Doom and Gloom, Stereotypes, and Predictions

I’d like to take a little time to address a few things that keep coming up here and elsewhere in online real estate conversations that are starting to bug me. So that’s what I’m going to do.

Doom and Gloom Apocalypse Fun Time

Killer View by Tim Wistrom

First up is the incessant refrain that anyone predicting a decline in house prices is forecasting “doom and gloom” and/or a “housing apocalypse.” How do lower prices translate to “doom and gloom”? Isn’t it a good thing that people will actually be able to afford to buy a house without entering into a self-destructive financial death trap? Are falling gas prices “doom and gloom”? What about falling flat-screen TV prices?

When the cost of something falls, it is a good thing that leads to greater affordability and frees up money for people to spend on other things. Apparently I’ve got it backward. To me, a rapid escalation of prices leading people to make extremely risky financial decisions and putting them in a situation where all they can afford to do is pay the mortgage (if that) is “doom and gloom.”

Convenient Opinion Boxes
This is one I see a lot on blogs, and I’m sure I’m even guilty of it as well: stereotyping opinions. For example, someone comments that they don’t think prices will fall 20% next year, so someone else labels them as a “housing cheerleader” that doesn’t think prices will fall at all, ever. Or on the other side, someone remarks that they expect prices will continue to drop for the next year and therefore don’t intend to buy right now, and the response is something to the effect of “renting forever is stupid.”

The fact is, you can’t put people’s opinions into convenient boxes. The fact that I don’t intend to buy a house right now does not imply that I think nobody should ever buy a house. Likewise, someone who doesn’t have a problem buying now doesn’t necessarily think prices will keep going up.

Let’s try to avoid making assumptions about people’s opinions based on one or two comments. The discussion is much more productive when we actually address what people are really saying, not what we imagine they might say if they were a certain “type of person” that we assume them to be.

“Won’t you feel silly…”
Lastly, it has been said that if prices “only fall 20%,” won’t I feel so silly, because that would put them back at 2005 levels, which is when I started the blog, tee hee hee.

Of course I won’t feel silly. First off, what did I say when I started the blog? Did I claim that prices were going to plummet from their current levels? Did I predict fifty cents on the 2005 dollar? Nope.

Here’s what I did say:

One thing I do know for certain is that the recent trend of rapidly increasing property values (double-digit increases year-on-year) cannot possibly continue indefinitely. If it did, eventually everyone would be priced out of real estate. There has to be a slow-down sometime, and I think it’s coming fairly soon (within the next 3-5 years). I don’t know if it will take the form of a leveling off of values, or a slow decrease, or a sudden decrease (bubble bursting), but I know it is coming.

By not buying a home in 2005, I have been able to pay all my debt (which was 90%+ school loans), purchase two cars with cash, give generously to charity, and build up a decent amount of savings—retirement, stocks, and enough liquid cash to live over a year with zero income. Why would I feel silly about that?

Furthermore, prices retracting to their 2005 levels in 2008 does not really mean that prices were “flat.” When you account for inflation, it’s actually a decline. In fact, according to the Bureau of Labor Statistics inflation calculator, just to keep up with inflation, a home in 2007 would have to sell for 7.6% more than it did in 2005. You can’t ignore three years of wage increases and savings built up by renting.

That being said, my guess is that prices will fall by at least 20%. I suspect that they will fall further, but even if 20% off the peak is the lowest they go, it still makes far more sense to buy at 20% off the peak with sound financing in 2008 than it would have to buy for the same price with a shaky loan in 2005.

Back to Business
So there you go. Now that I’ve gotten those things off my chest, we can get back to the business of bashing real estate agents and mocking home sellers. (It’s a joke, people.)

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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.

89 comments:

  1. 1
    Tom says:

    Thanks for doing this Tim,

    I’ve only been following this blog a short time.. but for some reason it seems that occasionally the post turns nasty. One of the reasons I’ve enjoyed this blog more then say.. the forums on Zillow or Redfin is the courtesy that is usually present between posters (even with drastically different opinions on what the future holds).

  2. 2
    Tom says:

    oh… and uh… First post… ( I’d hate to be the one to break a running gag).

  3. 3

    Won’t you all feel silly when the apocalypse comes and you all are placed in a convenient doom and gloom opinion box?

    Take that, jerks!

  4. 4
    TJ_98370 says:

    Tom,

    Since you’re a newbie – Everyone who doesn’t think just like me and does not agree with everything I say, is a moron.

    I’m just telling you so you would know. :)

  5. 5
    Tom says:

    Thanks for the update TJ_98370,

    I’ll make a note :)

  6. 6
    NotaBull says:

    Buy immediately, or rent forever!
    If prices don’t keep going up, they’ll crash 80%!!
    The Eastside is terrible!
    Seattle is terrible!
    All retirees want to live in urban cores!
    Buy a house now, or be a coward and/or speculator!
    If you want prices to go down, you must hate people that own houses.
    If you want prices to keep going up, you must hate people that don’t own houses.
    Rain is bad, lakes are good.
    Everyone that drives faster than me is an idiot, and anyone that drives slower is a moron.

    OK, I’m done now… Sorry about that.

  7. 7
    NotaBull says:

    “That being said, my guess is that prices will fall by at least 20%. I suspect that they will fall further, but even if 20% off the peak is the lowest they go, it still makes far more sense to buy at 20% off the peak with sound financing in 2008 than it would have to buy for the same price with a shaky loan in 2005.”

    And it so far fetched to think they’ll drop 20% from peak when they’ve already dropped 10% (depending on area)?

    I’m seeing houses that I know would have sold for 700K back in Spring languishing on the market for 620Kish. To sell, they’d have to lower to the high 500s, or 600K. That’s quite a drop. I don’t see the credit market situation improving any time soon. In fact, it’s getting *worse* and you don’t have to be a doom and gloomer to believe that. It’s a fact, just look at the news.

  8. 8
    Jonny says:

    You mean you want us to think before we post? Jeez. What kind of blog is this?

  9. 9
    Scotsman says:

    Gotta agree, rain is bad and lakes are good!

    Taking the above into consideration, along with the 120 year moving average for inflation adjusted home prices, I’m going with a 35-40% reduction over the next 5 years. 20% is a given. If the general economy tanks, or there’s an over-correction, we could see more.

  10. 10
    B&W Nikes says:

    Apocalypse being more the revelation rather than the catastrophe (er… return to sanity) revealed, we have quite a wonderful housing apocalypse happening here. It is kind of funny that a term originally meaning “to uncover” has evolved in usage to mean annihilation.

  11. 11
    deejayoh says:

    I’m going with a 35-40% reduction over the next 5 years

    Real or nominal?
    Laden or unladen?
    African or European?

  12. 12
    vboring says:

    i agree with dejayoh,

    a number followed by a “%” doesn’t mean a whole lot. are we talking:

    real or nominal?
    case-shiller, median, advertised, zillow, appraised or?

    i can say i saw a house advertised for $700k close for $500k and claim that this means my prediction of 30% nominal price declines was right. when in fact the owner just recovered from a case of crazy, so advertised is silly.

    we’ve discussed how median has its issues.

    appraised values are lies.

    zestimates are damn lies.

    case-shiller seems to be the only acceptable measure, but it is region-wide, so it doesn’t do a lot for comparing neighborhoods.

    i don’t really mind what measure is used, but can we please state it.

    i expect a 5-50% in nominal prices from peak. 5% in SFH in Fremont according to median sales. 50% in Tacoma condos according to advertised prices.

  13. 13
    NotaBull says:

    “African or European?”

    Perhaps it could grip it by the husk?

  14. 14
    Bits of Real Panther says:

    Case-Schiller is state-of-the-art, I don’t see why their Seattle number wouldn’t be the standard unless it doesn’t say what you want it to say

  15. 15
    deeplennon says:

    Great post Tim.

    Ooh, baseless prediction time! My conservative guess would be 35% off Case Shiller’s July 07 Seattle peak of 192.30, for an index of about 125 roughly equal to Feb 2004 prices. One could definitely see scenarios that would take that to 45-50% though… (45% being May 99, 50% July 00′)

  16. 16
    deeplennon says:

    err, 50% = May 99, 45% = July 00.

    An Eleuaesque 70% would take us to Jan 90, the beginning of the index for Seattle.

  17. 17
    Faster says:

    “Perhaps it could grip it by the husk?”

    Wouldn’t matter, a 5 ounce bird couldn’t carry a 1 lb coconut.

  18. 18
    steve-o says:

    Another word that has morphed over the years: decimate. It used to be the practice of a Roman army counting out every tenth soldier to be killed at the hands of the other 9. The Romans would do this every now and then to punish any group of soldiers that showed cowardice or were otherwise shamed.

    Now “decimate” mean total annihilation.

    Another one: Awful. Used to mean “full of awe”.

    I believe we will see (in inflation adjusted dollars) something around 20% decline over the next three years and then flat for many years until (inflation adjusted) we have a total drop of around 40% at which point houses will be underpriced in relation to historical trends and house prices will over correct yada yada yada and the beat goes on.

  19. 19
    The Dude says:

    Perhaps two swallows carried the coconut?

  20. 20

    This is probably one of my favorite posts. It almost has a “holiday spirit of reconcillation” ring to it.

    I (and I would guess most of the other “real estate cheerleaders) would probably agree with you on your quote :

    One thing I do know for certain is that the recent trend of rapidly increasing property values (double-digit increases year-on-year) cannot possibly continue indefinitely. If it did, eventually everyone would be priced out of real estate. There has to be a slow-down sometime, and I think it’s coming fairly soon (within the next 3-5 years). I don’t know if it will take the form of a leveling off of values, or a slow decrease, or a sudden decrease (bubble bursting), but I know it is coming.

    They say the devil is in the details and I expect the historians will be the people who get it right and the rest of us will have part of the story right and forget the part that we got wrong, yet remained adamant about until the end.

    You and I disagree about how the market will change and that’s ok. Some consumers who decided to wait will be rewarded hansomely, some consumers who bought will be rewarded as well. Some of both will be worse off.

  21. 21
    deejayoh says:

    All of the measures (C-S, OFHEO, and median) track pretty closely over time – Median is much noisier, but they do move together. you can see it in this chart.

    also, African swallows don’t migrate.

  22. 22
    Jonny says:

    Geordie: Arguably, even historians get it “wrong” depending on who you are and what you think. Who is to say, for example, whether history should show that Greenspan was responsible for these asset bubbles or not? I personally think he was, but more time will not necessarily make it more clear where the blame lies. History can be political as well as subjective and is not just a collection of objective facts. Even objective facts can be misreported, distorted or omitted from time to time.

  23. 23
    Michael says:

    I am estimating a reduction of 40%. How do I know? Just a gut feeling based on all the people I know that have great jobs are up to their eyeballs in debt. As for gloom and doom- I love it. We live in a society of motivational speakers and get rich quick schemes. Positive thinking is the crack cocaine of the new millinium. I don’t have anything against realistic optimism but the type of head up your a** optimism I’m seeing is a scary thing. It has led us to a huge national debt, credit card junkies, and this ridiculous housing market. I’ve put my money on selling short housing, renewable energy for global warming, and staying away from the US dollar.

  24. 24
    Mortie says:

    That orca space needle image is heavily inspired by artist Paul Sloan: http://www.angelfire.com/wa/paulsloan/Orcasim2.html

  25. 25

    Laden or Bin Laden?
    Selling short housing? Please explain, and don’t tell me it’s a specialty for real estate agents catering to people under five foot four.

  26. 26

    Also, it’s a very good thing for housing prices to drop. Hasn’t there been a bemoaning of the lack of affordable housing? Yes, that is usually spouted by politicians who don’t have any idea about how to increase affordable housing, and certainly don’t want more affordable housing in the neighborhoods where their biggest donors live, but if more people can afford to buy homes, how can that possibly be a bad thing, except maybe to some landlords?

  27. 27
    The Tim says:

    Mortie, those are some fun paintings as well. Who knows whether Tim Wistrom (the artist of the painting in the post) was inspired by that or if they both had the same general concept independent of one another. Either way, their both cool.

  28. 28
    disbelief says:

    “I don’t have anything against realistic optimism but the type of head up your a** optimism I’m seeing is a scary thing. It has led us to a huge national debt, credit card junkies, and this ridiculous housing market.”

    This is a good point, and a very relevant one. I believe it says a lot about why markets can go haywire. Add to Michaels point above (which I feel is accurate about the financial state of “average” American consumer), the fact that the financing of home purchases is now back to traditional terms/fundamentals, and I can really only come to one conclusion.
    Put me down as one that thinks that home prices will drop very significantly. My “best guess” is about. yr.2000 prices (let alone inflation adjusted). If they do not fall as much, say, only to 02 or 03 levels, then I think they will be stagnant for about 5-6 years, before there is any increase (beyond inflation). Very simply- prices are well beyond the means of the majority of people. Finally, I predict that many more people will be hurt by this insanity-i.e. we we’re not close to seeing the extent of the damage/cost to the country. In case I’m wrong,it will be even worse for the country, as people’s earnings will in effect have been significantly reduced by the housing price run-up, and more will be “house poor”.

  29. 29
    b says:

    Ira Sacharoff said,
    Selling short housing? Please explain, and don’t tell me it’s a specialty for real estate agents catering to people under five foot four.

    If he is doing the same type of real estate shorting that I am, then he probably owns SRS which is an ultrashort real estate ETF. I am up nearly 30% for the year on it, not a bad place to stash some of your future down payment.

  30. 30
    Michael says:

    You can exploit the downward trend in housing by buying SRS and SKF. SRS is a commercial real estate ultrashort ETF and SKF is ultashort financials (the morons with the mortgages). I haven’t found a good residential ultrashort ETF but something tells me one is in the works.

  31. 31
    Michael says:

    Wait till the next time the fed talks about a bailout or lowers interest rates. SRS and SKF will lose about 15%, that is when you should buy. Every time another armagedon story emerges you can sit back and make money.

  32. 32
    Pistol Pete says:

    Wow. Look at all these predictions, sounds like a short seller trying to talk a stock down so they can close their position. Really folks, anything more than 10% decline is a fantasy of the non property owner. Demand didn’t leave, it is just adjusting. Price/Supply mechanisms will take over. How come the inventory isn’t climbing as people panic and try to exit the housing market…cause they aren’t. They’ll stay where they are, the building will slow and in less than 12 months we’ll here how there isn’t anything decent available to buy. Historical trends are not always meaningful in a global economy with changing population demographics. No substitute like low interest rates to spur home buyers off the sidelines and into the markets.

  33. 33
    David McManus says:

    Gosh, Pete, you must be a realtor. I am a homeowner and I fully expect prices to drop by more than 10%. Am I just…uninformed? Should I stop investing in my 401k and divert all my funds to real estate? Can you help me purchase more homes?

  34. 34
    David McManus says:

    fed lowering interest rates != lower mortgage rates

    Didn’t you take ECON 101?

    Keep sticking your head in the sand.

  35. 35
    Jonny says:

    “fed lowering interest rates != lower mortgage rates”

    not only that, but the fed is eventually going to be forced to raise rates to stave off inflation and a plummeting currency.

  36. 36
    S-Crow says:

    On paper, a 10% decline places 70% of our clients who purchased in 2005 way underwater, all things staying the same of course. If those existing homeowners have to sell for whatever reason in just a flat market, they are coming to escrow with a check. Heck, excise tax alone is approaching 2%. Take a $450-500K average home and do the math.

    When you consider the refinance transactions closed throughout 2004-to present where equity was tapped and tapped again, it does not bode well. I know it is difficult for the average Realtor to grasp the enormity of the problem, because they are only involved in a handful of transactions. The title and escrow folks are closing multiples of transactions weekly, monthly and yearly. To put it differently, we are the pilots flying P-3’s into the Hurricane storm and eye of the beast who report back to base what’s coming our way. What damage the storm wreaks is unknowable until it is over.

    I admit it, I’m really pissed off right now. Pissed at an industry so blinded by the “deal” that they were seemingly unaware that the very transactions they were involved in were the very instruments that were going to systematically put our economy at enormous risk and put thousands of small businesses and business people out of work. The short term gains (and the checks I’ve got my signature on to Brokers, both lenders and real estate, were huge. And the checks to borrowers pulling cash out were just as large, if not moreso.) just did not make it worthwhile long term. I have learned an enormous amount regarding the gears that turn this industry over the last 4 years. There is a lot of room for improvement.

    But, that’s just one guys opinion.

  37. 37
    deeplennon says:

    David McManus wrote:

    fed lowering interest rates != lower mortgage rates

    Didn’t you take ECON 101?

    Keep sticking your head in the sand.

    This is sarcasm right?

    queue Rhonda Porter on 12/11:

    “Mortgage rates are based on mortgage backed securities (bonds) and will adjust based on how the markets react to this adjustment. The 0.25% drop is pretty much what was being anticipated by the markets and has been priced into mortgage rates. This is why I’ve been urging borrowers to lock in before today and last Friday’s Jobs Report since mortgage rates (bonds) tend to react negatively to inflation.”

    Low fed rate + low inflation = no problem
    Low fed rate + high inflation = big problem

    Be careful what you wish for regarding fed rate cuts if you’re a housing bull…

  38. 38
    deeplennon says:

    Sorry Dave, looks like you were being sarcastic as I read your other responses to Pete.

  39. 39
    deeplennon says:

    deejayoh said:

    All of the measures (C-S, OFHEO, and median) track pretty closely over time – Median is much noisier, but they do move together. you can see it in this chart.

    agreed completely, though for any given month, or one month YOY comparision, C-S is much more informative.

  40. 40
    stephen says:

    I’m pretty much convinced that prices are off 10-15% now and will probably drop another 5-10% and then taper off. It would have happened more slowly if not for the August TW. It’s not showing up everywhere yet because it will take a while for sellers to accept. The ones that need to sell and/or have a lot of equity even at the reduced value will come around. Buyers are fewer and more inclined to keep looking.

    That means the eastside 750 last year is 675-695 now (I bet that’s about right on actual closings) and that house will settle in at about 595 (real deal)-625 (patient seller). The 450-475 fixer back to 395. West Seallte will start having some 295 bungalows fixers back on the market. Some people will get creamed, but most will be fine. If you bought recently you need to settle down and enjoy your home for a while.

    Obviously there will be situations where some houses will sell very very low, but that will be the exception not the rule
    ..IMHO

    Is that enough blood letting? Probably. As Tim says that is an even bigger drop considering inflation.

    What is good for everyone is that everything will get back to being at a decent pace. Dallas spent from the early 80’s until the late 90’s for meaningful appreciation after it had a boom/bust local market.

    A drop then slow steady appreciation at 3-4% a year for the next dozen years would be the best thing for everyone, and I bet is the end result of all of this…

  41. 41
    Denny Retrograde says:

    S-Crow, just want to thank you for the terrific posts and comments over the last months – very much appreciate you sharing your considerable experience.

  42. 42
    NostraDamnUs says:

    The homeowning legends in their mind – at least those who _have to sell_, not just the ones who are ‘waiting for the market to rebound’ – have already been punished for their ridiculous prices by not getting offers. Those who stopped being legends in their mind, got offers, EVEN IN THIS ‘shitty’ market. It does not matter what you, emotionally/physically/psychically/whatever think your house is worth. It isn’t worth that.

    The flipside – masturbators to blogs like this, who ALSO remain legends in their OWN mind because their FICO is 730 and they earn a living like everyone else, think homes should be given away free! No, let me rephrase that – they think they should be at “DECENT” prices, meaning, a price they WANT/EXPECT for the home they WANT/EXPECT, which usually is never realistic (much like the homeowning legends selling their homes for a ridiculous price).

    When people STOP being legends in their minds – they manipulate the price so the home sells, and the other set, leaves this blog and spends their time talking to a mortgage broker (not necessarily a bank, who actually pays their employees whether or not they get business).

    STOP BEING A LEGEND IN YOUR OWN FREAKING MIND, GET OFF YOUR ***** AND GET IN THE GAME! STOP BITCHING ABOUT HOW PRICES ARE UNREASONABLE (YOU CAN FIND THEM REASONABLE IF YOU LOOK HARD ENOUGH). STOP BITCHING IF YOU CAN’T SELL EITHER (YOU CAN SELL IF YOU FIND THE SELLING PRICE – LOOK HARD ENOUGH FOR IT, AND IT WILL COME).

  43. 43
    what goes up comes down says:

    There always has to be one — Nostradumb-ss — you be the one.

    Do you even read what you right? For one moment try this experiment — Think.

    “STOP BEING A LEGEND IN YOUR OWN FREAKING MIND, GET OFF YOUR ***** AND GET IN THE GAME! STOP BITCHING ABOUT HOW PRICES ARE UNREASONABLE (YOU CAN FIND THEM REASONABLE IF YOU LOOK HARD ENOUGH).”

    Are you that stupid — I guess your are because you wrote that trash. Get in the GAME? Is that the best you can come up with?

    Now I know for certain come spring time the S will hit the fan. The more and more frantic some of the post here get the better the real indication that it is starting to sink in with people the “THE GAME” is OVER.

    Let the flowers of spring time bloom because the FOR SALE signs surely will. :-)

  44. 44
    what goes up comes down says:

    whoops spelling error: write not right, I guess I have a little egg on my face :-)

  45. 45
    Jason says:

    Check out Macoys latest piece on Seattle Real Estate Professionals web site. He is a perfect example of everything that is wrong not only with real estate but also our society. He’s ridiculing prudent financial behavior and outright advocates using no money down mortgages as a reasonable way to get a free call option on real estate by turning in the keys and walking if the market turns against you. It is that totally irresponsible mentatlity that is behind the current credit crisis which is in the process of destroying our financial markets. We may very well end up in a depression as this credit crisis unwinds and if we do it will be due to people like him. It’s not so bad that there are actually sad and pathetic people around like him – what’s really sad is that there are enough of them to have created this miess with their irresponsible behavior to jeopordize the very stability of our society. What a bunch of immature, selfish, greedy, self serving jackasses. If there’s any consolation in the damage they have created it is that they will be relentlessly punished by what is coming. I hope you like poverty and homelessness Macoy.

  46. 46
    Mo Ron says:

    Dur, I want buy house.

  47. 47
    Ray Pepper says:

    Bash away Tim. The entire industry is in for change. Not just housing prices. My contention remains prices are already down 10, 20, 30, 40%. But you have to dig and dig and when you find that GEM you must be ready. In this market and in 2008-9 there will be many GEMS coming. Be Alert and be ready!

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

  48. 48
    Pistol Pete says:

    “Gosh, Pete, you must be a realtor. I am a homeowner and I fully expect prices to drop by more than 10%. Am I just…uninformed? Should I stop investing in my 401k and divert all my funds to real estate? Can you help me purchase more homes?”

    Not a realtor. Own one piece of real estate and that is my house that I bought 12 years ago and will own outright in 4 more years. Rates are already at historical lows. Most of the market is made up of people who want a home to live in. They’re not spec buyers nor are they all subprime no doc loans. Just like a stock, people will buy when the price and yield are attractive (dividend paying). Same for a house. Price adjustment and lower rate = marketability.
    Many different entry points based on personal situation but end result is demand will increase again. The market doesn’t have to collapse, it will do as most free markets do, adjust to conditions and return to normalcy. See you this summer

  49. 49
    David McManus says:

    So why aren’t they buying?

  50. 50
    David McManus says:

    Hell, why aren’t you buying as many homes as you can get your hands on? You lay out the case for it being a GREAT investment.

  51. 51
    NotaBull says:

    “Really folks, anything more than 10% decline is a fantasy of the non property owner. ”

    Interesting, as prices are already down by 10% since July, so I suppose that a 0.1% decline from NOW is a fantasy? Do you actually follow the market?

  52. 52
    Bitterrenter says:

    Don’t be silly. Those of us who didn’t jump on the insanity train to Debtsville are supposed to rejoice in the good fortune of those with 100% paper gains. I mean, isn’t that how the rest of the culture works? It’s all one big cooperative, happy family. There’s no hyper-competition, no mania to win at any cost, no rubbing others’ face in your success. It’s a kinder, gentler nation, just like the one the republicans wanted to create.

  53. 53
    Buceri says:

    “The market doesn’t have to collapse, it will do as most free markets do, adjust to conditions and return to normalcy.”
    What is normalcy? Loans without verifying people’s income? 1% teaser rates? (I heard a bank or two not doing too hot with those).
    Pistol Pete – creative loans closed the gap between home prices and salaries. Now that those loans are gone, people need to get 50-80% raise or home prices will have to come down to match incomes and good old standard lending practices.

  54. 54
    David McManus says:

    <sarcasm>
    But you guys don’t understand. This is a NEW economy.
    <sarcasm/>

  55. 55
    softwarengineer says:

    NOSTRADARNUS NEEDS HIS MOUTH WASHED OUT WITH SOAP

    Didn’t his parents teach him anything? His four letter words convince all of us on the blog, he’s about as persuasive as bull in a china cabinet. Don’t believe a word the buffoon says.

    Merry Christmas everyone, most of you are great bloggers!!!

  56. 56
    rose-colored-coolaid says:

    Wow. Look at all these predictions, sounds like a short seller trying to talk a stock down so they can close their position. Really folks, anything more than 10% decline is a fantasy of the non property owner. Demand didn’t leave, it is just adjusting. Price/Supply mechanisms will take over. How come the inventory isn’t climbing as people panic and try to exit the housing market…cause they aren’t. They’ll stay where they are, the building will slow and in less than 12 months we’ll here how there isn’t anything decent available to buy. Historical trends are not always meaningful in a global economy with changing population demographics. No substitute like low interest rates to spur home buyers off the sidelines and into the markets.

    Actually, demand did leave…at least realistic demand did. Pop quiz, a city has 100 residents, what’s the demand for cars in that city? The answer is it greatly depends. Are there 100 families of 1 or 25 families of 4? In 1950, total demand was maybe 30 cars. In 2007, total demand in this make believe scenario is maybe 110 cars.

    So the population of King County hasn’t changed. Does that mean demand is the same? Nope! Realtors are blaming bad national news for LOWER DEMAND. That’s right, demand can change with no corresponding change to the real world. But we’ve seen real world changes, like changes in lending standards. This is lower demand.

  57. 57
    Pistol Pete says:

    Wow. I sense hostility from the Bears. I should have been more specific about the 10% decline. 10% from 2007 avg median SFH. Selling price, not listing. Some of you need to relax. Why am I not buying more, because I am like the majority of homeowners, I own one house and live in it. Besides who can pick the bottom or top? Doubt anyone on this board. If you can, start trading stocks now.
    Please relax, I’m just offering a point of view that is contrary to most opinions on this blog.

  58. 58

    People buy homes in good times, they buy homes in bad times. There is always a human element in buying – Pride of Ownership.

    Amarjit Sandhu
    http://www.500realty.net

  59. 59
    Pistol Pete says:

    Demand is relative to supply. Less people selling and moving up to bigger homes. Less new construction. Yes, tighter loans, less demand. However; my point is that the market will achieve equillibrium as these and other factors adjust. It’s not always a peak and valley scenario.

    Merry Christmas

  60. 60
    Pistol Pete says:

    Clarification 10% decline – I’m not talking about national only King, Sno, Peirce, Thurston. Just the Puget Sound area.

  61. 61
    NotaBull says:

    “I should have been more specific about the 10% decline. 10% from 2007 avg median SFH. Selling price, not listing. ”

    I should be more specific too. King County SFH median prices are 10% down from July SFH median price. I’m also talking about sales and not asking prices.

    I’m not sure what a “2007 avg median price” is. Does that mean the mean of the medians for each month of 2007? If so, prices are probably only down 5% or so (as we’re back to the same price as November 2006, which is probably almost the same as January 2007, if I had to guess).

    Regardless, prices are either down the 10%, which you believe to be the maximum and foolish to think of declines more than that. Or we’re halfway down to your 10%. Since July.

  62. 62
    Michael says:

    “Pistol Pete”

    These are ETFs not stocks. So in order to “Talk them down.” You would have to expect a message board could somehow damage the entire worldwide commercial real estate market. If you want to “talk something down” I would try a penny stock.

  63. 63
    Pistol Pete says:

    Average for calendar year 2007. year over year average change from end of 2007 to end of 2008 will not be greater than 10% either way, up or down. My opinion, right or wrong, is things we’ll tighten and we’ll actually see appreciation in the Puget Sound region for 2008 vs 2007.

  64. 64
    Pistol Pete says:

    Michael said,

    on December 21st, 2007 at 8:51 am

    “Pistol Pete”

    These are ETFs not stocks. So in order to “Talk them down.” You would have to expect a message board could somehow damage the entire worldwide commercial real estate market. If you want to “talk something down” I would try a penny stock.

    Michael – It was sarcasm. I was talking to the comments about housing, not the ETF’s. One way to short the housing market is via financials, builders, etc.

  65. 65
    WestSideBilly says:

    Demand is relative to supply. Less people selling and moving up to bigger homes. Less new construction. Yes, tighter loans, less demand. However; my point is that the market will achieve equillibrium as these and other factors adjust. It’s not always a peak and valley scenario.

    Wouldn’t having a huge peak necessitate a similarly large valley to achieve equilibrium, though?

    The one consistent thing I’ve heard from those who might be dubbed cheerleaders is that the 100+ percent increase in the last 5 years was perfectly normal, yet a 50% decline the next 5 years is impossible. The rationality varies, and the measure used varies, but it’s always there.

    Really folks, anything more than 10% decline is a fantasy of the non property owner. Demand didn’t leave, it is just adjusting.

    We had 4 straight years with 10 to 15% YOY appreciation… why is it only possible to have one 10% drop?

  66. 66
    The Tim says:

    We had 4 straight years with 10 to 15% YOY appreciation… why is it only possible to have one 10% drop?

    It just is, okay? Sheesh.
    </sarcasm>

  67. 67
    NotaBull says:

    “We had 4 straight years with 10 to 15% YOY appreciation… why is it only possible to have one 10% drop?”

    Because housing only ever goes up, silly! Wake up, smell the coffee, and buy buy buy! Stop sitting on the sidelines, coward! Get some balls and buy! Even if prices go down 50% you’ll still be fine over a 30 year horizon. ;)

  68. 68
    Pistol Pete says:

    Yep, up 4 down 1 then up 4 more maybe. Maybe the bull market for housing in the Puget Sound area is only 1/2 way done. Maybe this has been a minor retracement before going to new highs?

  69. 69
    NotaBull says:

    “Yep, up 4 down 1 then up 4 more maybe. Maybe the bull market for housing in the Puget Sound area is only 1/2 way done. Maybe this has been a minor retracement before going to new highs?”

    A permanently high plateau, perhaps? :)

    Good luck with that theory. Even the cheeriest of the cheerleaders in Seattle real estate is hardly optimistic and talks about “returning to normal appreciation” or “price stagnation”.

    The case for prices to *continue* downwards is significantly stronger than for some kind of rebound and continuation of the boom.

  70. 70
    deejayoh says:

    I love hearing from a real estate agent that prices are already down 20, 30, or 40%. It’s like a car salesman telling you there’s no better deal to be had. Just makes me feel warm and fuzzy inside. Then I throw up

  71. 71
    vboring says:

    I am in the game.

    but real estate is more like hunting than basketball. you only get one shot, so you have to keep your eyes open, know what you’re looking for, and be patient.

  72. 72
    B&W Nikes says:

    Pistol is right on point by saying that most people just want homes to live in. It’s mostly true. Unfortunately, everyone had to compete with the few who were speculating. It’s part of the great ownership society equity swindle. There’s one line in the NAR July 2006 Home Price Analysis for Seattle that is rarely discussed.

    Share of New Loans with ARMS (2006 Q1)
    Seattle= 47.0% National Avg.= 28.0% Rating: Unfavorable
    That was a line in their own talking points tool kit back in July of 2006. Wonder what the relative activity has been through the rest of 06 & 07? We can really start thinking about the post 2009 local reset schedules, I don’t think 2008 is going to be the lowest point in the valley by a long shot.

    Tim is there anyway you can get hold of their most recent “analysis” and drop that PDF in the Library? (The lib is a great thing – thank you)

  73. 73
    WestSideBilly says:

    STOP BEING A LEGEND IN YOUR OWN FREAKING MIND, GET OFF YOUR ***** AND GET IN THE GAME!

    Pot, kettle, black…

    and

    Don’t pop a vein… screaming on the internet is about as useful as waving to your blind neighbor.

  74. 74
    WestSideBilly says:

    If we have 4 more up years like 2003-2007, I’m going to need a 2nd, 3rd, and 4th job to get into housing.

  75. 75
    Roger says:

    I’m confused how the cheerleaders cannot look at the fundamentals of incomes and home prices, combined with conventional qualifications to get a mortgage, and not realize prices will continue to adjust.

    Your single story 1955 rambler in a nondescript suburb without a view isn’t the “dream” home for anyone. People may enjoy living there but it’s an entry-level place, the kind of home that is typically bought by folks just getting into home ownership.

    These are the people who make perhaps $50,000 or $60,000 a year between the two of them. Those are folks who should be spending $120,000 to $150,000 or so for a home.

    It’s very easy when you make a lot of money to lose sight of the fact that many many more people don’t. It’s also easy to forget that many of your neighbors in your $600,000 home actually have no business being there–and when their HELOC runs dry, it’s not just the leased X5 that will have to go back.

  76. 76
    David McManus says:

    Because the cheerleaders take their index fingers stick one in each ear and yell “LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA. I CAN’T HEAR YOU!!! LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA “

  77. 77
    MacAttack says:

    fed lowering interest rates != lower mortgage rates

    Didn’t you take ECON 101?

    Keep sticking your head in the sand.

    Y’all missed the point, which was, wait until the Fed drops int. rates, so that the contrarian fund drops 15%, which will be a good time to buy it.

  78. 78
    rose-colored-coolaid says:

    Average for calendar year 2007. year over year average change from end of 2007 to end of 2008 will not be greater than 10% either way, up or down. My opinion, right or wrong, is things we’ll tighten and we’ll actually see appreciation in the Puget Sound region for 2008 vs 2007.

    Pete, you’re nuts. You’ve also chosen an odd handle. The real Pistol Pete died of heart failure at age 40 despite being in excellent condition. He played in the NBA from 1970-1980. Here’s a very ironic and sad bit of trivia.

    At the age of 25 and years before his death, Maravich told Pennsylvania reporter, Andy Nuzzo, “I don’t want to play 10 years in the NBA and then die of a heart attack at 40.”

    For what it’s worth, you suggested that all the bears on this page will be way off at predicting the market has already proven to be inaccurate. I can’t find the link, but the forum contained a bet regarding when the market would turn. Overwhelmingly, posters were correct within a few months. So it seems your predictions have already proven false.

  79. 79
    Deran says:

    When I look at Seattle’s housing market and see a bubble, I am not seeing an isolated economic event. I am seeing an aspect of a much broader economic fall out from 26 years (yes, I definitely include the Clinton 42 years, his admin was very enthusiastic abt “freeing” free markets and letting them roam freely) of Reaganomics. Any “doom and gloom” resulting from the collapse of the housing speculation bubble has more to do with a dreadful curtailing of consumer credit, thus ending the only thing keeping the US capitalist economy alive. To me it isn’t really abt who wagered best on when to buy a home, it’s abt the end of cheap credit for us and the corporations, the ruin of the dollar and the accceleration of the immiseration of the middle and working classes in the United States.

    I love this blog by the way. I have turned numerous friends on to it.

  80. 80
    Pistol Pete says:

    rose-colored-coolaid said,
    on December 21st, 2007 at 3:07 pm
    Pete, you’re nuts. You’ve also chosen an odd handle. The real Pistol Pete died of heart failure at age 40 despite being in excellent condition. He played in the NBA from 1970-1980. Here’s a very ironic and sad bit of trivia.

    Pistol Pete Maravich was my childhood idol and I even wore the baggy sweatsocks throughout my high school and college career so it is not an odd handle – it’s a chosen one. Pistol was revolutionary with his style of play.

    Let me try and spell it out clearly – 10% +- will be the variance for 2007 sfh median puget sound avg vs 2008 sfh median pugest sound.

    I’m not calling for 20%. I”m just saying we’ll see positive appreciation (moderate) and a return to the 3%-5% appreciation historically. I understand that if the market doesn’t collapse, then this blog ceases to exits. There is always an agenda and our host has one. He is not unbiased. Unbiased doesn’t get you on the radio. Try to take the emotion out of your view and look at the situation rationally — it’s not like everyone in Puget Sound is losing their job and moving to another state. I’ll be quiet now and read the emotional attacks.

    For now, see you in Jan after the latest numbers are reported by the MLS.

  81. 81
    Raminder says:

    How come people forget so soon. Does any one remember ” Last person please leaving Seattle please turn off the lights.” Now every one complains housing market is down 5% 10% 20% or even 30%. Then you can buy a house for $1 down. History Repeats, does learning history mean anything……

    Raminder Sandhu
    http://www.500realty.net

  82. 82
    Buceri says:

    Deran, Roger:

    Excellent Posts – Tim should reprint them at the start of every discussion.

  83. 83
    rose-colored-coolaid says:

    Pistol Pete,

    Leave emotion out of it? I pointed out that median prices are already 10% off their peak. Oops, sorry to get so emotional again.

  84. 84
    whats my name says:

    “When the cost of something falls, it is a good thing that leads to greater affordability and frees up money for people to spend on other things. ”

    I hark back to the halcyon days of 2000 -2002 when stocks become so much more affordable. I can’t remember what I did with all the money that freed up.

  85. 85
    Jonny says:

    How come people forget so soon. Does any one remember ” Last person please leaving Seattle please turn off the lights.”

    Yup. We could see a crash like that here again. Companies may cut back on software costs during a recession. Boeing is selling more efficient planes, but they might or might not get lots of orders. Depends on the state of the airline industry. Traditionally, airlines have gone nearly bankrupt in recessions. I think it’s at least possible (thanks to the way the Fed has created and handled this nightmare) we might see a major depression now instead of a recession. The 70’s may look like good times before this is over.

  86. 86
    Garth says:

    Boeing has billions of dollars of 787 orders in the pipeline, and only one US carrier has ordered the plane.

    http://www.heraldnet.com/article/20071221/BIZ/301888438/1005

    In 71 when the billboard was posted, Boeing had cut 43,000 jobs over the last YEAR at a time when Boeing employed a far greater percentage of the residents of the region.

    http://en.wikipedia.org/wiki/History_of_Seattle_since_1940#The_Boeing_Bust:_1970_-_1985

    Even then:

    Quite likely, Seattle evaded the fate of Detroit through being a port city with a large number of highly educated, skilled workers. Seattle industry did slightly better than the national average during the rest of the 1970s; nonetheless the boom decades of the 1950s and 1960s had been brought to a decisive end.

    Microsoft’s profit last quarter was more than google’s revenue, and Microsoft’s revenue streams are considered more recession proof historically than advertising has been, though google’s advertising methods are newer without historical data.

    Based on current numbers I would not bet on either of those companies negatively affecting the economy of the region dramatically within the next 10 years.

  87. 87

    […] to see someone other than Seattle Bubble actually come out and say it, though. Thanks, David. As I’ve said before, labeling predictions of home price declines as “doom and gloom” is utter nonsense. […]

  88. 88

    […] there it is, your regularly scheduled doom and gloom. As always, what really happens is going to depend largely on a plethora of external factors that […]

  89. 89

    […] As I have pointed out before, we need more stories like this, that frame falling home prices in positive terms, rather than […]

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