NWMLS December Graphs Update

Many thanks to Deejayoh for posting the NWMLS summary in my absence. By request, I am am posting the usual press release link, graphs, and spreadsheet update in addition to his timely post on the data.

Here is the NWMLS press release, with links to the pdf summaries.

Here’s your King County SFH summary:

December 2007
Active Listings: up 51% YOY (new record)
Pending Sales: down 33% YOY (new record)
Median Closed Price*: $435,000 – down 1.14% YOY

Whoops. A negative number in median price YOY? That’s not supposed to happen!

As absurd as it may seem, YOY inventory grew faster still, shooting up over 50%. The total number of sales dropped further in December, down to 1,086—11% lower than the now second-lowest month on record, December 2000. The months of supply grew to a new record high of 7.54.

Here is the updated Seattle Bubble Spreadsheet, and here’s a copy in Excel 2003 format.

Here’s the supply/demand YOY graph:

King County Supply vs Demand % Change YOY
Click to enlarge

Here’s the chart of supply and demand raw numbers:

King County Supply vs Demand
Click to enlarge

Here’s the SFH Median YOY change graph, complete with the dip below zero at the end:

King County SFH YOY Price Change
Click to enlarge

And again, here are the direct year-to-year comparisons, so as to throw out any notion that the slowness of sales and high inventory is “seasonal.” It is not.

King County SFH Inventory
Click to enlarge

King County SFH Pending Sales
Click to enlarge

0.00 avg. rating (0% score) - 0 votes

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.

100 comments:

  1. 1
    Scotsman says:

    It’s a great time to buy a house- interest rates are dropping, the number of choices is soaring, and there are very… very…. very few competing buyers! ;-)

  2. 2
    what goes up comes down says:

    A few months — 12, 14, 16, 18 it will be even a better time to buy :-)

  3. 3
    Olaf says:

    You know that feeling you get in the pit of your stomach right as the roller coaster hesitates at the top of the Big Drop?
    Hold on tight.

  4. 4
    Owen says:

    One of those December sales was mine. It was on the market for about 40 days (went up Oct, got an offer in Nov, closed in Dec) in the Ravenna area. I read this site every day for the last 6 months though and I was stressing a LOT but I really appreciated the information available here. The new buyers have installed a huge dumpster in front of the house and are fixing to flip it, apparently. I can’t wait to see what they try to re-sell it for. I bought it to live in, but I got a job out of state and decided to sell instead of rent it only because I can’t handle that kind of complexity. Still, after all expenses and closing costs are accounted for, I made around a %29 profit over the 3 years and 6 months that I owned it, but it was entirely accidentally, I’m not an investor type. Yes, I’m bragging a little bit now. Thanks Seattle!

  5. 5
    Buceri says:

    Inventory will start climbing like AMZN in 1999.

  6. 6
    Angie says:

    Thanks for posting these, Tim.

    I still don’t think there’s anything worth wetting one’s pants over in those numbers. Y’all enjoy yourselves, though.

    On a more location, location, location-specific note: the Borg Trapezoid townhouses that have been going up near the Columbia City business district are just about to list. The informational signboard that’s been in front of the project all along says “Starting at $595K”, which the neighbors have all been laughing about for months. I’ll let you all know what the actual listing price is, and what I can learn about what they actually go for.

  7. 7
    what goes up comes down says:

    Angie,

    You would know a bad time to buy if it bit you in the butt.

  8. 8
    David McManus says:

    Angie,

    I consider most of the people on this board as delusional as you do. I’ve recently considered gearing my portfolio more towards real estate and away from the riskier investments such as bonds (tax-free munis), blue chip equities, and CDs. Just in CDs, I have close to 500K. Would you recommend I just purchase all the real estate I can at the moment since you and I both know there’s one direction it’s going?

    Thanks,
    David McManus

  9. 9
    what goes up comes down says:

    whoops,

    meant to say you WOULDN’T know a bad time to buy — need to proof read a little better :-)

  10. 10
    Greg M says:

    Some comments a couple stories ago asked if the assesed value can ever go down (now that this article clearly shows a year over year price decrease)

    Well, yes, they can go down. But remember that the assessor doesn’t determine property taxes – the tax authority does! If the assessed value of all houses in a tax district drop equally and the authority doesn’t lower taxes, I’m not sure property taxes would drop any.

    Of course, the total property tax is limited to 1% of the assessed value so they may change a little if the authorities have hit this limit.

    Something to consider when The Tim reports falling values in December.

  11. 11
    David McManus says:

    “Of course, the total property tax is limited to 1% of the assessed value so they may change a little if the authorities have hit this limit.”

    Uhh, are you sure about that? Actually, I think it’s increases that are limited to 1% per year. My crib is assessed at 307K, so that would put my property taxes at 3K per. They’re more like 4K.

    And oh, my assessed value for 2008 jumped 25K after actually falling last year.

  12. 12
    notabull says:

    “I still don’t think there’s anything worth wetting one’s pants over in those numbers. Y’all enjoy yourselves, though.”

    Yeah, the numbers look fine. No problem here. Back to normal market with normal levels of appreciation…

    Sigh.

    Even if prices do not go down AT ALL from now until July, the YOY median price will continue to decline to about 10% down. If prices actually fall further (likely) then it will look worse. This is a fact, and not speculation.

    I think this will reinforce the decline in the latter half of the year, and that’s not even including the recession, which seems likely if not already in progress.

    The sky is not falling. It is, however, steadily returning to a more normal altitude supported by Earth’s fundamentals. Newton was right.

  13. 13
    Greg M says:

    “Uhh, are you sure about that? Actually, I think it’s increases that are limited to 1% per year. My crib is assessed at 307K, so that would put my property taxes at 3K per. They’re more like 4K.”

    Well, there are few things I’m sure about, and property taxes qualifies as one of the things that I’m not sure about.

    I believe the 1% rule includes to all taxes except those excluded from the 1% rule. In King County, we pay property tax to pay for the ports that is excluded from the 1% rule. Someone more knowledgable than me may be able to explain it better.

  14. 14
    SteveH says:

    Gee Greg, “the 1% rule includes to all taxes except those excluded from the 1% rule”. Ya think?

  15. 15
    Greg M says:

    “Gee Greg, “the 1% rule includes to all taxes except those excluded from the 1% rule”. Ya think?”

    Hey, don’t blame me, I didn’t write the rules.

    From the website of King County Assessor:

    “The 1% constitutional limit: The primary limitation on property taxes was established by the 55th amendment to the Washington State Constitution in 1972. Article 7, Section 2 of the Constitution and RCW 84.52.050 limit the total regular property tax levy to a maximum of $10.00 per $1,000 of the market value of property. Excluded from this $10 limit are levies for ports and public utility districts. ”

    So yes, property taxes are limited to 1% of the assessed value except for the taxes that are excluded from this 1% limit.

  16. 16
    Tom says:

    Angie said

    Thanks for posting these, Tim.

    I still don’t think there’s anything worth wetting one’s pants over in those numbers. Y’all enjoy yourselves, though.

    fair enough Angie.. What types of numbers would it take for you to feel it was time to , as you say, “wet ones pants”? :)

  17. 17
    deejayoh says:

    As a rule, I no longer wet my pants – whatever the news. I am saving that for later in life.

    However, if I was a seller of real estate right now, I might be nervous.

  18. 18
    vboring says:

    don’t forget inflation.

    in real dollars, house transaction prices are down more than 4%.

    meanwhile, a virtually no risk investment like TIPs are guaranteed to beat inflation by 1-2%.

  19. 19
    rose-colored-coolaid says:

    I’ve noticed that the bears are resorting to increasingly vulgar terminology every month when new numbers come out. In March, when we see -3% YOY, will we be compared to pop starlets? When will the insanity end?

    Well, cheers to you all.

  20. 20
    Angie says:

    There are all kinds of interesting Freudian slips in this thread today. would know a bad time to buy when he thought he meant wouldn’t, and I’m going to bet that Rosie meant “bulls” instead of “bears”…

    The sky is not falling. It is, however, steadily returning to a more normal altitude supported by Earth’s fundamentals. Newton was right.

    This I can agree with.

    Even if prices do not go down AT ALL from now until July, the YOY median price will continue to decline to about 10% down. If prices actually fall further (likely) then it will look worse. This is a fact, and not speculation.

    Correct. But even 10, 20, 30% decline won’t get Seattle back to “affordable” in traditional terms.

  21. 21
    Mama says:

    ” But even 10, 20, 30% decline won’t get Seattle back to “affordable” in traditional terms.”

    He he…might get back to “affordable before you hit 40 or your grandma dies”…

  22. 22
    Buceri says:

    Correct Angie; prices will still be out of reach. Let’s see how low they go.

    Recession? it went from “not if, but when” 2 months ago, to “are we in one already?”. And many economists believe the answer is yes.

  23. 23
    vboring says:

    if we have a 30% decline in nominal prices from peak and today’s interest rates in 3-5 years, it would put the median price well within the “traditional affordable range” for me.

    of course, this kind of fall would almost have to be accompanied by a pretty nasty recession/depression with many bank failures and serious international financial problems.

    i guess it is a matter of being careful of what you ask for. you just might get it.

  24. 24
    alex says:

    This board has already kept me from buying 3 houses. It’s like the fortune teller that says her client is going to die, and then poisons the client’s coffee.

  25. 25
    Jess-Pumpkin says:

    I swore off posting here after dealing with Mr. C. Fiction on the forum, but SeattleBubble is like a drug ya just can’t kick…

    Anyone else notice a wave of IN-CITY Seattle homes going STI over the last week? In-city meaning 98103, 98105, 98115. Is it the interest rates? JLS’ white paper? Buyers believing this is the bottom?

  26. 26
    wreckingbull says:

    But even 10, 20, 30% decline won’t get Seattle back to “affordable” in traditional terms.

    True. Prices will deflate more than that when regress to the mean (especially after we take a beating from Mr. Recession.) Got Depends®? I sure hope so.

  27. 27
    Angie says:

    Y’all are rushing right out to buy stock in manufacturers of highly absorbent polymers, right?

    Jess–my guess is that (1) the holidays are over and “business as usual” can resume, (2) it’s a great time to drive a hard bargain, (3) rates are so incredibly low, and finally (4) most people still want to own the roof over their head.

    Which brings me to Dave McManus—I was thinking of your taunting post above while I was reading at lunchtime, that front page story in the NYTimes about all the big financial companies that are in deep trouble. Presumably they’ve got the best financial minds that money can buy and, what do you know, they still screwed up big, rilly rilly big.

    You can make fun of my financial inclinations all you want, but at least I’m not going hat in hand asking the Emiratis for billions of dollars to keep my finances afloat. ;)

  28. 28
    deejayoh says:

    But even 10, 20, 30% decline won’t get Seattle back to “affordable” in traditional terms.

    I disagree with this. Every comparison I have seen of home prices vs long term income trends, Seattle is overpriced by about 30-40%. If we take the middle of this range and say 35% – that means only a 25% reduction is required on the way down (35/135) to get back to historical norms.

    If one assumes this correction happens over the course of a 24 months, then you can reduce the reduction required to account for inflation/increases in income. (Take your pick, lets assume 3-5% a year). What that means is that you are really looking at 2010 prices in the range of 15-20% off where we are today and you are right back on the historical “affordabilty” line – depending on your assumptions.

    Mind you, that scenario plays out vs a history of 8%/year appreciation since the mid-nineties – so if you are down 20% + giving up 2 years of 8% “expected” appreciation – it will feel like +40% hit to people, but the reality is that the numbers don’t have to be that extreme to get us back to our historical affordability levels.

  29. 29
    David McManus says:

    Taunting? Not at all, I was being serious.

    ?

  30. 30
    Scotsman says:

    The charts are pretty clear to me- it’s like gazing into a crystal ball and seeing the words:

    BIG INVENTORY REDUCTION SALE!!

  31. 31
    Gary says:

    I will have to agree with deejayoh, I wonder though, how many of the people who bought at the top of this with those “risky” loans and, whom used thier homes like ATM machines are going to be able to hold on? And, how many more who possibly could with some difficulty will actually do so when they see the house down the street ( comps ) sell for less then what they currently owe? Furthermore, where do these people work who can afford 400k-500k homes? I have been at Boeing for almost 20 years and WE DON’T PAY THAT MUCH!!
    Average here would be in the 70,000 dollar range max excluding executive managers who, for the most part are living in Chicago. Microsoft is not paying giant money anymore either and, if the economy keeps tipping don’t think for one second airlines won’t cancell orders. I have been here and done that one.
    Vista is not winning many awards last I checked and I believe it may get a 700 MB “service pack ” to boot but we shall see. Seems to me that even though for several months things have been unwinding I still hear a bullish attitude here and it doesn’t pencil out.
    Waiting so far has proven to be the wise choice as shown by the charts here and by the seemingly desperate attempt by RE companies to convince us otherwise. I want to buy a home someday too but I don’t want to watch my downpayment evaporate due to falling prices. Let’s just wait and see I bet by March things will REALLY be telling.

  32. 32
    Buceri says:

    Gary – Your first paragraph states my position. Regardless of price history, etc. Who can afford a $500K home? Mediam household income tells you very few families can afford a $200K mortgage comfortably.

  33. 33
    S-Crow says:

    Gary,

    I’m unsure whether or not we will have to wait to see how things are by March. From what I’m hearing nearly 900+ SFH’s came on the market since Jan 1st. in Snohomish Co. Maybe the tone will be set sooner than March. We’ll have to see. I can tell you that mortgage applications are flying off the shelves right now, probably due to low interest rates/refinancing.

  34. 34
    Angie says:

    What that means is that you are really looking at 2010 prices in the range of 15-20% off where we are today and you are right back on the historical “affordabilty” line – depending on your assumptions.

    20% off of the $435K median way up there at the top of Tim’s article is 348K.

    Assume lending standards revert to traditionally strict levels (which I doubt, btw; I’m inclined to think the auto-underwriting excesses of late were from the field trying to find the limits of new information technology, which they have now clearly exceeded, quite painfully). Anyhow, the traditional 20% down means a 70K down payment.

    Assume median incomes stay flat—we’re in a recession, right?—so that $70K is about a year’s income for a median family of 4 in Seattle. Still a pretty wicked stretch.

    Assume traditional lending guidelines say they could borrow 3x annual income, which would be on the order of $210K, which means…

    Not affordable.

    Hey, since I brought it up earlier, the Columbia City Borg Trapezoid units have in fact been listed for less than stated earlier. MLS 28009617. Signage said $595K, listing is $575K, where it’ll end up, nobody knows!

  35. 35
    patient says:

    I second that March-April will likely be the time when the bulls “wet their pants”. It’s likely that this is the time when a recession is validated, a flood of ARM resets is pushing banks into an even deeper hole and the case-shiller for Seattle enters negative YoY appreciation. Month of supply could be close to a year.

  36. 36
    jimmythev says:

    Does anyone want to guess how long before this happens in Seattle?

    http://money.cnn.com/2008/01/16/real_estate/rents_flat/index.htm?cnn=yes

  37. 37
    Alan says:

    I posted this on the forum, but I know a lot of people here don’t read there:

    Go here: http://www.metrokc.gov/recelec/records/
    Click “Records Search”, Accept, Search.
    Select Document Type: “Notice of Trustee Sale”
    Enter Date File from 12/1/2007 to 12/31/2007.
    Press Search.
    Click “here” to display full record count of 322.
    Go back twice.
    Repeat the dates for 2006 and get a full record count of 247.

    Notice of Trustee Sales mostly occur due to foreclosure. This is how I get an estimate of the number of properties in KC in default. In December 2007 saw 30% more foreclosures than December the previous year.

    Let’s see how January is doing:
    1/1/2008 – 1/16/2008: 231
    1/1/2007 – 1/16/2007: 139
    for a 66% increase over the same time period last year.

  38. 38
    patient says:

    Thanks Alan, I forgot to add that to the March-April timeframe that foreclosures due to the ongoing price decline will get start to get really noticeable not only in percentage increase but in absolute numbers as well. And then there is the risk that Wamu will no longer exist. I’m not wishing for all this to happen but I can see an obvious risk that it will.

  39. 39
    deejayoh says:

    Assume median incomes stay flat—we’re in a recession, right?—so that $70K is about a year’s income for a median family of 4 in Seattle. Still a pretty wicked stretch.

    Assume traditional lending guidelines say they could borrow 3x annual income, which would be on the order of $210K, which means…

    Not affordable

    You’re missing my point. With that sort of decline, housing would be no more or less affordable relative to average income than it was before the boom – which doesn’t mean 3x income The median house hasn’t been 3x income for quite some time, at least not according to statistics I have seen. More like 5-6x income since the mid-70. 3x income is an old wives tail.

    and guess what… $70k x 5 = $350k.

  40. 40
    Ballard Boy says:

    Opened the Feb 2008 issue of Harpers last night and was transfixed by Eric Janszen’s article “The next bubble:
    Priming the markets for tomorrow’s big crash”. Now I’m no economist, but I was amazed at how much sense this piece made. He examines the nature of bubbles in today’s economic landscape and how there is little else keeping the American economy afloat. He has some pretty strong arguments concerning when we will see the bottom of the current housing slide too. In my opinion this is a must read. Unfortunately the Harper’s website require subscription. http://www.harpers.org/archive/2008/02/0081908

  41. 41
    Ray Pepper says:

    My God!! All Those Charts!! I hate charts!! Do we need them. We already know:
    1. prices coming down
    2. inventory up
    3. increasing foreclosures
    4. impending recession
    5. credit declining
    6. on and on

    But guess what folks. There are many Gems to be had in the next few years! Every transaction is its own entity. Wait but always look!

    http://www.500realty.net

  42. 42
    notabull says:

    GEMS!

    ALOT!

    ALWAYS BE LOOKING!

    Just teasing, Ray… :)

  43. 43
    Everett_Tom says:

    Hey Ray,

    I think so.. if you don’t like ’em, just don’t look at them.. Personally I like them because they tell me more about trends.. like.. is this just the normal slow down for this time of the year, it this just a quick hiccup .. or a market movement, etc.

    And if anything else, it’s a GREAT tool if you want to try to convince one of those people selling those GEMS that they need to lower the price more.. (assuming they’re like me and like charts..)

    BTW: I noticed another Tom posting, so I’m changing my name to Everett_Tom to avoid confusion.

  44. 44
    Ray Pepper says:

    Its such an easy concept that reading charts seems a waste of time. But, then again I hated Geometry and Algebra too!

    I know its wise to look at the BIG picture charts bring but when it comes right down to it we can only buy 1 house, condo, apartment building, gas station, whatever, at a given time. Trendlines and statistical analysis of how we are going down seems tiresome. Finding the deal and getting the seller to sign is where I place all my time/analysis. Combined with rental rates, neighborhood reviews, and ******grinding that price down*****.

    Best time to buy is when their is blood in the streets. the blood is not flowing yet but their are some gaping wounds.

    http://www.500Realty.net

  45. 45
    LoneLibertarian says:

    This was not a housing bubble, it was an excessive liquidity bubble and it just happened to be that all that liquidity went into housing due to all the loan products that were available to shoddy borrowers.

    The days of easy money are gone. Housing will always be a necessity, but it will no longer be driving upwards by loans that were never going to be repaid.

  46. 46
    James says:

    Great post. I’m in the market for a house and just spoke 10 min ago to a selling agent on a house I’ve had my eye on in Kirkland. I gave her a ballpark offer of 10% off their list price and she went off on me saying it was a lowball offer and her clients weren’t interested. Depending on location, some areas are not seeing much decline. Here in Kirkland, MSFT, new google complex, and growth in bellevue have all kept the bubble from deflating (at least for now). Thanks for such a useful blog and post; it has given me much to consider.

    – james

  47. 47
    Everett_Tom says:

    Ray,

    Perhaps. Your comments sound a lot like what my wife might say (like you, she’s NOT into charts :) ).

    Maybe you’ve got a great intuition, but I find that I need the data from these kinds of charts to be able to consider what a deal might be.. kinda sets the context. I’d also suggest that if you were ever buying from me (or something like myself), you’d have a huge amount of leverage by bringing in objective data like this to push for a deal.

    In a broader sense, has anyone used these charts (or the base data?) to convince a seller to lower their price? I know if I was a seller in this market this kind of data would scare me silly, and certainly push me to make a deal now.

    And again for Ray, if you don’t use data like this to push down the price, what do you use to justify getting a lower price? ..

  48. 48
    David McManus says:

    James,

    I wonder why the agent “went off” on you? Was it because she cares about her sellers and she’s looking out for them? No….. Anyone care to take a stab at it?

    -David

  49. 49
    rose-colored-coolaid says:

    But Everett_Tom…how do we know which Tom you were before the name change?

    James, she went off on you because she doesn’t really want to make a sale. Prices are falling on the east side, even in areas that are relatively desirable. I know, because I’ve been eying a few places and they keep not selling and their prices keep falling.

  50. 50
    Joel says:

    Assume lending standards revert to traditionally strict levels (which I doubt, btw…

    Seriously? Lending returning to pre-bubble norms is the one thing I hold as a given. What makes you think letnders will want to continue giving out gobs of high ltv loans to people with bad credit and stated income?

  51. 51
    Everett_Tom says:

    I was the Tom who’s name didn’t have a link to a website. :) (actually all us Toms are pretty much interchangeable.. and of course we’re all part of the secret Tom’s Club..)

  52. 52
    mike2 says:

    This was not a housing bubble, it was an excessive liquidity bubble and it just happened to be that all that liquidity went into housing

    LL, one of the scariest aspects of the liquidity bubble is that it didn’t just go into housing. It’s everywhere. Everything is infected.

  53. 53
    Angie says:

    3x income is an old wives tail.

    Well, you know, I *am* an old wife. (No tail yet, though–I’ll ask my husband to check tonight.)

    FWIW the mortgage broker I worked with back in ’98 (who was herself an old wife) recommended that limit to us as a sensible course, though banks were willing to loan us much more.

    What makes you think letnders will want to continue giving out gobs of high ltv loans to people with bad credit and stated income

    I don’t think they’ll keep doing the totally ridiculously loose lending (hence the comment about having painfully discovered the limits of the use of the new technology.) But I think the ways that potential borrowers are assessed, and the much range of “mortgage products” that will be available, are with us to stay.

  54. 54
    Marc says:

    Regarding the agent who went off on the low ball offer, I won’t speculate as to her motivation but it’s clearly bad customer service and total B.S. An agent’s duties are spelled out by statute and one thing they arguably do not have to do is forward oral offers to their clients, thus, some agents may choose to treat random callers like unwanted step children. BUT, if it’s in writing, they’re obligated to forward it. So, as Yul Brynner says, let it be said, let it be written.

  55. 55
    Ray Pepper says:

    Tom I work with mostly investors. My agents handle the general public. When people are offered cash, closing in 20 days, many properties on the market that are similar to theirs that have been sitting for 6 months but mostly me being in real estate I find myself knowing many builders who must sell and must sell NOW!. I spend alot of time in Oregon and Nevada doing this. With Seattles economy its still difficult to get prices down 40%.

    A house is sitting for sale at 500k. I have a buyer that wants to offer 300-400k. I pull up tax records to see what they paid. and when they bought. then..the calling starts.

    The listing Agent is crucial to my investors securing a deal. I cannot get into detail but its time consuming but in the end you only have to nail 1 deal. My buyers do all the leg work then I take over. Not to mention they get 75% of my commission anyway for doing the hardest part–(THE LEGWORK)

    The saavy buyer knows the homes in the neighborhood that have been sitting. But, many times they are too scared to “lowball”. There is no such thing. An offer is an offer. But as a BUYER you must find the people WHO need to sell NOW!

    I’ll say it again ALWAYS be looking. All the time. There is always a deal in a declining mkt and an increasing mkt. Never get into bidding wars. Let the other guy have it. there is always another 1.

    http://www.500realty.net

  56. 56

    Why did the agent “go off” on James?
    First of all, many agents think they know everything, so this agent may have suggested the asking price to the seller. Secondoff, James didn’t really make an offer, he mentioned a number 10% less than the asking price…had he presented a written offer, the agent would have been obligated to show it to the seller.
    I don’t think this agent’s attitude is really indicative of the state of the market on the Eastside. I think it’s more showing an inflexible, know it all agent. These days, most places, eastside and elsewhere, places tend to sell for 5-10% less than the asking price.
    On the other hand, maybe this house is priced really low for the market, less than comparable houses nearby.
    Still, I like the idea of an agent “going off” on somebody.
    Too many of the agents I’ve dealt with are the “gratingly pleasant” variety, smiling and friendly as they stab you in the back.

  57. 57
    sf_boomerang says:

    mike2 is right.

    And one of the scariest aspects of that scary aspect is that the ol’ “speculation fever” has left even people with decent credit unprepared for the return of tightened lending practices.

    After all, why bother saving for a 20% downpayment when you can just ride the housing bubble to security with NO MONEY DOWN? Until recently, that was the plan for many.

    It’s not just subprime borrowers that will be shut out of the market. Unprepared ‘good credit’ borrowers are going to need to sit out for a few innings while they scramble to build some sort of nest egg. How long until those people are ready to buy? (assuming they’ve paid off their plasma TVs and rocket cars…)

  58. 58
    b says:

    Angie said,
    I don’t think they’ll keep doing the totally ridiculously loose lending (hence the comment about having painfully discovered the limits of the use of the new technology.) But I think the ways that potential borrowers are assessed, and the much range of “mortgage products” that will be available, are with us to stay.

    And who is going to loan the money to the mortgage companies to write these loans? I will give you a hint: nobody at all. The cost of risk on this paper has been obviously priced far too low, creative financing is going to be charging a risk premium more like 15% + prime and not prime – 2%. We’ve already seen that the largest IB’s are getting loan infusions from foreign governments at rates like 11-13%, how are they going to continue loans at rates below that? Real banks will still be able to pay 5% on CDs and charge 8% on good loans, but the size of that pool is a whole lot smaller than the securitization market.

  59. 59
    sf_boomerang says:

    Hey Ray Pepper,

    Curious about something, and honestly not trying to be confrontational or dramatic or anything like that, but…

    Why do you spend time on this blog? You seem like a busy guy who does most of his business outside the Seattle metro area. It can’t be because you make a ton of sales off other readers here, because this has gotta be one of the most skeptical audiences you could ever find. Is it just, y’know, for fun?

  60. 60
    b says:

    mike2 said,
    LL, one of the scariest aspects of the liquidity bubble is that it didn’t just go into housing. It’s everywhere. Everything is infected.

    Yup, that is why this whole thing is much more serious than Issaquah condos eventually selling for 20c on the dollar. Its easy to see the effects of the credit bubble, just think to yourself about the increase of credit card offers in the mail and very low rate auto financing and how it has correlated exactly with the increase in shit home loan products. I know I didn’t get 20 credit card offers a day 10 years ago, but that is not the case now (for a little longer at least).

  61. 61
    Scotsman says:

    Here’s a fact that should interest everyone. Final stats for 2007 came out today. Inflation is up a bit, mostly food and energy.

    Here’s the real gem though- inflation adjusted average wages are DOWN .9%. Wages have now been down 4 of the last 5 years. The consumer is losing ground, not just in regard to housing, but overall.
    International competition and growing productivity and consumption demand in developing countries have put the squeeze on the American lifestyle, and it won’t be changing anytime soon.

  62. 62
    disbelief says:

    #
    David McManus said,

    on January 16th, 2008 at 4:54 pm

    James,

    I wonder why the agent “went off” on you? Was it because she cares about her sellers and she’s looking out for them? No….. Anyone care to take a stab at it?

    -David

    I would say she “went off” on James because what his lower offer was really proposing to her was the possibility that the market is now going in the opposite direction – a declining RE market would take away the prime selling point of Realtors, and it would mean a smaller “pie” for them as a group to get a piece of. It’s like somebody telling you they expect your company to be shedding half its jobs in the coming year.

  63. 63
    James says:

    Hi, thanks for response. I think she wasn’t happy with me for two reasons. (1) after nine months on market, the listing was removed. I contacted the owner directly via letter, but the same day they relisted with the agent (so she’s upset i was trying to go around the middle man.) (2) she specializes in the area and wants to keep prices high. she mentioned she was putting a similar house on market for 599, (the one i want is listed for 549). she no doubts wants to prop up the market to protect her other listings.

    thanks for the input on verbal vs. written. i’ll think about putting it in formal offer, but she was very negative.

    Lastly, for Ray Pepper, i think your website makes perfect sense. I’ll use that 500realty. Won’t help me on this one though as a different realtor showed my the property (and they all want their piece).

    I’ll post if i end up getting it, but content to watch and see what happens this year.

    – James

  64. 64
    mike2 says:

    With Seattles economy its still difficult to get prices down 40%.

    Eh, not sure it’s about the economy. Fairfax County has an unemployment rate at 2%, and a median income of around $110K/yr, yet we’re seeing up to 50% off peak prices in the further out areas like Herndon.

    Give it a year.

  65. 65
    Everett_Tom says:

    Thanks Ray,

    I can see why the charts probably don’t make much difference in your case…

  66. 66
    Markor says:

    meanwhile, a virtually no risk investment like TIPs are guaranteed to beat inflation by 1-2%.

    Inflation as told by the feds that is, not necessarily actual inflation.

    I wouldn’t say “virtually no risk” when the borrower is not only horrendously in debt and accelerating deeper into debt, but also has total control over how much you’ll be paid back.

    Those who have money for 20+% down should be seriously concerned about where this money is best stored should we face another depression, which seems likely. I venture that most of you have your money stored in the form of bits on a hard drive, nothing more. Those bits may be conveniently lost during a serious downturn, just as bank ledgers were lost in the last depression. Don’t expect the FDIC to return your calls.

  67. 67
    j says:

    james,

    nice work, but go for more than 10%. Just look at the great blog “Bubble Markets Inv. Tracking”
    He showcases almost daily, knife-catchers who thought they were getting a great deal in not only 2006 (when the bust was in similar stages to seattle now), but also in 2007 which then instantly lose about another 10-15% off their already discounted buying price when another property comes on the market 2-3 months later.

    Essentially, what’s happening down there (and what we’ll see in about the 12-14 month lag) is a complete 180 of a couple years ago. It used to be, that a seller saw comp sales from a few months prior, and listed their property for 5-10% above, and sold for 5-10% more than that listing. Well, now sellers are seeing what sold 2-3 months prior, cutting it by 5-10% to hopefully “beat the market”, and then if they’re lucky, sell at 5-10% below that.

    Just amazing.

  68. 68
    ray says:

    I will answer your question about why I blog frequently. I always blog when I’m travelling. I was in Sacramento today and flying to San Jose and Reno tomorrow night. The blogging passes the time but unfortunately I rarely seem to follow-up with what people ask me . I just go on and read the next topic. So I guess I’m not a great blogger .

    As for a skeptical audience. You should be. The consumer has been misled by Agents over the years and finally the “buffet” is coming to an end. It will take years though for the general public to understand what we or Red Fin do.

    James Thanks for the recognition of what we educate. In your next transaction use either us or Red Fin. They have a great model as well but they could give more if they tried. I also like MLS 4 Owners.

    I would love to meet you ALL in person. I committed myself to 7 days at the Seattle Home Show Feb 16-24. . We partnered with Clear Wire in a booth. Please come by and say Hi. Mention this blog and get a 500 Realty T shirt. You will love it!!

    http://www.500realty.net

  69. 69
    Markor says:

    thanks for the input on verbal vs. written. i’ll think about putting it in formal offer, but she was very negative.

    Screw her, put in a formal offer I say. She might be trying to protect her client from a waste of time, but more likely she’s just letting her emotions get in the way of being a good agent.

    I once asked a selling agent to show me a house he listed. He refused, rudely making it very clear that he intended to get his 3% for no more selling than putting up an MLS listing, a sign and no flyers. (The house eventually went off the market without selling.)

  70. 70
  71. 71
    disbelief says:

    From MisterBubble’s link above:

    This guy thinks the units didn’t sell because the name wasn’t hip enough :-)

  72. 72
    disbelief says:

    Oops, wanted to add this:
    James Stroupe, a Windermere Real Estate agent who bought an EXPO62 condo as an investment and had a client who did the same, said Intracorp “stabbed themselves in the foot” by trying to market a hip building to younger people using the Expo theme.

    “The only people who know what (Expo) means are the older people,” he said. “The younger people who are the hip people, they had no idea.”

    Also, the sales center had no full-scale model of a unit, Stroupe said. “You need that in today’s market.”

    Intracorp “decided to take the safe route,” he said. “If they don’t have confidence in the project, then we’re fine getting out of it.”

  73. 73
    what goes up comes down says:

    alex said,

    on January 16th, 2008 at 11:28 am

    This board has already kept me from buying 3 houses. It’s like the fortune teller that says her client is going to die, and then poisons the client’s coffee.

    Alex the only one that can “keep you from buying” IS YOU.

  74. 74
    what goes up comes down says:

    Angie do you believe there will be a recession? I am curious because you seem like a perm bull.

  75. 75
    jimmythev says:

    This was just in the PI today…
    http://seattlepi.nwsource.com/local/347684_expo16.html

    Looks like another Condo project is going to become an apartment… my favorite quote out of this article is

    “James Stroupe, a Windermere Real Estate agent who bought an EXPO62 condo as an investment and had a client who did the same,”

    But don’t worry people… there’s no oversupply of condo’s in Seattle, still a great time to buy. Maybe if everyone bought a few condo’s as an “investment” it would take care of that nasty inventory problem we have ;)

  76. 76
    David McManus says:

    “Too many of the agents I’ve dealt with are the “gratingly pleasant” variety, smiling and friendly as they stab you in the back.”

    That’s not just with agents. That’s “Seattle passive-aggressive” and it is pervasive throughout the culture here.

  77. 77
  78. 78
    David McManus says:

    #
    disbelief said,

    on January 16th, 2008 at 6:10 pm

    #
    David McManus said,

    on January 16th, 2008 at 4:54 pm

    James,

    I wonder why the agent “went off” on you? Was it because she cares about her sellers and she’s looking out for them? No….. Anyone care to take a stab at it?

    -David

    I would say she “went off” on James because what his lower offer was really proposing to her was the possibility that the market is now going in the opposite direction – a declining RE market would take away the prime selling point of Realtors, and it would mean a smaller “pie” for them as a group to get a piece of. It’s like somebody telling you they expect your company to be shedding half its jobs in the coming year.

    Ding! Ding! Ding! I think we have a winner!!!!

  79. 79
    David McManus says:

    “I would love to meet you ALL in person. I committed myself to 7 days at the Seattle Home Show Feb 16-24. . We partnered with Clear Wire in a booth. Please come by and say Hi. Mention this blog and get a 500 Realty T shirt. You will love it!!”

    I won’t be going to the home show, but it actually would be nice to have some sort of informal gathering somewhere with everyone.

  80. 80
    WestSideBilly says:

    That’s not just with agents. That’s “Seattle passive-aggressive” and it is pervasive throughout the culture here.

    RE agents elsewhere seem to have similar traits. Smile, say nice things, while sharpening the blade to bury in your backside.

  81. 81
    WestSideBilly says:

    Surprise, surprise…the great re-partmenting of Seattle has begun!

    James Stroupe, a Windermere Real Estate agent who bought an EXPO62 condo as an investment and had a client who did the same, said Intracorp “stabbed themselves in the foot” by trying to market a hip building to younger people using the Expo theme.

    No, they stabbed themselves in the foot by trying to sell “Luxury Condos”. I’m sorry, but the market for luxury condos is not very large. There are only so many people who will pay $800k for a glorified apartment, even if they can get a 2% teaser ARM.

    I’m guessing when they finish the building, they’ll try renting the “luxury” apartments for way too much, then assume that people aren’t snapping them up because of the name. Again.

  82. 82
    Geode says:

    Does anyone know where I might find this type of analysis on Pierce County?

  83. 83
    James says:

    Hi, got one more question for the blog. So i tried to buy this house while it was not under contract. It is now relisted. Do i have the option of using someone like redfin to buy it, or do I have to go with the realtor that showed my the house back in Oct? (meaning do i owe the original realtor who opened the door for me the 3%). I signed no contract with her and she has not been responsive/helpful when i pinged her about making an offer when they delisted. Searched the internet wand received different answers.

  84. 84
    Marc says:

    James,

    Your post is a little vague so I can’t answer your question. Plus I can’t prudently give legal advice to a non-client, but I would point you to Chapter 18.86 of the RCW. In particular, there is a pamphlet entitled “The Law of Real Estate Agency” mandated by the legislature under RCW 18.86.120 which might be useful. You can find it at http://apps.leg.wa.gov/RCW/default.aspx?cite=18.86.120.

  85. 85
    deejayoh says:

    As absurd as it may seem, YOY inventory grew faster still, shooting up over 50%

    I just looked at the trend of KC SFH inventory for this month to date. It looks like the market has been growing pretty steadily at a rate of roughly 50 additional listings per day. Extend this through the month and that puts the level at ~9500 homes at the end of January. Last January ended at 5,932 listings – so if the trend continues we are looking at a 60% increase in active listings, which will be the biggest jump since 2000 – by FAR.

    Hang on to your hats, this thing is just getting started.

  86. 86
    johnnybigspenda says:

    Everyone here is afraid to ‘lose money’ on a house they are about to buy. If that’s true, then people must believe that housing is an INVESTMENT. (a car for example is NOT an investment since you EXPECT to lose money… you buy it because you need it and partly because you like it).

    If housing is priced like an ‘investment’, then the price that someone is willing to pay for it is equal to the EXPECTED FUTURE VALUE. (why would you pay $10 for a stock you expect to priced at $8 in the future?… you wouldn’t.)

    That said, everyone here (and most places) expects housing to drop 5,10,25% over the next 1-2 years. That would mean one of two things: either today’s buyers don’t expect that kind of drop, or they expect it and they have priced it into their offer/purchase price.

    The ‘housing bubble’ is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop. That said, why would they offer a price that doesn’t take into account the future expected value?

    If that’s true, then here’s my theory: Prices will be at their lowest when people have the lowest expecations for the future value.

    Sounds simple, but here’s the thing. By the time you hear news of even the possibility of price stabilization or even increases (which would raise people’s expectations for the future value of homes), the BEST ‘deals’ will be long gone.

    Since we are not hearing anything positive yet… I think its almost time to start looking. (especially combined with the attractive mortgage rates right now)

  87. 87
    Buceri says:

    johnnybigspenda –

    a) If you lose your job, the car payment is $300-$400; the mortgage is $1800plus. You don’t have to sell your car; but you can downgrade from your house. Plus you need your car for transportation.

    b) Sure, start looking; but the same people that pump the bubble, today don’t qualify for loans. Most people will want to buy, but will not be able to, which will pressure prices further down to levels where banks feel comfortable lending (Banks? I meant the governments of Saudi Arabia, Singapore, Dubai….)

  88. 88
    b says:

    The ‘housing bubble’ is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop. That said, why would they offer a price that doesn’t take into account the future expected value?

    Sorry, but I would say the vast majority of current buyers do NOT believe this. There are maybe 10% of current buyers who have penciled out projections, decided on a price based on their likely risk and went ahead with a purchase anyway. The rest of the people say “Seattle/My Neighborhood/My new house” is super duper special and I will not lose money on it, or ever have to sell it for a loss and besides, I am a loser if I keep renting and therefore I must buy no matter what. You cannot apply rational investment thinking to a class of people who obviously do not think that way. Why else would so many people have loaded up on loans with truly awful conditions on homes priced such that they could not even make the first few payments on? Or that once the price adjusted they knew they would be unable to afford? Because by and large most people do not understand or apply basic math and put a great deal of trust into “professionals” and other people who tell them to just sign the damn papers already.

  89. 89
    sf_boomerang says:

    Plus, I think there’s going to be a huge natural reluctance to drop prices on your home if you’re a seller. Especially if you were counting on the profits from your home sale to provide financial security.
    If you sank everything you had into buying/flipping a home, and selling it meant losing money, and you had no other financial assets… how quickly would you be willing to lower your price? Especially when there’s always going to be someone saying “Hold on just a little longer! Recovery is just around the corner! Honest!”

  90. 90
    Mike2 says:

    That would mean one of two things: either today’s buyers don’t expect that kind of drop, or they expect it and they have priced it into their offer/purchase price.

    My next door neighbor bought in September at price 3.5% below what the previous owner paid in 2005. Similar homes on our street were selling for $470K-$495K in 2006. They know there WAS a bubble, but believe they waited it out and got a good deal.

    Are they right? Not sure yet. A fully remodeled home w/ granite and stainless just went pending a few blocks away for $375K, however that one was REO.

  91. 91
    WestSideBilly says:

    Plus, I think there’s going to be a huge natural reluctance to drop prices on your home if you’re a seller. Especially if you were counting on the profits from your home sale to provide financial security.
    If you sank everything you had into buying/flipping a home, and selling it meant losing money, and you had no other financial assets… how quickly would you be willing to lower your price? Especially when there’s always going to be someone saying “Hold on just a little longer! Recovery is just around the corner! Honest!”

    Several people (Tim, DJO, etc) have noted that pricing is sticky on the way down. People want to turn a profit, don’t want to lower their price, RE agents are suggesting inflated values, indices are slow to react, etc.

    Eventually everything will catch up. 150 days on the market with all the similarly priced comps sitting on the market just as long, seeing a similar property sell for 20% less, a few “low ball” offers… People will come around and adjust their listing prices, RE agents will realize a 20% discounted price sale is better than holding hope of keeping prices high, etc.

    Just takes time.

  92. 92
    johnnybigspenda says:

    I would think that Real Estate agents would be MOTIVATED to have their clients lower their price… who wants to spend 150 days ‘selling’ a house?

    They do volume… a 20% drop on their 3% commission is fine compared to a 50% drop in overall sales volume… why would they care? The sooner prices are lower, the sooner they do volume.

  93. 93
    Erik says:

    Johnnybigspenda –

    You still see plenty of houses being listed at prices suggesting that the owners think the party is still raging, but they don’t sell. Some relatively well-priced houses are moving, which I would expect. This mix is, to me, still more evidence that we are only at the beginning of shift to a declining market.

    I don’t really think of houses as investments, although I do believe that, over the long run, there can be some modest financial benefits associated with owning a home bought at a sane price. I wouldn’t buy now, though.

    I’m overly concerned with the possibility of fluctuating paper profits, but I am concerned that it could easily take 8-10 years to reach a “break even point” at which the market value of the house exceeds my mortgage amount by enough to cover selling costs like the excise tax and commissions for the agent(s). That’s not even taking into account opportunity costs, inflation, etc. That’s an awfully long time to bet that no major life changes will occur. What if I want to move? Will I lose all of my down payment? Will I actually owe money after the sale? I say forget it. Renting is cheaper anyways. Once some reasonable relationship between incomes and prices has been re-established and we can expect modest, relatively stable appreciation, then I’ll consider purchasing.

    Oh, as for the agents, I think that part of the reason they’re not encouraging sellers to drop prices aggressively is that they have to compete against other agents for listings. This means promising big profits to owners. Too bad. Maybe that will happen less once it’s really clear to the public at large that there is trouble.

  94. 94
    sf_boomerang says:

    WestSideBilly,

    I definitely agree. I actually just read something in Shiller’s book about cascade effects… wondering when that will kick in here. We should start a pool…

  95. 95
    Markor says:

    So i tried to buy this house while it was not under contract. It is now relisted. Do i have the option of using someone like redfin to buy it, or do I have to go with the realtor that showed my the house back in Oct? (meaning do i owe the original realtor who opened the door for me the 3%). I signed no contract with her and she has not been responsive/helpful when i pinged her about making an offer when they delisted. Searched the internet wand received different answers.

    Since you have no contract with her, you certainly don’t owe her anything. If the selling agent shows you the house, you can keep the 3% for yourself, but you’ll need to get the paperwork done somehow. I once asked a selling agent to take 1% for doing the paperwork without legally representing me. She agreed, but I got outbid. In the future I wouldn’t pay more than a $1000 flat fee for a house I find myself. Nor would I need to; check out purchaselaw.com.

  96. 96
    James says:

    in my case, the “buying agent” showed me the house when it was listed in Oct. So even though i didn’t sign a contract, i think the buying agent has a claim on the commision. not very clear what the law is.

  97. 97
    Joel says:

    But I think the ways that potential borrowers are assessed, and the much range of “mortgage products” that will be available, are with us to stay.

    But what mortgage products were introduced during the bubble that are here to stay? A lot of the products that people think are new were actually always around, but were mostly only used by savvy investor types. So saying that “they are here to stay” is useless because they were already here to stay before the bubble. Unless you mean that they will continue to be available to help put $30k millionaires into $700k houses. In that case you are dead wrong. I mean, you try yourself right now. Call up a broker and ask if you can get a $700k loan with 0 down on stated income.

  98. 98
    Joel says:

    The ‘housing bubble’ is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop.

    More like:

    The ‘housing bubble’ happening in other places in the nation is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop in terrible places like Phoenix, but never in super-special Seattle.

  99. 99
    Markor says:

    in my case, the “buying agent” showed me the house when it was listed in Oct. So even though i didn’t sign a contract, i think the buying agent has a claim on the commision. not very clear what the law is.

    I wouldn’t be concerned with what the law says. With no contract, there’s nil chance she’d be able to collect. Holding you accountable is partly what the contract would be for, after all. Plus you said she was unresponsive, so even had you had a contract with her, she would have voided it for nonperformance (although had you had a contract, she probably would have been more responsive). If you want to be fair, throw a few hundred dollars her way, or whatever amount you think her total service was worth, if you buy the house.

  100. 100
    Marc says:

    James & Markor,

    I agree whole heartedly with Markor’s premise of not paying more than a $1,000 for a house you find yourself whether its a FSBO or listed on the MLS. Like the folks at the site Markor mentioned, I offer a flat fee legal service for buyers and sellers and many of my clients are pleasantly surprised when they realize how easy a preal estate purchase can be. That said, I would caution against simply disregarding “what the law says.” As I mentioned in my post above, the duties of a real estate agent are spelled out by statute as are the prerequisites to an agent’s right to a commission.
    I’m sure any of the flat fee attorneys would be happy to counsel a client on potential liability for a commission (or lack thereof) during the course of representing the client through a purchase.

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Please read the rules before posting a comment.