Weekend Local News Roundup

Here’s a roundup of some local real estate stories that came out this weekend.

It’s interesting how much the general tone of news articles have changed in just the last six months. I think the local consciousness is finally starting to realize that Seattle may not be magically immune to the housing bust after all.

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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.

87 comments:

  1. 1
    rose-colored-coolaid says:

    First!

    Maybe I’m the only one, but how can Quadrant Homes be invincible? Their entire marketing scheme plays into all the most obvious stereotypes of the bubble.

    “Buy Quadrant and get a McMansion so huge you can’t even find your spouse,” they proudly announce. Weyerhaeuser is a long time Pacific Northwest Company, but that doesn’t make them immune

  2. 2
    sf_boomerang says:

    Question (with a long lead-up): I used to rent in Seattle, then moved to San Francisco to be with my girlfirend (now wife). Happily, she had a rent-controlled apartment that is allowing us to save aggressively for the next 18 months or so, at which point we plan to move back up to Seattle. The data on the housing bubble cites a lot of info on the outskirts of Seattle, but will areas like Cap Hill, Greenlake, Ravenna see prices falling as well? Or will there just always be enough people with enough money to keep prices in these hotter areas inflated?

  3. 3
    The Tim says:

    Oh my. RCC, I think that your comment marks not only the first to this post, but the first to declare “first post” on Seattle Bubble at all.

    Being a regular reader of Slashdot, I’m quite familiar with this particular internet phenomenon, but I’m surprised to see it here. Is Seattle Bubble really that big that “first post” comments are going to start being a regular occurrence?

    Or more likely, you were just looking for a laugh, in which case you were successful :^)

  4. 4
    deejayoh says:

    Quadrant’s formula for immunity: 18% margins (and falling), less new “incentives” ranging from 10-20% of purchase price. And if the buyer is smart enough to take the down-payment/interest rate buy down – these are cash costs to the seller. Hard to see how this one continues to pencil out.

    Gross margins for single-family housing for all five Weyerhaeuser homebuilders was 17.9 percent in the quarter, as the subprime loan bust and housing slowdown affected all builders nationally. In 2006, the Weyerhaeuser homebuilders reported a gross margin of 26.5 percent.

  5. 5
    BubbleBuyer says:

    Here is a really cool Wall Street Journal on Los Angeles Inland Empire home owner bailout. I am left shaking my head in disgust at the abject stupidity of people…Southern Califonians in particular.

    I believe access to this article is free.

    http://online.wsj.com/article/SB119785633408932917.html?mod=todays_us_nonsub_page_one

    My favorite parts….

    “As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says”

    “Meanwhile, Mr. Oropeza expected to be transferred to Texas, so the couple began house hunting there in 2006. In June, they bought a 3,600-square-foot home for $283,000 in the Houston suburb of Katy, Mrs. Oropeza says. “It was easy. We had good credit. The deal was done in seven days.””

    ” the run-up to their move, she says, the couple lived off credit cards to “make sure we had cash for the house payments” in Corona. They packed up in June, and then took their 9-year-old son and 2-year-old daughter on a long-planned Caribbean vacation. They returned to Calle Canon Road, “got in our cars and drove to Texas,” Mrs. Oropeza says.”

    “Neighbors Ms. Lefranc and Mr. Saffold are dismayed over the Oropezas’ departure and note that shortly before leaving, the couple bought a new Lexus. “I think they took money out of their house and split,” Ms. Lefranc says.

    Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down. She denies that the family intended to abandon the house. The choice was straightforward, she says: “It was easier to keep the house in Texas than the one in California.””

  6. 6
    Happy Renter says:

    sf_boomerang,
    I like to think of it this way when I think of the more desirable areas of Seattle.
    Cities in general are desirable areas of the US for many people, and they didn’t avoid the bubble burst.
    Cap Hill/Green Lake/Fremont/Montlake/wherever are nice/desirable areas of Seattle and probably won’t avoid the bubble burst.

  7. 7
    biliruben says:

    SFB – I picture how it will play out as a contracting circle – Think of a movie of stone being thrown into a still pond – that was the bubble inflating. Now play the clip backward – that’s what we are seeing now.

    The deep bush is first, then Pierce and SnoHo, then finally we start seeing drops on the Seattle Hills and Bellevue/Kirkland/Redmond-land.

    Now, this will hit different segments of the market unequally, within geographic region as well.

    Here’s what I expect, moving from hardest hit (% decline, from their peak to trough in 3-7 years) to the most impervious to down-turn.

    New Condos – 50%
    New Townhomes – 45%
    Older Condos – 40%
    Older Townhomes – 35%
    Really wicked expensive SFH – 35%
    Pretty F’in expensive SFH – 30%
    Moderate/high SFH -25%
    Mod/low SFH – 20%
    Low/tear-down – 15%

    Just a wild-ass guess.

    The market will have probably corrected enough for me to start looking in about 2 years – Spring 2010 is when I plan to start to shop.

  8. 8
    patient says:

    On the national side I happened to turn on the TV during the Suze Orman show on Friday. The subject was real estate and since she do have a pretty big audience I stayed tuned to see what her message was. Here is a short summary:

    – Do not investe in the real estate in this market if you are not a pro with plenty of knowledge and resources.
    – Buy a home to live in only if you get the deal of a lifetime, offer 2002 prices we are already at 2004 prices in most markets. Only buy if you can put at least 20% down on a 30y fixed.
    – Never touch your retirment money to stay in a home.

    I don’t really care much for the preaching style of these type of shows but this time it sounds like pretty sound advice and confirms that the wind has definately turned on real estate.

  9. 9
    FredE says:

    I don’t understand all the stupid incentives. If I wanted a 42 inch plasma, I’d already own one. But I don’t, because I’m looking to save for a house. Same with a boat and a watercraft. Sell your damned “incentives” if you don’t want them. I want a reasonable price on a house, not a mortgage on a couple of boats. Don’t even get me started on the “incentive” of five-or-so $20s hidden around the house. Throw in some Cadbury Eggs and I’m fricking sold! Imagine such a buyer explaining this purchase to friends and family. “Yeah, the house was overpriced, but it came with a free easter egg hunt for $100 bucks!” Time to get real, sellers.

  10. 10
    Lake Hills Renter says:

    Hidden $20s? That’s the dumbest tactic I’ve ever heard. Does that really work?

  11. 11

    I AGREE PATIENT

    I’d add, don’t invest.

    You may think that CD is safe at Washington Mutual or some other bank, for your sake, I hope its.

    But when you buy a new CD, be prepared for a massive interest rate plunge. They’ve already plunged from the 5+% to the 4+% range in the last week(s).

    Greenspan is predicting “stagflation” today. You know, when inflation sky-rockets and wages collapse. The Great Depression was better than Greenspan’s prediction of stagflation, re: to sell a house, at least oil and food plummetted in price with wages. Imagine 50% down payments to qualify for a home loan soon, sounds reasonable to me and to the banks too, I imagine.

    Don’t worry about a run on the banks either (lol), FDIC insures 2%, so the first 2% in line at the door will get their money. The mattress is looking safer and safer to store money, isn’t it. The good news, BECU now allows $5000 withdrawls [it was maximum $500] at the cash machines now.

    Oh, buy stocks instead? lol

  12. 12
    patient says:

    I fully agree, incentives other than a lower price just screams “Overpriced!” and to think that a buyer of a home wants to lend money to buy luxuary items that is not even of their choice at the time they are buying a home is plain redicolous and frankly annoying.

  13. 13
    biliruben says:

    Well, at least I know who to ask when looking for ammo and Hormel.

    Isn’t it kinda hard to enjoy life when consumed by thoughts of the impending collapse of society as we know it?

  14. 14
    Buceri says:

    Incentives are like e-mail spam and dinner time calls; if they would not work, they would not do it!!!
    We had a Mercedes offering here in Tampa at a condo conversion some 18 months ago. Wow, we’ve been in the dump for a good while here.

    Also – if you are 40 or older, you should be looking at a 15 year loan. You want to own your home clear by your 50s.

  15. 15
    WestSideBilly says:

    I don’t understand all the stupid incentives. If I wanted a 42 inch plasma, I’d already own one. But I don’t, because I’m looking to save for a house. Same with a boat and a watercraft. Sell your damned “incentives” if you don’t want them. I want a reasonable price on a house, not a mortgage on a couple of boats. Don’t even get me started on the “incentive” of five-or-so $20s hidden around the house. Throw in some Cadbury Eggs and I’m fricking sold! Imagine such a buyer explaining this purchase to friends and family. “Yeah, the house was overpriced, but it came with a free easter egg hunt for $100 bucks!” Time to get real, sellers.

    This is a great deal for the sellers, who typically have many other properties similar/identical to the one being sold. The house sells for a higher paper price which keeps comps elevated (which helps sell other houses at the higher price), even though the seller loses some cash in the transaction.

    The seller ends up with a crappy boat/plasma TV/whatever which ends up costing 2-3 times it’s real cash value and probably 3-4 times what the seller says it’s worth.

    But people are dumb and fall for it time and again.

  16. 16
    Brian says:

    softwareengineer: Take a deep breath. Calm down. Relaxed? Ok – let’s try not to be so dire. Are you manic – suffering from extreme highs and lows? Housing is bad. Yes. The securities market is bad. Yes. The world is going to end. No.

  17. 17
    rose-colored-coolaid says:

    Tim,

    I also read slashdot. Being the jealous type, I always envied the fact that others might declare first post…because that meant I would have to settle for just reading the first post and never creating it.

    Today, I saw my opportunity to rectify this slight, and I seized it. And who can blame me? If it were a rational desire, one might point a counterpoint, but this small irrational desire of mine lends no such opening.

    So ya…just for laughs – mostly my own.

  18. 18
    Grvetti says:

    Also challenging is that buyers — well aware of the great deals available — are asking for the world.

    Yes, those bitter renters/picky buyers asking for the world… how’d they get so uppity? What’s wrong with them? Don’t they know what I paid for this in 2005? Let them eat cake!!!

  19. 19
    Pistol Pete says:

    When everyone said the market was hot and you can’t go wrong, we were at the top — when they’re yellin’, start sellin’

    Now you say the press is coming on board with the doomsayers — when they’re cyrin’ start buyin’

    We’ll be back to buyin’ soon as the general population of lemmings (me included) can’t pick the high or lows. The best we can do is look for the majority opinion and do the opposite, contrarian indicator?????????

  20. 20
    on topic says:

    the world’s financial systems may not be at an end, but these are definitely unusual times.

    the European Central Bank is offering unlimited funds at below market rates

    California has declared financial emergency because of an expected 14G$ deficit

    the US is seeing increasing prices (mostly energy-related) coupled with decreasing employment

    consumer confidence is at post-katrina lows

    homebuilder confidence is at record lows

    the nation’s ten largest housing markets are expecting an average 8% decline in home values next year

    and there is discussion whether the Fed has any ability to help things. every cut of the reserve rate pushes the value of the dollar down, leading to higher energy and import prices and further reducing consumer confidence.

    it may not be time to buy hunks of gold to bury under your homestead in Montana, but it is certainly time to consider a conservative portfolio (i’m 100% bonds & securities right now). maybe even time to consider the stability of one’s employment.

  21. 21
    David McManus says:

    Regarding the individuals hiding the 20s around the house……

    I actually worked with the female a while back at one of my prior employers. Nice person, but in this situation, I think their desparation is obvious. I agree that sellers need a reality check. I always joke with one of my family members who is a realtor that I want to put the house I bought 6 years ago at 300K on the market for a million bucks. Real estate ALWAYS goes up 20% a year, right? She tends to not like that comment. Either that or I should really get a rise out of her at Christmas when I tell her that my wife and I are no longer contributing to our 401k. Hell, our house will be worth 50 million bucks by that time! Why would I need a stupid 401k?

    Regarding these incentives, it would be as if I stood on the corner and tried to sell 2 dollar bills for 10 bucks. Something tells me I would have buyers.

  22. 22
    Lake Hills Renter says:

    I even read yesterday (no link, sorry) that Greenspan is warning of stagflation now. These are indeed strange financial times.

  23. 23
    Lake Hills Renter says:

    Wow, Greenspan is calling for a cash payment bailout now: Greenspan Favors Government Bailout for Homeowners

  24. 24
    Brian says:

    Stagflation occurred in the 70’s and is something we will recover from. The market (real estate and securities) is bad and will get worse. Times like these require patience and calm, unless guys like Greenspan get what their asking for a additional tax breaks are provided to home “owners” just to keep them spending. Anyone else see Greenspan on This Week this weekend? That guy is evil. He wants to throw good money at bad money and still pretends his interest rate cuts had nothing to do with the mess we are in today. Anyway, if Greenspan get what he wants, than you can start to panic.

  25. 25

    THERE’S HOPE FOR THE BUBBLE BRAINS

    This History URL states in part:

    “…Lurching downward
    The Great Depression was not a sudden total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below of peak in September 1929.[2] Together government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the prior year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.

    In the spring of 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs. The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. By late in 1930, a steady decline set in which reached bottom by March 1933….”

    The rest of the URL:

    http://en.wikipedia.org/wiki/Great_Depression

    We can take a sigh of relief, it will be over in 5-10 years.

  26. 26
    B&W NIkes says:

    It’s funny that Greedspan is suggesting offering more cash to ‘temporarily’ solve the problem, yet is quoted in a Reuters piece as saying:

    “It’s only when the markets are perceived to have exhausted themselves on the downside that they turn,” he said. “Trying to prevent them from going down just merely prolongs the agony.”

    Huh?

  27. 27
    Dave0 says:

    One thing that I think gives Quadrant an advantage is the fact that they are just a part of Weyerhaeuser. Because of this they can keep the costs of building lower than the competition by using their own wood products.

  28. 28
    Joel says:

    One thing that I think gives Quadrant an advantage is the fact that they are just a part of Weyerhaeuser. Because of this they can keep the costs of building lower than the competition by using their own wood products.

    And we have so much wood here that it will keep costs even lower. But then again, we’re not making any more land so they’ll have to cut down more trees to make room for more McMansions. On the other hand, that will reduce costs for Weyerhauser because they won’t have to pay to have the trees cut down if the developers do it. But they are the developers.

    They’re screwed.

  29. 29
    Steve Tytler says:

    Tim,

    Thanks for including my column in your roundup.

    I was starting to feel left out because you had not mentioned me lately. ;)

    As you know, I am sticking with the same prediction that I made to you at the beginning of this year: An average of 10-20% drop in home values (some neighborhoods will be worse others will be better) over the next 12-18 months followed by a “flat” period with very little price movement up or down for a “few” years (probably 3-5) and then prices will start to move up again.

    I noticed that in your KIRO radio interview you said almost the same thing.

    Maybe you’re finally starting to see things MY way! ;)

    I enjoy reading your blog.

    Keep up the good work.

    And how about a link to MY blog:

    http://www.MortgageGuru.org

    It’s just a reprint of some of my newspaper columns, but they are easier to find than on the Herald newspaper site.

  30. 30
    deejayoh says:

    One thing that I think gives Quadrant an advantage is the fact that they are just a part of Weyerhaeuser. Because of this they can keep the costs of building lower than the competition by using their own wood products.

    That’s the fallacy of vertical integration. If WeyCo could get more for their products through an arms-length transaction, then they should because any “savings” that are going into the COGS for the house are margin lost to the lumber business. It’s a zero-sum game.

  31. 31
    SteveH says:

    Hey rose-colored-coolaid, at least you didn’t say ‘Murst’.

  32. 32
    TJ_98370 says:

    …Don’t worry about a run on the banks either (lol), FDIC insures 2%, so the first 2% in line at the door will get their money….

    Hey softwarengineer – please elaborate on the 2% thing. Where are you getting your numbers?

  33. 33
    Joe Renter says:

    The housing bubble may be the straw that breaks the market force’s back, worldwide. Think 1987 with way to bail out for Wall Street. Lots of factors making this the perfect storm. Time to think about a new system where sharing resources and minimizing greed are in play. A formula… 70% socialism, 30% capitalism. Meaning you can’t have everything you want and you can get what you need. Health care being being provided. Read UN Charter of Human Rights. Time to walk in the wilderness, if you know what I mean.

  34. 34
    Billy Sunday says:

    Joe Renter said:

    Time to take a walk in the wilderness, if you know what I mean.

    Ummm, actually, I have no idea what you’re talking about.

  35. 35
    s.data says:

    Is anyone seeing changes in Seattle or surrounding neighborhoods? I’ve been watching the Mosler Lofts and have noticed a couple of units down $20,000+. It seems to me that sellers are starting to abandon their fantasy selling price, but they still have a long way to go to.

    unit 503 379,950 down from 399,950
    unit 302 675,000 down from 649,900

    In addition the builder is not listing all their available inventory.

  36. 36
    NostraDamnUs says:

    Quadrant’s impervious because they make cheap homes that look like crap. Obviously, people don’t mind buying crap, either because they can not afford a better one or they may want to customize themselves, later on. I would not touch Quadrants with a 10 foot pole (I live in a Camwest home – in my opinion, they provide the biggest bang for the buck, just like a Toyota vehicle).

    Some more news – “New plans aimed at housing needs” – http://tinyurl.com/ywjckp

  37. 37
    TJ_98370 says:

    Lake Hills Renter said,
    .
    Wow, Greenspan is calling for a cash payment bailout now: Greenspan Favors Government Bailout for Homeowners

    .

    Perhaps moral hazard is not a term in Mr. Greenspans vocabulary.

  38. 38
    TJ_98370 says:

    For Mr. Greenspan –
    .
    Moral hazard is the prospect that a party insulated from risk may behave differently than it would if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.

  39. 39
    Runs With Scissors says:

    softwarengineer said,

    on December 17th, 2007 at 2:53 pm

    http://en.wikipedia.org/wiki/Great_Depression

    We can take a sigh of relief, it will be over in 5-10 years.

    I think the problem if you try to listen all the pundits is that in 5-10 years the Space Needle which is partially under water, will have been attacked by Al Qaeda with a Boeing 777 manufactured at the new Ohio facility, and was seen by everyone now living in decommissioned ferries that had been converted into houseboats.

    That about right?

  40. 40
    Ray Pepper says:

    Wow just a bit too much gloom here. With the FED’s easing bias in 2008 and the economy remaining robust here in the Northwest don’t expect to see what it appears is implied here. It will be a long drawn out flat line of home prices but I assure you the stellar deals will be bought up rapidly. I have 23 investors myself waiting to bite. Strong rental markets and job base will not get the deals I see in my hometown of Reno. Always be looking. Always always always. If your going to wait FINE. But, keep looking. You may nail the best price in 2008 to someone who must sell NOW. I’m Closing 1 today listed at 239 for 195k in North Tacoma. It had already went through 2 price reductions. An absolute steal. There will be many more of these in 2008-9. Start building your portfolio slowly by looking now and be ready to pull the trigger.

    Housing Bubble YES. Should you wait NEVER. Always be looking. !!

    Ray Pepper
    Broker
    http://www.500Realty.net

  41. 41
    Matthew says:

    Ray, one word for you buddy : STAGFLATION

    If you think the FED’s easing bias is going to continue unabated throughout 2008, you might want to Google that one and get back to us.

  42. 42
    NostraDamnUs says:

    Ray Pepper – you should see some of the older posts – 50% or a few even 90% drops… :)

    Lots of masturbators on this site… lots.

  43. 43
    col says:

    I saw Alan Greenspan interviewed over the weekend. He was not “predicting stagflation,” but he does think there’s some chance the sky could fall in the future. Meaning… basically nothing you didn’t already know. He’s an inflation hawk, not a soothsayer.

  44. 44
    disbelief says:

    Just irks me when people who disagree that the RE market is in for continued considerable decline/stagnation use the most “radical” views expressed on this blog to discredit the entire blog.

    You should realize that, among the “bubble” posters here, there is quite a variety of beliefs/scenarios expressed. In actuality only a very small minority believe in the likelihood of a repeat Great Depression, 60-80% price crashes, and the like.
    Attacking the credibility of this blog as a whole, by refuting the most extreme views is pretty weak. (btw, Nostradamnus, this puts you in the same camp as the “masturbators” you refer to).
    I would bet that the majority of posters do believe that a 15-20% additional decline is a strong possibility, and that more, say, 21-30%, is not all that unlikely. Lets see what things look like in the spring. Will there be a “bounce” as many in the RE industry predict? Most here would probably disagree with that, it’s safe to say. I’m most interested in what things will look like end of next summer/fall. I predict folks like Ray and Nostradamnus will have disapeared, as they will have more pressing matters to attend to.

  45. 45
    Nolaguy says:

    Ray Pepper said:

    “It will be a long drawn out flat line of home prices ”

    Ray, I’m curious as to why you feel prices will remain flat. Can you tell me your thinking, given the number of economic variables that are significantly different today than say, the last 3 years:

    * elimination of “exotic” financing
    * higher interest rates
    * banking liquidity crisis
    * rising food/oil prices
    * flat wages
    * increased housing inventory

  46. 46
    wreckingbull says:

    Pepper,

    Enough with the urgency crap. When P/E for residential real estate pencils out, it is time to buy. Period. End of story. Everyone here can clearly calculate that.

    Always Be Looking for the bull-trap. Always.

  47. 47
    Scotsman says:

    Guys, enough with the dire predictions.

    I heard a mortgage ad on the radio this afternoon. Did you know that FED rates are at their lowest in TWO years, and now’s a great time to get a low rate mortgage? (No mention of the fact that mortgage rates don’t really correlate with FED rates very well). It’s a great time to refinance!

    The kicker? The ad was for TILA (Truth In Lending Act) mortgage, the “most ethical firm in the business”….

  48. 48
    Ray Pepper says:

    Stagflation? do we have rising unemployment? are the bread lines forming? are we not a 1000 points from an all-time high on the Dow? is gasoline 5.00 a gallon? I’d try and peddle those fears some where else. Too much CNBC for you!! Kramer junkie? Greenberg? Sink all your dough then in Gold my friend. Cash is trash right? with another .75 in rates reductions by our savior Bernanke!. Sell off the mkt for 4 straight days because Fed lowers .25 instead of .50.?? Come on!! Easing Bias my friends..jobs galore. Rentals in strong demand for years to come because many cant get approved. Not everyone deserves to be a homeowner right?

    Heard it all before. No ones gonna eat McDonalds. Ecoli. Healthier eating from Super Size me flick. BAMMMM stock craters to 9.00. Now over 60.00 pps. Media driven society.

    Give it a couple years. Watch CFC return to 25.00 pps . Same old story!. Were not at the bottom yet but with sellers fearing the BUBBLE 2008-9 will be the time to build that portfolio especially here in the NW.

    Ray Pepper
    Broker
    http://www.500Realty.net

  49. 49
    deejayoh says:

    ray, enough with the ads already. ok to make your point, but this isn’t a linkfest.

  50. 50
    bitterowner says:

    Ray-
    Kudos on the nonsensical post. Any relation to David Losh?

  51. 51
    Web_VC says:

    Kill off Ray Pepper links. This dude has a web site with a PR of 3 and is obviously hitting the boards for an SEO boost. If you include a nofollow tag in all board links you can stop GOOGLE from devaluing your site from deadly trash links. This is a good site that people need to find. I’m not saying ban anyone just don’t allow spiders to see bad neighborhood links coming from the board if you want your site to maintain any value.

  52. 52
    bitterowner says:

    I am truly fascinated by the hostility of those who are more optimistic about the housing market and the economy in general toward those who are not. I cannot help but detect a sense of desperation, which is betrayed by their mere presence on this blog. Otherwise, they’d be going about their own business, counting their money and not paying seattlebubble any mind whatsoever. I’ve mentioned this before, but the attitudes on this blog are reminding me increasingly of analagous sites that existed during the tech boom/crash, during the infancy of online message-boards. First the “doom-and-gloomers” were ignored, then as things started looking uglier they were taunted by the Nostradamnus types and industry insiders (same?) who seemingly felt that these peoples’ views were either personally insulting or dangerous to their financial interests. The various posts ridiculing those who looked at fundamentals as a reason for concern became more frequent, with the spouting of absurd new-economy theories as a rationale for unsustainable prices. Some of the optimists were more realistic, but parroted the usual nonsense (that we are hearing again) about how buying into the peak of a bubble is not a concern as long as you plan to hold your equities long-term to weather the correction (as a reminder, almost 8 years later the NASDAQ is hovering around half of its early 2000 levels and many of the high-flyers are as low as 1/100th of their peak value) Eventually, as reality hit, these posters simply went away, presumably to lick their wounds or to find other places to post their nonsense, as their straw man arguments had been exposed for what they were worth. A few hung around touting the buying opportunities as the NASDAQ crumbled, only to get furher decimated. This will be the next phase for the more bullish here. It may have already started, to some degree.
    Before anyone starts going on about how different this situation is from the NASDAQ in economical terms, I realize this, but the psychology on this blog and others is very similar and all asset bubbles bear at least some similarities. This is definitely dejá-vu.

  53. 53
    Scotsman says:

    Here’s a couple of things to consider.

    Adjusted for inflation, none of the major stock indexes have returned to their previous highs of 2000/2001, so buying and holding hasn’t worked very well in that instance, has it?

    Historically, most real estate cycles are 14-17 years long, peak-to-peak. Given that we’re just rolling over the top in terms of prices, it’s going to be a LONG time before “buying and holding” looks like a winning proposition. A really long time.

    When markets correct, the path is almost always very volatile, not at all like the smoother upward trends of a growing market. It is much harder to predict and anticipate downward price action because too many folks still believe that “buying the dips” is a winning strategy. They buy the dips, drive prices up a bit, then get killed by the fundamentals as reality comes back around for another swipe. I expect housing will show the same patterns as prices trend down for years to come.

    As an economist, I firmly believe this correction will be different, in that inflation will not be present to help force wages and home prices back toward the norm. Almost all of the correction will take place in housing prices as wages remain steady or fall. At first everyone was expecting inflation, now it’s stagnation that seems to fill the news. Guess what comes next- deflation, and one nasty world-wide recession.

    Too much denial around here as folks pass through the classic stages of grief.

    Look at how much perceptions of our local and national economies and housing have changed in only the last three months. Another three months puts us smack in the middle of the hoped-for Spring surge. Six months will have everybody believing that the bubble existed, has burst, and is going to hurt for some time.

  54. 54
    what goes up comes down says:

    Scotsman — now that is what I call a sound post.

  55. 55
    rose-colored-coolaid says:

    The Ray Pepper strategy to massive wealth.

    1) Find market with unbelievably high valuations by all historical standards.
    2) Buy into a “flat” market.
    3) …
    4) Profit!

    With a plan like this, I know I’m going to bookmark his invaluable website.

    Invaluable : having incalculable monetary, intellectual, or spiritual worth.

  56. 56
    notabull says:

    “They buy the dips, drive prices up a bit, then get killed by the fundamentals as reality comes back around for another swipe.”

    As they say, even a dead cat bounces when it falls from a great height.

    Beware the dead cat!!!!!

  57. 57

    HI TJ: ON FDIC BANK RESERVES

    I got the 2% available FDIC bank reserve amount from a friend who got this information from a local Seattle area bank manager.

    Try this TJ, go to your bank today and like ask ’em for like $25K Cash immediately from your savings. Some of my friends have tried this years ago and couldn’t get their money out that day and it was only like $5K. Not to worry.

    The following URL says the FDIC banks have 10%, not 2%, in reserve (lol) for you to withdraw during a theoretical panic run on the banks:

    http://money.howstuffworks.com/bank.htm/printable

    The first 10% of the run line will get their cash?

  58. 58
    notabull says:

    “I am truly fascinated by the hostility of those who are more optimistic about the housing market and the economy in general toward those who are not. I cannot help but detect a sense of desperation, which is betrayed by their mere presence on this blog.”

    I agree. Although for some it is not desperation, I’m sure, but a real practical desire to get some information from the “other side”. Good investors and good researchers will want to broaden the horizons a little so they don’t drink too much of one brand of kool-aid.

    However, going beyond research is where it gets confusing. It does feel like the perma bulls are trying to bring us out of our confusion and stop us thinking about such “stupid” things as a 20% drop in prices, even though we’re half way there already. You see blanket statements like “it’s not gonna happen” and “prices will never go down more than 10% in Seattle” that are backed up with nothing but “Boeing, Microsoft, Lakes, jobs”.

    I think a lot of recent buyers (say 2006+) have heard of this bubble nonsense and until recently believed the “Seattle is special” party line. Then, they hear about it taking a long time to sell houses, but are mildly soothed by tall tales of us “returning to a more normal and healthy market”. Finally, they hear that prices have even gone down! Panic stricken, they enter “Seattle housing bubble” into Google and come across this site. They read, their hearts beat faster, their eyes open wider, their mouths dry out just a little bit. It’s like that feeling when you reach into your pocket and your wallet isn’t there.

    Then, they post.

    “It ‘aint gonna happen!”
    “Seattle has lots of jobs!”
    “It’s a nice area to live”
    “Microsoft is hiring”

    If I had bought a house in the last year or two, I’d probably feel a little worried too, especially if I couldn’t really afford the house in the first place.

    Perma bulls out there, pay attention please! If the housing market has hit bottom and there are tons of deals out there, then go ahead and BUY THEM.

  59. 59
    David McManus says:

    I’ve always found it fascinating that all these real estate “professionals” aren’t buying up every piece of property that they can get their hands on if it’s such a great deal.

    Tim, I’ve been working in a coffee shop downtown most of the morning and I was chatting with one of the baristas. She was thinking about buying, but I showed her your site and now she’s reconsidering. One mind at time, my man.

  60. 60
    notabull says:

    “I’ve always found it fascinating that all these real estate “professionals” aren’t buying up every piece of property that they can get their hands on if it’s such a great deal.”

    Because, silly, they wouldn’t be able to fulfill their role in life which is to “help” people get into houses and live out the American dream.

    Disclaimer: Microsoft, Boeing, Lakes, Jobs.

  61. 61
    David McManus says:

    “Disclaimer: Microsoft, Boeing, Lakes, Jobs”

    You left out mountains.

  62. 62

    I gotta say my predictions are closer to Steve Tytler’s than Ray Pepper’s. I’ll agree with Ray Pepper that it never hurts to always be looking, and that in any market there will be some opportunities to buy properties at a discount to market value. Still, the vast majority of homes out there right now are still way too expensive, and I’d stay away for a while, unless you can find a screaming deal.
    I know that I’ve been accused here of promoting myself, but I think it’s only because of what i do for a living(real estate agent) and not from anything I’ve said.
    Mr. Pepper, on the other hand, does seem to be suggesting how strong the economy is and how our fears are unfounded. I just think this bubble has been fueled by a lot of fraud, and as that gets uncovered it makes the fear larger and perpetuates the slowdown.

  63. 63
    Markor says:

    I am truly fascinated by the hostility of those who are more optimistic about the housing market and the economy in general toward those who are not. I cannot help but detect a sense of desperation, which is betrayed by their mere presence on this blog. Otherwise, they’d be going about their own business, counting their money and not paying seattlebubble any mind whatsoever.

    Can you point out one post like that? I haven’t seen any in the last couple months.

    Consider the possibility that some people here who are more optimistic than others have no agenda other than to make an informed rent vs. buy decision, and that’s why they’re here. That’s exactly why I came to this blog. My decision is to buy, but I respect the reasoning of those who decide to rent.

  64. 64
    b says:

    rose-colored-coolaid,

    Step 3 is: with borrowed money you are paying 6-8% interest on.

    It may sound a little crazy, but buying “investments” that are flat or declining with money you are paying interest on is a sure way to become rich beyond your wildest imagination. I made most of my millions buying thousands of dollars worth of beanie babies on credit cards, I am still holding them waiting for the surge in demand any day now.

  65. 65
    notabull says:

    “My decision is to buy, but I respect the reasoning of those who decide to rent.”

    To clarify, you mean to say that you respect the reasoning of those who decide to rent, THEN buy? I just want to make sure we’re not hashing out the same old rent vs buy argument that discusses:

    1) Choosing to rent and never intending to buy a house, ever.
    2) Buying a house immediately.

    Most on this blog are in the elusive 3rd category:

    3) Rent for now, until deciding that prices/situation/whatever is at a place where buying is the right choice. Home ownership being the aim, just not right now.

  66. 66
    notabull says:

    “I’ve been working in a coffee shop downtown most of the morning and I was chatting with one of the baristas. She was thinking about buying, but I showed her your site and now she’s reconsidering.”

    The good thing about the reverting credit market is that you don’t need to convince a barista to not buy a house right now. The bank will do a perfectly good job, especially with the new regulation/guidelines from the feds and congress coming along soon.

  67. 67
    notabull says:

    “I made most of my millions buying thousands of dollars worth of beanie babies on credit cards, I am still holding them waiting for the surge in demand any day now.”

    I have an idea. Why don’t you value your beanie babies using some formula. Don’t worry what formula – just pluck a number from the air. Then, sell shares in the Structured Beanie Vehicle, then buy more beanie babies with the money, except buy more beanie babies on margin using the valuation of the original beanies as collatoral. That way you’ll be able to buy more beanie babies and make even more money!

  68. 68
    Markor says:

    Most on this blog are in the elusive 3rd category:

    3) Rent for now, until deciding that prices/situation/whatever is at a place where buying is the right choice. Home ownership being the aim, just not right now.

    Agreed. Had I chosen to rent, I would keep a close eye on the market and buy later.

  69. 69
    Markor says:

    It will be a long drawn out flat line of home prices but I assure you the stellar deals will be bought up rapidly. … I’m Closing 1 today listed at 239 for 195k in North Tacoma. It had already went through 2 price reductions.

    I don’t put too much stock in flat prices when the only houses selling are the ones priced 10 to 20% less. It’s that fast drop in prices that makes people think prices might soon drop another 20%.

    Housing Bubble YES. Should you wait NEVER. Always be looking. !!

    That’s good advice.

  70. 70
    notabull says:

    I agree you should always be looking, if only to continue to familiarize yourself with the areas in which you are ultimately looking to buy. YOY statistics are what the public follows and those obviously are highly lagging during inflection points (up *or* down). If you follow actual sales and inventory in your target ZIPs you’ll have a much better idea of what’s going on.

    At some point prices will level out and then head back up. In order to know when that happens, you need to be “on the ground” as the real estate types like to say, and the only way for most of us to do that is to watch inventory and sales, and watch them for a while… I’m not talking weeks here, but months and years.

    For my target ZIPs, I add every new house on the market to my “favorites” and so I get emails daily when they go pending, sell, or come off the market. I highly recommend that others looking to eventually buy do something similar.

  71. 71
    Markor says:

    Here’s what I expect, moving from hardest hit (% decline, from their peak to trough in 3-7 years) to the most impervious to down-turn.

    New Condos – 50%
    New Townhomes – 45%
    Older Condos – 40%
    Older Townhomes – 35%
    Really wicked expensive SFH – 35%
    Pretty F’in expensive SFH – 30%
    Moderate/high SFH -25%
    Mod/low SFH – 20%
    Low/tear-down – 15%

    Just a wild-ass guess.

    The market will have probably corrected enough for me to start looking in about 2 years – Spring 2010 is when I plan to start to shop.

    I don’t disagree on the reduction for “Mod/low SFH”, for me the most desirable category.

    So if you could get 20% off the peak on that category now, why wait for spring 2010?

  72. 72
    b says:

    notabull,

    How do you think I decided that I was worth millions? Sure, my balance sheet actually has hundreds of thousands in debt and a box full of beanie babies in the closet. Since there really isn’t a market for them, I use a proprietary algorithm instead to mark them as millions of dollars in level 3 assets. I can’t wait to buy a yacht when I finally find a buyer!

  73. 73
    rose-colored-coolaid says:

    I find the color spectrum to be an excellent tool for beanie baby valuations. The visible spectrum are those light waves with a frequency between 380 nm and 750 nm.

    Let F be the frequency of the beanie baby’s color, and let K be a proprietary constant in $/(nm^2).

    Price = K * F ^ 2

    And now you know why red beanie babies are always more valuable than blue.

  74. 74
    rose-colored-coolaid says:

    Tim, where’s my image? In my post, I used the html &lt image url=”” &gt . It showed the image in the preview pane, but when I actually posted the linked image was nowhere to be seen.

    Thanks.

  75. 75
    B&W Nikes says:

    I’ve run into something similar with images not happening outside of preview. Any suggestions?

  76. 76
    deejayoh says:

    Tim seems to be the only one that can post images. I suspect they need to be uploaded to the site before WordPress will display them

  77. 77
    The Tim says:

    Honestly guys I’m not sure what the deal is with images. The funny thing is that when I post them, it doesn’t show up in the preview, but when I post the comment it does. Go figure.

    Unfortunately, I won’t really have the time to try to figure that out until sometime in late January or February.

  78. 78
    biliruben says:

    “So if you could get 20% off the peak on that category now, why wait for spring 2010?” – Markor

    I already live in a mod/low. ;)

    I’m looking to move to a mod/high. I’m not positive it makes sense to wait. We’ll see what the market looks like in the spring. If prices plummet far more than I expect, sellers are panicking, and blood is in the water, maybe I’ll move my timeline up a bit.

  79. 79
    rose-colored-coolaid says:

    Tim, no problem. I was more asking if there is some ‘correct’ way to do images, rather than asking if you could go do a lot of work to fix this please. =)

    One question on this theory that lower priced SFHs will weather the storm. What is this based on? Is it because these homes didn’t increase in value like other homes? Is it because these are highly desirable homes? Is it because we expect a horde of people previously owning nicer homes to sell out and buy something cheaper? Or is it because we think the people who couldn’t afford yesterday will suddenly be able to afford tomorrow after the lending spigot is shut off.

    Honestly, I don’t see them doing any better in relational math terms, just absolute terms. As in, all houses lost 30% of value, but it was only $60k on this $200k home instead of the $150k mark down on a median priced home.

  80. 80
    The Tim says:

    Yeah sorry, from what I can tell, it’s not possible for anyone other than me to post an image in a comment. The only “correct” way to do it would be just to link to it instead. :^(

    As for the lower-priced homes doing better, I haven’t looked into this in great detail yet, but from watching the Case-Shiller numbers for San Diego (see a nifty graph here), the lower-priced homes are actually doing worse:

    From their respective peaks, the drops are:

    * -7.2% for the high tier
    * -12.3% for the middle tier
    * -16.4% for the low tier

  81. 81
    Wikipedia says:

    @ SoftwareEngineer

    Lemme fix that very official Wikipedia reference for you… yup, there we go. Now everyone was issued a free goat and juggling wands to spur development after the market crash. Ahh, love the authority that is Wikipedia.

  82. 82

    I haven’t seen official stats, but my sense is that higher priced homes will hold up better in a downturn than lower priced homes. Higher priced homes generally take longer to sell, but the very rich are less affected by downturns. They might shop at tiffany’s less often, but they’re less likely to be foreclosed on, and less likely to become renters. Maybe they cut the maid’s hours or demand that she accept a pay cut, but the very rich have this tendency to hold onto their wealth, and their homes.

  83. 83
    rose-colored-coolaid says:

    Ira, I would agree with your reasoning, but with one caveat. Demand for upscale homes is bound to be lower, so it may be easier for builders to overbuild this subset of the market than other subsets. So long as this market is not overbuilt, then I think you’re right.

  84. 84
    biliruben says:

    If you were rich and savvy, would you be paying 3 million for a home that was going for 1 million 10 years ago?

    The high-end is already looking at inventory piling up and not selling. It took a bath last downturn, and it will take a bath again.

  85. 85
    notabull says:

    If an 800K home is now selling for 700K, why will the 1000K home stay at 1000K and be less protected from declines? This all presumes the same area, of course.

    In my mind, this whole “high priced houses don’t go down as much” probably has more to do with the area in which the declines happen the most. i.e. outer areas (which are generally cheaper) experience more of a decline than near-city areas.

    So it’s not that a high price home in a particular area is more sheltered from declines than a lower priced home in that same area. It’s that the high prices *areas* are more sheltered from declines, regardless of the particular value of a house in that area.

    I don’t think it has anything to do with rich people not caring about how much money they spend on a house. One of my friends has a ton of cash (many millions of dollars) and is 50% frugal, 50% lavish spender. He’ll spend 100K on a car or 500 bucks on some stupid new gadget he knows will last him a month until he’s bored. But when it comes to real-estate, he’s very aware that this is an investment and not money that he’s fine with “throwing away”, like the gadgets.

    Just a theory…

  86. 86
    B&W Nikes says:

    I think it’s safe to say the top end is going to behave differently than the middle and lower ends during the shake out for a number of reasons in addition to strict lending practices and asset deflation.
    Pulling from the CBO, the NYTimes noted between 2003 and 2005:

    On average, incomes for the top 1 percent of households rose by $465,700 each, or 42.6 percent after adjusting for inflation. The incomes of the poorest fifth rose by $200, or 1.3 percent, and the middle fifth increased by $2,400 or 4.3 percent.

    The cost of higher end properties against their purchasers incomes may be less now than it was before the debt race started. Even if the most expensive properties deflate with the pack, the risk is not as great dollar to dollar as it is for middle and lower income earners.

  87. 87
    biliruben says:

    Tim – you are right to an extent on SD. I have messed around a fair amount with those graphs, and starting as Piggington does with 2005 is a bit misleading. Due to the easy lending, the low-end shot up significantly more in the prior years than either the medium or high-end, so though they fell more steeply, they were falling from a greater peak height and are still far ahead of the other two tiers for this decade.

    Maybe I’ll try and figure out a way to bring the graphs I’ve made up on the web, and start a thread in the forum. The relationship is interesting and a bit complex. We don’t seem to be strictly following the pattern of the last downturn. I’ve been graphing LA in the late 80s and early 90s and it shows a different relationship.

    The low-end flippers definitely had an effect on the markets.

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