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Jumbo Tightening Squeezes King County Buyers

Okay so this is old news to any of you that have been following the mortgage mess as it unfolds, but it’s worth bringing up again to point out the fact that Elizabeth Rhodes at the Seattle Times has finally admitted what a mess we’re in:

The evening before their home purchase was to close, Gary Becker and his wife, Amy Dacus, learned their mortgage to buy a Woodinville home had evaporated.

Unlike subprime borrowers defaulting on loans, the couple had a stellar credit score, a 20 percent down payment, strong employment history and had effortlessly purchased three prior homes.

But their new home’s $670,000 sales price was large enough to require a “jumbo” loan, so named because it was for more than $417,000, the limit the nation’s largest mortgage backers will fund.

Their California mortgage broker had unexpectedly lost its ability to provide jumbos — an event being repeated by lenders nationwide as the underlying funding for these large loans grows scarcer.

Now wait just a minute here. Didn’t anyone tell the nation’s largest mortgage backers that Seattle is Special™? It’s just not fair that “jumbo” here means the same thing as it does in Ord, Nebraska. “Jumbo” in Seattle should be, like, $4.17 million, or something. Just because we’re buying ridiculously expensive houses up here doesn’t mean that we’re a higher credit risk. Come on!

Seriously though, here’s the most interesting part of the article, where Ms. Rhodes provides some actual statistics… (emphasis mine)

Nearly half of the single-family houses for sale in King County, plus 21 percent of the condos, have sales prices high enough to require jumbo loans — and that’s if buyers reduce their loan amount by putting 20 percent down.

Despite the dire tone of the article, jumbo loans are not disappearing entirely. However, they are certainly becoming much more difficult to obtain. Is there anyone out there that thinks making mortgages for nearly half the houses in the county exceedingly harder to obtain isn’t going to result in a strong downward pressure on prices? Anyone rational, I mean.

(Elizabeth Rhodes, Seattle Times, 08.26.2007)

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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.

70 comments:

  1. 1
    S-Crow says:

    Couple things/observations…
    1) It will make it more difficult to purchase homes for those not planning on a healthy down payment to get under the threshold. I would guess that there are some that have the downpayment means, but the increase in interest rates for these jumbo’s probably will have a meaningful impact.
    2) Those that have purchased with 100% programs or other ARM’s and have loans totalling over $417,000 have their backs up against the wall if they cannot sell to get out from under debt stress (if they have any).

    3) With all the incentives from builders being thrown around, it would not suprise me that they may try to establish some form of assistance to borrowers to get under the jumbo threshold. Some in the $450K asking prices, if no luck there, may drop prices to where the threshold at $417K is within reach for buyers. I would guess that some agents are suggesting these and similar things to their clients.

    4) I have noticed many homes in the $600K-1.5Mil. range sitting, being taken off the market, put back on, prices increased (rolling eyes), that it appears sellers are trying just about anything but dropping prices. Reminds me of hearing the agents conversations with sellers who mention, “but, if I drop the price, I’ll lose $40K,”….no, you never had it in the first place.

    5) Appears that many sellers are in the mode of chasing the market.

  2. 2
    Grvetti says:

    Maybe I’m looking at this too simply… but the if the couple in the article is havin’ a hell of time securing a “Jumbo” (+417K) loan, with their 20%, stellar credit, etcetera… and most homes in KingCo/Seattle are >417K, doesn’t that mean that most anyone who wants to buy a median+ here are going to find damn hard to secure a loan?

    Personally, I can’t see how this is going to do anything but drive sales into the toilet. I doubt if it’ll have much affect on median… in fact, from Deejayoh’s slicin’ and dicin’ of the regional stats, my guess is that it’ll only drive the median through the roof, because people trading up ~1M homes with loads of equity aren’t beholden to the same products. The rich never feel the economic “bumps” the rest of us feel, always seems to be the case.

  3. 3
    S-Crow says:

    #2, meant to say “sell or refinance” to get out from under debt stress.

  4. 4
    S-Crow says:

    Grvetti, I don’t think those borrowers in the article really had a hard time getting financing. It is that the mortage broker arranging the initial round of financing had their source/lender pull the rug due to liquidity/other reasons. There is still plenty of money out there–for qualified folks. And interest rates, although volatile, are exceptionally good in my opinion.

  5. 5
    Grvetti says:

    [i]There is still plenty of money out there–for qualified folks. And interest rates, although volatile, are exceptionally good in my opinion.[/i]

    So basically less fish in the pond mortgage-wise, but healthier fish lender-wise.

  6. 6
    Affluent Bitter Renter says:

    I’m seeing stories across the country about people desperately lining up financing now to buy a house, before the financing evaporates. Boy are they going to hate life in six months, when they see how “lucky” they were to buy a house before the entire real estate market repriced downwards…

  7. 7
    S-Crow says:

    Grvetti, yes, you are correct. Instead of Garbage Carp, there is Copper River, Chinook & King Salmon swimming around—and they are typically very qualified.

  8. 8

    WITHOUT FIRST-TIME HOME BUYERS ANY MARKET IS DEAD

    In Seattle we felt insulated from the housing crash, because, let’s face it, $400K+ home prices or even $200K+ condo prices just didn’t fit the “first time buyer” client. That is, until zero down monster payments later came in to fashion….

    20% down….what a laugh, almost all the folks with that kind of cash aren’t in the market [if they have brains]; and that’s why they have that kind of cash.

    I know, 2nd mortgage your present home’s equity to buy a 2nd home….problem with that, there’s a glut of homes for sale right now in Seattle that are that type of 2nd home investments.

    It seems the new Seattle landlords are finding out that ex-felons and $12/hr workers aren’t the best rent credit risks or house cleaners….lol

  9. 9
    patient says:

    Since the “copper river” buyers did not cause the bubble they will not prevent it from bursting either. It’s the “garbage carp” that was the cause and when they are now hopefully out of the game we should start reverting to the mean.

  10. 10
    cm says:

    These people just needed to go to one of the big direct lenders, B of A, Wells, Countrywide. The brokers are the lenders who buyers need to avoid in the short term, until the secondary markets come back and start buying jumbo paper again. You can walk into one of the big direct lenders today and get a 5% down, 30 year jumbo fixed rate at 6.75%, you pay a point and get the seller to pay a point, which they gladly will. What loans will be available next month or in 3 months, who knows.

  11. 11
    rose-colored-coolaid says:

    Tim, I might have a rational argument about your downward pressure. It’s obvious this will have downward pressure on more expensive homes, but it’s not clear to me what will happen to lower priced homes. Will all homes in King County (regardless of location) be forced towards a $417k price tag? Not that they will reach that, but it appears the pressure might move in that direction.

    However, if this coupled with the end of subprime loans as a vehicle both continue to occur, I think that combination will definitely force prices lower. Especially if rates increase past 8% for 0-down loans the same way they have for jumbos.

  12. 12
    Schaum says:

    Softwarengineer, funny you mention that first-time buyers as well as buyers with lots of cash are not likely to be in the market right now. I ran into an acquaintance yesterday who’s a real estate agent, and she said that her new “strategy” (as well as that of some of her colleagues) was to target first-time buyers and those with lots of cash. She said that other kinds of buyers are hit too hard by mortgage tightening.

    Needless to say, the agents are getting desperate. It’s sad when you know someone in this situation who is a good person, but I have to admit it was amusing that my aquaintance works with another agent who owns half a dozen homes and is “on a budget” for the first time in her career!

  13. 13
    Marc says:

    Has anyone considered the possibility that the mortgage debacle of the last few weeks, in particular the elimination/reduction of jumbo programs, was simply a knee-jerk reaction by the financial markets. While we all agree that a correction in lending guidelines is long over due, I suspect that jumbo loan programs will be back on track (and more properly underwritten) and rates will moderate in the coming weeks as the overall credit market settles down from this month’s over-reaction to the subprime mess.

    The simple fact is, there’s money to be made in the jumbo market. All we need is Warren Buffett and Berkshire Hathaway to buy Countrywide and pump it full of cash, then this conversation will be moot. He did it for the mobile home business after its meltdown earlier this decade and he could do it again.

  14. 14
    Nick says:

    “These people just needed to go to one of the big direct lenders, B of A, Wells, Countrywide. The brokers are the lenders who buyers need to avoid in the short term, until the secondary markets come back and start buying jumbo paper again. You can walk into one of the big direct lenders today and get a 5% down, 30 year jumbo fixed rate at 6.75%, you pay a point and get the seller to pay a point, which they gladly will. What loans will be available next month or in 3 months, who knows.”

    Is this a joke? 0% chance that Countrywide makes that loan to you. Literally 0

  15. 15
    Nick says:

    Oh, sorry. Missed the part where you said that TWO points would have to be paid down. In this example, the people who were already stretched to the max merely had to come up with an additional 11K out of thin air. My bad.

  16. 16
    Chuck Ponzi says:

    Marc,

    Only one problem for that: Buffet believes there IS a massive housing bubble, and has gone on the record a number of times regarding that.

    If he takes over Countrywide, more than likely he will kill jumbos. If it’s not conforming, he doesn’t want to deal with it.

    Remind us again what he said when he sold his Laguna Beach house?

    Chuck Ponzi
    http://www.socalbubble.com

  17. 17
    Marc says:

    Chuck,

    I disagree 100%. You should see the junk there financing at Vanderbilt Mortgage, a wholly owned Berkshire subsidiary specializing in manufatured home loans. If you’ve got a pulse, they’ll finance you.

  18. 18
    patient says:

    I think availibility of Jumbos is not going to be a problem but I do think they will carry the ~1% premium compared to Fanny and Freddie loans for a very long time. With current intrerest rates for conforming loans at ~6% one percent is a 17% cost increase. So, to keep the demand from these buyers shouldn’t there be an ~17% downward pressure on prices?

  19. 19
    cm says:

    Nick

    Like many people on this Blog, you speak with no knowledge. I would challenge you to actually call around to the big lenders and find out what they are offering today for Jumbo purchase loans. Because I did and they are offering that loan for qualified buyers.

    You should also read my post again, I said they pay 1 point and the seller pays 1 point. Last I checked 7K in today’s world isn’t much my friend. And for that matter have the seller pay 2 points, big deal 14K on 700K sale, I think the seller will make that happen in most cases. The point is that affordable financing is still available if the buyer knows where to look, and it isn’t at the mortgage brokers today.

  20. 20
    biliruben says:

    I don’t understand who can really afford even the smallest Jumbo.

    417K has a PITI around $3300/mo.

    If you use a not particularly conservative 30% for your front-end ratio with no debt, stellar credit and a 30 yr fixed, we are talking a salary of 120K a year, and that’s stretching it.

    How many Seattlites can afford even the smallest of these jumbos? 10%? I have no idea. I’d love to see a household income distribution of Seattle and surrounds.

  21. 21
    S-Crow says:

    I agree Biliruben. That is $3300 before any other household expenses. Before you know it, that borrower is paying darn near $4K month to live in that home. They realistically should be making very good money, around $10K NET per month to comfortably afford that. I freak out when I’m paying around $1800 mo. and my taxes went up about 55% for 2008. That’s the adjustable part of the ARM that NOBODY talks about. And yes, I’m challenging it with lots of data. The problem is that Snohomish Co. will not adjust anything in your favor until the following year. So any relief from property taxes won’t be until 2009. Go figure.

  22. 22
    Marc says:

    I suspect two income families are par for the course in Seattle.

  23. 23
    Grvetti says:

    [i]I suspect two income families are par for the course in Seattle.[/i]

    Yeah, but household income in Seattle’s about 60K-70K, which includes all wage earners in a home.

  24. 24
    patient says:

    “I don’t understand who can really afford even the smallest Jumbo.”

    I don’t think many can and I suspect that’s why 33% of Seattles loans had an I/O component to them. It was likely neccessary not only to qualify but to be able to pay even the first payment…so even if the Jumbo changes will cause some problems it is probably neglible compared to the impact of having to qualify for the fully indexed payments on I/O-ARMs.

  25. 25
    The Tim says:

    rose-colored-coolaid said,

    Tim, I might have a rational argument about your downward pressure. It’s obvious this will have downward pressure on more expensive homes, but it’s not clear to me what will happen to lower priced homes. Will all homes in King County (regardless of location) be forced towards a $417k price tag? Not that they will reach that, but it appears the pressure might move in that direction.

    Consider the following scenario:

    House A ($600,000): 3,000 square feet on 1 acre.
    House B ($520,000): 2,500 square feet on 1/2 acre.
    House C ($450,000): 2,000 square feet on 1/8 acre.

    Jumbo loan issues arise, making House A extremely difficult to finance. House A drops in value down to $520,000, and can now be purchased (with 20% down) on a conforming loan.

    Good luck selling House B for the previous price, since now a house as nice as House A can be had for the same money. So House B drops a roughly equivalent amount, down to $450,000. Whoops. Now House C isn’t looking like such a good deal, and drops as well.

    Etc, etc…

  26. 26
    Marc says:

    Grvetti,

    I’d bet your estimate is probably in line with government stats, however, I’ve always wondered if the median income is that low then how is the median home price as high as it is?

    At 70k annual income, the median homeowner can afford $1,750 per month at a 30% PITI but $1,750 will only get you a loan amount of perhaps $220k-$230k which is nowhere near the Seattle median house price even figuring a 20% down payment. Even at a 40% front end ratio, that’s $2,333 PITI and perhaps a loan amount of $315,000.

    Perhaps the “Seattle” median income is skewed downward by Pierce County/South King County and a true median income for Seattle/East Side is closer to the $125,000.

  27. 27
    Second Great Depression says:

    A couple major banks could go under & a major change in all ours lives is very possible, what that exactly means was not elaborated on.

  28. 28

    THE AVERAGE HOUSEHOLD IN SEATTLE IS 1.2 INCOMES

    And the average income [$40-45K] is definitely not the first-time home-buyer’s income either, these households are younger and make a lot less money.

    The 1.2 workers per household has held true in Seattle for decades now, look at all the 1.0 income houshold divorces and singles living around you….lol

    Believe me, if you are divorced and own a home; you’re very reluctant to re-marry and chance losing 1/2 of it in a divorce and/or having to relocate/sell your present house to marry.

    Singles that rent have the best chance of marriage; they’ll move in with the one that owns the home, but the one with the home is afraid to re-marry and the kids’ inheritance is threatened.

  29. 29
    rentonite says:

    We bought a home recently and took out a fixed heloc second loan to make our first loan stay at the 417K threshold. No, our ratio is not great (somewhere around 34% of gross income) but we make do. And we went through a broker who went through Wells Fargo. I wonder if these loan configurations will become more popular as jumbo funds become scarce.

  30. 30
    mike2 says:

    It’s obvious this will have downward pressure on more expensive homes, but it’s not clear to me what will happen to lower priced homes.

    A friend of mine bought a just under $400K home 0-down at the end of last year. Supposedly, prices are up 9% since then.

    However, when I look at what’s available now for 9% more than he paid, the homes aren’t even comparable. Just a few hundred feet away there are 3 homes 500 sq ft larger, on lots double the size. For about 12% more, there are new homes, 700 sq ft larger on larger lots.

    As the builders compete to sell these new homes, possibly by cutting the price low enought to get under tthe conforming loan cap, why would someone pay nearly as much for an smaller, used home in a similar neighborhood just a 1/4 mile away?

  31. 31
    Affluent Bitter Renter says:

    Marc said:

    “Perhaps the “Seattle” median income is skewed downward by Pierce County/South King County and a true median income for Seattle/East Side is closer to the $125,000.”

    LOL! Reading these evasions are so amusing…

    The median household income of King County is $63,000.

    Assuming that 2/3 of the population of King County lives in Seattle/Eastside, if household income is $125,000 there, then the household income in the rest of the county is -$60,000. ROTFL!

    There are going to be bad aspects to the real estate crash, but lack of humor is not going to be one of them…

  32. 32
    Affluent Bitter Renter says:

    The -$60,000 above should be minus $60,000, just to be clear.

  33. 33
    rose-colored-coolaid says:

    Tim,

    I’m with you on the example you stated

    House A ($600,000): 3,000 square feet on 1 acre.
    House B ($520,000): 2,500 square feet on 1/2 acre.
    House C ($450,000): 2,000 square feet on 1/8 acre.

    But I would also add
    House D($400,000): 1,700 sq ft on 1/8th acre.
    House E($350,000): 1,500 sq ft condo in ‘nice’ area.
    House F($250,000): 1,200 sq ft condo in less nice area.

    My assertion wasn’t that the jumbos would be pushed down, but that buyers excluded from jumbos might jump to other markets. Yes they are getting a worst deal, but they are increasing demand in those markets. Is it possible that all the houses listed would grow closer to a $417,000 price tag? Or will all six homes lose value?

    I tend to believe they all drop in value, but I’m just playing the devil’s advocate.

  34. 34
    Marc says:

    Affluent Bitter Renter,

    You still haven’t answered my question:

    “If the median income is that low [$60k-$70k] then how is the median home price as high as it is [$450k+]?”

    My premise is that the median income will not support the debt service necessary on a home sold at the median price, therefore, either the median income or the median price is way off.

    My first guess was that incomes in the Seattle/East Side area are atypical as compared to King County as a whole.

    However, another explanation is that the median income includes all persons living in King County (at least theoretically). But, not all such persons own a home.

    Perhaps a better explanation (or complimentary one) is that the median income of people who own a home is significantly higher than the county-wide median. It stands to logic that renters, as a group, are likely to have lower incomes and it may be the case that, in King County, renters disproportionately skew the median income. If this is true, then the median income may not be a very useful tool in discussing housing prices.

  35. 35
    Grvetti says:

    I’d bet your estimate is probably in line with government stats, however, I’ve always wondered if the median income is that low then how is the median home price as high as it is?

    Actually I think Seattle proper is around 78K household or so. My guess (and there’s no direct stats on this), is that most of the new purchases of Seattle homes in the past year were by folks with non-traditional mortgages…

    However, if there were stats on it, you’d really have to look at median home prices vs. household incomes of median home price purchasers… There’s a lot of folks making 100K+ household who bought there Seattle home 20+ years ago which contributes to the disparity

  36. 36
    biliruben says:

    I posted the income data for the Seattle/Bellevue/Tacoma metro area in the forums.

    It looks like about 13% of the households can afford to take out a jumbo, as they make more than 125K. I would guess at least half of those probably own their home outright. So maybe 80 thousand people can afford to own half the houses in the area, and most of them probably already do own.

  37. 37
    Garth says:

    The buyer example from the article did get their loan after their initial mortgage company could not fund.

    If you have good credit and income now, you can get a jumbo at 7-7.5%. If you want a subprime, 100% financing, or interest only jumbo then you are screwed

    There are individual horror stories of buying a house in august 07, but most I have seen funded after a few days, and a check of redfin or remuddle (at least in seattle where I am) shows the sales prices of homes are still high. I would be interested in where mike2’s friend is, as I am not seeing the same things where I watch.

  38. 38
    Affluent Bitter Renter says:

    “Marc said,

    ON AUGUST 27TH, 2007 AT 2:26 PM
    Affluent Bitter Renter,

    You still haven’t answered my question:

    “If the median income is that low [$60k-$70k] then how is the median home price as high as it is [$450k+]?””

    Same reason why you saw similar (or greater) multiples of housing price to household income elsewhere in the country – people only had to qualify for the initial teaser payment on an I/O or neg-am loan (or did a no doc loan and simply lied about their income), and people assumed that they would be able to refinance before they had to make the full payment on the loan.

    The problem is that if the house doesn’t appreciate, then you can’t refinance, and the ponzi scheme comes to a rather abrupt end.

  39. 39
    MisterBubble says:

    My premise is that the median income will not support the debt service necessary on a home sold at the median price, therefore, either the median income or the median price is way off.

    My first guess was that incomes in the Seattle/East Side area are atypical as compared to King County as a whole.

    However, another explanation is that the median income includes all persons living in King County (at least theoretically). But, not all such persons own a home.

    Perhaps a better explanation (or complimentary one) is that the median income of people who own a home is significantly higher than the county-wide median.

    Har. Anything but the truly obvious explanation — prices have inflated well beyond what most people can afford without suicidal credit.

    But hey…I’m enjoying your theories, Marc. Could you make up something involving the Second Gunman? Aliens, perhaps? Those pink ponies had to come from somewhere…

  40. 40
    rose-colored-coolaid says:

    Hmmm, my definition of horror story. Y2010, realizing you are $150,000 upside down on your house.

    Other people’s horror story…Y2007, not being allowed to buy the house referred to above.

  41. 41
    Chris says:

    I think a key ingredient is missing in the “affordability” discussion. the market price is only as good as the last transaction, or in the case of monthly medians, the last month of transactions. This market price has little bearing on affordability for the 99% of people who were not involved in transactions in the last month. that contrasts with rental prices, which are a much truer barometer of affordability since they are in affect “reset” to market (in an efficient market) at the end of each lease, which is rarely longer than a year.

  42. 42
    nitsuj says:

    “I’d bet your estimate is probably in line with government stats, however, I’ve always wondered if the median income is that low then how is the median home price as high as it is?

    At 70k annual income, the median homeowner can afford $1,750 per month at a 30% PITI but $1,750 will only get you a loan amount of perhaps $220k-$230k which is nowhere near the Seattle median house price even figuring a 20% down payment. Even at a 40% front end ratio, that’s $2,333 PITI and perhaps a loan amount of $315,000.”

    I believe that question is why this site exists, and why many believe there is a real estate bubble.

  43. 43
    Garth says:

    Other than Medina, when high income jobs come into an area, there is also an increase in lower income jobs in that same area as well.

    Also the median income numbers being used here are from the 2000 census from what I can tell.

    http://factfinder.census.gov/home/saff/main.html?_lang=en

    A married couple who are both school teachers are going to bring home 70-120 a year combined depending on education. The guesses being made here about homebuyers income based on median income from 2000 are flat wrong.

    I would guess that for most people purchasing a house in seattle one of the two incomes is equal to or greater than the median household income.

    If you could find the average income level and a count for employeed, married, college educated individuals I think you would have a better idea about who is buying houses here.

  44. 44
    LoneLibertarian says:

    A realtor friend of mine kept telling me that real estate is local.

    That may be true, but credit is a national/world situation. No money, no houses.

  45. 45
    Garth says:

    Here are individual tax return distributions for each zip code in WA for 2001.

    http://www.irs.gov/pub/irs-soi/01zp48wa.xls

  46. 46
    Affluent Bitter Renter says:

    Garth said,

    “Also the median income numbers being used here are from the 2000 census from what I can tell.”

    Nope – 2005 median income numbers from the state of Washington. $63,742 preliminary estimate for King County in 2005. ($65,940 estimate for 2006.)

    http://www.ofm.wa.gov/economy/hhinc/medinc.pdf

  47. 47
    B&W Nikes says:

    Re: Even if a top end 40% PITI gets a loan amount of +/- $315k, most of the available in city (non-luxury) condo product at that price is so short on sq. ft. that it’s not a bargain even for young dnks, and nearly impossible for a median single. Does anyone think the in-city pricing is going to reduce by 20% or more to fall in line with the median incomes or is it possible the incomes will have to rise to meet it?

  48. 48
    carlislematthew says:

    “I’d bet your estimate is probably in line with government stats, however, I’ve always wondered if the median income is that low then how is the median home price as high as it is?”

    We need to stop comparing median household income with median house price. It has NEVER been the case that 100% of households own a house, and therefore using this for “affordability” is bogus, in my opinion.

    House prices are set by the willingness and ability of buyers to pay a certain price. Traditionally, only 65% to 70% of the population has been in that buyer pool. Therefore, it makes a certain amount of sense to only include those that would actually *buy* a house in the equation that decides whether houses are affordable to buyers.

    Do retired people have incomes? Are they lower than non-retired people? Do we think they’re interested in buying a house?

    I suppose that BMWs are not affordable because there is no way that the median income could afford them…

    Please don’t think I’m defending home prices right now. They’re due for a large correction. Just be careful about expecting some kind of a drop in housing where the median income can afford the median house.

  49. 49
    mike2 says:

    Considering the most popular model of BMW costs under $400/month to lease… I’d say they’re quite affordable to median income earners.

  50. 50
    R Duke says:

    Im not a realtor,just sitting on gulf coast of Fl.Its interesting watching UL reaction.This is gonna hit like a tidal wave,it was a ponzi scheme.Did everyone think we could give our manufacturing to China,Mexico,etc.+replace our economy w/ATM’s in every house?Just because you say something is worth more than it is,doesnt make it so. in Japan,some housing from their bubble/crash has gone down 80% in some cases.Cant happen in UL?In FL.?In Cal.?Watch our condo market,its sinking like a rock.You cant find a buyer for most waterfront now.Look out below.

  51. 51
    Ed says:

    We have rampant denial here, today. Nice! There is no reason for the real estate market to turn positive at this point. Absolutely, none. We are back to fundamentals instead of speculation. Home prices have nowhere to go but down. Double the median salary can’t buy the median home in King County. Hold on for fifteen years of pain.

    sincerely,

    Former Houstonian, resident of Japan, resident of Manhattan.

  52. 52
    Garth says:

    Affluent Bitter Renter,

    Fine print of the median income PDF:

    “Median Household Income Estimates by County: 1989 to 2005 and Projection for 2006

    In current dollars; series revised 1990 forward. The estimation relies on both 1990 and 2000 census data.”

    :)

  53. 53
    Garth says:

    carlislematthew,

    You are right on with that post.

    The data backs you up, here are the numbers from the 2000 census for 98117 (Ballard)

    Housing Characteristics
    http://tinyurl.com/3xyl2r

    Economic Characteristics
    http://tinyurl.com/3d3xzh

    Social Characteristics
    http://tinyurl.com/37m9uf

    All demographic estimates and such until 2010 are based on this data, as nobody else has a comprehensive dataset.

  54. 54
    Affluent Bitter Renter says:

    Garth said,

    ON AUGUST 27TH, 2007 AT 7:05 PM
    Affluent Bitter Renter,

    Fine print of the median income PDF:

    “Median Household Income Estimates by County: 1989 to 2005 and Projection for 2006

    In current dollars; series revised 1990 forward. The estimation relies on both 1990 and 2000 census data.”

    Yes, if you look at more of the fine print, on http://www.ofm.wa.gov/economy/hhinc/
    you can see that the State has an econometric model that is normed against the census data, and uses current available economic data to derive an current estimate of median income. This sort of estimate is fairly important for state government activities.

    In any case, the table gives $38,647 for King County household median income in 1990, and $56,417 for 2000, so the 2005 estimate of $63,742 is obviously considerably above either the 1990 census number or the 2000. Sorry, this is not an outdated number.

  55. 55
    Matthew says:

    It doesn’t matter if the median income in Seattle is 50k, 75k, or 100k a year, this area is still WAY overvalued.

  56. 56
    Garth says:

    It is an estimate based on 7 year old numbers.

    It also tells you nothing about how many people in an area can afford the housing in that area. As carlislematthew pointed out, the “affordability” metric is out of wack as a gauge of who can buy a house. When I made $38,000 a year as an individual I could never have even thought about buying a little condo, much less a house.

  57. 57
    50%off says:

    Anybody seen Meshugy lately???? I sure miss those lil ole Blue Shades and that precious optimism…..

    I’m thinking of posting under a new name myself, mebbe 80% off.

  58. 58
    Matt says:

    Drat, I guess I’ll just have to rent my house when prices “plummet” . . . good thing there’s double digit increases there; you guys will build a ton of equity for me!

  59. 59
    Garth says:

    Case-Shiller is out

    http://biz.yahoo.com/ap/070828/home_price_index.html?.v=3

    S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987

    Then the seattle is different section

    Seattle and Charlotte, N.C., were on the small list of cities that saw prices rise in the same period. Seattle prices rose 8 percent in June while Charlotte saw a 6.8 percent increase.

  60. 60
    Lukasz says:

    *Preliminary estimates for 2005 are based on the 2004-05 payroll data compiled by the state Employment Security Department and the state total personal income data published by BEA.

    Data from 2004-05 is not 7 years old unless you’re from the future. The next time you tell someone to read the fine print, you might want to read it yourself first.

  61. 61
    wageslave says:

    Has anyone checked whether there’s a positive correlation between the boom/bust time line of major cities for the stock market bubble and the real estate bubble? That is, are the cities that crashed (and recovered) first in the stock market bubble the same as those that are crashing earlier now (and therefore likely to recover earlier)?

    While it seems like common sense that since Seattle was late to feel the effects of the stock market crash and therefore was late seeing the effects of the recovery compared to the rest of the nation, doesn’t it also seem like common sense that the same thing is probably happening with the real estate bubble?

    Renton has adopted the slogan of “ahead of the curve”. Perhaps Seattle needs to adopt a similar, albeit opposite, one?

  62. 62
    Joel says:

    Ah crap, I posted as Lukasz (the form was pre-filled with his info). Today is just not my day for posting.

  63. 63
    Bellingham REnter says:

    HA HA! I’ve been reading about the bubble for 2 years now and still can’t figure out what “pink ponies” means when I come across it now and again… Somebody enlighten me…

  64. 64
    The Tim says:

    Bellingham REnter,

    See this post in the forums. I really should add a “glossary” page to Seattle Bubble…

  65. 65
    Pgniss Mcgee says:

    I’m the rare bird who has enough cash and is still a first-time home buyer. I got my money right about 2004, and couldnt stand being harassed into an instant purchase, so I just threw my hands up in disgust and waited it out. Some people who get money will buy now, but a lot like me who waited this long want the pain to set in before we buy. if those agents want me to buy, the only way it will happen is at 2003 prices.

  66. 66
    Grvetti says:

    Here’s an interesting note on the Subprime carnage spreading to 500K+ houses. Unfortunately Seattle’s not that different when it comes to the money spigot, we’re hooked to the same water-main as the rest of the country

    Suprime Mortgage Woes Spreading to High End Housing Market

  67. 67
    patient says:

    off-topic, I enjoy the monthly Case-Shiller analyzes by The Tim with the trend comparisons with some other cities that is ahead of us. Tim, are we soon to be able to enjoy June’s analyze?

  68. 68
    Erik says:

    B&W Nikes – I think that you have brought up an interesting point. While I believe that most of the runup in prices is attributable in some way or another to out of control speculation, I think that this is most true in the market for condos. I know that the average buyer these days does not stay in a property for anything like 30 years, but they are still generally signing on for a 30-year obligation when they buy. If what they are buying is a 400-600sf studio or 1BR condo downtown, they are either 100% committed bachelors/bachelorettes or they are betting on appreciation to enable them to move on.

    A traditional detached “starter home” might have been small, but even a 750sf, 2BR warbox provides soom breathing room. How many peoples’ needs will be met over the long haul by a studio apartment? Some folks will do fine, but for most, the granite countertops are going to rank well below a second or third (or first!) bedroom at some point. If prices really take a dive, there’s going to be a major glut of repartments in the downtown area.

    (B&W Nikes wrote earlier:)
    Re: Even if a top end 40% PITI gets a loan amount of +/- $315k, most of the available in city (non-luxury) condo product at that price is so short on sq. ft. that it’s not a bargain even for young dnks, and nearly impossible for a median single. Does anyone think the in-city pricing is going to reduce by 20% or more to fall in line with the median incomes or is it possible the incomes will have to rise to meet it?

  69. 69
    98112 says:

    ok… my hood 98112

    from IRS – median income approx $100,000

    median home assumption $750,000

    say 20% down $150,000

    finance $600,000 @ 7% for 30 years

    mortgage payment of approx. $4,000

    with a housing ratio of 28% – $14,250 income per month

    with a debt ratio of 36% – $11,000 income per month

    so, a new buyer in the hood would need to make $135,000 – $175,000 to be able to purchase the median home

    single people are screwed, but two income families clearly can purchase and are purchasing…

    sure glad I already own my house ;)

  70. 70
    K says:

    Motheragawd… For that 20% on their $670K house (which would be $134K) they could have bought a full house, in cash, in a million other places in the country. That is not what I call a disaster. Heck, they could take that money, buy a multi-family with it in cash, and probably live off the rent income in some places.

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