Are Bubble Bloggers a Stopped Clock?

Now that the real estate market in Seattle is finally showing undeniable signs of reversing direction (read: declining median prices), it’s interesting how the tone of some real estate professionals’ comments regarding this site (and others like it) are changing.

Seattle Bubble was started in August 2005, during a time when the “common knowledge” among those following Seattle-area real estate was that the Seattle market was hot (which it was), and that it would continue to be hot for a good long while, only possibly slowing down slightly sometime down the road. This blog began with a bias toward the notion that the market was in a bubble and a goal to collect as much information as possible to test that theory.

Throughout 2006 this and other housing bubble sites grew in popularity and the Seattle market (mostly) continued its hot streak. During this time, when local real estate agents commented or mentioned Seattle Bubble in their own blogs it was primarily with a tone of amusement. The general sentiment came across as something like: “Oh, that silly bubble blogger. He doesn’t know what he’s talking about. There is no real estate bubble in Seattle, and the market will only slow to 5-10% appreciation.”

These days though, the tone of the remarks is a little… different. Instead of “Seattle Bubble is wrong,” now it has turned to “Seattle Bubble is only right because they are like a stopped clock. If you keep saying the same thing all the time, eventually you’ll be right.” Here are a few recent examples:

With respect to the Seattle Bubble blog site my guess is that like a broken clock you can be right at least 2x a day.
Reba

You have to chuckle though. Isn’t it like standing outside and saying it’s 42 degrees day in and day out for three years? One day you are bound to be more right than others. And for a few moments here and there you are bound to be spot on.
Ardell

Keep in mind that Seattle Bubble (and most other bubble blogs out there) has only been in existence for a little over two years. Given the slow-moving nature of the real estate market, is it really that unreasonable that we should be making the same point–that the market is overheated and ripe for a correction–for two years?

Let’s also not misrepresent what Seattle Bubble and other bubble blogs have been saying during the past few years.

What we haven’t been saying:

The housing market is tanking right now! By the end of [insert current year here], prices will be down by 30 percent! Homeowners, get out now while you still can!

If we had been saying those sorts of things then yeah, the “broken clock” analogy would make some sense. However, that’s not what we’ve been saying at all.

What we have been saying:

The housing market is overheated. A slowdown is coming, and not just to 5% appreciation. Home prices will most likely drop, quite possibly by a significant amount. It might not happen tomorrow, but it will happen.

If we are right now, we were right two years ago. The only way broken clock type comments make any sense is if our perspective was unchanging and based on clichés and gut feelings. We’re not perma-bears here, we’re realists. When the market returns to sanity and healthy appreciation is on the horizon again, you’ll probably hear it here first. If anything is broken, it is the broken record of real estate agents that continue to claim the present market is not in trouble.

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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.

76 comments:

  1. 1
    David McManus says:

    FIRST!!!

    Edit by The Tim: Okay guys seriously. It was funny the first few times. I’ll be deleting them after this post though.

  2. 2
    Wm Swanson says:

    SECOND!!

  3. 3
    Moe Ronn - Realitor says:

    It’s people LIKE Reba & Ardel that give the Real Estate profession a bad name. Imagine if Doctors were only expected to tell you that things are great and they’ll always be great with absolutely NO possibility of medical problems in the future JUST BECAUSE YOU’RE HEALTHY RIGHT NOW!

    Naw, it’s cool. You don’t have any heart problems so keep on eating cheese steak and fries forever!

    By the way, I cal FIRST on the Realitor tag!

    Realitor = One whom deals in Reality

  4. 4
    Daniel says:

    One of the most common types of depreciation of assets like houses is inflation. While it’s possible that nominal prices will go down by amounts like 3-5%, it’s very unlikely that they will go down by amounts over that in *nominal prices*. Reason is the psychology of the sales decision and the reluctance of *non-speculative* sellers (the majority in many areas in Seattle) to accept nominal losses. But it’s possible that decreases like 20% can be seen when adjusted by inflation. Problem is, most other investments are also killed by inflation, so houses wouldn’t be any worse than, let’s say, leaving your money in a Money Market account.

  5. 5
    Synthetik says:

    This is pretty much standard for bears. Once we are finally proven right, we are simply stopped clocks.

    We see the problems and excesses before everyone else and therefore we are early. There’s really no avoiding that, and the trick with investing is always timing – not commiting too much capital to your idea before it’s ready.

    I’ve been telling people here in PNW to sell their homes since Mid 2006 and if they followed that advice (many did) and were able to get out of their depreciating asset by Summer of this year (2007), they were VERY happy.

    They will continue to reap the benefit of that advice for many, many years.

    People like Ardell who didn’t seem to understand or give a “RA” about banks – and further, who took out a subprime loan because they wanted to live beyond their means, are going to have a really, really rough wake up call over the next decade.

    Most “Ardells” of the world will not recover financially from their myopic tomfoolery.

  6. 6
    BubbleBuyer says:

    The test will come when the market turns again and you all were all able to time the market and get in at the trough proving empirical research on market timing as an investment strategy incorrect.

    The bigger question for the Seattle bubble blog is “now what?”. How many different ways can you say the market is dropping and still have people find this useful? How many times will the housing bears attack anyone that suggests an alternative view without that becoming tedious? There are as many people on this blog that are narrow minded housing bubble biggots here as realtor cheerleaders out there. Biggoty is biggotry no matter what side of the fence you are on.

    The challenge is to provide a unique relevant point of view going forward and not the same tired old tune!

  7. 7
    declinest says:

    Who listens to used home salespersons? they come up with great slogans like.

    It’s a great time to buy.
    It’s a great time to buy or sell a home.

    So used home salespersons, now that the market is tanking you won’t be stopped clock anymore, correct? you won’t say it’s a good time to buy?

    NO, you’ll say a home that’s 2% below asking is a steal. You’ll say something stupid like you can’t pick the bottom so I should buy now instead of 2 years from now when homes are wroth 15% less.

  8. 8
    Synthetik says:

    I was a homeowner from 1991-2003 and feel very little pressure to get back into a house.

    There’s no way to call a bottom, but you don’t have to be exact. If we do purchase another home, it will be with CASH.

    There’s no way I’m going into an environment of a deflationary spiral coupled with an energy crisis owing anyone anything.

    Think of all the assets you could buy once deflation really sets in! Not that I want any of this crap, but houses, land, boats, art, plasmas… all that junk is going to be nearly worthless in an environment where loan activity is scant.

    If our wonderful government is somehow able to inflate and bail out again, prudent people such as myself who are savers; who can delay gratification, are going to get bent over -hard-.

    As far as “now what”, if there is evidence to show that the housing market may be recovering, I’m sure this blog will reveal that truth.

    That’s what this is about right? An honest search for the truth.

  9. 9
    Synthetik says:

    “Reason is the psychology of the sales decision and the reluctance of *non-speculative* sellers (the majority in many areas in Seattle) to accept nominal losses.”

    Let’s see what happens once they start losing their jobs.

    Let’s see what happens when their neighbors homes become owned by the bank and are vacant.

    The shit is already hitting the fan in a big way in the other bubble areas and there is no reason to believe things will be “different” here.

    Homes in Florida are going for .40c on the dollar in many areas right now.

    Do you really think that industries such as Airlines and Tech will survive in the upcoming massive recession/depression?

    Again, not a great time to own depreciating assets – especially with a mortgage!

    When the deflation monster steps on you, there won’t be much left.

  10. 10
    EconE says:

    Yup…we’ll inflate our way out of the housing mess. Yeah…that’s the ticket. Not only will current home-debtors not be able to afford their payment but they won’t be able to afford food.

    Hungers a bitch…but I’ve seen quite a few fat/obese realtors so maybe it will do them good.

  11. 11
    Ray Pepper says:

    “Ive been teeling people here in the PNW to sell their homes since 2006.”

    Horrendous advice. I have most buyers that bought in 2006 and 2007 that are up at a minimum 20%. Condos, houses, commercial, and key short sale investments are up up up.
    The key is what you bought and what you paid. Every purchase is its own entity. Case in point I bought personally 3 homes in Albany Oregon in July 2006 from a builder whose supply was too large. Paid 166k each. All now selling for 249k.
    Bubble Yes. Prices coming down Yes. Time to Buy. Yes! 2008-9 will bring many opportunities for RE investors to buy absolute GEMS. Wait and Wait but Always look. Sellers in coming years will LOOK at your offers that were once insulting!

    2008 and 2009 will be one of the best times in the last 2 decades to hunker down and add to or start your investment portfolio. I personally have been buying in Dayton Nevada. Foreclosure City. In the NW I’m targeting the over built areas of cookie cutter developments in Puyallup. All sold for 290k. People cannot sell them for 250k. Guess what. Short sales! Foreclosures!. Just be patient and always be looking!

    But, ask yourself. Will you be able to get the cash to do it. Stated income loans, HELOC’s, non-owner occupied World Savings Loans are drying up. Lending standards are tough.
    However, money will always be there. You must find it though!

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

  12. 12
    deejayoh says:

    Biggot? is that a JR Tolkien character?

    Seriously – if you are going to flame, at least know how to spell the word.

  13. 13
    Synthetik says:

    “Horrendous advice. I have most buyers that bought in 2006 and 2007 that are up at a minimum 20%. ”

    Spoken like a true realwhore.

    I’d like to see them attempt to sell now and even get out even! (let’s not count the 10-14% loss we’ve had in the dollar the last 1.5 years, ouch!)

    The people I’d given that advice to had owned their homes for at least 2 years and were already “up” 50%+.

    Anyone still in the game at this point is too late – they missed their window and many are headed for BK.

    Also, you can’t say for a fact that 2008/2009 will be a good time to buy real estate. In my opinion, we have so much further to fall.

    Be patient, and keep your powder dry. Things are going to get a whole lot worse before they get better. I’m with Eleua. We’ll see some homes in PNW go for .20c on the dollar before this is finished with an average haircut of 50% (inflation adjusted).

    The investment opportunities over the next few years are going to be SHORT, not LONG.

    In Jan 2009, do a one year chart on these stocks and let me know how well they performed: RIMM, AAPL, CMG, GOOG, BAC, C, WFC, NCC, BSC, MER, LOW, ABK, RCL, BBY, DSL, CTX, VNO, THO, etc…

    If you want to go long, look at SRS or QID.

  14. 14

    To say “Even a stopped clock tells the time right twice a day” implies that you know right from wrong. So these people knew that real estate bubble was in Seattle but they choose to ignore it twice daily.

    When the interest rates started creeping up, I advised a lot of people to refiance and fix the term/rate. I myself refinanced then and now feel a little bit safe from this mortgage mess.

  15. 15
    betamax says:

    “like a broken clock you can be right at least 2x a day”

    Standard cry of those who are suddenly proven wrong. After the months and the years of the down-cycle grind on, they’ll see how inappropriate that metaphor is.

    I really don’t care what realtors think; the truth will make itself felt soon enough for them.

  16. 16
    Wm Swanson says:

    Synthetik: You sound like a broken clock yourself….a real know-it-all. You know, some folks purchased a house to enjoy for a number of years.

    As far as your predictions go….nobody will probably remember…care….nor mark your posts to come back to in 2009 to say you were right or wrong. Good thing is any monkey can hide behind their keyboard eh?

    My prediction…people will still be buying homes in 2008 and 2009 and beyond. I own 9 homes and hope to add to the collection.

    Thanks and Good Night.

  17. 17
    Alan says:

    The fact that we discuss this so much is evidence that we don’t know exactly what is going to happen. When this blog gets quiet then we will know something for sure.

    I own 9 homes and hope to add to the collection.

    Wow. Is that pretty common among investors? No wonder we have a bubble.

  18. 18
    Synthetik says:

    9 homes? Man, that really bites. I’m sorry for your loss.

    I’m not a know-it-all, far from it. I guess after 3+ years of people calling you nuts and ‘chicken little’, it feels good to finally be right.

    Here is what I said in the forum back on March 3, 2007 when asked “how can I invest in a bear market?”

    http://seattlebubble.com/forum/viewtopic.php?p=331&highlight=#331

    I said on March 3 07: “If you decide to short the market I think we’ll see a lot of pain in the banking side, especially lenders that are heavy in ARM and Negative Amortization. WM, BKUNA, CFC, WFC, Wachovia, NDE, RWT.”

    Check out these returns if you were short:

    NDE (IMB) Indymac $32.55 then, $6.35 today
    WaMu (WM) $42.50 then, $14.00 today
    BankUnited (BKUNA) $24 then, $7 today
    Countrywide (CFC) $37 then, $8 today
    Redwood (RWT) $55 then, $36 today (low of $25)
    Wachovia (WB) $55 then, under $40 today
    Wells (WFC) $35 then, $30 today

    You don’t have to be a rocket scientist to see this stuff, but it sure helps not to have your head up your ass.

    I realize you -want- to believe this market will turn around, but reality (the data) shows that weren’t nowhere near that. Anyone buying RE in 2008 or 2009 will get killed imo.

    Sure, “owning” a home is great. You can paint your walls and fix your own HVAC. But if the numbers don’t pencil out and you don’t have unlimited capital to burn – it’s just plain stupid.

    Again, sorry for your loss. How are you going to find any FB/GF’s to take those boat anchors off your hands? Maybe Abu Dhabi? Maybe the FED will bail you out.

    Thanks for taking part in the big sham that raised real estate prices for all of us! Nice going!

  19. 19
    economist says:

    My prediction…people will still be buying homes in 2008 and 2009 and beyond

    Hey that’s profound. Betcha people will still be buying beer too.

    BURP.

  20. 20
    dg says:

    Wm Swanson said,

    “As far as your predictions go….nobody will probably remember…care….nor mark your posts to come back to in 2009 to say you were right or wrong. Good thing is any monkey can hide behind their keyboard eh?

    My prediction…people will still be buying homes in 2008 and 2009 and beyond. I own 9 homes and hope to add to the collection.”

    Care for a banana?

    Actually, who cares if you own 9 homes? Did you buy at the peak? …do you plan on selling during the downturn…do you rent them out?…do you have 9 wives each with their own house? At what rate will people be buying homes? Are you trying to amass your own Pottersville?

    …you state the obvious then bail out like you’ve said something profound when in actuality you’ve said nothing at all.

  21. 21
    Q says:

    I own 9 homes and hope to add to the collection.

    If I owned 9 homes and I wasn’t bleeding cash, I wouldn’t feel much need to brag about it to people I don’t know. I certainly wouldn’t be telling them to do it, that is the type of thing I expect to hear from someone selling, not buying.

    I don’t own, I rent. I’ve lost thousands of dollars on the two homes I’ve owned (realtor fees and maintenance are a huge drain, and just selling for more than you originally paid isn’t always a win). My job isn’t as a real estate investor and I don’t expect to make money at it. When I do buy another house, I’ll do it with more money down and not until I feel certain I am getting a good deal on the house I want. It won’t be mainly for an investment, but that doesn’t mean I want to buy when it looks to me like I’m going to be overpaying by tens of thousand to hundreds of thousands of dollars.

  22. 22
    Synthetik says:

    “..but that doesn’t mean I want to buy when it looks to me like I’m going to be overpaying by tens of thousands to hundreds of thousands of dollars.”

    Word.

    http://seattlebubble.com/forum/viewtopic.php?t=72&highlight=lend

    Check this out. On March 3, 2007 I posted this topic “Fremont General and New Century are Toast, LEND is next”

    I was short LEND via 80 PUTs @ $20 strike price. The stock closed at $21.70 that day. When the market opened again on Monday, it closed at $16.06. On March 13 it closed at $3.77 per share. I covered at $5.50.

    If I owned 9 homes, I’d probably have been too busy paying bills to notice what was going on too.

    I made a lot of bad calls too. I bought March 2007 PUTs on WM @ $40 strike price back in November of 2006. Total loss. I also sold 250 PUTs on WM 7 trading days before the stock fell 50% a few weeks ago. Ouch. I shorted AMZN in early 2007. Double ouch.

    Currently I’m sitting on a bunch of RIMM and AAPL that sting like a mofo.

    Eventually the clock will come around and I’ll be right again. Hopefully I’ll still be solvent.

    Either way I’m not buying a damn house.

  23. 23
    Buceri says:

    Feliz Navidad amigos!!

  24. 24
    Chris says:

    This is completely unrelated to this thread. Its actually an email that I sent to Tim about a week ago, but apparently he found it less interesting than I did. I am posting it here in case anyone else enjoys it. Unfortunately, both links below have now expired, but the facts are 100% true:
    ====
    I noticed this condo in my neighborhood was both for sale and for rent, and I thought you might find it interesting because it is a direct rental/sale comparison.

    It is for sale here:

    http://www.redfin.com/stingray/do/printable-listing?listing-id=1149635

    Priced at $530K and on redfin for 90 days. It is also for rent here:

    http://seattle.craigslist.org/see/apa/509353072.html

    for $1650/month. [Note: now that both links have expired, you cannot see it. It is essentially a very high-end one bedroom apartment. It has great views, is in a great neighborhood, and has higher end, if bland, finishes].

    According to redfin, this poor guy purchased in late 2005 for $490K. It looks like he calculated his sale price to break even after the 6% commission, but hasn’t gotten any takers.

    Here are his likely monthly payments, at 6% for 30 years fixed, assuming various down payments:

    20% down, $392K mortgage, $2,340/month
    5% down, $465K mortgage, $2,800/month
    0% down, $490K mortgage, $2,900/month

    That doesn’t include his taxes (around $300) per month or condo fees (unknown).

    He is losing interest on his down payment, whatever its size, so his true carrying cost is somewhere north of $3,200/month, or around double his anticipated rent.

    I think this example shows how crazy it is to purchase when renting is much cheaper, but from the opposite side. For this owner, the fact that you can rent apartments for 50% of the cost of purchasing is a very costly problem.

    [A few days later the listing was pulled from redfin, so I suspect he rented it at $1650/month. If he gets out at break-even 1 year from now, which seems unlikely, he will have lost around $19K in 2008 to cover the difference between the rent he receives and his actually carrying costs.]

  25. 25
    Ray Pepper says:

    Some Nice calls Synthetic. I went long VG at 1.17 and about to jump in EGHT. Looking at CHTR and missed the boat on THC run.Too much debt to dabble with those boys!. Play money in the market and Real money always in Real Estate. I have no problem being your Landlord for years to come. Just watch those trades. I don’t want you late on your rent.

    Merry Xmas!

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

  26. 26

    Not everyone in the real estate industry pushed people to buy, buy, buy.

    We have been teaching, writing, consulting, and publishing articles on the problems associated with predatory lending, mortgage fraud, lack of industry oversight, seller concessions added on to 100% financing, deceptive advertising, and a lack of ethical guidance within mortgage lending for eight years now. Some of us knew it would never last. But nobody listens when there’s tons of money to be made. I wish I had found this blog earlier than 2006. Merry Christmas everyone.

  27. 27
    Synthetik says:

    From the looks of it, I doubt you missed the run on THC.

    Either way, buying stocks because they’ve been beaten up has never been a good investment strategy.

    Why not buy some CFC, WM, FMT or NCC now?

    Jillayne: I know…that’s why we love you! :)

    Merry Christmas!

  28. 28

    When I was in my RE principles class, in spring of ’06, I was thought of as something of a pariah by classmates and teachers when I stated repeatedly that this local market was way overheated and that we would see price declines. The market stayed hotter longer than I would have thought, and perhaps it’ll stay colder than many people predict. I think we’ve seen the last of YOY median price increases until 2010.
    It doesn’t mean that every single house for sale is a bad deal or a terrible investment, but when some other agents say that a 2% price drop presents an unheralded buying opportunity, it makes me want to throw up.

  29. 29
    Scotsman says:

    Nice post, Tim.

    Thanks for the blog, and all you’ve done to help people see alternatives to the current group-think.

    Merry Christmas!

  30. 30
    Scotsman says:

    Here’s what comes next- yes, Seattle will be at the tail end, but suffer none the less:

    From the U.K. Telegraph:

    Crisis may make 1929 look a ‘walk in the park’

    As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control

    Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

    As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world’s central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

    “Liquidity doesn’t do anything in this situation,” says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

    “It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue,” she adds.

    Lenders are hoarding the cash, shunning peers as if all were sub-prime lepers. Spreads on three-month Euribor and Libor – the interbank rates used to price contracts and Club Med mortgages – are stuck at 80 basis points even after the latest blitz. The monetary screw has tightened by default.

    York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster.

    “The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard,” he says.

    “They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don’t think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park,” he adds.

    The Bank of England knows the risk. Markets director Paul Tucker says the crisis has moved beyond the collapse of mortgage securities, and is now eating into the bedrock of banking capital. “We must try to avoid the vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other,” he says.

    New York’s Federal Reserve chief Tim Geithner echoed the words, warning of an “adverse self-reinforcing dynamic”, banker-speak for a downward spiral. The Fed has broken decades of practice by inviting all US depositary banks to its lending window, bringing dodgy mortgage securities as collateral.

    Quietly, insiders are perusing an obscure paper by Fed staffers David Small and Jim Clouse. It explores what can be done under the Federal Reserve Act when all else fails.

    Section 13 (3) allows the Fed to take emergency action when banks become “unwilling or very reluctant to provide credit”. A vote by five governors can – in “exigent circumstances” – authorise the bank to lend money to anybody, and take upon itself the credit risk. This clause has not been evoked since the Slump.

    Yet still the central banks shrink from seriously grasping the rate-cut nettle. Understandably so. They are caught between the Scylla of the debt crunch and the Charybdis of inflation. It is not yet certain which is the more powerful force.

    America’s headline CPI screamed to 4.3 per cent in November. This may be a rogue figure, the tail effects of an oil, commodity, and food price spike. If so, the Fed missed its chance months ago to prepare the markets for such a case. It is now stymied.

    This has eerie echoes of Japan in late-1990, when inflation rose to 4 per cent on a mini price-surge across Asia. As the Bank of Japan fretted about an inflation scare, the country’s financial system tipped into the abyss.

  31. 31
    softwarengineer says:

    NOT TO WORRY, FOREIGNER HOME BUYERS WILL KEEP SEATTLE PRICES RISING

    That’s in today’s AP MSM News, albeit the article lacked logical and clear national percentages and past history comparison. But who says MSM has to be clear or even true. Here’s the article for what its worth:

    http://biz.yahoo.com/ap/071224/real_estate_foreign_buyers.html

    Before Nostradarnus and his wild eyed cohorts start beating their chests over this MSM allegation, on real estate price escalations, remember this, a country’s GDP per capita is the real estate income measurement and since America makes UK and South America GDP per capita look dinky, a small difference in currency [devaluing dollar] isn’t going to make any big difference in my book.

    Couple that with current severe world bank credit tightenning, you get the picture.

  32. 32
    Jonny says:

    Scotsman: Don’t worry. Nothing that bad could ever happen here. The US is “too big to fail”.

  33. 33
    economist says:

    It doesn’t mean that every single house for sale is a bad deal or a terrible investment

    Well yes it does. There isn’t enough differentiation between houses in a given market that one could be a good buy, and another a bad buy, at the same time. Any more than one share of Microsoft could be a good buy, and another a bad buy, at the same time.

    One house could be a slightly better buy than another, yes, but that’s about it.

  34. 34

    I’m not sure I agree with Economist on that one. I have encountered a few places that for whatever reasons were selling for about 20% less than what they would be appraised at…I’ve taken enough appraisal classes to be in the ballpark…So if one can find something at 20% below market value, I’m not saying it’s a great deal or that one should jump at it, or even that there are very many of these, because there aren’t…but they do exist.
    What I meant to say was that if you found something at a 20% discount to market value,and felt the “bug” to buy now, it would afford some protection against further price declines.

  35. 35

    “Nothing bad could ever happen”. I am not sure that I agree with this statement. In America owning a house is considered achieving “American Dream”. but this dream comes with strings attached. You have to be able to offered and pay the mortgage on time. We already see that for some this American Dream is slipping out of their hands. The concept of American Dream in other cultures is to outright own the roof over your head.

    I also don’t agree with the other statement “US is too big to fail”. Take a history lesson. British used to say “Sun never sets in English Empire”, Romans used to think they are unvenerable.

    The best thing about America is they learn from history and always try to correct themselves when things go wrong.

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

  36. 36
    femto says:

    The lasting effects of this bubble will be substantial, and will be felt for a very long time. I’m sure that many people “predicted” the Great Depression, but it was the ones who made sure they didn’t have unmanageable debts, and had stable incomes and sufficient savings that survived and even thrived through it. By and large bubble bloggers didn’t spend much time trying to call the top or predict a crash, they merely pointed out (and continued to point out as they got worse) many simple facts such as underwriting standards becoming more lax, interest rates at historical lows, debt-to-income ratios at historical highs, price-to-rent ratios outside of any precedent, etc. I’d hope any prudent reader of this blog didn’t take it as a simple “NEVER BUY A HOUSE”, but perhaps did take it as “something new is happening here, and if history is a guide, it won’t be sustainable indefinitely”, and perhaps stepped into the market with a little more caution than if they’d just listened to the hype coming from REAs, mortgage brokers, and their ilk.

  37. 37
    economist says:

    What I meant to say was that if you found something at a 20% discount to market value

    Why on earth would a property be listed for 20% below market value? No realtor would ever do this – they know full well what comparable houses are selling for, and FSBO’s are almost always listed well above market.

    Of course in a declining market, like now, virtually all properties are listed above market value and the price negotiated down.

    The price a house will sell for in a reasonable amount of time is the market value.

  38. 38
    Jonny says:

    Amarjit: I meant “too big to fail” in the sense that Enron and the Titanic were too big to fail. “Unsinkable”.

    A not very commonly known fact is that the Titanic had a sister ship which ALSO sank for the very same reason that the Titanic did. When you get right down to it, people are just not as smart as they think they are.

  39. 39
    Michael says:

    I’m all about shorting real estate stocks but I would be careful about shorting some of those financial stocks. Check the P/E for any of these that you are going to short and check out their other businesses. Wells Fargo (as much as I hate banking with them) has a balance pretty good balance sheet even if they have exposure in subprime. If the economy stays strong (big if) then you they could have other businesses that keep them afloat. As for me I’ll short the biggest turkeys in that flock.

  40. 40
    John says:

    That telegraph article is scary indeed. His other articles are quite interesting as well.

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml

  41. 41
    SeattleMoose says:

    Bloggers said 2+2=4 for the last two years. REwhores said 2+2=5 the last two years. Of course we all know how this “debate” turned out. So now we are accused of repeating the same thing (2+2=4) and “eventually we will be right”.

    Well if they knew we would eventually be right, then why did they say 2+2=5 in the first place?

  42. 42
    Lone says:

    Being right 2x a year?

    How about the fact that I’ve been out of dollars and in stocks and commodities since Fed policy has dictated dollar devaluation.

    The funny thing is that people think there will be a bailout.

    There is, the Fed has been bailing out banks and bond insurers. THe little guy is not getting a “bail out”. THAT IS THE BAIL OUT.

    I’ve been saying this for a long time.

    Does that make me right only 2x a year too?

  43. 43

    The agent doesn’t set the asking price, the seller does. Although many sellers listen to the advice of their agents, which as sometimes bad advice, some are very independent.
    More often than not these days, sellers want to ask for more than their agent suggests. But there are times when someone needs to get out in a hurry, that they have two mortgages to pay, or the property has been on the market for a long time and not selling, or they are trying to get out prior to foreclosure. Not every property is equally priced for the same property in the same area. There are still plenty of places where the seller bought a place two years ago, slapped on a granite countertop and a coat of paint and now wants to make 100K more than he/she paid.
    Much less common are sellers who want o undercut similar properties in similar areas so they can draw attention to their properties and sell them.
    I’s hard for appraisers to do an accurate job in this market, it’s like trying to catch a falling knife. Appraisals are based on recent sales of comparable properties in the same areas.
    I’m not suggesting that housing bargains are easy to find or that now is a good time to buy. They’re not, and it isn’t.
    But when you buy a used car, if you find several cars of similar condition and vintage from several sources, are they all going to priced exactly the same?
    I scan the MLS listings all the time and go into houses for sale all the time.
    No, you’re not going to find a house selling for 1/3 of what it’s worth. But I think these days I see places ranging from a 20% discount to what they’d logically sell for to a 30% premium to what they’d logically sell for.

  44. 44
    SeattleMoose says:

    “No, you’re not going to find a house selling for 1/3 of what it’s worth.”…..”Worth” is the crux of the whole issue and the reason for the blogs and the current condition of the housing market. Houses are not “worth” their inflated values. Only after they come back down to what the market will bear (w/o all the Wizard of Oz loans) will they start selling again.

    If a seller wants to sell in today’s market, loping off a third of bubble peak price would realistically be a good starting point for making a sale.

    And the harsh reality of life is that there are many reasons that force one to sell a home but few if any reasons that force one to buy.

  45. 45
    Warren Bubble says:

    Thanks to The Tim for hosting this blog. I’ve really appreciated the sensible and pragmatic information posted here. “Cheerleading” realtors are ignored or skipped over.

    That said, I thought some might enjoy this article from Kiplinger’s. It states that Seattle was late to the boom and may probably be late to the bust. Also, the statistical model for affordability is based on income and demographic trends. Speaking of which I’ve noticed quite a few “For Lease” signs in downtown Seattle offices.

    http://www.kiplinger.com/magazine/archives/2007/12/home-prices-2008full.html
    For the past year, only five cities show appreciation of more than 6%: Albuquerque, Seattle, Nashville, Lancaster, Pa., and Knoxville, Tenn. Fiserv’s chief economist, David Stiff, observes that they were late to the party and will be late to correct. The vast majority of the cities show price declines.

  46. 46
    Ray Pepper says:

    I will say this till I’m BLUE. There are tremendous deals NOW, next year, the year after, last year, and the year before. Each deal is its own entity. Wait for 2 years and 3 years and then start looking is absurd. Watch what is going on around you, track the homes, selling prices, and be smart. I don’t care if its 10% off or 30%. If a home has been sitting 6-9 months sellers are now looking at offers they normally would never have looked at. Watch for short sales!!

    There is ALOT of money to be made in the coming years not just in this market but many. But, waiting is very poor judgement. If you are making a point to actively look you may find something. I will tell you this, however. In this market there will be others right behind you. The PNW economy is strong and the rental market will remain robust.
    But, friends there is always a GEM of a deal. ALWAYS !

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

  47. 47
    Moe Ronn - Realitor says:

    Ray P,

    First, there is no such word as ALOT. I learned this in elementrary school. I suppose that has something to do with the fact that my careers have been in science and technology, and not selling $h1t to people who don’t need it. Furthermore, yes, there may be deals to be had now, next year, etc, but probably only for those whom have ample reserves, can weather a bad economy, and likely have significant experience in real estate and/or property development. There will be very few instances where the average joe can make out well buying a $600K house that’s reduced to $540K. Joe might just loose a hundred K or more. It’s not an investment now, and it’s even beyond a gamble. It’s a loosing prop in over 90% of the scenarios.

    I work for a non-profit that consults on low-income and other affordable housing projects. A BIG SWELL OF MONEY is coming their way now. I wonder why?

  48. 48
    Moe Ronn - Realitor says:

    I also find it very amusing that NOW real estate agents and brokers are becoming so much more active in this blog. A year ago this was nothing but a incidental amusement for your like.

  49. 49
    Alan says:

    But, friends there is always a GEM of a deal. ALWAYS !

    I have zero interest in competing with people who do real estate full tme to find these great “deals” in the market. And I don’t trust anyone else enough to help me find one of these gems. There is too much incentive for someone who is helping me to take advantage of a gem deal themself instead of selling it to me for only 3% of the purchase price. I’ll take an ordinary, run-of-the-mill deal in a sanely priced market thank you very much.

    It doesn’t make much sense for me to seriously look right now since I can’t afford anything I would be willing to live in. My price limit is $300k and I would rather move to another part of the country than settle for what I can buy here for that. I think prices wll drop, but if I am wrong in 3 more years then I’ll be moving somewhere else.

  50. 50

    A year ago I was stealing stuff from this blog and bringing it to Real Estate class.
    C’mon, Moe. Not all real estate agents are the same, just as not all African Americans or all Jews are the same.
    Yes, I happen to be “you and your like” but believe me, i’m as different from most real estate agents as Paris Hilton is to Steven Hawking.
    I’m not saying I’m better. I know where my strengths and weaknesses are, and puffing up a property to sell is not one of my strengths. Being straightforward is one of my strengths, and not trying to convince people to buy I consider to be a strength. Recognizing something that is a relative bargain I consider to be a strength, but even then, I never tell people that they need to act quickly or it will be gone. Properties are staying on the market longer, and I predict further price declines.

  51. 51
    synthetik says:

    Real Estate clerks have a lot more time on their hands now to blog…

  52. 52
    Ray Pepper says:

    Moe Ron I disagree with you and reiterate there will be ALOT of money to be made for the average Joe who CAN BUY A HOME that was 600k and now possibly 450k. Maybe less! Many new Agents do not have the commission carrot you and Alan discuss. Educate yourself about the changing industry around you before you blog nonsense. Its not an investment now? Good Lord!!

    As for not finding about this blog earlier. Well, to be honest I have never been a blogger and it probably shows. I heard about this on KIRO. If I came along to late I’m sorry but I was hanging up my hat as a traditional broker for many years and started what everyone asked me to. I was a bit too busy.

    As for having time to blog. With my extended family, 3 kids yelling downstairs with their xmas gifts, wife cooking, i need some sort of amusement while watching the Lakers!

    Synthetik will it make you feel I have even more time on my hands when I say I’m taking the older kids to Alien v. Predator tonight while my wife sits through the Chipmunk movie. Just call me a multi tasker! My offer still stands! Your Free t shirt is waiting.

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

  53. 53
    Markor says:

    Why on earth would a property be listed for 20% below market value? No realtor would ever do this – they know full well what comparable houses are selling for, and FSBO’s are almost always listed well above market.

    Why wouldn’t realtors always want to do that? The lower commissions would be made up in spades by higher volume.

  54. 54
    EconE says:

    Tell me more about those section 8 cash cows Ray!

    Sure…they may cash flow…but how does it feel to be a slumlord?

  55. 55
    Scotsman says:

    There are no deals now, even at 25% off. Tell me how 25% off now is “a deal” when it will be 35% off in another year?

    Must be “the new math” much of my generation was forced to learn.

  56. 56
    johnnybigspenda says:

    Could this BLOG be a BUBBLE?

    What if https://www.seattlebubble.com/blog‘s popularity is a bubble right now?

    I call that we will see the peak of popularity of this blog and that the beginning of a slowly deflating bubble is about to begin…

    I call a 30% drop in popularity over the next 2 years while other blogs popularity will be increasing… definitely not a good time to own a bubble blog … rent maybe, definitely not own.

  57. 57
    Alan says:

    the average Joe who CAN BUY A HOME that was 600k and now possibly 450k.

    The average Joe cannot afford a 600k-450k house. At a median household income of $65k, the average Joe with a family (including dual incomes) can afford $195k to $260k if he streches.

    Why wouldn’t realtors always want to (list at 20% below market value)? The lower commissions would be made up in spades by higher volume.

    Plus, if the can convince the owner into listing 20% too low, they can call up their brother or best friend to make some easy money.

    I call a 30% drop in popularity over the next 2 years

    Probably true. When prices really start falling, this blog will be about as popular as the blogs about rising prices when prices were rising.

    By the way, “Moe Ron” is a joke name. Sort of like “I. P. Freely” or “Amanda Hugankiss”.

    Now, go tell your wife you are looking for Amanda Hugankiss on the internet.

  58. 58
    Bits of Real Panther says:

    “At a median household income of $65k, the average Joe with a family (including dual incomes) can afford $195k to $260k if he streches.”

    With 20% down on a $260K home the mortgage payment including taxes and insurance is about $1500 with a 30 year fixed at 6%, easily doable on a 65K income with no other debt and employer paid health insurance

    A $360K home would be about a $2000 payment – now that would be stretching it on a median income, IMO, since that would be one full paycheck. Still, even with a rugrat or two, if you can’t live comfortably on $2000 a month outside of your house payment you’ve got a big problem with money management

    My assumptions of having no debt and 20% down may not be representative of the typical househunter of years past but it’s going to be tough to get a loan anymore without those characteristics at least until the smoke clears in the banking world (2010?)

    Of course you could probably rent a $360K home for around $1200 a month, but that’s another story, Seattle has a great supply of rentals – too bad San Francisco doesn’t have that “problem”

  59. 59
    bitterowner says:

    Re: “the average Joe who CAN BUY A HOME that was 600k and now possibly 450k…”

    Affordability issues aside, I think most people who have the ability to reason can understand that just because a property was way overpriced last year at 600K doesn’t mean it isn’t still overpriced at 450K. Nice sales pitch, though. Keep on hammering.

  60. 60

    None of us know for sure what the future holds for real estate prices. I’m pretty sure that the median priced home in the Seattle area will continue to drop some, but i don’t know how much. Maybe another 15%? I don’t think that prices will fall another 35%.
    So if you find property that is selling for 25% less than recently sold comparable properties, how can you be so sure that it’s not a good deal?

  61. 61
    bitterowner says:

    Ira, obviously you can never be sure about anything in life. I find it helpful to look at certain reasonable indicators (affordability, historical trends, inventory trends, supply/demand and how it is influenced by tighter lending standards, etc) and make as non-speculative an assessment as possible. JDSU at over 100 times its current value and a completely absurd earnings multiple MIGHT have kept climbing in stock price exponentially ad infinitum back in 2000 even though all the fundamentals indicated otherwise. In fact, lots of people, including many “experts” had many (albeit completely implausible) theories about why it would indeed do so. I’m sure that particular stock also looked like a great deal when it dropped by 20% and stood at almost 100 times its current value. Those were unusual times for the tech sector as these past few years have been for real estate. A 50% decline or more seems to have been ruled out by most people posting here even though it would only bring us back to, what 2003 or 2004 prices? Does that seem so crazy or impossible? As Tim has implied in this post, very few are willing to accept the obvious all in one mouthful. The possibility of real estate declining was considered outrageous even a year ago. Now – okay, it might go down, but no more than (insert low number)% because, well, a bigger number just seems too big. Once we get accustomed to the idea that prices can go down (low number)%, it will be much easier to imagine that it can go down by (much higher number) % and actually the cycle would be expected to somewhat feed on itself absent any change in the fundamentals (higher salaries, etc) to reverse the trend.

  62. 62
    Markor says:

    So if you find property that is selling for 25% less than recently sold comparable properties, how can you be so sure that it’s not a good deal?

    Yeah, I wouldn’t be so sure. If prices had quintupled in the last ten years, I’d be a lot more sure. But many houses on the Eastside are priced at a doubling. That’s about 7% annual appreciation. In the past, house prices have kept pace with inflation in the long run. What has inflation really been in the last 10 years, during which time gas prices have doubled? Plus the mere anticipation of out of control inflation in the future can drive up prices of houses now. Is out of control inflation a distinct possibility in the future, with massive federal debt, peak oil, a horrible president and two wars active? It sure is.

    Prices may drop another 25%, but I’m not too worried about a negative bubble.

    Seattle house prices have jumped up 30% in short order before, only to flatline nominally and give up the gains so slowly via inflation that I’d rather not rent that long while waiting.

  63. 63
    bitterowner says:

    “Seattle house prices have jumped up 30% in short order before, only to flatline nominally and give up the gains so slowly via inflation that I’d rather not rent that long while waiting.”

    I’d be more than willing to take my chances. I find it highly unlikely that this will happen in the current environment.

  64. 64
    economist says:

    Why wouldn’t realtors always want to do that? The lower commissions would be made up in spades by higher volume

    Because a house will always sell in a reasonable amount of time at market price, by definition. Realtors cannot move the market price down, any more than they can move it up. That’s determined by the buyers and sellers. So is the sales volume.

  65. 65
    Runs With Scissors says:

    I am really interested to see not only what is occurring during this period of market cool down to reality, but what may also happen with the Baby Boomers retiring. From the limited knowledge of what my parents and their friends seem to be doing is as follows:
    -Selling their home they have been in for over a decade.
    -Taking the profit and now renting or buying something substantially smaller.
    Given that their generation really seems to have been less mobile than ours, I can easily see RE being a good investment for their generation. Now that folks seem to switch jobs and move every 5-7 years, that calls into question what will happen with more homes potentially coming on the market?

  66. 66

    can we change the name of this blog to: http://www.i-LOVE-to-say-I-told-you-so.com ?

    anyone here who doesn’t believe the bubble growth is over, should be ignored. Its now time to wade through the mess of data to predict the rest of the cycle.

  67. 67
    freako says:

    Every so often an new individual will smugly post the “broken clock” argument on the blogs/sites I frequent. They think it is very clever, but it is logically flawed at best, disingenious at worst.

    As a bear, I am not saying that prices will go down some amount at some point in time. I am saying that they will go below the point where I first started flapping my gums about bubble valuations. Big difference.

    In other words, they are confusing being right about direction alone with being right about direction and MAGNITUDE.

  68. 68
    rose-colored-coolaid says:

    johnnybigspenda,

    Normally, I think you’re nuts, but what your saying now is humorous and fairly accurate. Of course there is a ‘bubble’ in bubble blogs right now. Historical trends for bubble blog posting has gone from as low as 0 in 1985 to much higher today.

    In fact, it’s been increasing exponentially in recent years, and anything that is not sustainable will end eventually.

    As a defender of bubble blogs; however, I disagree with your timing. Perhaps, bubble blogs in other cities have peaked, but Seattle tends to follow these trends by about a year. Like all bubbles, this one is likely to go on longer than we expect, and most likely will not peak until late 2008…after the dead cat spring bounce and a slow summer selling season.

    Oh yeah…I think it has to be an investment to be a bubble, otherwise it’s a fad. So unless people are making a vast profit for their insights on this blog, it’s a fad. If they are making fortunes, then I’m being underpaid.

  69. 69
    Markor says:

    Because a house will always sell in a reasonable amount of time at market price, by definition.

    A “reasonable time” in the housing market might be a month. At 50% off, realtors could sell houses within minutes, to make a lot more in commissions overall. If the housing market was as liquid as the stock market, where assets sell in seconds, then I could agree with you.

  70. 70
    whats my name says:

    “If our wonderful government is somehow able to inflate and bail out again, prudent people such as myself who are savers; who can delay gratification, are going to get bent over -hard-.”

    You seem have employed a strategy where you’re interests are directly opposed to those of the government and a majority of americans. This might seem a clever contrarian move except that you are dealing with a fiat currency controlled by a government having some degree of accountability to the people. That doesn’t seem prudent to me. Here’s hoping your holiday gifts included a good quality lube.

  71. 71

    At 50% off, realtors could sell houses within minutes, but, firstoff, it’s the sellers who determine the price, not their agent, and second, many agents have this mindset of not advising big price drops because they don’t want to be contributing to a freefall.
    Thirdoff, if there were suddenly 50% price drops, don’t you think people would be on the sidelines till there were 90% price drops?
    I’d think you’d see two types of comments here after prices were 50% 0ff.
    One would be from people saying “don’t buy now til things are pennies on the dollar. this is the biggest economic debacle in the history of humanity”, and the other would be by some of the agents, which would be “Buy now before prices go up. This is a historic opportunity!”

  72. 72
    Markor says:

    Good points. Yeah realtors wouldn’t want to contribute to a freefall, but I think most would want their listings to be near the lowest prices compared to comps (just not too low). That might be 10 to 20% off. For them it’s a matter of getting their sellers to believe their houses aren’t worth more. When houses at the average price aren’t selling in months, it can be argued that 10 to 20% off should be the average price anyway.

  73. 73
    Moe Ronn - Realitor says:

    Ray P,

    For the love of your favorite entity, ALOT is not a friggin’ word! Look it up! It’s “A LOT”. A is a word, as well as a letter, and LOT is a word. ALOT is not a word, it’s an indication of idiocy!

  74. 74
    Moe Ronn - Realitor says:

    By the way, just heard on the news headlines that US homes lost value again from Oct to Nov for the 10th month is a row; largest monthly drop since 1991. Hmm, maybe it’s time to BUY BUY BUY, hey Ray?

  75. 75
    Jackson-Loan Officer says:

    I believe the Washington State housing market will see a small decline or a level off. Prices of homes 5 years ago were great. Young homeowners began to filter the market because rates were low enough to qualify. Their payments were cheaper then rent. So, we saw some landlords struggle a little. We are now back to the start of the circle. Some people feel it is cheaper to rent then to own the homes (at current prices). Borrower’s incomes have not increased at the same rate as housing prices sending us in to a bit of a tail spin. It will just take a little extra muscle and time to pull out, but it will. Some people are worried about that time simply because of the “hype”. Everyone needs to take a step back. When bankruptcy was hot and people were filing left and right, the credit problems were not the blame of the economy then. Why now? Maybe this is the trickle down effects from that. Places like CITI and WAMU had a lot of credit debts. It takes more then just a few months or quarters to determine the current state of the economy on an indicator like the housing market. It is just that an indicator. The housing market is in this state not only because of shaddy loans and loan officers but because borrower’s employers (American business’) are having a hard time sustaining. This is a major economical issue on a “housing bubble”. Once the remainder of the economic indicators are corrected, the real estate market will also turn around. The economy should be to blame for the “Mortgage Crisis”, not the other way around. The questions is, When and What corrections need to be made. Yes, there are a lot of large financial institutions struggling but there are a lot that are not. I personally did a 100% financing on my home several years ago. It was and is still a great investment. I suffered through lay off and using my equity to help. I now know with closing costs, etc that I wouldn’t be able to sell my house for what I owe if I include any fees (realtor or seller paid closing costs). But I still know that it is a great investment and I just need to bite my lip and sit back.

  76. 76
    Scotsman says:

    Jackson- As I read your post I keep getting this wierd vision, a large bug hitting my windshild as my car flies across the desert of Eastern Washington at 85 mph…..

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