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Tytler: “I don’t buy into the ‘gloom and doom'”

For those of you not familiar with Steve Tytler, he is a columnist for the Everett Herald (and also the owner of a mortgage company) who has been pretty much the most reasonable voice in the local media on the housing market. Despite our difference of opinion on just how things will play out, I find his views to be much more reasonable than, say, Elizabeth Rhodes.

However, we do still have our differences. Mr. Tytler’s latest article highlights a few of them:

What’s going to happen with home prices? … In a few words, I think they’re going to stay flat for the next few years.

At least his view is more realistic than the one most other local real estate insiders are publicizing. But why would home prices just “stay flat” for merely a “few years,” after experiencing such a prolonged period of above-average appreciation? Because that’s how it’s always worked before, according to Steve.

If you look at home prices over the past 40 years, there is a very predictable cycle: Home prices increase rapidly for two or three years, are followed by a slight price drop and then stay flat for the next few years. If you looked at home prices on a graph, you would see a pattern that looks like a staircase: Up, flat, up, flat and so on. … I think we are now in the correction phase and the beginning of a flat market. Home prices may drop an average of 10 to 20 percent during the correction, but keep in mind I am talking about dropping from the very peak of housing boom prices.

Now wait a minute. First he said “flat,” now he’s saying “prices may drop an average of 10 to 20 percent.” That doesn’t sound very flat to me. I find his comment to be especially odd in light of one of the things he said to me during our email exchange back in May:

I do NOT expect to see 20%+ price drops as we have seen in other previously housing markets around the country.

Hmm, interesting. So in five short months, Steve seems to have gone from “there will be no 20% price drops” to “there may be an average of 20% price drop.” Keep in mind that if price drops are averaging 20%, some homes are dropping in price by far more (and conversely of course, some by far less).

This column also marks the first time (to my knowledge) that any local newspaper has mentioned this blog by name:

I don’t buy into the “gloom and doom” scenarios being promoted by blogs such as seattlebubble.com, which has been predicting the imminent collapse of the local real estate market for a long time. While I give it credit for pointing out that many people in the Seattle media were overly optimistic about the Puget Sound real estate market during the boom, I think the bubble bloggers tend to be overly pessimistic.

It would appear that when Steve talks about promoting “doom and gloom scenarios” he’s either referring to specific commenters on this blog, or other blogs (he did say “such as”), because as I mentioned to Steve in our first email exchange, “I’ve never personally predicted a ‘major housing crash’ for Seattle.” If anyone disagrees with that statement, I encourage you to browse through the archives and find the posts that show otherwise. Steve has yet to point out any specific predictions made by this site that would qualify as “doom and gloom,” nor has anyone else.

In fact, the predictions I have posted on Seattle Bubble regarding what would happen to date have so far been fairly close to Steve’s. In his column he said:

I have noticed a fairly predictable cycle in the Puget Sound real estate market that has enabled me to be relatively accurate in guessing what is going to happen one or two years down the road. For example, in late 2005, I wrote that the housing market was peaking, meaning that it would soon start cooling off. That was at a time when the news was full of stories about how hot the housing market was and how fast home prices were rising.

Few, if any, people at that time were thinking that the party would soon come to an end.

Except of course for this blog, which was started in late 2005, when I said the following:

There has to be a slow-down sometime, and I think it’s coming fairly soon (within the next 3-5 years). I don’t know if it will take the form of a leveling off of values, or a slow decrease, or a sudden decrease (bubble bursting), but I know it is coming.

Steve:

In December 2006, I wrote a column in which I said that the booming housing market had finally slowed down as I had previously predicted, and I said that there would probably be little, if any, home price appreciation in 2007 because the number of homes on the market would increase and turn a seller’s market into a buyer’s market. … Again, that prediction proved to be correct.

Seattle Bubble:

…we could see a true buyer’s market (6+ MOS) in King County by next November. I’m not necessarily predicting that, but it’s definitely the direction the numbers are headed. (12.07.2006)

With inventory already increasing over 20% YOY, it will be hard to increase the pace, but certainly possible. I expect to see active listings at least 15% over 2006 levels for the first half of the year. During the same time, I expect sales will decline at least 5-10% from 2006, dropping back to levels last seen in 2002 or 2003. … I guess that the King County “residential” median price at the end of this year will be between five percent down ($418,000) and three percent up ($453,200). (01.11.2007)

So where’s the doom and gloom? It sounds like so far my predictions here have lined up pretty closely with Mr. Tytler’s (and with reality). In the past I have invited Mr. Tytler to make a guest post on this blog further explaining his viewpoint, but he unfortunately turned me down. Does anybody else have any idea what he’s talking about? I appreciate the blog being mentioned in the dead tree press, but it seems that Mr. Tytler is mischaracterizing the type of content that is posted here.

(Steve Tytler, Everett Herald, 10.07.2007)

Update: Steve Tytler has responded in the comments. Be sure to check it out. I appreciate his willingness to engage in the discussion. Thanks, Steve!

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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.

64 comments:

  1. 1
    Ira Sacharoff says:

    I’m assuming that Steve Tytler is referring to doom and gloom commenters on this blog, not “The Tim” directly.
    My sister used Tytler’s mortgage company when she bought her home, and she couldn’t have been happier. I reviewed all the paperwork with her, and not only did they have lower rates than most anyone else, they very patiently explained all the charges, and there were no surprises. Good, honest lenders are even more rare than good, honest real estate agents. So bravo for the Tytlers!

  2. 2
    Garth says:

    Tim,

    If the “content” on Seattlebubble is your posts in between the title and the comments then you may be correct that Mr. Tytler is mischaracterizing the content here.

    I find your titles are often much more negative than the content of your posts. Sarcasm gives people various impressions as well.

  3. 3
    wreckingbull says:

    I don’t doubt that Mr. Tytler and/or his family run a great mortgage company.

    What I find amazing is that journalism’s code of ethics allows this conflict of interest.

  4. 4
    NotaBull says:

    There are some posters saying there will be 80%+ price drops, depressions, etc, so go and buy gold, hoard ammo, and live in a cave. But these posters are few and far between and certainly are on the extreme end of the spectrum. Extremists shout the loudest, of course, and push their opinions with the most force and certainty.

    As far as I’ve seen, most posters on this blog are interested parties that expect some kind of moderate decline. Most seem to be thinking about 0% – 30% decrease in prices, IIRC from a previous poll.

    Those that propose never ending appreciation, or even stagnation of prices, *have* to see your opinion and posts as “doom and gloom” because in their world (real estate transactions) you ARE predicting doom and gloom!! :)

  5. 5
    Steve Tytler says:

    Hi Tim,

    We still disagree on our predictions for the real estate market, but at least I gave you some free publicity!

    Frankly, I am disappointed in the Herald because they edited my column and the headline is misleading.

    I would have used a headline that said “Home Prices Likely to Drop Next Year” as that was the main point I was trying to make.

    Here is a copy of the un-edited text of the column that I submittted last week:

    ———————————————————————-

    Instead of my usual format of answering a specific question, in this week’s column I am going to address a general question that has come up several times over the past couple of months in letters I have received from readers, and that is, “Why do you think home prices are not going to increase for the next few years?”

    For the last couple years at about this time, I have made my predictions about what I think the local housing market would do in the coming year. Now keep in mind, I don’t have a crystal ball and I don’t claim to be perfect, but I have more than 20 years of experience as a real estate broker and mortgage broker and I have studied housing statistics in this market over the last 40 years. I have noticed a fairly predictable cycle in the Puget Sound real estate market that has enabled me to be relatively accurate in predicting (i.e., guessing) what is going to happen one or two years down the road.

    For example, in late 2005, I wrote in this column that the housing market was “peaking,” meaning that it would soon begin cooling off. That was at a time when the news was full of stories about how hot the housing market was and how fast home prices were rising. Few, if any, people at that time were thinking that the party would soon come to an end. In December of 2006, I wrote a column in which I said that the booming housing market had finally slowed down as I had previously predicted, and I said that there would probably be little, if any, home price appreciation this year(2007)because the number of homes on the market would increase and turn a “seller’s market” into a “buyer’s market.” Again, that prediction proved to be correct.

    How am I able to do this? Because I am very familiar with what I call the “stair step pattern” of the Puget Sound housing market. If you look at home prices over the past 40 years, there is a very predictable cycle: Home prices increase rapidly for two or three years, followed by a slight “correction” (price drop) following the peak of the market, which is then followed by a few years of a flat housing market (no appreciation). So if you looked at home prices on a graph, you would see a pattern that looks like a staircase: Up, flat, up, flat, and so on.

    So what do I think will happen next year?

    I think we are now in the correction phase and the beginning of a few years of a flat real estate market, with little or no appreciation. Home prices may drop an average of 10 to 20 percent during the correction, but keep in mind I am talking about dropping from the very peak of the housing prices during the boom. For example, if you bought a house in 2005 and saw it increase in value by 20 percent during 2006 and then prices dropped 20 percent during 2007-2008, you have not really “lost money” on your house. You’re just back to the price you paid for it in 2005. The only people who are likely to lose money in the correction phase are the people who bought at the absolute top of the market and have to sell in the next year or two. If you can hold on for 7 to 10 years, you should be fine no matter how much you paid for your home, because by then we will have experienced another “up” cycle in the staircase pattern. Also, keep in mind that the higher priced homes are the most volatile. They tend to go up the fastest when the market is hot, and come down the fastest when the market gets cold. There is always a market for low-priced starter homes, so they tend to hold their value fairly well, even in a weak housing market.

    I think the number of homes for sale will continue to increase next year, especially during the prime home selling months in the Spring. The increased inventory of homes on the market will continue to exert downward pressure on home prices. It is basic economics, the law of supply and demand. The reason home prices increased so rapidly during the recent housing boom is because there were more buyers in the market than homes for sale, causing bidding wars with multiple offers on desirable properties. The demand exceeded the supply of homes for sale, and prices went up.

    Now, we have the opposite situation. The supply of homes for sale exceeds the demand from buyers and sellers are having to reduce their asking prices in order to sell their homes.

    While I think home prices will come down from their peak, I do NOT think that we will experience a housing “crash” with prices dropping 50 percent or more, as we often see in the “boom and bust” housing markets like California, Arizona and Florida. Why? Because that is the historical trend. Our home prices never go up as fast as those super heated housing markets, but we also don’t come down as fast those markets. Foreclosures in the Puget Sound region traditionally average far less than other states such as California and Texas. And even though the foreclosure rate is up significantly this year, we are still far below the national average. Part of the reason for this is because we have one of the lowest home ownership percentages in the country, probably due to the high price of homes in the area which prices many people out of the market.

    I don’t buy into the “gloom and doom” housing bubble scenarios being promoted by blogs such as seattlebubble.com, which has been predicting the eminent collapse of the local real estate market for some time now. While I give them credit for pointing out that many people in the Seattle media were overly optimistic about the Puget Sound real estate market during the boom, I think the bloggers at seattlebubble.com tend to be overly pessimistic in predicting a major housing bust.

    So, if you are thinking about buying a home, I think that next Spring may be an excellent time to pick up a good deal. And if you can’t afford to buy next year, don’t worry about being priced out of the market because I think home prices will remain flat for the next few years.

    Of course, I could be wrong.

    Check back next year at this time to find out.

    ———————————————————————–

    They edited my column because it was longer than usual,
    but unfortunately they missed the point I was trying to make.

    I am saying the same thing today that I have been saying all year: Prices will come down about 10-20% and then the market will flatten out for a few years and eventually it will start up again.

    Tim, I saw your predictions posted earlier this where you had 3 different possible scenarios and even your “best case” scenario was more pessimistic than my predictions and I think your “worst case” scenario might fit into the “gloom and doom” category.

    But I was primarily talking about the comments posted on this blog which tend to be very negative and almost gleeflully hoping for a major collapse of the local real estate market.

    While I can certainly understand why a first time home buyer would root for a major price collapse, I just dont’ think it’s going to happen (other than the 10-20% price correction) I have predicted.

    I think this blog has rightly taken the Seattle Times and other real estate writers to task for their overly optimistic reporting on the local real esate market.

    That’s why I started writing my real estate column back in 1990, because it was obvious that the reporters writing about real estate had no idea what they were talking about.

    As a real estate broker and mortgage broker for more than 20 years, I have a wealth of real life experience to draw on and I am not subject to repeating the positive spin that the Realtors or anybody else wants to put on the market. I tell it like it is, as I see it, and that’s why they have been paying me to write this column for 17 years.

    Best regards,

    Steve Tytler

  6. 6
    deejayoh says:

    I can’t disagree wildly with steve on the outlook – but I do find this statement

    If you looked at home prices on a graph, you would see a pattern that looks like a staircase: Up, flat, up, flat and so on

    to be downright silly. Look at the graph. That looks like a staircase to you?

  7. 7
    The Tim says:

    For reference, the post Steve is referring to in the comment above is “Best, Worst, & Most Likely Scenarios?

    My “best case scenario” was:

    Prices flat to +3% for ten or more years. Local economy keeps chugging, population gradually grows (but not at the predicted level), and density gradually increases. Affordability improves as incomes slowly catch up to prices.

    It should also be noted that I openly admit that all my predictions are “wild-donkey guesses,” and to say that that post “promoted” the “worst case scenario” presented is a bit of a stretch.

    All I’m asking is that if you’re referring to the commenters, it would be nice to make that clear in the future. If I read a bunch of letters to the editor in a newspaper promoting a particular viewpoint, I wouldn’t ascribe that view to the newspaper, but to the people that wrote the letters. Why do the same thing to a blog, where there isn’t even an editor deciding which comments to publish and which to toss?

  8. 8
    Steve Tytler says:

    Regarding the graph, yes it does look like a staicase. You are just looking at ONE step!

    The early 1990’s is the flat phase, followed by the up phase in the late 90’s and early 2000’s and followed by another flat phase. If you look at a 50 year chart you will see what I mean.

    The last housing boom lasted an unusually long time, with a very brief pause that is hard to see on the chart. Also, I have found that that the general stats like the ones you posted do NOT reflect the real world because they average out the actual sales. If you want to really compare apples to apples you need to look at sales stats for one actual home and compare what it sold for in different years rather lumping ALL home sales into an average.

    That’s one of the arguments I have with Tim. He loves to crunch numbers and make cool looking charts, but it’s better to get out in the real world and see what is really happening. I didn’t need charts to tell me that YOY appreciation would fall to about 0% by now because I already knew that appreciation had stopped. There has been virtually NO appreciation this year despite what you read in the papers.

    Also, the problem with most people is that they have no sense of history. I think this market will play out just like the last major boom of 1989-90 which was followed by several years of a flat market. This market is nothing new.

  9. 9
    Joel says:

    But I was primarily talking about the comments posted on this blog which tend to be very negative and almost gleeflully hoping for a major collapse of the local real estate market.

    Well excuse me for wishing I can afford a house someday.
    I don’t see those comments as negative and “doom and gloom”ish. It’s my belief that predictions of affordable housing are very positive. Now if 10-20% appreciation continued on indefinitely that would be very negative and would qualify as doom and gloom.

  10. 10
    B&W NIkes says:

    Doom and gloom? There are Mad Max types lurking everywhere – it is the 21st century after all. But dismissively referring to a 10-20% drop as if waiting for iPhone prices to go down in the near future seems glib. There aren’t any fast cars or explosions, but anyone recently or currently making one of the most expensive purchases they will ever make is in a high risk financial situation with the very real possibility of getting locked in to extremely poor mobility at a minimum. For any length of time the value submerges even a small amount it will take even longer to get back it to the surface, let alone back out of the water. Especially since there is an agreement by most sane people that 2008-10 are likely not going to be great upward boom years, even out here in Sasquatch country. For those that were already in at the base of the incline, a dip is not as big of a deal as those getting dropped in near the top. Most folks buying anywhere near peak prices will need to hold still and steady, and not get injured or make major life changes for quite a long time.

  11. 11
    The Tim says:

    If you want to really compare apples to apples you need to look at sales stats for one actual home and compare what it sold for in different years rather lumping ALL home sales into an average.

    From the Case-Shiller methodology pdf (the source of the graph deejayoh linked):

    The S&P/Case-Shiller® Metro Area Home Price Indices are based on observed changes in individual home prices. The main variable used for index calculation is the price change between two arms-length sales of the same single-family home.

    How is that different than what you’re suggesting, Steve? Are you simply saying that regardless of the methodology, any metric that combines various home sales into a single index is not worthwhile?

  12. 12
    Joel says:

    Also, the problem with most people is that they have no sense of history. I think this market will play out just like the last major boom of 1989-90 which was followed by several years of a flat market. This market is nothing new.

    You’re blinded by your “sense of history” since this boom, and subsequent bust, are different in some very important ways from any boom you’ve ever experienced. For instance, in the last boom market did the national savings rate go negative? Did the fed slash their funds rate to 1%? Were people taking out exotic loans at the rate they were in the last few years?

    Are you simply saying that regardless of the methodology, any metric that combines various home sales into a single index is not worthwhile?

    That would just be dumb. One house is an insufficient sample size, but more than one house would “not reflect the real world”. I guess the only arguments anyone can bring to the table then are gut feelings and observations on the street. Gee how convenient for you.

  13. 13
    JohnnyBigSpenda says:

    I sometimes wonder why we don’t see more sellers on this board talking about how they have had their house on the market for 200 days plus and asking advice on what their next move should be to unload it… that would be good anecodotal evidence that the average joe is getting hit by the bubble.

    So far, I’ve seen a lot more people here theorizing about what they think is going to happen.

    Maybe its just the nature of the crowd? Most here likely are looking for ‘the bottom’ so they can buy a house without possibly risking 20% of their hard earned money… (not a bad plan)

    In any case, if I was a seller (and I consider myself an average consumer) I’d be reasearching the heck out of the market to see if I had a chance of unloading my property… and since I don’t see many of those folks around, I assume that they aren’t that panicked yet…all that to say, the anecdotal evidence so far points to: wishful / frustrated buyers who can’t afford what they want, owners who just bought who are in denial and a few who are just very happy to finally be right that they didn’t buy.

  14. 14
    Steve Tytler says:

    Have you guys ever heard of the S&L Bailout in the 1980’s?

    It is very similar to the Subprime lending crunch today.

    As I have said before, this has all happened before.

    Foreclouses will be in up in many areas of the country, but they won’t be as bad in this area.

    Prices will drop here, but they won’t drop as much as in other parts of the country.

    You can bet on it.

    In fact, I’ll gladly put a few thousand into escrow for a couple of years if somebody wants to bet me that I’m wrong. ;)

  15. 15
    deejayoh says:

    The early 1990’s is the flat phase, followed by the up phase in the late 90’s and early 2000’s and followed by another flat phase. If you look at a 50 year chart you will see what I mean.

    hmmm. here’s 42 years. a grand total of 1 step. not exactly repeated I’ll leave it to the jury

    Thanks for coming by though!

  16. 16
    MrRational says:

    Tim,

    You said:
    “I’ve never personally predicted a ‘major housing crash’ for Seattle.” If anyone disagrees with that statement, I encourage you to browse through the archives and find the posts that show otherwise.

    I’d like to call your attention to your most likely scenario from a few weeks ago of where our market is headed:

    “The way things are headed as of right now, I expect we’ll see a Japan-style housing downturn. Prices declining 2-5% per year for 7-15 years, eventually shaving off all of the gains of the bubble, and then some. Mild recession (as reported by the government statistics, anyway). Tighter lending standards persist, making it very difficult to get a house without 20% down in cash. Overall public sentiment shifts from “renting is for suckers” to “buying into a declining market is for suckers.”
    Likelihood: 50%”

    Could you please tell me how 14-75% price declines do not qualify as a “major housing crash?” It was your most likely scenario after all…

  17. 17
    The Tim says:

    Prices will drop here, but they won’t drop as much as in other parts of the country.

    You can bet on it.

    In fact, I’ll gladly put a few thousand into escrow for a couple of years if somebody wants to bet me that I’m wrong.

    Steve, I don’t think anyone here has ever said that prices in the Seattle area would drop just as much or more than elsewhere in the country. Just that they will drop.

  18. 18
    The Tim says:

    Could you please tell me how 14-75% price declines do not qualify as a “major housing crash?” It was your most likely scenario after all…

    First off, 2% for 7 years is a total decline of 13%, while 5% for 15 years is “just” ~54%. Just wanted to clarify the math here.

    Secondly, I guess it’s a difference in definition of terms. I’d consider a 54% decline spread out over 15 years to be a slow deflation and more of a “prolonged housing recession.” I see a “major housing crash” as being 20%+ per year for 2-5 years.

    Allow me to support my definitions with the dictionary:
    crash: v. (def. 6) – to collapse or fail suddenly
    crash: n. (def. 21) – a sudden and violent falling to ruin

    Neither of those sounds anything like what I have “predicted.”

  19. 19
    BanteringBear says:

    Steve Tytler posted:

    “As I have said before, this has all happened before.

    Foreclouses will be in up in many areas of the country, but they won’t be as bad in this area.

    Prices will drop here, but they won’t drop as much as in other parts of the country.

    You can bet on it.

    In fact, I’ll gladly put a few thousand into escrow for a couple of years if somebody wants to bet me that I’m wrong.”

    Be a little more specific and I’ll be glad to pony up a few grand and bet you, hotshot. You’re dead wrong.

  20. 20
    Joel says:

    As I have said before, this has all happened before.

    Yes speculative bubbles and crashes happen all of the time, but they not all created equal. I don’t know how you can think that the mass of sub-prime and crazy Alt-A loans, negative savings rate, and 1% fed funds rate haven’t made this situation appreciably different than ’89-’90. How about the biggest national deficit ever, loss of manufacturing jobs, and an economy heavily reliant on consumer spending? Does any of this stuff matter at all?

  21. 21
    jon says:

    As long as people are moving into the area and the vacancy rate stays about constant, the price for a house isn’t going to go below the construction cost of a house, plus land and profit.

    So they only way the price will go down by 20% is if homebuilders are comfortable reducing their prices by 20% and still keep building new houses. I doubt there is that much margin. Land prices could theoretical go down, but with people moving into the area, why would a landowner drop the price of buildable land?

    My prediction is for a slight drop, like the 7% discounts people are talking about, to clear inventory and then small increases for inflation until the rest of the country recovers.

  22. 22
    what goes up comes down says:

    Steve said:

    “I am talking about dropping from the very peak of the housing prices during the boom. For example, if you bought a house in 2005 and saw it increase in value by 20 percent during 2006 and then prices dropped 20 percent during 2007-2008, you have not really “lost money” on your house. You’re just back to the price you paid for it in 2005.”

    buy house in 2005, simple math pay 100K increases by 20% is worth 120K, market corrects downward 20% = lose of 24K, house is now worth 96K.

    Of course none of this counts all the fees that one has paid and will never see again. I understand why people feel that people in real estate are one step above the used car salesman.

  23. 23
    Tony says:

    So they only way the price will go down by 20% is if homebuilders are comfortable reducing their prices by 20% and still keep building new houses. I doubt there is that much margin. Land prices could theoretical go down, but with people moving into the area, why would a landowner drop the price of buildable land?

    Dude,

    Sorry, but you are just wrong. Right now, this year 2007, several national home builders have held 19 state, “fire sale” sale of the century with 35% price reductions. Do think that they are “comfortabe” selling 35% off, or that they were forced to with todays market conditions?

    You are basically saying that “Seattle is special” The same thing that all of the other “special places” said (CA, AZ, FL, et al).

    I’ve recently looked at homes for sale in Kitsap county, I see homes at 2005 prices now. I bought 10 of your basic rental, 3 bed, 1 bath, 1100 sqft homes in 2005 for $180k to $195k. I sold in 2006/2007 for $220 – $235k. When I looked the other day, the same basic home is now selling for $180k on the low end, and $220 on the high end. That sure looks like 10 – 20% in decline to me.

    Another recent example. I bought a 2000 sqft 4/3 new home in 1999 for $131k, sold in 2006 for $292k. As of today, I can buy a brand new 2000 sqft home 4/3 in the same town for $249k, that’s ball park 15% drop in what it takes to buy a new home.

    And as far as buildable land, from 2004 to 2006 land went up from 10k per acre to 100k per acre in my town. That’s 1000%, you don’t think that their is quite a lot of room for land prices to come down?

    One last point that I’d like to make, as Seattle is special as long as people move ot the area. Who is doing the moving? CA is in the midst of a crash, so won’t that limit the “feeder” market for Seattle just a touch? And if the feeder line quits coming to Seattle and there are fewer buyers, can’t that possibly, just maybe, put a scrunch on the Seattle market, just maybe ;-)

    Happy commuting. Tony

  24. 24
    Jay says:

    Steve,
    Don’t forget to figure inflation into housing losses when buying at the peak, particularly for those putting down a large down payment or paying cash. Let’s say that prices drop 10-20% from the peak as you suggest followed by a few years (ie, 3 years) of stagnation (flat prices). If inflation runs at only 3% per year for the year of the correction itself as well as the following three years (and it may run more based on current trends) you are looking at inflation adjusted losses of 22-32%, not 10-20%. And that ‘s not inlcuding the lost potential investment gains from having your down payment (or cash purchase price) in an appreciating asset during that period.

  25. 25
    notabull says:

    Suggestion for some “jumpy” people in these comments: Don’t be rude to the guy. He’s participating on this blog, he’s not predicting a “normal market with single digit appreciation” for ever, and he’s willing to publish his viewpoints in the mainstream media. Viewpoints, I might add, that come closer to those on these blog than any other viewpoints out there that the average Joe might read.

    The Tim is right to ask that the comments be separated from the main content. If I were to tell everyone I enjoyed dolphin burgers, then I wouldn’t want the newspapers to refer to this as a dolphin-burger-eating kinda blog!

    Dolphin is delicious by the way. But that’s beside the point.

    Finally, Steve wrote: “I am saying the same thing today that I have been saying all year: Prices will come down about 10-20% and then the market will flatten out for a few years and eventually it will start up again.”

    This has been roughly my line of thinking too. My thoughts are that 10% will happen quickly, 20% will take a few years and then we’ll just sit there barely moving for a few years. Ultimately with inflation taken into account, and over a long period of time I’m guessing we’ll see “real” declines of about 30%, +- 10%.

  26. 26
    TheDexter says:

    Think again if you believe home prices are going to drop 82k (20% of medium Seattle price). However, most listings today are certainly 30k above where they need to be. It is a battle trying to educate sellers about this fact. Active listings are not comps, only sold homes are comps! The sky is not falling, but if you are a two year owner of a home and trying to sell, a little of that 160k increase in equity (average) is going to have to be put back on the table. No big deal as far as I’m concerned. Where else did anyone make that kind of money? Jones Soda Stock? This is not Florida or California, where people are going bankrupt over negative amortization.

  27. 27
    notabull says:

    “Think again if you believe home prices are going to drop 82k (20% of medium Seattle price).”

    If someone had told you back in 2000 that house prices would double, you would probably think that was stupid. I know I would have. For some odd reason, it’s OK to accept a 100% increase, but not OK to accept a 20% decrease. One is normal, the other is absurd.

    You’re probably right, though. Boeing, Microsoft, mountains, jobs. Blah blah blah.

  28. 28
    Eleua says:

    [blockquote]In fact, I’ll gladly put a few thousand into escrow for a couple of years if somebody wants to bet me that I’m wrong.[/blockquote]

    Hmmm….that might be something that is worth looking into. I guess all we need to do is define our parameters and make sure there is a legal way to discharge the escrow.

    Steve, I might take you up on this.

  29. 29
    The Tim says:

    Ok, I stand corrected. When I read “they won’t drop as much as in other parts of the country” I interpreted that to mean that “Seattle will not lead the nation in price declines.” A statement which I believe most/all people reading this would agree with.

    However, I have a feeling that the people that have indicated they are willing to take up your bet are interpreting the statement as saying “Seattle price declines will be lower than everywhere else.” If that’s what you meant, then I can’t say I agree.

    I guess the ambiguity is in what you meant by “other parts.”

  30. 30
    TheDexter says:

    I don’t dispute that anything is possible. There are many who still don’t believe the Anarctic is going to lose 50% of mass! But the fundamentals in Seattle are such that it’s a finite amount of space we work and live in and for every 10k in discount on an average MLS listing, 20 new buyers are looking into it the next day. Now, if they buy, that’s the question. We have not seen the bottom yet. But 82k? No.

  31. 31
    NotaBull says:

    “There are many who still don’t believe the Antarctic is going to lose 50% of mass!”

    50%? No way. My gut tells me that won’t happen. Listen to my gut!

  32. 32
    Steve Tytler says:

    BanteringBear:

    I will bet you $5,000 that my predictions are correct.

    We each put $5,000 into an interest bearing escrow account and on December 31, 2010 we will review the housing price data for the Puget Sound region.

    I am betting that average home prices do not decrease by more than 20%.

    If you think I’m wrong, put up your money.

    Steve

  33. 33
    Steve Tytler says:

    One more point I want to add.

    Real estate is a LONG term investment. You should never plan to buy a house unless you plan to hold it for at least 7-10 years.

    The “flippers” can make money if you get in and out fast enough, but that is NOT how you normally make money in real estate.

    Short term price fluctuations are not a problem as long as you have a 10 year + time horrizon.

    Even people who bought at the peak of the market in 2006 will be fine if they are still in those homes 10 years from now, because even if those prices drop 20% in value over the next couple of years, 10 years from now I am totally confident that home prices will be higher than they were at the peak of the market in 2006.

    In the short term there will be some people taking losses, but for most owners this price drop is irrelevant as long as they don’t plan to sell for the next 5-7 years.

    And I keep hearing people say that real estate has never gone up this fast before. I was in the 1989-90 housing boom and I saw house prices double in 2-3 years. Again, this does not match the overall housing stats that you see published, but I am talking about real world home prices in the neighborhoods where I worked.

  34. 34
    TJ_98370 says:

    Hey Steve / BanteringBear,

    Maybe you should look into buying housing futures from the Chicago Mercantile Exchange :)

  35. 35
    NotaBull says:

    “I am betting that average home prices do not decrease by more than 20%.”

    Steve, I’m not going to take you up on your bet (not that you offered) but I *do* think you need to clarify the bet a little.

    I assume you’re talking about MEDIAN price, NOT inflation adjusted, in KING COUNTY for SFR? Or is condo/land included? Or are you talking about Case Shiller numbers for “Seattle” which is actually King, Snohomish and Pierce, IIRC.

    I think this bet will actually run pretty close, and I’d probably say you’ll likely win it given King country SFR, median prices. Having said that, if you lower the wager amount a bit you’ll likely get a lot of takers from this blog and you could make some good cash!

  36. 36
    nitsuj says:

    I love that a 20% price drop is a “correction” but not reason to worry about anything.

  37. 37
    TheDexter says:

    Don’t hold your breath. There is no evidence of any 20% of anything happening, except tipping my bartender tonight.

  38. 38
    B&W NIkes says:

    Very roughly: from today a value reduces by 20% over 3 years approx. 400k to 320k in 2010. At a steady, solid, and immediate 7% rebound from 2010 to 2013 the value could be worth approx. 400k again. That’s a 6 year ride to nowhere to me and pretty bullish on the future. Steve is totally right that real estate is and should be a long term investment, but who is going to end up on the short stick of 5 years of risky speculation?

  39. 39
    Tsuru says:

    In the short term there will be some people taking losses, but for most owners this price drop is irrelevant as long as they don’t plan to sell for the next 5-7 years.

    Steve, with all due respect you’re just stating the obvious. If you own a home, why would you care about the appraised value of it (ignoring property taxes for now) unless you actually plan to sell it?

    You really haven’t provided any fundamental argument for home prices to appreciate once they’ve depreciated 20% other than “house prices always go up”.

    Personally, I have no idea what’ll happen to house prices in the future but I have yet to read an argument that’s convinced me one way or the other.

  40. 40
    Steve Tytler says:

    I’ts been fun chatting with you guys, and I’m not really trying to get any bets going, although I AM serious about my preditions.

    I just want to let you know that I don’t have time to keep checking back every day to respond to each comment about my column, so this will be last post on this topic.

    I will check back occassionally to see what the mood is here.

    My predictions are based on personal experience and my gut instincts, not on chart analysis. In the stock market chart watching is called “technical analysis” .. some people swear it works, others prefer fundamental analysis.

    The Seattle area is a highly desirable housing market and over the long run it will go up. But real esate is a cyclic business. There are ALWAYS ups and downs. The problem is that most people forget about the “down” part during the housing booms.

    But over the long term (10 years or more) real estate will always go up in value, just like the stock market always goes up in value over the long haul.

    Some of you are hoping for a real estate depression, but I think you will be dissappointed.

    However, if you want to a buy a home, the next couple of years will be your best opportunity of this decade to get a good deal.
    Wait until next Spring, or later, when the inventory will increase and create a stong buyer’s market.

    You may be able to find a desperate seller and pick up a house for below market value — which was something that never happened during the boom.

    Best of luck to everybody.

    Steve

  41. 41
    Eleua says:

    It sounds to me that I could get paid $5000 Yankee Lira in 39 months for having a 9th grade knowledge of 20th Century history, 11th grade proficiency in math, and a Freshman understanding of economics.

    OK, what are the parameters? Is it just Western King County, or do we get Kitsap, Pierce, Sno-ho, and Thurston? South Hill/Orting area of Pierce County looks like a lock for at least a 70% cut.

    Do we index this in the relative strength of the US Peso according to the USDX?

    Who calls the price?

    Does Steve have an “out?” Does he get to take a mulligan if we get a depression, credit crisis, massive bank failure, currency crisis, trillion dollar tax hike, etc?

    Depending on how we define our terms, this could be the easiest $5K since I shorted Bear Stearns at $140.

  42. 42
    Lake Hills Renter says:

    I love it when realtors come here and piss on everything without offering any evidence at all. The only thing it accomplishes is turning away potential clients. ;)

  43. 43
    Eleua says:

    Also, is this an “American” style bet or a “European” style?

    If the period goes to 12/31/2010, and the parameters show that defined real estate in the defined region is sitting at 79% of its peak value, but we still have 14 months left on the bet, do I get to declare victory?

    I don’t like gambling and this is totally unenforceable, so I would be in for a gentleman’s bet, but not this one. I get to write his column for 2 months (if he still has it). If I am wrong, I’ll schlepp mortgages for a week.

  44. 44
    TheDexter says:

    Here’s where the experts have said….

    “The prices of houses seem to have reached a plateau, and there is reasonable expectancy that
    prices will decline.” (Time, December 1st 1947);

    “Houses cost too much for the mass market. Today’s average price is around $8000—out of
    reach for two-thirds of all buyers.” (Science Digest, April 1948);

    “If you bought your house since the War… You have made you deal at the top of the market…
    The days when you couldn’t lose on a home purchase are no longer with us” (House Beautiful,
    November, 1948);

    “The goal of owning a home seems to be getting beyond the reach of more and more
    Americans. The typical new house today costs $28,000.” (Business Week , September 4 1969);

    Be suspicious of the ‘common wisdom’ that tells you to ‘Buy now… because continuing
    inflation will force home prices and rents higher and higher.’”(NEA Journal, December, 1970);

    • “ The median price of a home today is approaching $50,000…. Housing experts predict that in
    the future price rises won’t be that great.” (National Business, June, 1977);

    “the era of easy profits in real estate may be drawing to a close.” (Money, January, 1981);

    “In California… for example, it is not unusual to find families of average means buying
    $100,000 houses… I’m confident prices have passed their peak.” (John Wesley English and
    Gary Emerson Cardiff, The Coming Real Estate Crash, 1980);

    “The golden-age of risk free run-ups in home prices is gone.” (Money, March 1985);

    • “If you are looking to buy, be carful. Rising home values are not a sure thing anymore.”
    (Miami Herald, October 25, 1985);

    “Most economists agree… [a home] will become little more than a roof and a tax deduction,
    certainly not the lucrative investment it was through much of the 1980s.” (Money 1986);

    “We’re starting to go back to the time when you bought a home not for its potential money
    making abilities, but rather as a nesting spot.” (Los Angeles Times , January 31, 1993);

    “Financial planners agree that houses will continue to be a poor investment.” (Kiplinger’s
    Personal Financial Magazine, November 1993);

    “A home is where a bad investment is.” (San Francisco Examiner , November 17, 1996);

    “Your house is a roof over your head. It is not an investment.” (Everything You Know About
    Money Is Wrong, 2000);

    So Lake Hills Renter, you were saying? (Emphasis on RENTER).

  45. 45
    TheDexter says:

    By The way, if you bought in Lake Hills in 2005 when you should have, you would be up approximately 200k. Today you could negotiate you’re sale, yes? But, oh wait, you are the Lake Hills Renter!

  46. 46
    Alan says:

    TheDexter,

    You could have gone to Vegas in 2005, put down $6k down on 18 and you would be up approximately $210k. I saw 18 come up. You missed a huge opportunity.

    Or maybe you are suffering from hindsight bias with maybe a touch of recency effect and anchoring bias thrown in to spice things up.

    http://www.lifehack.org/articles/lifehack/7-stupid-thinking-errors-you-probably-make.html?ph

  47. 47
    Lake Hills Renter says:

    Are you expecting me to be insulted by being called a renter? I’d be much more insulted if I was called a real estate agent.

    I wonder how many renter clients you’re losing by your posts here (Emphesis on CLIENTS). Have a nice day.

  48. 48
    Lake Hills Renter says:

    Nah, Alan. That’s the RE/Max Integrity in action! “It’s how he does business.”

  49. 49
  50. 50
  51. 51
    Eleua says:

    Gene Dexter’s predictions and chest puffing crack me up. The wanna-be pros always talk their book and never see the disaster that awaits them.

    Anyone ever see Jim Cramer’s predictions and stock picks from 2/29/00?

    Same story. Different asset.

  52. 52
    Antsy Al says:

    RE: Gene Dexter Realtor….what I want to know is HOW MANY YEARS EXPERIENCE THIS GUY HAS IN RE. I do know that many new and many starving agents spend a wad promoting themselves with gimmicks like Gene Dexter does and then a few months later….POOF….they are outta business. This Gene Dexter resembles a clown to me.

  53. 53
    Alan says:

    An American tradition

    You want to know some other American traditions?

    – Buying a house with a price that is three times your annual income.
    – Working harder, spending less, saving more and not falling for get rich quick schemes.

  54. 54
    Ubersalad says:

    That’s American tradition? Since when?

  55. 55
    Tsuru says:

    Gene Dexter is selling the illusion that a house “earns” money over the “long term”. Say Gene, how does a house “earn” money? Does it get a paper route?

  56. 56
    Ubersalad says:

    it’s very simple newbs…

    get 115% cashout subprime loans and default.

  57. 57
    Lake Hills Renter says:

    Paper route! Classic!

  58. 58
    TheDexter says:

    Yawn. Eight of my clients earned passive income beyond your comprehension this year, simply by thinking outside the box, in four counties. Some of you, however, empower yourselves with negativity and half empty glasses. But thanks for increasing search engine optimization tools for me here. Good night.

  59. 59

    […] use him as a specific example. This guy is on every social networking site he can find and posting egotistical diatribe comments on other peoples blogs and speaking at length in public threads in ways that is seemingly […]

  60. 60
    Eleua says:

    Dexter’s 2am post on the 13th makes me want to get the hip waders out.

    Tell me, what kind of house cash-flows at these prices and rents?

    Somebody is certainly very scared. It comes across very clearly in his posts.

  61. 61
    The Tim says:

    TheDexter spouted:

    But thanks for increasing search engine optimization tools for me here.

    Hah! Guess what? This blog, like most, uses rel nofollow, thus making your spam attempts 100% pointless. I should have guessed that you had some misguided self-interest in commenting so much here. But please, don’t let that stop you from posting further nonsense. I’m really enjoying the show.

  62. 62
    Mary & Jake says:

    To Mr. Dexter:

    We noticed your ad/gimmick both on your website and in the Issaquah press regarding the neighbourhood we happen to live in called TROSSACHS in Sammamish. We both find this advertisement/gimmick rather childish and embarassing from our point of view. This does absolutely nothing to enhance our feeling about possibly calling you if we required a realestate agent. I might suggest (my husband own his own marketing firm by the way) that your advertising be more professional if your intent is to attract new business. Just a thought.

    Mary & Jake K.

  63. 63
    TheDexter says:

    Boo hoo. You would be heartbroken about my standard for you.. Such arrogance to think you qualify as a client of mine!

    The nation’s hottest housing markets include cities in Washington, Utah and Texas, according to the latest government figures. North Carolina markets also have moved onto the chart.

    Rank Metro area One-year gain Five-year gain

    1. Wenatchee, Wash. 15.7% 79%

    2. Provo-Orem, Utah 14.4% 50.6%

    3. Grand Junction, Colo. 14.1% 65.6%

    4. Ogden, Utah 14% 42%

    5. Salt Lake City, Utah 13.4% 60.2%

    6. Idaho Falls, Idaho 11.7% 49.7%

    7. Austin, Texas 9.7% 28.8%

    8. Beaumont, Texas 9.4% 33.3%

    9. Asheville, N.C. 9.4% 55.5%

    10. Billings, Mont. 9.1% 49.7%

    11. Logan, Utah 9.1% 31.2%

    12. Yakima, Wash. 8.8%
    37.9%

    13. Spokane, Wash. 8.8% 69.4%

    14. Hickory, N.C. 8.6% 22.5%

    15. San Antonio, Texas 8.4% 39.5%

    16. Houma, La. 8.3% 43.7%

    17. Charlotte, N.C. 8.1% 28.5%

    18. El Paso, Texas 7.9% 54.5%

    19. Seattle 7.8% 67.2%

    20. Durham, N.C. 7.8% 27.7%

    Source: Office of Federal Housing Enterprise Oversight. Updated January 2008, with data as of third quarter.

  64. 64
    Mike W. says:

    Good. Move to Wenatchee then and hawk yourself.

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