“If middle-class people cannot afford middle-class homes, it’s because they are overpriced.”

There’s a decent editorial in today’s Seattle Times: Wages stick to the floor.

While I strongly sympathize with the difficulty that middle-class people have buying homes in King County, subsidizing middle-income housing just makes no sense…

…the tax burden for subsidizing middle-class housing would be borne mostly by the middle class.

In addition, subsidizing middle-class housing will not help the market readjust. The fact is, if middle-class people cannot afford middle-class homes, [it’s because] they are overpriced. This is the result of deregulation of the mortgage industry, which allowed people to pay more for homes than they could actually afford.

If we subsidize the cost of homes, this will mean that the value of homes will never readjust, and the portion of the cost of the home that is subsidized will be invisible to the market. (This is what happened to the cost of college when students could borrow unlimited money.)

Finally, subsidizing middle-class homes will not force wages to adjust to the real needs of working-class people. This is the real issue. Working-class people need to earn a decent living to afford a home, health care, saving for retirement and college for their kids.

While I don’t necessarily agree with everything Ms. Orth suggests, her point that subsidizing the purchase of overpriced homes is counter-productive is 100% correct, in my opinion. The fact that the middle class in Seattle has been priced out of prudent home ownership is unfortunate and unpleasant, but it’s a problem that most government intervention will only exacerbate.

(Maggie Orth, Seattle Times, 11.10.2007)

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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.


  1. 1
    Debra says:

    I think the first step toward breaking the complicity cycle between tax-hungry cities and towns and the prices of homes would be to restructure the property tax. As long as we pay property tax on the MARKET VALUE of our homes, there is no incentive on the part of the cities and housing developers to stop the spiraling rise in base home prices and square footage! I think it has been shown that our system of appraising property values is totally out of wack. I live on a block of $250,000 – 300,000 homes . . . while fewer than ten years ago they all sold for $110,000 – 130,000! I think we need to wean our cities off of the huge increases in tax revenues before they committ budget fiascos that parellel the sub-prime crisis . . . . spending money as if they have it! If our cities would go back to assessments based on square footage, improvements, and a percentage of sales price, I think we could restore a balance between developers, cities, and we could curb the runaway escalation in home values.

    As it is right now, there are no incentives to providing housing for moderate to lower income folks, at least not when 4 br, 3.5 bath, three car garages on postage-stamp sized lots are all that are being marketed as “affordable homes.”

  2. 2
    BubbleBuyer says:

    I agree completely. I couldn’t afford to buy anything I was prepared to live in in California so I moved here where I could afford to buy. The constitution doesn’t guarantee the right to buy a home. If the cost of living is out of line with your income then move to a location where you can afford a good life or allow if in effect prices are really out of line with income then let the market dictate the corection – Harsh but true.

    Ultimately, the issue is that we live in an increasingly bifurcated society. The middle class is dissapearing leaving the working poor and the wealthy. Being wealthy means pulling in at least $300,000 annually and even this amount does not mean you can really live that well anymore.

    In the end, americans deserve what they get since this is a democracy and if we didn’t like the way our country is being run we would elect a government aligned with our thinking and offering this country a real future and direction unlike the ponzi scheme of deficit spending, unsustainable entitlements, outsourcing and massive systematic trade imbalances we elect our officials to create.

  3. 3
    melonleftcoast says:

    “If we subsidize the cost of homes, this will mean that the value of homes will never readjust, and the portion of the cost of the home that is subsidized will be invisible to the market. (This is what happened to the cost of college when students could borrow unlimited money.)”

    I especially like the analogy to the cost of college. I’ve tried to explain this to my 78 yr old grandmother a few times, that a majority of the population HAS to take out loans (or borrow against their house) to pay for college, BECAUSE there are so many loans available for college. It has helped drive the price of college up way past middle-class and upper middle-class wages. She just thinks something is “wrong with people that they cannot afford college for their children without taking loans … WE paid for college for our children without taking loans”. Yes, Grandma, something IS wrong; something is wrong with the system (which does include people).

    Back on topic, I read on thehousingbubbleblog.com that when Bernanke was asked how much Freddie and Fannie should raise their loan limits to, he replied “A million”.


    HELLO?!!! All of Bernanke’s credibility (IMHO) was lost with that response.

  4. 4
    Matthew says:

    “If middle-class people cannot afford middle-class homes, it’s because they are overpriced.”

    It’s really so damn simple that I’m still surprised so few get it.

  5. 5
    david losh says:

    Congradulations on the good press. Now about that middle class.
    The United States is a Capitalist country. Subsidies, in my opinion are the basis of Communism. Pricing is what the market will bear, and I don’t hear too much about asking if you can afford a Plasma TV before you walk out of a Wal Mart.
    I bought a brand new Prius about a month ago and no one asked if I can afford the payments. It cost me nothing out of pocket and I drove the thing home.
    On Friday afternoon I sat with a buddy of mine and we watched the fall of the stock market. Oil is head to $100 per barrel. The smart money was saying the stock market was going to fall to 12800, but it stayed just above 13000. I have a question: why isn’t the stock market considered way over valued? In 1995 the NYSE was climbing past 4500, in a little over twelve years we are expecting the NYSE to sustain almost triple that value.
    Now look at housing as a commodity. In 1995 I think I could have bought a car for ten thousand, a house for a hundred and fifty thousand, and gas was hovering about $1.08. It seems to me about everything has tripled in price or value in those twelve years.
    How about your wages? How about you computer programmer, office worker, department head salaries, have they tripled since 1995?
    Now you guys made a lot of noise about Real estate agents and I ain’t kickin’ about that. You made a lot of noise about a bubble in housing prices and right now you’re probably thinking you’re on to something.
    This article about the middle class only proves you are priced out of a lot of things you take for granted. Most of you have to borrow money to have the life your parents had or do without. You seem so proud to rent and not spend money. The fact is that this middle class dream is over. Lament it if you must, but it’s over.
    The United States has become a Corporate Welfare State for the working poor.
    You have choices to become rich or poor in this country. In most countries you don’t have a choice, you are either born rich or you’re poor.
    You picked this housing thing, but the fact is the inflation of all goods is going to absorb housing costs in a very short amount of time. A weaker dollars has already made American housing more attractive to higher priced currencies. I know you don’t like the idea but many millions of people will be happy to pay whatever it takes to live in the United States. The United States is a capitalist country where you have a choice to be rich or poor. Nobody promised you pink ponies, you guys made it up.

  6. 6
    Bitterrenter says:

    Escaping one’s class is as hard here as in most countries anymore. Upward mobility is largely a myth.

    Capitalism without constraint is not pretty. It turns into a system where 5 families have all the wealth and everyone else waits for scraps. That’s what will eventually kill it. That’s what always kills it. And it usually kills the 5 families too.

    The only fair society is one with a healthy dose of wealth redistribution. That’s what we did after the Gilded Age. It will happen again. Peacefully or violently is the only variable.

  7. 7

    Re David Losh’s comments:
    Do you really think that housing prices are going to stay afloat because the falling dollar has made those prices attractive to folks from outside the US?
    Maybe some vacation property, maybe a Manhattan penthouse, but do you really think there’s gonna be a clamoring for Quadrant homes in Renton by folks from Europe and China and India?

  8. 8
    bitterowner says:

    Price drops are everywhere:
    for eg. Magnolia – 70K (10%) Price Drop.
    Both prices still listed as 2 separate properties on Windermere website (oops).

    before: http://tinyurl.com/2bx3ds
    after: http://tinyurl.com/2z65qw

    Maybe they need to advertise more in Canada and Europe…?

  9. 9
    NostraDamnUs says:

    Really? Where exactly does it say that “middle classed” (I hate that qualification, but let’s use it for sake of argument) people ought to be able to afford homes? Or where does it say that ANYONE ought to be able to afford a home? Most of you here know _EXACTLY_ what it takes to afford a home in ANY market – but aren’t willing to do what it takes.

    Blogs like this do one purpose only – to give you an excuse for not doing what it takes to be able to afford a home, and to wait for something to happen, “divine intervention” or a 90% drop if you ask some here, in price….

    Stop looking for the winning formulas, the “good deal” or what not. You know it doesn’t exist. Look closer to home to find the answers.

  10. 10
    Nolaguy says:

    IMO, a deflationary recession is on the horizon.

    The current growth in un-stated inflation is eating at the ability of most to pay the debt that they have lived on for that last 10 years. And wages certainly aren’t keeping pace with *real* inflation.

    But this inflationary period won’t be long enough to “catchup” with the current bubble priced housing.

    No, eventually, there will be a contraction of spending, deflation of most goods, and thus a prolonged recession. As real cash will be hard to come by, prices on most goods will come down – including housing.

    The affordability levels may very well be the same as today, but IMO, inflation is not going to catchup with current prices.

  11. 11
    Eleua says:


    Nowhere does it say that a middle-class person has to afford a middle-class house.

    Economics would suggest that a consumer good needs to be distributed to the consumer in a manner which will enable him to pay for it. If he can’t pay, he won’t buy. If he doesn’t buy, it won’t be produced.

    If you reduce the supply of homes to satisfy only the upper-middle and above, then the middle-class is SOL. I don’t think that the supply of homes in America has been truncated in the past runup. I see homes everywhere. If anything, the supply of homes is sufficient to reach further down the economic ladder.

    If the supply of homes for purchase covers 2/3 of the population, then the prices of those homes will mirror the purchasing power of that 2/3. Rents will mirror what the remaining 1/3 can afford.

    Homes have almost always sold between 2-4X income, with the 4X being areas like coastal California during boom times. There is a reason for this. Home prices are teathered to a person’s ability to pay. You can temporarily distort this with kinky financing, but it always returns to their ability to pay.

  12. 12
    disbelief says:

    Hey david losh,

    What are you smoking? you don’t even make sense, man.

  13. 13
    NostraDamnUs says:

    I like how some people on this blog ask a question instead of asserting to know the truth about the RE market (or any other truth at any rate).

    Why shouldn’t foreigners buy property here in the U.S.? The Euro’s current all time high make vacation homes affordable for people from quite a few of the developed, “first world” European countries.

    It don’t have to be Renton – they can do Hawaii. It’s not all about Seattle, although what’s wrong w/Seattle as a tourist spot? We’ve got more mountains, hikes, water, green scenery etc than most other places in the U.S., plus some of the best moderate winters I’ve ever seen!

    If you are looking for a reason NOT to buy anything or not to stick your neck out a bit, then look no further than the majority of posts on this blog… Price increases or RE have stalled for the last freakin year, the 30 year fixed rate is

  14. 14
    Nolaguy says:


    It appears you believe that most people here have “sour grapes” about the current cost of housing and it is only their lack of hard work and ingenuity keeping them from owning a home. That may be true for some

    If you were talking about the majority of un-employed, I’d probably agree with you.

    But, there are certainly a lot people here who could buy a house today – they just feel that it’s not a sound financial decision given the current prices and fundamentals.

    Your generalization is absurd.

  15. 15
    NostraDamnUs says:

    As is the generalization that “most who are employed” should be able to buy one… But thanks for being sincere.

  16. 16
    Nolaguy says:

    Agreed – I didn’t to a good job on that point.

    More clearly: If we were talking about un-employed complaining about the lack of jobs, I would agree that they probably aren’t *willing* to work. (since there are plenty of jobs in this region.

  17. 17
    NostraDamnUs says:

    1. If you are not able to afford a home that you _WANT_, pick one that you CAN afford.
    2. If you can not afford even that one, DO NOT BUY it. Rent.
    3. If you can not RENT – sleep in your car.
    4. If you have no car, sleep in Pioneer square.

    In which market does the above not apply and what will a 5-10% adjustment do for you over the next 2-3 years?

  18. 18
    Eleua says:

    I’ve been away for a while. Did Meshugy change screen names?

    Foreigners buying in the PNW may happen on a limited basis, but it is absurd to think that can float any segment of the market. Someone from France is going to come to a place with fundamentally the same climate, and spend a full day’s time to travel in each direction, put up with the taxes, Americans, maintenance, etc?

    If I live in France, I’m going to the Alps, or the Med for my good times. Why buy when you can rent a place and not worry about all the ownership hassles?

    I go to Hawaii every winter and I don’t own a ‘vacation house.’ It’s easier (and FAR cheaper) for me to rent a place and go about my vacation. The LAST thing I’m going to do on vacation is spend it fixing the thing and dealing with all the legal issues that surround ownership, I don’t need to be in the absentee property management business for the 49 weeks I’m not there.

    If you need a reason that the PNW will escape the realities that have befallen the rest of the nation (and much of Europe, Japan, NZ and OZ), then please grasp onto something more credible than foreigners will float our boat.

  19. 19
    Nolaguy says:

    I was going to reply with some easy examples of how knowingly losing 10% of $800k in 2-3 years is not a good financial decision. .

    Especially if you think prices will adjust more than 10%.

    But it should be obvious, right?

  20. 20
    disbelief says:


    Thanks for bringing NostraDamnUs up to speed on basic economics. I think david losh could benefit from understanding this also. Um, on second thought…..

  21. 21
    Eleua says:

    If we only lose 10% in the next 3 years, it will be an economic miracle. That rolls prices back to, when…? Feb 2007?

    Never mind the banking insolvency that faces our nation. Never mind 10%+ inflation in food, energy, retail, medicine, etc.
    Never mind that unemployment is creeping up to 9% (yes, it is, and I dare someone to call me on it.)
    Never mind $100 oil.
    Never mind a falling stock market (just wait)
    Never mind the secondary market for MBS has terminal cancer.
    Never mind the two ENORMOUS bubbles we have had since 1997. (gotta pay those off)
    Never mind capital flight risk and rising interest rates (as the FED cuts, foreigners flee the US Peso)

  22. 22
    Eleua says:


    I’ve been away for a while, so I don’t know who the modern players are on SB.

    Don’t worry about economic lessons. Everyone is enrolled in the class. Those that know, paid in advance and will get off cheap. Those that are tardy will pay a much, much, much higher tuition.

  23. 23
    disbelief says:


    Agreed. It does seem to me that “some” people really worship the market, and think that what has happened in housing is just the “harsh reality” we have to come to terms with.

    These people don’t even consider that the market may be overvalued (for reasons that should be obvious by now). They don’t take into consideration that the sub-prime lending and that “kinky financing” as you like to put it was both a new, and very significant factor, in what has happened, and what will happen in this market in the future.

  24. 24
    The Clizz says:

    For the past 30 years, most of california has been out of reach for middle class homebuyers…why would things be anydifferent here and now?

  25. 25
    Eleua says:

    For the past 30 years, most of california has been out of reach for middle class homebuyers

    How did they buy those home for the past 30 years?

    Why are homes in California now getting “more affordable?”

    Also, California has substantially higher incomes in many of those middle-class homes than we see in most parts of the country. My wife would make double what she makes here if we lived in the SF/SJ area.

    California’s real estate escalator has been working for most of that 30 years. It has just shifted into reverse. We shall see how many of those middle-class people bought beyond their means.

    A middle-class neighborhood is a middle-class neighborhood. If you inject more money, or kinky financing into that neighborhood, it will cause home prices to inflate. Take away the financing…

  26. 26
    disbelief says:


    I disagree. I lived in California a dozen or so years ago, and ought to know. Coastal property has always been expensive, as have some particular desireable areas ( but those are in effect “micro-economies” or separate housing markets sustained by sufficient high income buyers). No, not everywhere, not by a long shot.

  27. 27
    bitterowner says:

    Re your comment: “Stop looking for the winning formulas, the “good deal” or what not. You know it doesn’t exist. Look closer to home to find the answers.”
    Are you acutally so ignorant as to believe that the posters on this blog are “unable” to obtain financing for a house purchase? If so there are many previous posts that you could peruse in the archives where it is clear that the driving force is a strong desire to avoid the purchase or financing of a depreciating asset. And those assets are indeed depreciating, even if viewed through the crack-smoke haze wafting in front of your rose-colored glasses.

    And speaking of crack, do you REALLY believe that foreigners will purchase seattle real estate in sufficient numbers to re-invogarate this market??! This kind of wishful thinking absolutely boggles the mind.

  28. 28
    disbelief says:

    “Pricing is what the market will bear, and I don’t hear too much about asking if you can afford a Plasma TV before you walk out of a Wal Mart.”

    Because we’re not discussing plasma tv’s david. But funny you should mention……since plasma tv’s and Seattle houses will likely share a similar rate of depreciation over the next several years.

  29. 29
    Markor says:

    The article says that WA’s tax system is regressive. If a progressive tax system means we just get to *additionally* pay a state income tax for no more benefit, like in CA, then I’m all for our current system.

    I’m not convinced there’s a significant housing bubble in Seattle. Prices may well drop 20%, but if they do, I think that’ll be an overcorrection. Someone else on this blog thought Eastside prices have risen 7-10% since the end of 2005. I think that’s a bit too high (and we’re talking houses that actually sell, not the castle-in-the-sky prices list for), but even 10% could mostly be expained by inflation. Some of the price increases above inflation could be explained by people increasing the value of their homes by remodeling (easy credit making that easier to do).

    When I look at Seattle-area houses that haven’t been updated since 1997, when the bubble supposedly started inflating, I see prices that are generally no more than double what they were in 1997. That doesn’t seem unreasonable when you consider that since 2000 the country has been on a path to financial ruin thanks to W. If house price increases track with inflation in the long run, then they should reflect an expectation of great increases in inflation due to the country’s predictable financial insolvency. That’s a major change to the housing picture that the country-wide bubble predictors seem to completely ignore. If we have deflation across the board and house prices fall in concert, that would not be a deflation of a housing bubble.

    “In the end, americans deserve what they get since this is a democracy and if we didn’t like the way our country is being run we would elect a government aligned with our thinking and offering this country a real future and direction unlike the ponzi scheme of deficit spending, unsustainable entitlements, outsourcing and massive systematic trade imbalances we elect our officials to create.”

    Hear, hear. We can only hope that one day Republican voters realize that all their efforts to make the rich richer results in harm to themselves, with no trickle-down benefit they’ve been brainwashed to believe in. One caveat though: We have an oligopolistic government. The largest two parties collude with each other to keep competition at bay. It’s unlikely that the voters will be able to exert enough power to overcome this flaw that the Founding Fathers allowed.

    The middle class can’t afford a middle class house you say? Well, they couldn’t in 1997 either. I suspect that if houses seem more expensive compared to wages now than in 1997, it’s because wages have not kept pace with inflation since then, due in large parts to outsourcing and Republicans.

  30. 30
    Chris says:

    melonleftcoast said:

    “I especially like the analogy to the cost of college.”

    I think one major difference with college is that you can argue the cost has gone up because the return on the investment has gone up.

    Forty years ago you could get a good middle class job with a high school degree, so college was a less compelling investment. Over time, education has become more important in securing a high paying job, and so the value of getting an education, demand for higher education, and the cost of higher education have risen.

    I think you could pretty easily argue that higher education is under priced. I am certain that if you compare the present value of an average high-school graduate’s future earnings, and the present value of an average college graduate’s future earnings, you will find that the difference exceeds the cost of college many times over.

    The fact that loans are available to finance college is rational, since it enables people to make an investment which will provide a high return to themselves and society over time. Having debt available to finance those kinds of high-return investments is very valuable.

    I wouldn’t say the same thing about the recent housing/debt bubble – I don’t think either lenders or home purchasers will achieve a high return on their investment. In the housing case, the money was invested in a way that won’t lead to long-term productivity improvement.

  31. 31

    Historically, I think the rate of return on houses has been something like 5%, a bit less than the stock market and a bit better than the rate of inflation. Since 1997, house price appreciation has been closer to 10%, while the inflation rate at the most has been 4%.
    Between peoples shortsightedness and their believing the hype that this is the new paradigm where house buying is the path to riches, way too many people bought at the top, not realizing or refusing to believe that things almost always average themselves out.
    I’m a baseball fan. If a player hits 270, 260, 280, 270, 265, and then 330, what are the following years going to look like? Very likely most of his future years he’ll hit around 270.
    For most 15 year periods, house prices will appreciate an average of about 5% a year, but if in the years ’97-’07 they average 10% per year, how is that 5% average going to get maintained?
    By price drops. It seems that there is a diversity of opinion on this blog. There are the real estate cheerleaders with heads in sand predicting that at worst price increases will slow down a little before they skyrocket again, and there are the gloom n’ doomers who are predicting 90% drops. I’m somewhere in the middle, predicting that things will revert to the mean, and that will happen via price drops and flatness, and that the next 3-4 years don’t look rosy.

  32. 32
    Eleua says:

    Who is predicting a 90% drop? I’m in for 80% on the high end, so I need to defend my position as the most bearish person on SB.

    Come on. Fess up. Who is predicting a 90% drop?

  33. 33
    Michael Long says:

    I think that people have some misunderstanding about Capitalism. Capitalism will not work unless you have open markets but it also requires socialism of opportunity. As some players gain unfair advantages in the market then capitalism erodes and you end up with a system closer to fudalism.

    The problem with the housing market is not a failure of capitalism, but an erosion of capitalism. Some players in the market (banks, mortgage brokers, real estate agents) had a profoundly unfair advantage. These groups had MBA’s, lawyers and lobbyists creating systems that most mortgage applicants could not understand and probably never will be able to understand. Does anyone on this board understand the contract they signed for a credit card, or all the fine points of the contract they signed to open a bank account. My point is that the federal government needs to regulate and prosecute in order to keep the playing field level in a capitalist market. The only way this mess could be avoided is to make the type of loans that we know people can’t pay illegal.

    It’s like a blind man asking for an orange and a grocer selling him a lemmon. Is this a failure of capitalism? or do the parties in the transaction have unequal access to information and thus unequal opportunity it compete in the open market.

    We can not have a society where you need a law degree to buy a house, an MBA to find your bank fees (thanks Wells Fargo), and a CPA to figure out your Credit Card Statement.

    The goal of government regulation should be to maintain an open market while working to make sure it is a fair market by leveling the playing field.

  34. 34
    Markor says:

    “Historically, I think the rate of return on houses has been something like 5%, a bit less than the stock market and a bit better than the rate of inflation. Since 1997, house price appreciation has been closer to 10%, while the inflation rate at the most has been 4%.”

    If house price appreciation has been 10% annually since 1997, then a house that sold for $250K in 1997 would sell for $700K today. Looking around, the only houses I see with that kind of appreciation have been heavily remodeled. A house that sold for $250K in 1997 and sells for $500K today appreciated at 6.6% annually. That’s closer to the kind of appreciation I see for unremodeled houses since 1997.

    Suppose house prices track to inflation in the long run, unremodeled houses have appreciated by 7% annually, and inflation has been 4% annually since 1997. Some of the 3% difference could still be explained by inflation, because it can be predicted with great confidence that inflation will be much higher than 4% annually in the future, along with great financial turmoil as the US implodes, both increasing the desire for assets that maintain their real value in the long run. Also it’s safe to say that Seattle has become more popular since 1997 relative to the average US city, which means that prices should have increased faster than inflation even if there was no bubble.
    You say that “the rate of return on houses has been something like 5%”. Add 1% for increased popularity of Seattle since 1997, and it’s only 0.6% apart from the actual rate of appreciation since then. Ergo, only a tiny bubble and that even disregards the impending great recession. But I still think prices will drop significantly due to an overcorrection.

  35. 35
    Jon says:

    “While I don’t necessarily agree with everything Ms. Orth suggests, her point that subsidizing the purchase of overpriced homes is counter-productive is 100% correct, in my opinion.”

    Huh? Counter-productive to who? The whole point of creating this bubble in the first place was for all these bankers to rob the American public blind. So subsidizing the purchase of overpriced homes is hardly “counter-productive” to these guys. It’s just another way for them to get what they want. So long as people are so ignorant they don’t know they are being robbed, there’s not a damn thing that can be done about it.

  36. 36

    I just looked up some stats on the Northwest MLS. In 1997, the median sales price for a home in King County was 171,300. In 2006 it was 425,000. I didn’t break it down to an annual percentage increase, and not disagreeing with Markor, but popularity of areas also waxes and wanes. Yes, 1997-2006 the Seattle area has been considered an exciting vibrant popular attractive place, but who knows? Maybe the next ten years it’ll be Hattiesburg, Mississippi.

  37. 37
    Markor says:

    I’ve come to the conclusion to the median stats are pretty worthless. According to one site the median price in Seattle-Bellevue has increased by 18% since the beginning of 2006. But no way has the average price of existing homes increased 18% since then. I think the average increase for sold homes is closer to zero.

    It’s because misleading median price increases are typically reported that I think Seattle house prices will overcorrect.

    Yes Seattle could become less attractive relative to other places in the near future, but I doubt it. A friend of mine sold his San Francisco house and is moving up. He thinks Seattle is better than his city overall, and I agree. I don’t think the incoming tide will stop anytime soon.

  38. 38
    melonleftcoast says:


    You’ve made some good points, but I have to disagree with you regarding education. Well, I do agree that in general, a college graduate will make more money in their lifetime than a non-college graduate. However, how much money a college graduate makes is highly dependent on what field of study a college graduate chooses, as well as where they live, and their alma mater.

    As far as being productive members of society, I see the huge debt burden many college graduates carry having a negative effect on society: college graduates with high debt will choose high paid jobs (i.e. banking) instead of lower paid jobs (i.e. teaching) simply because they cannot afford to take the lower paid jobs.

    So unless you think that more bankers is what our society needs, then I think that it would be much more beneficial for our society to not over-indebt itself, including for college.

    Having a banking system that provides easy money has allowed Americans to over-leverage ourselves and has consequently inflated the prices of homes, cars, college. Because now we can get these things with easy credit instead of saving up for them.

    Until it becomes less easy AND less acceptable to be so indebt in the US, I think our society is scr@wed. Maybe people will be more productive because we’ve indentured ourselves by accumulating so much debt, but is it really better for our society? Or is it just better for business?

  39. 39
    NotaBull says:

    “I was going to reply with some easy examples of how knowingly losing 10% of $800k in 2-3 years is not a good financial decision.”

    It’s worse than this. Leverage goes both ways. If I put down $100K on an $800K house and it loses 10%, then it’s now worth $720K. Basically, I just lost $80K of my $100K downpayment!

    Buying things with leverage (debt) magnifies gains AND losses.

  40. 40
    NotaBull says:

    “Someone else on this blog thought Eastside prices have risen 7-10% since the end of 2005. I think that’s a bit too high (and we’re talking houses that actually sell, not the castle-in-the-sky prices list for), but even 10% could mostly be expained by inflation.”

    That was me and I stand by that statement for the areas I follow in the price brackets I watch. Also, I was talking about houses that sell, and I monitor the sale price and not the price when the property entered the escrow period.

    You’re right that this can be explained with inflation. Given that this is a two year period, I think it’s basically an average (and expected) rate of increase. I’ve done better on my cash accounts… (yes yes, taxes, I know)

    The listing prices are another thing.. People are still putting houses up for $520-550K that would most likely need to be in the high 400s to sell.

  41. 41

    That’s what I’ve noticed. As an agent, i have to be polite and diplomatic, but boy am I tempted to tell some sellers;
    ” You’re f*cking nuts! You’re not even gonna come close to getting that asking price. Where do you think you live? The Taj Mahal?”

  42. 42
    Kime says:

    The Taj Mahal is a tomb. I don’t think anyone lives there.

  43. 43
    Kime says:

    Oh, I take it back, I guess it has a guest house!!

  44. 44

    This op ed piece “Seattle’s Housing Squeeze” appeared in the Sea Times this morning penned by former Mayor Royer:


    He is saying that middle class families with children cannot afford to buy a home in Seattle, and have chosen to live elsewhere so we should support….

    Nonprofits that are capable of building mixed use developments

    Develop incentives for employers to encourage their workers to live close to their place of employment

    A multifamily property tax exemption

    sell publicly owned land

    …among other things.

    Funny thing is, I don’t think middle class families with children want to live in a mixed use multifamily dwelling in the city.

    They want to live in a neighborhood with good public schools (among other things.)

    He does mention schools in the last sentence, but nothing about improving Seattle’s public schools.

  45. 45
    Alan says:

    I think there are people here who don’t understand basic economics. Here is a simple introduction.


  46. 46
    TJ_98370 says:

    What’s the problem? Just get a jumbo loan. I hear Mr. Bernanke is working toward making them more easily obtainable.

  47. 47
    Angie says:

    “I think one major difference with college is that you can argue the cost has gone up because the return on the investment has gone up.”

    Maybe—though I think melonleftcoast’s point is well taken, that those returns are not guaranteed nor evenly distributed among college graduates. I think one of the reasons why higher ed has gotten so expensive is that it requires an educated workforce *and* can’t be outsourced to a developing country. Same thing with health care, which is another area where costs have gone through the roof.

    Jillayne, you’re right, in a perfect world most families would prefer to live in a place with a nice big yard and a great school within walking distance. In the real world, though, that’s increasingly rare in urban areas, and there comes a point when compromises must be made. When both parents work (as is the case with most families these days) and the commute means you won’t see your kid from 7 am to 7 pm most days, well, some people might choose to solve that by living in an apartment or condo in order to shave those hours down to 9 to 5. Let the parks dept take care of your lawn, let the Metro maintain one of your vehicles, and hope that Seattle’s oh-so-accommodating school assignment process lets your kid into one of the good programs in the city.

  48. 48

    OMG Alan, that video is hilarious. Thanks for the Sunday laugh.

  49. 49
    Matthew says:

    Notice how every time Nostra is called out on the carpet, he disappears.

    I’m sure he’ll be back in the next post to throw a couple unsubstantiated bombs, get called out again, and be unable to back anything up.

    At least Meshugy would attempt to defend himself!

  50. 50
    bitterowner says:

    Ira & Kime,
    Does the Taj Mahal have granite countertops?

  51. 51
    melonleftcoast says:

    That is a seriously hilarious video! Ha!

  52. 52
    david losh says:

    I personally think people with new found Euro wealth will want to come to The United States of America to live. People in France are a good example. In my opinion France is a quasi socialist state that has some weird Monarchy fetishes. My impression is that it’s hard to break a class perception anywhere in Europe. France, England, and Germany seem to be the most stubborn on that point. Family ties still seem to mean something.
    In the United States we have two hundred years of hierarchy to contend with as opposed to thousands of years in Europe.
    The great thing about the United States is that anyone can become wealthy. Take a look at the housing market. People who bought properties for years, and years, made a lot of money in the past few years.
    You can say the housing or stock market are going to crash all you want the facts are showing they simply adjust.
    I chose to operate businesses here in the United States. I’ve look at many other countries to invest in and chose to stay here. I particularly stay in Seattle Washington because of potential trade with Asia. I don’t see any greater potential for business than trade with one of the worlds largest consumer bases.
    I’m sorry about your wages. I’m sorry about the jobs that we lose every year. It means we have to think outside of the box to make thing affordable.

  53. 53
    Alan says:

    I read an article several years ago that talked about a study showing that class mobility is currently higher in Europe than it is in America.

  54. 54

    The Taj Mahal does not have granite countertops. But if those owners really intend on selling it for a good price, maybe we can convince them to install them along with some Pergo laminate.

  55. 55
    Eleua says:

    David Losh,

    Good luck with that line of thinking.

    Here is a helpful life lesson:

    Driving by looking in the rear-view mirror can be dangerous. Look ahead. Anticipate. Drive defensively.

  56. 56
    melonleftcoast says:

    Off topic again, but I’m compelled to say something:

    Granite countertops are not all that great. They LOOK fantastic, but are not so practical. I have them in my kitchen and bathrooms in the apt. I’m renting and I’m glad that I got to “test drive” them.

    -very hard: I have chipped or broken 1/3 of my dishes and glasses in the past year

    -porous: if you do not clean up spills right away, it soaks into the stone; water eventually dries, but in our bathroom there is a permanent mark from what looks to be soap soaking into the stone from a previous tenant; I’d hate to see what grease or spilled wine would do if it was allowed to soak into the granite.

    -cold: our stand up shower has a complete granite surround, which looks amazing, but in the winter (SF Bay “winter”) it is absolute torture taking a shower because the rock is so cold.

    It IS nice to be able to cut on the countertop when all the chopping boards are dirty :).

    If you have to have a hard, solid surface, then consider the manufactured stone (Silex?). Or other natural rock that isn’t porous, like quartzite or basalt.

  57. 57
    Michael Long says:

    In response to David Losh?

    Class mobility is higher in the USA? I’m sorry but your talking about an era we call the Clinton Administration. Here is an article that backs me up.
    “A New York Times poll found 80 percent of Americans still believe it’s possible to pull yourself up by the proverbial bootstraps. But a recent mobility study suggests the American Dream may be more style than substance. According to the study, the lower classes of Canada, Britain, Germany and France have an easier time moving their way up the social ladder than their American counterparts.”
    Source: National Public Radio
    Here is another:
    Source: New York Times
    Actually the USA is behind most of the industrial world in class mobility but this is only a recent trend. I have made a great deal of money in this country but I will never confuse the fraud that passes for business today as the legit type of deals that create a better society. At one time the United States made better products that built the monetary base of our society. Now too many of us simply create fraudulent and exploitative deals that overvalue inferior products. The Republicans think that because wealth is created for a few it by default must benefit the many. They believe that American business still operates in the “Lemonade Stand” style of capitalism that made this country great. I would argue that our current form of Capitalism is more like Las Vegas. A few get wealthy because they can stack the card deck in their favor but the odds are always stacked against the individual. This would be funny if individuals knew that they were gambling but in most of the time they never know what the real odds are.
    The problem is that our banking system, consumer credit and most importantly real estate is not an open or fair market. The law allows one of the parties (the mortgage broker and real estate agents) to simply cheat the other party (the buyer). Until the government protects the consumer by fiercely regulating real estate transactions and mortgages inequality will continue to grow. The buyer can’t evaluate a real estate deal. They do not have the same lawyers, lobbyists, MBAs on their side that the real estate industry does. You can’t have a fair market unless all parties have equal access to information and power to enforce the deal.

  58. 58

    I’ve got an aversion to granite countertops. I look at a lot of houses. A lot of them are total junk with granite countertops. You can put lipstick on a pig…

  59. 59
    Brian says:

    Why is it that most Americans are unable to balance their checkbooks or take responsibility for their own bad spending habits? There is no need to subsidize housing for the middle class. There is a need to teach basic finance to the majority of our population. Negative or zero savings rate? Seriously? It really doesn’t matter how much you make or what kind of job you have in today’s world. If you decide to live above your means, you deserve whatever you get. The consumer shares equal blame with the lenders and the real estate agents and the builders for this mess.

  60. 60
    Eleua says:

    There is a need to teach basic finance to the majority of our population.

    The teacher is coming down the hall, or is it the hangman? Either way, an unforgettable lesson is about to be taught to the Lumpeninvestoriat.

  61. 61
    Markor says:

    “I’ve got an aversion to granite countertops. I look at a lot of houses. A lot of them are total junk with granite countertops. You can put lipstick on a pig…”

    But isn’t granite a requirement to sell? Saw the rare Issaquah house go STI this weekend. Its 15% smaller and its lot is half the size of similarly priced and otherwise comparable houses in Issaquah that have languished, but sure enough it has a granite tile countertop!

  62. 62
    Scott G. says:

    Speaking of living above your means, I just got back from the Monterey area from visiting with my folks who are looking to retire there. The realator who they were working with said that the market there was the worst she has seen in 30 years, so not only are the ‘middle class’ affected but also the upper class. Not a single home in the Carmel area is under $1.5 million and believe it or not there are quite a few million dollar plus properties on the market as foreclosures!

    Getting back to the topic on the middle class, I think more needs to be done to help out the first time buyer. An example would be the limit of $10K as a withdrawl from a 401K or an IRA for a down payment sounds like a good place to start, as that restriction certanly has not keep pace with the market. I think this penalizes folks who have started to save early and can’t access this money without severe penalities….someone correct me if I am off base here.

    I think there is a difference in subsidizing housing accross the board and offering more incentives or affordability for that first time buyer.

  63. 63
    Chris says:


    I certainly agree that many people over-leverage themselves. But I think college is pretty low on the list of foolish expenditures.

    I don’t see how cutting of credit for college will benefit people. Overall, I think you will get more efficiency if you allow people to make their own decisions on which debt makes sense, and which doesn’t. Some will make bad decisions, but most will make good decisions in the long term.

    You are seeing it happen now in housing. Many people made bad decisions (both lenders and borrowers). They will face negative consequences (lost money, bankruptcy, default). They will be marginally less likely to make bad decisions in the future.

    If college was such a horrible investment, you’d see the same things happening. Buyers remorse, high default rates, and lenders becoming much more selective about who they give education loans to. The fact that you do not see that indicates most college graduates are servicing their debt successfully.

    In that sense, the high cost of education is a reasonable/good thing. If education is a high return investment, then we should be investing a lot in education. More resources allocated towards education enable colleges to do more research and teaching. Of all the places where we could reduce expenditures as a society, college doesn’t seem like the best place to start.

  64. 64
    Mike2 says:

    In case anyone missed it, there was an AP story last week about foreigners replacing first time buyers in the housing market.


    The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.

    That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years.

    This idea that US FTHB’s would be displaced en-mass by foreigners struck me as both wishful and possibly another way to convince fence sitters that they should buy now or be priced out forever.

    Nevermind that foreign investors that jumped in too early have already been burned by falling prices and a falling dollar.

  65. 65
    Eleua says:

    Education is expensive because we attempt to make it affordable.

    As college loans become more expensive, they will force education to become cheaper. Also, if we can get gooberment out of the education business, that will make it more affordable.

    I just built a nice lady’s writing desk for Mrs. E. If I were to sell it in a gallery, I would put a $2700 price tag on it. If gooberment came along and declared that my desk wasn’t affordable, and gave the Lumps $2200 to bring the affordability into range, the demand for my desks would shift dramatically.

    What would I do?

    Yup. Raise the price $4900. So, then J6P would go to Congress and demand more “help.” He gets it in the form of another $2200. I see more demand and raise my price to $7100 to meet my ability to supply desks.

    Can you see where this is going?

    If gov’t subsidized loans to buy my desks, that would cause me to raise my prices. If government structured the economy where the only viable work was such that it had to be done on my desk, guess what would happen to the price of that desk?

    Rather than a $2700 luxury item that had plenty of substitutes, we now have a $13000 collossial money-pit that is ripe for fraud.

    A local private elementary school competes with the local government schools. That school charges about 55% per child of what the state pays for a child to attend a public school.

    They get no subsidy, nor benefit from force of law requiring attendance.

    Subsidies of housing make it more expensive. Scrap the (regressive) interest deduction and make housing more affordable to the middle income families. Scrap the GSEs.

  66. 66
    Olaf says:

    Man. NostraDamnUs is starting to choke back tears. I wonder how much of his own money he sank into the belief that three-bedroom shacks in Greenwood are worth $700K?

    Poor guy. It’s really not pleasant when your ideology starts falling down around you. Let’s be gentle with him.

  67. 67
    Happy Renter says:

    I’m spending 25% of my post-tax $ on rent, and saving for a house+paying down 7% school loans with another 25%.
    Most people aren’t willing to do this, so they probably shouldn’t have bought houses. Enjoy your forclosures, folks.
    BTW Green Lake prices seem to be dropping. Yay!

  68. 68
    softwarengineer says:


    In 1980 interest rates were 15% on houses and an entire “college educated” income with experience couldn’t afford 100% of the motgage payment on a $80K home. It took two incomes without kids [mostly] to buy a house in the 1980s, then Black Monday hit the stock market and the Savings and Loan crisis too. The real estate bubble hit Seattle then and in comparison, the 2007-2017 [notice I drag it out for at least 10 years] bubble is gonna be far worse this time.

    The difference? In the 1980s-1990s American household incomes were going up. Even including the top 10% incomes that go up in America today, the average American household is stagnant, around $45K. If we throw out the top 10% incomes [most of this sector doesn’t buy homes anyway, they already bought in] in America, the average household income in America is plummetting downwards, like a plane on fire swirling downward to crash.

    Did you bloggers know that if your household makes $40K your’re in the 50% sector and 50% of all the American household incomes make less than your’s?

    Disturbing thought for you haughty “wantabe” Conservative millionaire Republicans that think poverty is all our fault, isn’t it?

    Its Veterans Day, did you American bloggers know 25% of the homeless are veterans? Welcome back our soldiers from Iraq and their 13% unemployment. Pathetic!!!

    Ohhhh….the phony environmental answer is buying Prius or Hyundai, and add to our insane foreign deficit decreasing American incomes and the dollar, let alone building more new cars with more “oil” global warming footprint and of course, trading your old beater off so its back on the street anyway? Not.

  69. 69
    Alan says:

    I’ve thought that recent immigrants are more likely to buy housing here than people who relocated from within the US since they don’t have a baseline on what housing is worth in other parts of the country.

    And in other news, is anyone interested in a foreclosure?


  70. 70
    laxtosnoco says:

    Losh said “In my opinion France is a quasi socialist state that has some weird Monarchy fetishes.”

    Do you define “a strange fetish” as lopping of someone’s head? David, do you have any strange fetishes?

  71. 71

    I also think that the theory of foreigners stepping in to make up for the lack of first time homebuyers is a bunch of crap. Some folks in the industry will just throw a bunch of crap out there and see what sticks.. A first time homebuyer might be interested in a little house in Skyway. Is that same house going to attract a foreign investor? Maybe, if by foreign you mean from another planet.
    On a slightly different note, yesterday’s Times-PI had a full page ad from the NAR advising guess what?
    That NOW is a great time to buy.

  72. 72
    Alan says:

    Why doesn’t the NAR ever advertise that “now is a great time to sell?”

    Once prices drop, today will look like it would have been a great time to sell.

  73. 73
    melonleftcoast says:


    Interesting analogy, but that is exactly my point. And although I agree with Chris that over-paying for an education CAN (not will) make better financial sense than over-paying for a house, or worse, a car, it would be great if we didn’t have to over-pay at all.

    Chris, do you know what the default rate is for student loans? Do you think that the fact that people HAVE to pay back their student loans, even if they declare bankruptcy, has an effect on the low default rate? I would think it has something to do with it.

    Now imagine how different people would act if they couldn’t walk away from their housing loans as easily!

    This is an interesting article about how the 2005 changes to the bankruptcy laws have backfired:


  74. 74

    Or better yet, why doesn’t the NAR advertise that ” Now is a great time to rent.”
    Actually, right now is neither a good time to sell nor a good time to buy. Is that what they call a balanced market?
    It’s not a good time to sell because there are less sales and a lot more properties on the market, and less buyers qualifying for loans, and a lot of buyers on the sidelines waiting for big price drops.
    It’s not a good time to buy because prices are dropping, and nobody really knows where the bottom is, it’s like catching a falling knife.
    But…we all know why the NAR is putting up full page ads. It’s not, as they claim, because they want to clear up misconceptions about the market and inform people about the real conditions.

  75. 75
    melonleftcoast says:


    The NAR did have a widely-criticized ad, in the NYTimes and other papers sometime in 2006 that stated “Now is a good time to buy AND sell”.

    Right. Maybe it is for the realtors.

  76. 76
    melonleftcoast says:

    “…why doesn’t the NAR advertise that ” Now is a great time to rent.”

    Simple. Because realtors make less money that way.

  77. 77
    SunTzu says:

    The coming recession will bring back order to the market be it real-estate or stock. It will strike in 2008. Don’t count on emerging markets or Europe to save the day because the world economy is still US centered.

    I’d advise those who obviously have a lot riding in RE to cool their jets–people like Nostral and David Koresh.

  78. 78
    middle class? says:

    Middle class houses certainly have changed since the 1960’s!! In the 1960’s my parents had 1 car, no garage, and owned a home with 3 bedrooms and 1 bath. 4 kids, so someone double up of course. We were considered middle class. Today, the middle class seems to believe they are entitled to 2 or more cars, 4 or 5 bedrooms, 2 or 3 car garage and ‘must have’ a suburban middle class home in the $600,000 or more price range; truly most buyers just can’t afford this vision. … Even the media supports this ‘vision’ of middle class. Check out any media discussion about homeownership, and look at the housing photos. They are all expensive homes! We are a very spoiled society, and if you earn the money, you should have what you want, but I think we need to reexamine what we think of as ‘affordable’ and ‘middle class’.

  79. 79
    B&W Nikes says:

    That Bloomberg article says: banks have seen their credit card businesses improve. The amount of money owed on US credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp.
    That’s a weird statement. To the best of my knowledge, the worst thing that can happen to the credit card industry is to have their customers pay in full and on time since a huge chunk of their profits are tied to penalizing the imperfect customers.

  80. 80
    melonleftcoast says:

    “That’s a weird statement. To the best of my knowledge, the worst thing that can happen to the credit card industry is to have their customers pay in full and on time since a huge chunk of their profits are tied to penalizing the imperfect customers.”

    I thought the same thing. And it looks like they have shifted those tactics to the mortgage industry to profit from delinquent house payments:


  81. 81
    CCG says:

    “The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.

    That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years.”

    The theory is that some people would find some positive spin on selling their own mother if they thought they could get an unearned buck out of it. “Key to economic growth.” Give me a @#$ing break. More like key to losers living beyond their means and pretending they’re the new “haves” instead of clueless debt serfs.

  82. 82
    Just waitin' says:

    middle class?,

    Hi everyone, first time poster, long time reader. ;) I have a point to make, anyone who can disprove me, I’d love to hear it. As middle class?, pointed out, america seems to believe the middle class home is much larger and more ornate than they used to be. I agree with middle class? but have something to add. All the houses that have been built in the last couple years are of these large ornate styles, i.e. parlours, formal dining rooms, extra media rooms, etc. The reason for this is that it only costs the builder about 20-30k more to build a huge house than a normal house but they can CHARGE about 100-150k more. Thus they can maximize their profits per sq foot of lot space. I’ve even gotten some realtors to acknowledge this problem.

  83. 83
    Alan says:

    What is the middle class?

    This house looks like it is firmly in what I think is the middle class range (possibly even lower middle class.)


    1080 sqft, 3 bedrooms, 1 bath, single car garage, $530k

    Granted, you are going to pay a premium for location, but that is not a middle class price (although the $175k/year one should be earning to buy that is probably still in the middle class — just upper middle class).

    But maybe the middle class just shouldn’t be living in big cities anymore. I don’t know. I do know that there are plenty of places in America where the middle class can afford to buy a house.

  84. 84
    WestSideBilly says:

    No real surprise that the $528k ‘middle class’ home has been sitting there for 4+ months.

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