn right now, and by early 2010, rents will be back down in the Mid-20’s.

    Lab rents are traditionally called “Flex” or “Bio” space in RE circles, and are actually counted with industrial rents in some markets. Since Seattle has so many bio-tech buildings, especially up in Canyon Park area, we have our own statistical category for lab space. When you hear someone discussing “office average” they are only counting traditional office buildings, although this changes city to city. If you would like to talk more, e-mail me at
    danielc@kennedyusa.com

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