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Case-Shiller: Seattle Stagnant in July

The prediction (emphasis added):

When July’s housing stats came out last week, the most confusing piece of data was that despite skyrocketing local inventory and tightening lending across the nation, the median price still jumped up 2.3% from June, bouncing back into double-digit YOY territory at a 10.6% increase since July 2006.

I believe that almost all of last month’s increase in the county-wide median can be attributed to this spike in sales on the Eastside.

I don’t think this explains away all of the median price increase over the last few months, but I do think it accounts for a good portion of it, especially last month. In theory, if sales distributions are indeed skewing the median, we should see the YOY change in the Case-Shiller Index begin to diverge from the YOY change in the median, since the Case-Shiller method avoids this particular shortcoming. I’ll keep you posted when July Case-Shiller data is released.

Median Price Not Telling the Whole Truth, August 14

The data (available here):

Case-Shiller Home Price Index up 0.2% June to July, 6.86% YOY.

I don’t mind saying once in a while that it feels good to be right. I’ll try not to let it go to my head.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months, to give you an idea of how closely we’re following their lead:

Case-Shiller HPI July 2007
Click to enlarge

There’s really not much else to say about the latest data. It shows pretty much exactly what I’ve been expecting. Let’s just say that we’re currently on track for a very interesting spring.

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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.

46 comments:

  1. 1
    B&W Nikes says:

    Why isn’t San Francisco included in the Data?

  2. 2
  3. 3
    Markus says:

    Tim,

    Your jump from descriptive to inferential statistics perplexes me: You say “LA is offset by 17 months – to give you an idea of how closely we are following their lead”. Would you offset (by 17 months) two different stocks to forecast a trend (e.g. Toyota and GM)? It’s possible there may be a statistical relationship. However to be independent minded, we must question any relationship and provide a forecast using a proven statistical model. Just by looking at the chart, there is no question that LA and SD have a statistical relationship just as Portland and Seattle do. (You could use chi-square test for this). However, we have not shown there exists this same relationship between SoCal and PNW and as such, we can not draw a statistical conclusion that PNW market will follow SoCal anymore than we can state Toyota stock price will follow GM’s price.

    Thank you!

  4. 4
    Saul says:

    Why don’t you timeshift SF by a few months to make the data line up better?

  5. 5
    The Tim says:

    Markus said,

    However to be independent minded, we must question any relationship and provide a forecast using a proven statistical model.

    First off, I’m not saying “we’re definitely on the same exact path.” Rather, I’m saying, “So far on the way down, every city that had a big spike has followed a similar path. It seems likely that we will too.”

    As far as forecasting with statistical models, I think deejayoh’s got you covered on that one.

  6. 6
    Markus says:

    Tim,

    Thank you for the link for “the deejayoh analysis”. As I’m a casual reader of your blog, I was unaware that there was work done on a potential relationship between SoCal and PNW.

  7. 7
    The Tim says:

    I should clarify Markus, that deejayoh’s post doesn’t look at a relationship between SoCal and PNW, but inventory and prices. I just linked to it as an example of a “forecast using a proven statistical model.”

    As far as the SoCal / PNW link goes, I’ve stated before that it’s not time-shifted to imply predictive qualities, but rather to show the similarities in what has happened from peak-appreciation onward.

  8. 8
    patient says:

    What I see in this graph is cities reaching the roof of affordability during the easy money era. California reached it quicker since they started at a higher level and appreciated faster. when the roof is reached all cities trends downwards at a similar pace due to similar price stickiness and psychology.

    It will be interresting to see if the credit problems will accelerate the downward pace from August or if the price stickiness (seller denial ) keeps the same pace and risk building up to a real crash.

  9. 9
    deejayoh says:

    Markus – you make a good point. I think there is a strong belief that Seattle and Portland follow California, but no statistical model to prove it out. Mr Rational’s post in the forums gave me the idea of using OFHEO data to compare timing of past cycles (since it goes back to 1977). If you check out the linked chart, you’ll see that an ~18 month lag seemed to be the case in the late 80’s run up – but in the 70’s it appears the markets were more linked.

    Note that Portland and Seattle are shaded blue, LA/SF/SD are shaded red…

  10. 10
    Mike2 says:

    I’d credit the early 2000’s recession and weak job market with keeping Seattle’s buyer pool from getting tapped out as early as San Diego, DC, Miami and other bubble leaders.

    Can you imagine how awful the Seattle market would be now if the loose lending from 2005-2007 had happened in 2002 instead? We’d likely have seen a higher overall peak price followed by much sharper losses.

    Seeing what is going on around the wealthy DC suburbs, high incomes don’t seem to be supporting the market much at all. Even the worst exurban cities around DC (Manassas for one) have higher incomes than Seattle, lower median prices yet they’re still falling with no bottom in sight.

  11. 11
    biliruben says:

    “Can you imagine how awful the Seattle market would be now if the loose lending from 2005-2007 had happened in 2002 instead?” – Mike2

    What makes you think it didn’t? The tide hasn’t gone out yet, and many of those who did do hinky shiznet earlier in the decade were rescued by appreciation and were able to refi into RE heaven.

    I know several people who did 0 or little-down, 80/20 I/Os pre 2003. They just got lucky with their timing, and are “rolling in equity” now.

  12. 12
    B&W Nikes says:

    All CA, esp. SF was more dramatically smacked down than Seattle in an 01-02 drop. Even then, the YOY HPI illustrated was never worse than -5% (excluding San Diego over this summer). In order to correct prices to sane and affordable levels corresponding with median income, wouldn’t the correction have to go as hard as something like -20% or better? An even bigger dot-boom and 911 event coinciding again? Is there a precedent for a drop like that, or in the long run are we westcoasters really all just stepping all over each other that hard to eventually become (priced like) our own Paris of the west?

  13. 13
    Formernoreasta says:

    We didn’t go up as much as CA. We won’t go down as much either.

  14. 14
    patient says:

    “We didn’t go up as much as CA. We won’t go down as much either.”

    I’m not so sure. California has a universal and global appeal that likely contributed to the level of appreciation. The same appeal should logically pad the down side. Seattle do not have nearly the same global and universal appeal to pad it’s downward slide.

  15. 15
    The Tim says:

    Formernoreasta said,

    We didn’t go up as much as CA. We won’t go down as much either.

    In general, I agree with your sentiment, but depending on how you measure “going up,” your statement isn’t necessarily correct. I suggest that you read this post.

  16. 16
    Mike2 says:

    biliruben, I’d argue that while lending standards were loose by historical standards in 2003, they were still far tighter than in October 2006. Pimco and a few other sites have published surveys of lending institutions that asked whether standards were being lowered or raised. Reportedly, standards fell almost continuously through 2004 to 2007. Furthermore, the big drop in standards through 2006 was the result of competition between the banks as they ran out of qualified borrowers for all that liquidity sloshing around.

    To say that lending standards were just as loose in 2002-2003 as they were at the peak of the credit bubble is misleading. What was going on towards the end (when Seattle appreciation peaked, coincidentally) was much worse.

    As it was, I knew plenty of people that were facing long term unemployment stints in the early part of the decade and none of them were buying houses. Had 2006 lending standards been in place back then most of them would have had 2 or 3 homes.

  17. 17
    biliruben says:

    I agree that it got worse, Mike, but when I bought in 2004, I was surprised at the “options” the brokers were putting in front of me, even then.

    I was frankly a bit disappointed that my ~800 FICO and 20% down didn’t appear to confer any advantage over someone who had no down-payment just out of bankruptcy, and working as a bar-back.

  18. 18
    patient says:

    It’s worth noting the accumulative factor of the hpi on either side of the zero point. SD has spent about a year in negative hpi territory. From there it just starts adding to the price decline. I.e if the hpi was -3% a year ago and now is -10% the actual price change from the top would be -13%, correct? So, the time spent in negative territory should be a very important factor as well.

  19. 19
    off topic says:

    not to mention the psychological impact of another wet winter.

    it seems we always have a slow market during the rainy season. this is a bad situation for anyone desperate to get out from under their house.

    it may be that an early start to the rainy season will be the last component for our “perfect storm”

  20. 20
    Joel says:

    “We didn’t go up as much as CA. We won’t go down as much either.”

    So CA goes down 60% while Seattle goes down 59.99999999%? Or CA goes down 60% while Seattle goes down 1%? Or CA goes down 10% and Seattle goes down 5%?

    This kind of statement doesn’t say anything useful. The only scenario that your statement elimnates is the one where Seattle goes down 100% (since it would be impossible for CA to go down more). It’s like saying “I could care less”. You’ve only eliminated one possibility out of an infinite number.

  21. 21
    melonleftcoast says:

    Tim,

    Love reading this blog and I must admit it is entertaining to watch history repeat itself, just a different city two years later.

    Could you add Boston data to your C-S HPI graph, since it was one of the leading (if not THE leading) down market, and Seattle and Portland seem to be pulling up the rear?

    Thanks!

  22. 22
    TJ_98370 says:

    A solution for the “not making any more land” problem:

    Floating Houses

  23. 23
    Angie says:

    Seattle already has floating houses. They call them “houseboats”. Tons of ’em in Lake Union and on the Montlake Cut.

    It looks to me like LA and SD are starting to level out on those graphs, at ca. 5-10%. That’s negative territory, certainly, but again, the sky’s not falling. And if that’s where Seattle bottoms out too, well, it still ain’t affordable. 90% of $500K (last SFH median for Seattle) is $450K, still way out of reach of the median wage earner.

  24. 24
    wtf says:

    Correct me if I’m wrong, but doesn’t the negative side of the graph represent more $$$ per %…ie: if prices went up 70%, they’d only need to drop 41% to get down to the same price they started at (not accounting for inflation or about 100 other things)

  25. 25
    just_checking says:

    Just thought, I would quote a reassuring email i got from a realtor newletter today :)

    “With all the articles out there over the past few weeks about the national real estate and mortgage markets, it is good to know that our market still remains healthy. We have increasing inventory levels in many of our neighborhoods, and increasing weeks of supply, but our market has moved into a balanced market between sellers and buyers. Homes are selling that are priced right, and there are buyers out there looking for homes”

    Please return to your regular programming now.

  26. 26
    James says:

    Tim said;
    “I don’t mind saying once in a while that it feels good to be right. I’ll try not to let it go to my head.”

    Tim,

    So how about a comparison of actual Sept 2007 number vs. your Sept 2007 prediction in your “Let’s Talk Inventory” discussion of Oct 2006. Looking at the sidebar inventory numbers it seems like you about nailed it.

    This is starting to get scary.

  27. 27
    Joel says:

    “90% of $500K (last SFH median for Seattle) is $450K, still way out of reach of the median wage earner.”

    Somebody already mentioned it above, but I guess you didn’t catch it. Those are YOY percentages. So if they have bottomed on that graph already and they stay there for, let’s say, 2 years, a 10% decline and another 10% decline would be a 19% decline overall. 3 years would a 27.1% decline.

  28. 28

    I cannot believe for how long AUBREY_COHEN is going to post these “Seattle home values hottest in U.S. PRICES: Up 6.9 percent over last year “. Doesn’t AUBREY_COHEN get a chance to look at the current inventory.

    TIM is there anyway we can get the total no of sales in the king county for the month of AUG 07.

    -wow

  29. 29
    Angie says:

    Joel, yep, I understand that.

    Two years at 10% each year drops that 500K to 405. Three years, to 360 or so.

    Last I knew median income for a single person in Seattle was 50-something K, for a family of 4 is like 72K. Back in the old responsible-financing days, people were advised to borrow no more than 3X their yearly income. Presuming that those income figures don’t slip in those 3 years of decline, that still makes median houses too expensive for median wage-earners, unless they have beaucoup down payment.

  30. 30

    IF DR SHILLER IS CORRECT [AND I THINK HE IS], MOST OF SEATTLE’S PAST PRICE INCREASES WERE BASED ON SUBPRIME, HYBRIDS & ARMS

    A home purchase made on quick sand.

    See the proof:

    http://www.boston.com/realestate/news/blogs/renow/2007/09/grim_scenario_f.html#more

  31. 31
    Garth says:

    August MLS data has been out for a while

    http://www.nwrealestate.com/nwrpub/common/mktg.cfm

    ~800 fewer sales in August 07 than 06 for king county, pending sales down 23% YOY.

    Is anyone hearing (emperical data) about any real people having difficulties? I always listen to what people have to say when they are talking about real estate, and the only negative item I have heard about in the last six months was a shady mortgage broker neighbor in Phoenix whose house was foreclosed on and went to jail for fraud.

  32. 32
    Garth says:

    softwareenginer,

    Are you a North American Union guy?

    That is my favorite modern conspiracy, so many details.

  33. 33
    off topic says:

    yes, the median single person is unable to afford the median house and that is unlikely to change and it isn’t really concerning.

    it isn’t really concerning, because single people tend to have lifestyles that favor renting. they tend to be young, tend to move more frequently, and tend to earn less. why would they even want to be in a 3 bedroom house that just reminds them of how alone they are? (no offense to any single people, just speaking from personal experience) these people rent or, if they think they’ll be single and in seattle for a long time, they may buy a condo in a cool, busy neighborhood. but mostly they are wise or poor enough to rent.

    people buying their first home, aka the people for whom median income and monthly payments matter the most, tend to be young couples planning to have kids in a few years. it’s tough finding work in Seattle that pays less than $30k/yr (~$17hr is the normal starting wage for an admin assistant in my downtown office), so they have a combined income of at least $60k, which means a $300k house w/ 100% financing or $350k w/ a decent downpayment. w/in a 1 hour commute, there are acceptable options in this price range. they buy in this range with the belief that in a few years they will be able to make enough to afford for one of them to quit and have their 1.2 kids.

    point being, if two admin assistants can still afford a 3/2 with traditional financing (and with an admittedly unpleasant, but not terribly unusual commute), then the market can still bear the prices. a pair of junior engineers (at $50k each) can afford $500k, slightly above the median for the city, well above the average house within commutable distance

    so, if we want to compare affordability, we should be talking about the area of reasonable commute vs the typical first time buyer household, not the city limits vs the median household income

    that being said, just because the market can bear it doesn’t mean it will. it’s all about psychology.

    when there is a general consensus that a house is a great way to tie up capital and get stuck with the occasional $50k roof repair bill, that will be the time to buy

  34. 34
    Alan says:

    Median income stats are for published for households, not for individuals. The median household (including singles and families are priced out of the market).

    Two junior engineers earning $50k each can afford around $300k.

  35. 35
    deejayoh says:

    ~800 fewer sales in August 07 than 06 for king county, pending sales down 23% YOY.

    Is anyone hearing (emperical data) about any real people having difficulties?

    Garth – here’s an interesting peek into September sales that was posted over in the forums

    ______Aug__Sept. 1-24
    Seattle -18% -47%

    Sourced from a USA Today article.

    http://seattlebubble.com/forum/viewtopic.php?p=5243&sid=b1a2edf7d748886258f08de15c9be2f6#5243

  36. 36
    laxtosnoco says:

    Off topic –

    Great ON topic post. The only thing that I think you left out of your average young couple each earning $30k is that most young folks have significant debt loads (each has $400 car payment + $200-$300 student loan payment). If you talk to your average young couple they’re barely getting buy paying rent, have little saved, and frequently are using credit cards just to keep up.

    That said, I agree wholeheartedly with your psychology comment. When people stop thinking they’re going to retire on their home equity (and have moved on to the latest financial fad) is when it’s finally going to be time to buy.

  37. 37

    HI GARTH, YES, THE SPP ORGANIZATION IS ON ANY GOOGLE SEARCH, ALBEIT MOST OF THE ALLEGED 2010 NAU IMPLEMENTATION IS DONE IN SECRET

    I’m with you, if this NAU gets through, all Hades will break loose in massive “butcher axed” real estate price decreases [Seattle too].

    Its common sense to estimate this hypothetical scenario, as with a theroretical NAU implementation comes “slamdunk” 3rd world country wages and even more low income overpopulation pouring into Seattle.

    The “progressives” say this NAU is just more conspiracy theory, but these same progressives [liberals?] used rubber bullets on legal WTO protestors [i.e., lawyers, professionals, etc] in 1999, just because they went against the “progressive” trend and the protestors wanted decent domestic wages and environmental controls.

  38. 38
    alexu says:

    I bookmarked this post in the “BlogSurfer best posts of the week” MindMap

    http://mappio.com/mindmap/alex/blogsurfer-best-blog-posts-of-the-week-september-23-29

  39. 39

    LOCAL: ECONOMY NEWS AFFECTING HOME PRICES YOU WON’T GET ON KOMO

    Just pulled this from CBS MarketWatch, states in part:

    “…For August, orders for transportation equipment fell 11.2 percent, the biggest setback since January. The weakness was led by a 41 percent drop in demand for commercial aircraft. Boeing Co. reported fewer orders in August after a big surge in July. ..”

    The rest of the URL:

    http://www.marketwatch.com/news/story/oil-prices-fall-us-crude/story.aspx?guid={315892E3-093F-4FBE-B2A8-44CA26C405AD}&siteid=yahoomy

  40. 40
    on topic says:

    decreased orders for boeing, an unimpressive launch for Vista, and IBM releasing a freeware competitor for MS office all in one month.

    plus Starbucks poised for major losses as people give up luxuries during a nationwide recession and the local building and RE industry dragging things further down.

    not to mention rain forecast for the next 10 days and it is still September

    it might be time to be bearish about Seattle in general

  41. 41
    DoubleWhammy says:

    During the 1st three weeks of Sep 07, Seattle had a 47% drop in sales volume compared to same period last year.

    http://www.usatoday.com/money/economy/housing/2007-09-25-existing-homes_N.htm

  42. 42
    jon says:

    “that still makes median houses too expensive for median wage-earners, unless they have beaucoup down payment.”

    Why shouldn’t they be?

    Is a median wage earner a first time buyer? You also have 1/3 to 1/2 of all houses having no mortgages, and those are being inherited.

    Also, for the sake of simplicity, let’s say 50% of earners will never be able to afford a house. Then it should be that the 75th percentile of earners should be able to afford a median house. It’s not that extreme, but helps to see the point.

  43. 43
    wageslave says:

    As I speculated a good month or so ago on this board, renters ought to be wary of karma biting you in the rear as you gleefully predict woe for those poor “homedebtors”:

    http://www.mercurynews.com/business/ci_7024126?nclick_check=1

    No, it’s not the same as losing everything and going bankrupt, but be careful what you wish for and don’t spend so long looking at others you forget to look after yourself….

  44. 44
    joe says:

    This is really interesting! Will you post updated graphs (with SF) monthly, so we can see whether or not the matching trend continues?

  45. 45

    […] Case-Shiller: Seattle Stagnant in July Seattle Bubble Tip Jar […]

  46. 46

    […] The NWMLS King County SFH Median for September was up 5.88%, which is much less divergent than we have seen in recent months, however I expect that the October data will show a difference in the opposite direction, with the […]

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