Case-Shiller: Seattle’s Trend-Bucking Days are Over

Home prices in Seattle edged down again to within an inch of zero year-over-year change, according to the latest data from the Case-Shiller Home Price Index.

Down 1.21% November to December.
Up 0.49% YOY.

For those of you keeping score at home, that makes five month-to-month declines in a row. Seattle has now declined a total of 3.86% from its July 2007 peak. More on that below.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. You’ll notice that Seattle’s YOY performance slipped below Portland for the first time

Case-Shiller HPI: West Coast
Click to enlarge

And here’s the graph of all twenty Case-Shiller-tracked cities:

Case-Shiller HPI: All Cities
Click to enlarge

Lastly, here’s a new one for you. The concept is inspired by a reader who has posted a similar graph a couple of times. I don’t recall who specifically, so I apologize for not giving you explicit credit here. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows total months since each individual city peaked. The peaks ranged from September 2005 (Boston) to July 2007 (Portland & Seattle), so that explains why each line is a different length.

Case-Shiller HPI: Decline From Peak
Click to enlarge

Seattle may have been late to the party, but in the six months since our market peaked, it seems to be doing its best to catch up quickly.

(Home Price Indices, Standard & Poor’s, 02.26.2008)

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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.

111 comments:

  1. 1
    Jimmythev says:

    Looks like the pink ponies are about to leave the stable :(

  2. 2
    singliac says:

    Why does it feel like Christmas when these numbers come out each month?

  3. 3
    Angie says:

    I feel the same way, singliac. We’re still at the top of the heap!

  4. 4
    goin' for it says:

    -Singliac-

    Awesome! I was trying to express that myself just a minute ago.
    Now lets how the “we didn’t rise as far so we won’t fall as far” argument plays out. For some reason, I don’t thinks its going to be a very good theory……. :)

  5. 5

    […] articles about the current state of the industry that I may have missed during the day, provide critical analysis of real estate statistics, debate what’s being said in the main stream media, and I like this […]

  6. 6
    Joel says:

    We’re tracking pretty closely with Miami. It’s only a few months into it, but it should give pause to those that constantly say “We’re not as bad as [insert horribly overinflated housing market], so prices here won’t go down.”

  7. 7
    WestSideBilly says:

    The Miami trendline is pretty scary. Or at least it is if you’re trying to sell your house.

  8. 8
    deejayoh says:

    hey – that was my chart! nice update. I’ll take my royalty in the form of a check ;-).

    Is it just me, or is anyone else surprised we seem to be tracking Miami’s decline more closely than any other city?

  9. 9
    topdog says:

    As much as I would like to believe that we’ll be following Miami down, I think the fact that our steep slope in the last graph is due, in part, to the fact that they reflect the weakest season of the year for home sales in Seattle (so, if those early months for other cities happened at different times of the year, we’d have an apples to oranges problem). I have no doubt that the line would be going down regardless of the time of year, but I doubt it would’ve been that steep otherwise.

  10. 10

    It just amazes me that anyone would have bought in LA when they’d had a 30% YOY increase. The party never stops?
    I know that stock market investors and real estate investors always like to point out the differences, but in a down stock market, there are always some stocks that are going up. In an up market, there are always stocks that are going down. Does this hold true for Real Estate too? even within a local market?
    Will a cute 1920’s craftsman in Wallingford continue to go up even as a townhome in Columbia City falls?
    I don’t know the answer , but I’d be curious as to what people think.

  11. 11
    Scotsman says:

    Wow- I like how the trend seems to be accelerating down. This should give pause to those calling the latest “bottom”.

  12. 12
    John says:

    If Hong Kong, one of the most densely populated and wealthiest cities in the world, could see home prices drop more than 50% from its peak, I don’t see many US cities that have the goods to defy gravity. Here in Seattle, we are only finishing the first inning.

  13. 13
    blueskitten says:

    That’s a good question, Ira. In my opinion, I think that the properties that will be most likely to buck the trend are the ones with fewest comps… those in smaller/less dense communities, or unique houses (for whatever reason, be it age, size, view, etc.). In places where the data set of comps is smaller it is harder for buyers to compare apples-to-apples. With that in mind I think sale prices for those properties will show a greater degree of variation from the median. That could mean a property’s price could be above *or* below the rest of the pack, since there just isn’t as much data to look at when making/accepting an offer.

  14. 14
    The Tim says:

    Ah, I found the graph I was talking about. It’s the one crystalball linked to in this comment. Thanks, crystalball!

  15. 15
    Shawn says:

    Read that WA now has higher forclosure rates than the nation. Why didn’t anyone predict this??? :)

  16. 16
    Sandy says:

    Ira–come on now, you know the answer to the question you posed. It is perfectly possible for homes in one neighborhood that is more desirable to continue to increase even as homes that are in another, less desirable location decrease. That’s why we have the saying about it being better to buy a shack in a good neighborhood than a castle in a bad one.

  17. 17

    HI IRA

    As usual you ask a pragmatic and logical question, you are the cream of the crop of Seattle Realitors.

    Its my opinion and I’ve blogged this here before, why do bad investors keep buying used things in Seattle just because they might hold their value better? The Wall Street Journal gives the opposite advice on automobiles; and the logic certainly applies to houses too.

    Now, if I bought a new car or house, I’d want it to hold its value [no new modern houses in Magnolia to speak of there, so its a moot point]. That’s completely different. But just like the WSJ suggested, you’re financially much better off buying the reliable used car [or house] that devalues the fastest….it saves you a bundle of money. Same logic applies to houses. If this doesn’t make sense to any blogger please explain it to me.

    But alas, in Pink Pony City, there’s many houses sitting unsold in areas with more depreciation. Same with cars, the reliable used ones that should be selling like hotcakes sit in lots [hoards of them right now, I’ll add], while bad Pink Pony Investors buy the higher priced ones “that hold their value”. Paying more money for something does not make you smart, ask the WSJ.

    Eventually, I’m sure it will all average out. With cars I’ve already noticed new style prices plummetting on ones that historically hold their value used…..even when they’re foreign and the dollar exchange rate would seem to make the opposite come true. Houses too.

  18. 18

    As far as buying a shack in a good neighborhood instead of a castle in a bad one, between 2001-2005 the neighborhood in Seattle that saw the greatest price appreciation was the Central District…You can also make money buy having vision.
    Sandy, I think you misunderstand. What i guess I’m getting at is:
    If Seattle prices continue to follow the patterns of San Diego, LA, and Miami, and we see a decline in the median house value of another 10% or more, will that affect all houses? I know some areas will hold up better, the “Toyotas and Hondas”, but even if Seattle declines substantially, will there be pockets where there are exceptions to the decline at all and prices continue to increase?

  19. 19
    Joel says:

    A few comments below crystalball’s graph comment is this one from Garth:

    Seattle is not Miami, San Diego, San Francisco, or Los Angeles. Even Tim’s chart that has been used for months on this blog to show Seattle is not different now shows Seattle is different :)

    Turns out he was mostly right. We’re not the same as San Diego, San Francisco, or Los Angeles. We’re worse than them.

  20. 20
    Sandy says:

    It’s possible. Not necessarily likely, but possible. Usually the neighborhoods that are the most desirable are the least affected by downturns in the market. It mostly depends on the inventory stock in that neighborhood. If there are only one or two cute Craftsmans in Wallingford available and lots of buyers who want to buy them, then prices don’t necessarily have to come down just because they are doing so everywhere else where there is less demand or more homes for sale. If, however, those cute Craftsmans in Wallingford are a dime a dozen and nobody wants to buy them, then price depreciation becomes more likely.

    I get what you are saying about vision, but I would also point out that while CD may have appreciated more than every other neighborhood, that does not mean that those price levels will hold. Though they may. But past performance is no indicator of future results.

  21. 21
    goin' for it says:

    -Shawn-

    Where did you find the info on WA foreclosures vs. the US? I’ve been wondering how we match up currently..
    Thanks in advance

  22. 22
    Shawn says:

    Foreclosure rates continue to climb in state, U.S.
    By Elizabeth Rhodes
    Seattle Times business reporter
    http://tiny.cc/opps563

    In January, the state recorded 2,200 foreclosure filings, a 9.13 percent increase from December. Nationally, the number of filings rose 8 percent from the previous month but was a 57 percent increase from January 2007.

  23. 23
    Shawn says:

    Foreclosure rates continue to climb in state, U.S.
    By Elizabeth Rhodes

    Seattle Times business reporter

    Washington homeowners last month entered foreclosure at a higher rate than the national average, but the state still ranked 27th in the country for foreclosure activity, a new report reveals.

    In January, the state recorded 2,200 foreclosure filings, a 9.13 percent increase from December. Nationally, the number of filings rose 8 percent from the previous month but was a 57 percent increase from January 2007.

    tiny.cc/opps563

  24. 24
    Shawn says:

    I read where someone here said Seattle is not LA. No Seattle is not LA. Seattle is just like LA, just behind in time. :) See, in LA the mullet is not in style, soon it will fall from favor in Seattle too. ;)

  25. 25
    rose-colored-coolaid says:

    Ira, comparing homes to stocks in this way is, I think, not a fair analogy. During ‘normal’ times, stocks vary wildly. One stock might rise 300% for the year while another falls 80%, while the market rises 7%. This is common and happens to some stocks every year.

    Houses don’t do that. In normal circumstances, a horrible city might lose 3%, while a great city’s median raises 7%. I don’t know what the normal variance is, but it’s not large. For that reason, if everything is falling by 10%, a good house might only fall by 5%.

    Case in point, look at the run up. Every neighborhood did extremely well. I suspect that means everything will do poorly for a few years now.

  26. 26
    rose-colored-coolaid says:

    If we can only keep crashing like Miami for another 8 months, I think I might actually be able to settle down and live in the Seattle area.

  27. 27
    Alan says:

    Nationally, the number of filings rose 8 percent from the previous month but was a 57 percent increase from January 2007.

    Get ready! February 2008 is going to have close to double the number of foreclosures over February 2007.

  28. 28
    Sandy says:

    RCC–what you’re saying sounds great in theory but in reality you don’t have to look very far to see examples of one neighborhood appreciating while another depreciates. It’s mostly a supply/demand question, and location is an important factor in demand.

    I would agree with you that looking at stocks isn’t a good analogy. One of the things that is different about housing is the whole idea of “comps” which doesn’t really exist in the stock world. The price of my house will usually be related to that of my neighbor’s. It may not, however, be related to some other house across town in a less desirable neighborhood.

  29. 29
    singliac says:

    Unless you look at different neighborhoods as different sectors of the market. (eg. financials may dip, while technology holds steady). But yeah, still a pretty rough analogy.

  30. 30
    Bits_of_Real_Panther says:

    I’ll play contrarian and point out that in the “Decline from Peak” graph Seattle’s path closely resembles Boston’s first few months as well as Miami’s. I know which city I think Seattle more closely resembles but I don’t want to be reviled as an NAR mouthpiece

  31. 31
    peter says:

    I just heard an add by a local RE Company ON A PORTLAND RADIO STATION. They were excited to announce that prices have dropped %25 in clark county and that NOW is the time to buy……..

    I think I’ll wait just a little bit longer…….

  32. 32
    BuyerOnTheSide says:

    Ira rote: “You can also make money buy having vision.”

    Was the “buy” a typo or a subliminal message? ; )

  33. 33
    JJL says:

    Shawn,

    You need to read the Seattle Times article again. Please don’t pass along incorrect information.

    “Foreclosure activity rises in state, but rate still low”
    By Elizabeth Rhodes

    Washington was close to the middle of the pack in foreclosure activity last year, with 0.57 percent of all owners in some stage of losing their home, a national foreclosure data firm reported today.

    The state ranked 21st in the nation in foreclosure filings, just ahead of neighboring Oregon. That’s an improvement over Washington’s 18th position in 2006, according to RealtyTrac, of Irvine, Calif.

    Washington had a total of 23,705 filings last year on 15,184 properties. That was a 28 percent increase over 2006 but not as large as in other states, which is why Washington’s ranking improved.

    In the Puget Sound area, King County reported the most foreclosure filings and Snohomish County the fewest.

    To Article:
    http://seattletimes.nwsource.com/html/businesstechnology/2004150609_foreclosure29.html

  34. 34
    JJL says:

    Shawn,

    Just in case we’ve read different articles please post the link to the one you quoted.

    Thanks.

  35. 35
    Steve Tytler says:

    Since I nailed my prediction for 2007 (0% appreciation) I am repeating my prediction for 2008:

    Overall, home prices will drop by an average of about 10-20%. I use an average because there are major differences from city to city and neighborhood to neighborhood. Some will do better, some will do worse, but virtually all home prices will in all areas will be DOWN this year.

    The biggest price drops will come at the end of the Spring home buying season when the inventory of homes for sale increases dramatically. By then most home sellers will realize that home prices really have fallen and they will have to cut their asking prices accordingly.

    By the end of this year, the worst will be over, but next year (2009) we could also see a small 2-4% price drop, but nothing as severe as this year.

    The next few years will be “flat” +/- 2-3% per year.

    That’s my story and I’m sticking to it.

    All of my predictions have been published in the Everett Herald, and I have been right 3 years in a row. No brag, just fact. ;)

  36. 36
    JJL says:

    Shawn,

    To clarify your statement. We entered foreclosure at a higher rate, but we are not the highest ranking state.

    I found your article here:

    http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=foreclosure26&date=20080226&query=foreclosure

  37. 37

    Buyer on the Side:
    No subliminal message, just an awful typist.

  38. 38
    Steve Tytler says:

    Regarding the foreclosure rate, Washington traditionally ranks below the national average for foreclosures. We will never be in the “Top 10” with states like California, Nevada and Arizona.

    So if you’re thinking about cashing on a house in foreclosure, don’t get too excited.

  39. 39
    Joel says:

    I’ll play contrarian and point out that in the “Decline from Peak” graph Seattle’s path closely resembles Boston’s first few months as well as Miami’s. I know which city I think Seattle more closely resembles but I don’t want to be reviled as an NAR mouthpiece

    I was thinking the same thing, but you have to realize that the credit crunch that is driving this downward slide has only just begun. To believe that Seattle will break away and begin to look like Boston would be to believe that the credit crunch only gets better from here, which I don’t think is likely. It’s going to get worse. A lot worse.

  40. 40
    Steve Tytler says:

    I’m in the mortgage business, so I can fill you in on the “Credit Crunch.”

    The worst is over.

    The subprime market is virtually gone now and the lending standards have gone back to the “normal” guidelines that we had before the market went nuts for a few years.

    Mortgage business is already up this year and people with decent to good credit can get loans.

    The remaining fallout will be the foreclosures from the people who got in over their heads on subprime loans or “liar loans” (stated income) and can no longer make their mortgage payments.

    Most of those people will be washed out this year.

    Which is why I think the worst will be over by th end of this year in terms of price depreciation.

    As I said above, don’t get your hopes up if you think you will be able to buy a home for 50 cents on the dollar. I will not get that bad here.

    BTW, if you are waiting for mortgage rates to drop this year, don’t count on it!

    Inflation is becoming a huge concern. Rates are up dramatically since the end of January and they are likely to keep trending up for the remainder of this year.

  41. 41
    SeattleMoose says:

    Brings to mind that song “Highway to Hell” looking at San Diego and Miami. Love that Beantown dead cat bounce.

    Seattle has a “phase lag” but the slope would indicate that we are right on target with all these other “different” places.

    Meshugy….time for the ostrich counterpoint!!

  42. 42
    tlw says:

    SteveT,

    The subprime market is gone, but mortgage business is up? So I guess there are more people qualifying now even after the subprime people are no longer qualified. In term of percentage, how much is the refinancing for this year? What was the percentage of subprime for your company?

    If you think mortgage rates won’t drop, meaning they will rise, people will still be able to afford the monthly PITI with the same house prices? Incomes are going to keep up?

    Which is why I think the worst will be over by th end of this year in terms of price depreciation.
    As I said above, don’t get your hopes up if you think you will be able to buy a home for 50 cents on the dollar. I will not get that bad here.

    How bad you think it will get? 10%? 15% YOY?

  43. 43
    Bryan says:

    Can someone explain the reason for Seattle to be shifted by 17 months? Is it based on the peak of resetting ARMs? Sorry if this has been covered in previous posts.

  44. 44
    tlw says:

    SteveT,

    Ignore my last question. I didn’t see your prediction for this year:

    Overall, home prices will drop by an average of about 10-20%. I use an average because there are major differences from city to city and neighborhood to neighborhood. Some will do better, some will do worse, but virtually all home prices will in all areas will be DOWN this year.

  45. 45
    b says:

    Bryan –

    It is shifted to align the market price peaks.

  46. 46
    deejayoh says:

    Steve, I’m not knocking you – but you have to admit this statement is kind of funny

    I’m in the mortgage business, so I can fill you in on the “Credit Crunch.”

    The worst is over.

    Kind of like “I’m from the government and I’m here to help”

  47. 47
    AndyMiami says:

    OK, so it’s the end of Feb. and we are 5 listings away from 10,000 for King County..

    What will inventory balloon to by May?

    My prediction is 13,333….and this could be low..

  48. 48
    AndyMiami says:

    So, since my last post a few minutes ago as I cooked pasta for the kids (organic whole wheat), we broke the 10,000 King inventory level at 10,001…nice…there are a lot OFF CLOSET FLIPPERS IN SEATTLE, but they are very reserved, just like this culture….everyone is so nice…but are they really…

  49. 49
    R Hughes says:

    Why I love the Northwest ( less the rain )

    San Diego resident, but many ( too many ) years in NW so I know it well.

    I predicted Seattle decline 18 months ago when my daughter moved back to Sea, but no wouldn’t listen and bought in Preston. Maybe okay as it was an in law deal.

    Any case for those knowing SD it’s interesting, close in 50% in some areas – so you do the averages. Everything looks doom and gloom, but you have to go hood by hood. Hispanic areas South, far North hit really hard, WASP area by coast minimal hit.

    I would comment more if anyone interested, but can some of you comment on Seattle in this regards. Are all hoods declining the same or does it variety widely.

  50. 50
    Displaced Seattlite says:

    Bryan,
    Seattle always has a phase lag from rest of country. Generally, and I mean with a very broad brush and squinted eyes, folks move from NE and other high-cost/high-equity areas like lemmings after their kids graduate HS. They go to California to use their equity and get sun, thus displacing the natives or those that came before, who then move to NW the next school year to take advantage of lower prices. Two school years = 17 months. QED.

  51. 51
    Tom says:

    There are too few data points to predict which curve Seattle would be closest to. In my opinion (with limited experience), I would hazard a guess that Seattle might follow closest to Boston, because the mentality of the two populations are closer than, say, Los Angeles or Miami.

  52. 52
    stephen says:

    “Mortgage business is already up this year and people with decent to good credit can get loans.”

    Steve T,

    Please explain this statement. You can not possibly be saying that YOY mortgage business is up???

    You also mean good credit with lots of cash right?

  53. 53
    crystalball says:

    Deflation of home values in Seattle is comparable to the most rapidly deflating cities like Miami. Here is an updated chart of deflation in all cities including the latest CSI through Dec-07 (Seattle is the solid red squares in the chart):

    http://i251.photobucket.com/albums/gg317/bubbleblog/deflation_all_cities_thru_dec.gif

    To create this chart I found the peak CSI for each city and then calculated the percent reduction from the peak for each subsequent month.

  54. 54
    Garth says:

    I watched some flipper idiots in Sacramento on tv today who appeared to lose a bunch of money (if time is worth anything) on a cheap house. 72 other comparable houses for sale within a mile of their flipper.

    Total home sales are way down everywhere, including Seattle. Almost every comparative average is totally out of whack as a result of much lower total sales numbers and increased difficulty financing jumbo loans. Looking at individual sales in my neighborhood at least I am seeing prices about where they were 6 months ago, minus the stupid waiving inspection bidding wars on crappy home depot remodels. (My low moment in house hunting was looking at a house while 5 inspectors scurried about so potential buyers could make offers without an inspection on a 1 legal bedroom house, it sold for $460,000 and had been listed for $320,000)

    I would like to see some data on the density of potentially distressed homeowners in a given area. From this I think you can predict the potential for steep price declines for a particular area.

    All the steep price declines and mass waves of foreclosure thus far have taken place in places where they have increased the density of risky loans either by building large developments that attracted first time homeowners, leveraged investors and mortgage brokers in droves (Vegas, Phoenix, Stockton, Miami condos) or screwing masses of existing homeowners by selling them an unnecessary sub prime loan refinance (Cleveland, Detroit).

    So if there is a Seattle bubble,and we are tracking with everybody else, where is this distressed homeowner density located?

  55. 55
    whats my name says:

    “Now lets how the “we didn’t rise as far so we won’t fall as far” argument plays out. For some reason, I don’t thinks its going to be a very good theory……. :)”

    That’s a very interesting statement – so much for regression to the mean. If you reject the fundamental notion of what drives a bubble, on what do you base your expectation of a falling market?

  56. 56
    Joel says:

    I’m in the mortgage business, so I can fill you in on the “Credit Crunch.”

    The worst is over.

    You lost all credibility with “I’m in the mortgage business”. Let me fill you in on what has been going on the past few months because it appears you’ve been too busy smoking crack.
    Defaults moving beyond sub-prime
    Subprime loans defaulting even before resets
    Evidence of “Walking Away” In WaMu Mortgage Pool
    Banks Freezing HELOCs
    Would the monolines be talking about a split to save muni bonds if the worst is supposedly over?
    MBIA CEO Recommends Split
    Loan liquidator: CRE values in for steep drop

    Would the FDIC be preparing for a mass of bank failures if it was only going to get better from here? I guess bank failures are good for the availability of credit.
    FDIC Bracing for Bank Failures

  57. 57
    matt says:

    No, you have to look at the region. We are bounded by mountains to the east and ocean to the west. Most land here is regulated very tightly, and thus there are limits on what can be built.

    This area is basically a very tight sandbox. Nowhere else are they confined on space, and yet have so much undeveloped land as we have here. Look at the graphs and you’ll see we are “middle of the road”. Most people on this board herald the fact that the mortgage economy nationwide is tanking, yet they dont mention the fact that the areas that are tanking are the areas that had ridiculous 40%, 50% increases while we had 20% increases.

    It is a bubble, but I dont think we’ll be seeing the kinds of drops everyone is hoping for here. Our housing market is very limited by our region, you can’t compare us 1 for 1 to places where they have no limitations.

  58. 58
    bitterowner says:

    “We’re still at the top of the heap!”

    And what a steaming, pungent heap it is…

  59. 59
    Buceri says:

    How does inflation play in this mess??? Inflation numbers came in pretty high. Does inflation affect the pricing of a home? Salaries ‘should’ keep up with inflation. Does not eventually hold home prices decline?
    Crap! this is giving me a headache!!!

  60. 60
    alex says:

    I can finally see it with my own two eyes on my way to work:

    http://www.johnlscott.com/propertydetail.aspx?IS=1&ListingID=31475526

    a 3000-sqft house for less than 500k in Woodinville. That was just impossible 1 year ago. This one was listed in Trulia as foreclusure once, so I suspect the current seller is the auction winner. Still, I can’t wait to be able to use this one as a comp.

  61. 61
    rose-colored-coolaid says:

    Tim, I’d be interested in seeing the % decline chart synced by time rather than peak value. Specifically, if each city’s curve started when Seattle peaked (July?), so we could compare and see how much of this stems from the credit crunch.

    It looks to me like almost every city is collapsing rapidly in the last 7 months (with DC holding up better than most).

  62. 62
    S-Crow says:

    I’m in the business too, but I assure you I’m not smoking, well, anything. Every article Joel has linked to clearly should give pause to what was going on in aggregate. It just confirms how absurd the lending environment was that was a principal reason for the upward spiraling of housing prices.

    Currently, I can tell you that our office is very busy right now with work, both refinancing and purchase business. It’s my belief that people are taking advantage of the softness in the market and low interest rates. Going forward into the Spring months we will know whether or not the very recent upward move in interest rates (around 6%) will be enough to confirm what many argue is a “temporary” scooting of rear ends off of the fence. per se. I use the term temporary because of the swift drop in interest rates in January was enough to spur healthy refinance activity. Whether that translates into meaningful and long-term purchase activity throughout 2nd qtr of this year remains to be seen.

    If people are wondering “who” is purchasing and refinancing in today’s lending environment, I can tell you that the current pool of borrowers credit worthiness is of a much higher caliber than what I encountered a couple years ago. Money & high FICO’s. It is very good to see.

  63. 63
    b says:

    matt –

    I live in in Silicon Valley, so I really get a kick out of people on this blog who claim the water+mountains+tight regulation+tech combo platter will limit the downside potential in Seattle. We didn’t inflate here much more than Seattle did percentage-wise (a little more than 2x compared to a little less than 2x), yet most people expect this area to tank (and it is currently doing so).

  64. 64
    Mike2 says:

    Steve Tytler: Inflation is becoming a huge concern.

    Do you have any evidence of wage inflation becoming a huge concern? Prices are going up, but are wages?

    Is it technically still “inflation” if wages don’t go up?

  65. 65
    Mike2 says:

    RCC: (with DC holding up better than most).

    This comment caught me off guard since parts of the DC Metro area as covered by C-S are in fact seeing the fabled 50% haircut already. 30% off peak isn’t even noteworthy anymore.

  66. 66
    Buceri says:

    Mike2; inflation is measure in consumer prices, not wages.

    During the last 7 years wages have gone down; but it was compensated by throwing cheap money to people in the form of helocs; 1-4% credit card interest loans to good borrowers, etc. Now that the easy money dried up, I can’t see how inflation can continue. Bernanke hinted at another cut (there goes my savings account rate!!!); but I am not sure people can keep on borrowing. Just like with homes; no matter how cheap money is, eventually you run out of salary to pay back that debt.

  67. 67
  68. 68
    Tsuru says:

    people are wondering “who” is purchasing and refinancing in today’s lending environment, I can tell you that the current pool of borrowers credit worthiness is of a much higher caliber than what I encountered a couple years ago. Money & high FICO’s. It is very good to see.

    Thanks for the info Tim – what’s your feeling for new mortgage orgination and refinancing volume as compared to last year?

  69. 69
    Joel says:

    Here’s some charts showing ARM resets:
    Credit Suisse ARM Reset Schedule

    Goldman Sachs Adjustable Rate Resets
    BOA Reset Chart

    Is the worst over?

  70. 70
    jon says:

    The volume of resets will continue at about the current level until the summer. At 90 days after that, the worst will be over in terms of people being forced to sell because of the subprime crisis. A that point I would expect capital to become available again to fund jumbo mortgages, which will bring the median price figures back up since the rate of sales in the upper end of the market will recover. So I dont see the need for panic selling at the end of the spring market, because the end will be in sight at that point.

    If a recession occurs, then all bets are off of course.

  71. 71
    Joel says:

    Here’s some notes from the FannieMae conference call.
    Some important points:

    – Tighten underwriting
    – Increase pricing going forward, beginning in March
    – Expecting doubling in default rates in 2008

    So looks like thing are going to get worse. Also, it’s not just a subprime problem.

  72. 72
    Mike2 says:

    Buceriinflation is measure in consumer prices, not wages.

    I think you’re referring just to CPI – that’s “A” measure of inflation, but it’s not the definition of inflation.

  73. 73
    Angie says:

    In comment #63, b said I live in in Silicon Valley, so I really get a kick out of people on this blog who claim the water+mountains+tight regulation+tech combo platter will limit the downside potential in Seattle. We didn’t inflate here much more than Seattle did percentage-wise (a little more than 2x compared to a little less than 2x), yet most people expect this area to tank (and it is currently doing so).

    Yeah, but Silicon Valley also started out with far higher absolute prices in the recent runup. Housing prices have been berserk on the peninsula since at least the early 90s.

  74. 74
    SunTzu says:

    “How does inflation play in this mess??? Inflation numbers came in pretty high. Does inflation affect the pricing of a home? Salaries ’should’ keep up with inflation. Does not eventually hold home prices decline?
    Crap! this is giving me a headache!!!”

    If Bendover B(ernanke) thinks he can inflate the housing market by lowering rates to spark an inflation then he has some surprises coming to him. On bloomberg today some economist was saying that the FED has pretty much falied at reviving the housing market by lowering rates. Because mortage rates are going up and not down because investors want to be compensated for the acceleration of inflation (such as the PPI figure released yesterday). Now as long as average Joe don’t get significant pay raises, he will have to spend more on food, energy and everything with that same pay check, BB thinks such a person would make a purchse of houses when RE prices have not been reduced to a reasonable level? In his dreams…..

  75. 75
    b says:

    Angie –

    It certainly started out higher, but the salaries here are also higher. When comparing percentages based on CS, the overall index rise is very similar, I think the bay area was around 215 and Seattle is 190ish. I would venture to say that home prices here should fall less than Seattle if things were based on the ethereal “fundamentals” that realtors use (location, jobs, density, everyone loves it here, blah blah blah). The fact that none of this is saving our area should make Seattlites think twice about their market. I would venture to guess a lot of the “investors” who were buying in Seattle over the last year are my coworkers and neighbors, and they are not going to be buying up there anymore.

  76. 76
    Steve Tytler says:

    I just want to clarify a few things about me.

    Some people on this forum, including “The Tim”, refer to me as a “mortgage company owner” … which is true.

    But that is only a small part of my background.

    I am also a licensed real estate broker. I’ve been a licensed real estate agent since 1988.

    I am also a paid columnist for the Everett Herald. I have been writing a weekly real estate column the the Herald and other newspapers since 1990.

    Again, let me emphasize that I am a PAID columnist. They don’t pay me to be a real estate or mortgage industry advocate, they pay me for my honest objective information and advice about real estate and mortgage issues which is exactly what I provide.

    The reason I started wriing a real estate column way back in 1990 is precisley the same reason that many of you laugh at the Seattle Times real estate writer: they don’t know what they are talking about!

    I’ve been working in the real world for over two decades, I know what’s really going on.

    Prior to that, I was a TV reporter for 12 years. So I have been a professional writer and journalist for my entire adult life.

    Believe me, I have taken some grief from people in the real estate industry for “talking down” the real estate market. In the fall of 2005, I stated in my Herald column that the Puget Sound real estate market was peaking and that appreciation would some come to a halt. In the fall of 2006, I stated in my Herald colum that appreciation was over and that 2007 would be a “flat” year with no appreciation and possibly even some price declines. In the fall of 2007, I stated in my Herald column that I think average home prices will fall 10-20% this year. That one really caused some people to get upset with me.

    But as you can see, I was right on every “prediction”

    I have been actively involved in real estate for 20 years in this market, and I’ve done a lot of research becuase I used to publish a paid newsletter for real estate investors back in 1989-1991.

    So don’t think of me as just a “mortgage company owner.”

    As for the questions about the credit crunch being over, the mortgage business is up this year after a very slow 2007, with both refis and purchases. Last stats I saw said refis make up about 65% of the mortgage market right now.

    S-Crow confirmed this in his post above.

    At my mortgage company we NEVER did any subprime loans, so the loss of the subprime market did not hurt us at all.

    As I said above, we are back to a “normal” mortgage market where people have to qualify for loans. You can’t get a loan with crappy credit and/or lie about your income — which you could do for a few years when the mortgage industry had a period of temporary insanity.

    Today, we are back to the kind of mortgage market that we have had for most of the 16 years that I have been in the mortgage business.

    If you have good credit, you can get a loan to buy a house. That has never changed.

    As for the questions about inflation, that has nothing to do with wages. Inflation measn increasing prices.

    Inflation is now higher than it has been since 1981, so it is a very real concern for investors — which is why mortgage rates have jumped almost a full percentage point in the last month.

    I hope that answers your questions and gives you a better idea of my background.

  77. 77
    Steve Tytler says:

    Joel,

    I said 2008 would be a bad year for foreclosures.

    I did not say it was over NOW.

    I said the worst will be over by the end of this year because the people who can’t afford their mortgage payments are going into foreclosure now.

    By the end of the year, most of those people will be washed out of the market.

    You have to understand that there is ALWAYS a certain percentage of mortgages in foreclosure. We are just seeing a temporary blip that is the result of about 3 years of crazy lending practices.

  78. 78
    goin' for it says:

    -SteveT-

    I read your post and sort of threw up a bit in my mouth. You have no clue as to what is actually going on out there or being deliberately disinformative. Please allow me to tear apart your post, point-by-point.

    1. The subprime market is gone- Why yes, yes it is. Is this something that will help keep housing prices appreciating? Why no, no it isn’t. Without all those idiot buyers out there anymore you don’t have as much demand.

    2. Mortgage business is up-Okay, its up. Why is it up? Are you referring to the recent glut of refi’s because of the temporarily lowered rates? Btw, since your in the mortgage business you must have noticed that they’re climbing again. Don’t expect them to go back down as long as Bendover Bernanke and the gubermint keeps on mucking around with things. The stories that I hear indicated that the mortgage business has already started to tank again after that little pump.

    3. The remaining fallout will be the foreclosures from the people who got in over their heads on subprime loans or “liar loans” (stated income) and can no longer make their mortgage payments.- WRONG!! So god damned wrong it makes my teeth hurt! 30% of recent foreclosures came from PRIME loans. Add to that the fact that we won’t even hit the peak for sub-prime foreclosures till March/Apr ’08! The foreclosures we’re seeing now are from people who defaulted in freakin’ July 07.
    Whats going to happen to the market when theres still a huge amount of foreclosures hitting the market in Feb ’09?! What then Steve?!

    4. Most of those people will be washed out this year.- See above.

    5.BTW, if you are waiting for mortgage rates to drop this year, don’t count on it!-Thank god you got this one right.

    6. Inflation is a huge concern. -Why yes it is. For now. Wait till the deflation hits. People just don’t understand what inflation really is. Inflation = expansion of monetary base.
    What do you call it when money is destroyed because a bank has to sell a house for 250k that they loaned someone 550K for? You call that destruction of the monetary base. You call that DEFLATION. Get used that word people, you’re going to hear a lot more of it.

    RANT!

  79. 79
    Steve Tytler says:

    Regarding inflation, the reason it affects mortgage rates is because of the time value of money.

    When the inflation rate goes up, long term bonds and mortgage securties drop in value. That’s why investors try to protect against that risk by raising interest rates now to make sure they are not caught with low interest rate notes in a high inflation environment.

    Inflation does not affect home prices. Real estate is a supply and demand market, pure and simple.

    When there is low supply and high demand (as we had during the boom) home prices go up, when there is high supply that outpaces demand (as we have now) home prices go down.

    That’s all there is to it.

    All of the statistical analysis in the world won’t change that.

    In fact, I don’t conside the Case-Shiller stats to be accurate.

    The housing market in the Greater Seattle area peaked in the Fall of 2006, there has been virtually no appreciation since then, I don’t care what their stats say.

    I’m basing my analysis on real home sales and watching the market.

    As a real estate broker I have access to the MLS computer system and I watch what is happening in the real world, I don’t base my prediction on other people’s
    statistical analysis.

    In fact, I had a long discusssion with “The Tim” about using statistical analysis alone vs. my “gut instincts” method.

    My record speaks for itself. I have a very good feel for this real estate market and it’s not all about looking at numbers on a graph.

  80. 80
    b says:

    Steve –

    Subprime/ARM resets are not the primary cause of foreclosures, overextended borrowers and falling home values are. This has been shown repeatedly and is a reason why the ARM bailouts are not likely to save much of anything. ARM resets certainly do not help, but they are not the real culprit.

    Fed: Foreclosures not primarily due to high loan payments
    What causes foreclosure? Countrywide’s claims

  81. 81
    Steve Tytler says:

    To “goin’ for it”

    What is your background?

    I have a record of publicly published predictions that have turned out to be 100% accurate.

    What’s your track record?

    For one thing, you missed some of points in earlier posts where I actually agree with some of what you are saying.

    Your “RANT” is misguided.

  82. 82
    b says:

    I should also point out that since Seattle only recently started to experience overall home value declines, foreclosures in the area should begin to ramp up accordingly.

  83. 83
    EconE says:

    Steve T…

    per your 100% correct track record, can I safely assume that you told your clients in 2006 and 2007 that their houses would fall in value in the coming years?

    didn’t think so.

  84. 84
    biliruben says:

    Geez. Tough crowd! Steve says prices will decline 10-20% THIS YEAR, and he still gets folks here on his back!?!

    I don’t happen to agree with his latest prediction, but he’s really the only MSM friend bubble-heads have (though Aubrey seems to have started coming around a bit). Cut the dude some slack.

    I happen to think we will see more of a long, slow decline lasting 3-5 years 5-15% each year. As someone who is impatient to move up however, I hope you are right Steve. After I see 20%, I’ll start shopping, and I’d rather that be 2009 than 2010 or 11.

  85. 85
    The Tim says:

    I agree with biliruben, the animosity toward Mr. Tytler is wholly undeserved. Although I don’t agree with him 100%, he is definitely the most sensible voice on the local real estate scene–outside of Seattle Bubble, of course ;^)

  86. 86
    deejayoh says:

    +1 to Tim and biliruben’s point

    I applaud Steve for his participation here and find him to be pretty on point with his forecast and rationale.

    Read his blog before calling him out. It’s all there in black and white pixels…

  87. 87
    Shawn says:

    jjl, no attempt to mislead, the fc rate for wa is above the national average. That was the point. Further, Seattle is the largest city with the greatest impact on the state, so it is not a stretch to “assume” that Seattle has fed a good part of that fc rate. But I applaud anyone who still wants to fight off bubble talk. I do notice that just about everywhere in the nation the bubble concept is now accepted. I predict that soon, Seattle (that laggard) also will swallow its pride and accept the reality that it too encountered a re bubble. It is hard to realize the one is not special after all. However, the answer is to use logic and reason, rather than puffy talk that we are better than all them other towns, we got trees and views, n jobs :)

  88. 88
    MrRational says:

    I think “goin’ for it” is off his meds. What a nut job.

  89. 89
    Lake Hills Renter says:

    I welcome Mr Tytler’s opinion here. Even though I don’t necessarily agree with him 100%, he seems knowledgeable and intelligent and doesn’t resort to mudslinging or namecalling. We need more of that on both sides of the issue.

  90. 90

    EconoE,
    Tytler’s columns and predictions are archived in the Everett Herald. It’s all there. He said what he said he said. It takes guts to be in the Real Estate industry and predict price declines, and posting on Seattle Bubble, he gets it from both sides.

  91. 91
    EconE says:

    Ira…et al…I can appreciate that Steve put his predictions up there for anybody who found their way to his column. But did he mention his predictions to his clients while every other source was stating that RE would keep going up (or plateau for a bit and then continue it’s upward trend) or did he advise them to wait for his predicted price declines.

    Also…he is still clinging to the “subprime” issue which in fact it is not.

    He beats his chest and claims that he “NEVER” did a subprime loan. How about stated income? Neg-Am? Was anybody ever qualified for a loan at the introductory ARM rate and not the fully amortizing (adjusted) rate?

  92. 92
    rose-colored-coolaid says:

    #62

    RCC: (with DC holding up better than most).

    This comment caught me off guard since parts of the DC Metro area as covered by C-S are in fact seeing the fabled 50% haircut already. 30% off peak isn’t even noteworthy anymore.

    Ditto. I was just pointing out that since the credit markets have seized up, it looks like the decline in DC (and Portland actually) is smaller than anyplace else. Approximately 2-3% if I’m reading the right lines on that really cluttered chart. We’re down about 4% since then like Boston, and the FL/CA/NV cities are all off closer to 10%.

    Seems like Seattle and Portland are lat to the party, so I don’t know what it means, but it definitely looks like Boston and DC are holding up ‘better’ than other major cities.

  93. 93
    rose-colored-coolaid says:

    Steve T, I appreciate you going on record with your predictions. It is a much riskier move than anything we see in the Times (where every article starts with “Seattle bucks the national trend…”).

    That said, I think you are a little pessimistic this year, and a little optimistic for the next few years. Personally, I expect 8-12% declines this year. Your number is a bit higher 10-20%. I’m just curious what you think needs to happen for Seattle to be close to that top number in the range.

    2009 and beyond, I think we’ll probably see 5-7% declines, with 2-3% declines in 2010, before things finally start to stabilize. I guess if you add it all up, we come up with pretty similar numbers.

    I think to make a metaphor, you are predicting a rock slide. Prices don’t move much, then they move violently, and then it’s all over. I’m predicting more of a slinky, which has a more measured pace before finally slowing to a stop.

  94. 94
    Matthew says:

    Quick note:

    Just because subprime loans are no longer being handed out like lolipops at the doctors office, doesn’t mean that the effect of past subprime loans are not having an impact on the market.

    A good chunk of subprime loans are currenly going into foreclosure, but didn’t default until late summer/early fall. Also, a good percentage of subprime ARMs are going to reset in the next year. More subprime ARMs reset in March, April, and May than in all of 2007.

    Don’t think that the subprime issue is behind us. It’s going to linger for most of 2008 and into 2009. A lot of the repricing going on in the mortgage/bond market is not due to inflation but due to pricing in added risk. Lenders want to be compensated for the additional risk of giving someone a mortgage in our current market, and therefore are pricing it into rates.

  95. 95
    magnolia44 says:

    magnolia sold homes in the last month from one page to 4 on mrmagnolia.com.

    Walked by a home sold in dec for $450k, its not there anymore they tore it down for a $1 million dollar rebuild. I think spring some people are going to be in for a suprise, homes are going to sell over here. They may go down in price from sellers over inflated expectation but they will sell.

    i think we are goling to be just fine over here… :-) a slight correction never hurt anyone.

  96. 96
    Matthew says:

    Magnolia44,

    Keep drinking the Kool-Aid buddy… keep drinking!

  97. 97
    local Realitor says:

    Actually Magnolia is closer to the truth than you are. Magnolia is awesome and the inventory is always lower in comparison to other hoods. Go take a drive along the Blvd and stop in the Village sometime to get a feel. Magnolia is no Beacon Hill or Drive-By Delridge.

  98. 98
    deejayoh says:

    They may go down in price from sellers over inflated expectation but they will sell.

    i think we are goling to be just fine over here… :-) a slight correction never hurt anyone.

    Matthew, it sounds like he only got the weak kool-aid anyway.

    FWIW, Estately has a nice feature that lets you track what happens to your favorites – whether they sold (and if so for how much) or were delisted. I’ve been using this to watch a few places on Magnolia. (I’m a fan of mid-century modern homes, and there are a lot of them there). Of the five I’ve been watching (all $600k – $1mm) – 1 sold (took about 3 months), 2 have been delisted (after sitting on the market over 6 months each), and 2 are still sitting with no price change (30 and 60 days, respectively)

    small sample, but doesn’t seem particularly hot in the segment I’m following.

  99. 99
    Just waitin' says:

    -SteveT-

    Apologies, it appears I didn’t take my meds. You have been right for the last 3 years and of course will continue to be correct in the next 3 years. It does take a big old pair to post with people like me lurking around like the bitter wanna be buyers we are. ;)

  100. 100
    Futureboy says:

    Down 1.21%! Great Scott!

  101. 101
    toohoo says:

    deejayoh: do you know of a way to search recent past sales on estately? I see when you select area info, it gives you the two most recent sales, but that’s it. is there a function that allows you to search all recent sales and not just the last two?

  102. 102
    deejayoh says:

    deejayoh: do you know of a way to search recent past sales on estately? I see when you select area info, it gives you the two most recent sales, but that’s it. is there a function that allows you to search all recent sales and not just the last two?

    Not that I know of. Estately is nice because you can track stuff between when it’s taken off of the NWMLS and when it’s recorded by the county. I think both Zillow and Redfin both show everything in the county records.

  103. 103
    economist says:

    The price of my house will usually be related to that of my neighbor’s.

    Neighboring houses are like shares of stock in the same company. They have the same fundamentals. There is no economic reason for anyone to prefer one over the other. So of course the prices will track each other.

    But even in widely differing neighborhoods, houses have far more in common than different companies do. A house in Wallingford and and house in Kent are like two different cars from GM, not like GM and Microsoft.

    Really the only situation where you get houses going up in one district and down in the other is when the latter has neighborhood decline issues. But when you are talking about cyclical changes in RE prices, as we are seeing now of course, all price movements are in the same direction. Not all the same amount, but the same direction.

    Anyone who has been following the situation in cities like SD or Miami which are well into the bust will know this. Declines right across the board from the hood to the mansions.

  104. 104
    economist says:

    The subprime market is virtually gone now and the lending standards have gone back to the “normal” guidelines that we had before the market went nuts for a few years.

    Uh, Steve, then doesn’t that mean that prices are going to have to go back to where they were “before the market went nuts for a few years”? How much of a drop is that?

  105. 105

    Economist,
    I don’t always agree with you but you did a good job of explaining declines in different neighborhoods vis a vis stocks.
    You mentioned neighborhood decline issues, which would explain why a certain neighborhood would go down more, but barring a major local recession ( which I know is possible) wouldn’t the opposite be true, that even in a declining market some neighborhood or other comes into favor? Using your car analogy, maybe GM cars aren’t selling, but what if Chevy came out with a cool car that was fueled by moss or mold? Couldn’t the company be failing but not all models?
    Again, I’m not assuming i know anything here, just wondering.

  106. 106
    Angie says:

    That’s interesting about Estately…I just tried it to look up what happened to a house near us that was bought to flip in April 07, went back up for sale shortly thereafter, and hadn’t sold since. The sign outside switched to Redfin a few months ago. Now the sign is down, there were cars in the driveway and people in the house, so I’m guessing it finally sold after all this time.

    Nosy Parker that I am, I’m curious what they finally got for it…All in the name of science for Seattle Bubble, that is. ;)

    Anyhow–I tried both the address and the MLS number, but Estately didn’t show anything. Nothing yet in the county records either. Guess we’ll have to wait and see.

    But since I’m talking about notable houses in my neighborhood–anyone remember that “Extreme Fixer” in Columbia City? The house had literally been gutted for 15 years, it provoked a bidding war, sold for more than asking? The buyers tricked it out, then put it on the market for $200K more.. It sold too in the last few months, ’cause folks are in there.

  107. 107
    Alan says:

    Angie, try the King County parcel viewer if you want information on a property’s sale history. Search by address then click on property report.

    http://www5.metrokc.gov/parcelviewer/Viewer/KingCounty/Viewer.asp

    The house may have been rented instead of sold. If you don’t see recent sales information in KC records (and the house is in KC) then it wasn’t sold.

  108. 108

    Angie,
    If you can”t get the county records, either post the address or shoot me an email, I’ll look it up on the MLS.

  109. 109
    Scuba Steve says:

    I’m late to the party, but I enjoy Steve Tytler’s posts. It’s nice to get a variety of opinions on here and I like reading them.

  110. 110
    Angie says:

    Thanks for the suggestions. Ira, I may take you up on that offer later in the day when I get a chance to dig up the info again. Alan, I already checked the KC records–my recollection is that it takes a while for sales to show up in their database.

    The above discussion about Estately is the first I’ve heard that we mere mortals (without MLS access, that is) can track of prices of actual sales, before they get recorded by the county. I guess that’s only true if within a limited time, or if you flag a property for tracking while it’s still listed?

  111. 111
    deejayoh says:

    Anyhow–I tried both the address and the MLS number, but Estately didn’t show anything. Nothing yet in the county records either. Guess we’ll have to wait and see.

    I think you have to have it favorited in “My Estately” to track the sales as I don’t see where you can track any property. And even then I am not sure that the price listed as the “sold” price is real – ti might just be the last asking price (cuz how would they know?). But it is nice to be able to parse “sold” from “delisted”

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