I Got Your Doom and Gloom Right Here

King 5 News ran a great little piece yesterday that demonstrates just how ridiculous it is to call falling home prices “doom and gloom.”

Does this look like Doom and Gloom?The flat real estate market has been a source of concern for many.

But for some charities like Habitat for Humanity, it’s providing a long awaited opportunity to advance their cause.

After years of being priced out of the market, Habitat for Humanity closed on the purchase of 4 and a half acres in Renton on Monday.

It’s not much to look at now, but in due time 41 new town homes will be built there.

“We’re hoping if there is a silver lining in this downturn in the real estate market, that maybe it is for low income families to be able to afford to buy homes,” [Habitat for Humanity spokesman Tom] Granger said.

Last month Cory Lynn Berrios and her family moved into a new townhouse which she and her husband were able to help build and buy thanks to Habitat for Humanity of east King County.

“Silver lining?” Mr. Granger, affordability is the main event. And not just affordability for charities building cheap townhomes for low-income families. How about middle-class, responsible people that have been priced out of the market thanks to the housing bubble? How about modest single-family homes that shot up to $500,000 or more, driven by the mass hysteria of a pyramid scheme, that are now heading back down to earth?

This housing downturn would probably be better described as a return to housing market sanity, which I contend is good for society as a whole.

(Deborah Feldman, KING 5 News, 04.01.2008)

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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.

49 comments:

  1. 1

    If homeownership is a good thing, and I think it is, then falling home prices are also a good thing because they might allow more people to become homeowners.
    Until the “flipping frenzy” hit, homeowners tended to stay in their homes longer than renters and maybe had a little more invested in the community. This is not a dig at renters, just that if you’re a renter and unhappy where you are, it’s just easier to split than if you owned the home) especially right now, where if you owned the home, you couldn’t sell it.)

  2. 2
    Ubersalad says:

    Damn right, do it for the kids. Support rapid and drastic depreciation today for a better future tomorrow.

  3. 3
    bitterowner says:

    Ubersalad,
    Finally, something we can agree on. Your statement is right on the money! I think you’re finally seeing the big picture.

  4. 4
    Buceri says:

    You know things are really crappy, when Bernanke tells Congress things will be a tad crappy.

  5. 5
    Sorin says:

    Ira,
    That’s an interesting aspect to this whole housing bubble, that community has probably suffered due to a larger number of flippers or other short-term owners. I’d also add that the nature of some of the construction has had a negative impact in some neighborhoods as well. Rows of non-descript townhomes that sit behind 6′ fences, where the main entry is the garage, don’t exactly encourage community engagement. It will be interesting to see if the style of developments in the next few years become a bit more open and inviting to the neighborhoods as opposed to isolating people from them.

    I know there are plenty of exceptions to this observation, but by and large, for the neighborhoods I know, it holds true. I really do wonder about the effect of this over the next decade.

  6. 6
    vboring says:

    mentioning kids is important. it reminds us that 20 years from now, houses will still need to be affordable.

    imagine if house prices did increase at 10% per year while wages increased by 5% for 20 years.

    everyone would be priced out.

    the best thing we can do today is let prices return to reasonable levels. the only question is how do we punish financial institutions enough that they won’t make the same mistake again without bringing on a depression.

  7. 7
    Nell Plotts says:

    Sorin, the housing developments constructed after WWII are a case study in nondescript cookie-cutter construction. Small but soundly constructed. Years later the owner’s had personalized them and most are attractive neighborhoods today.

    God willing, today’s town homes will similarly morf. I worry about ‘soundly constructed’, however.

  8. 8
    Buceri says:

    “mentioning kids is important. it reminds us that 20 years from now, houses will still need to be affordable. imagine if house prices did increase at 10% per year while wages increased by 5% for 20 years. everyone would be priced out.”

    Vboring – come on man; why do you have to bring common sense and facts to the table?

  9. 9
    NostraDamnUs says:

    “… that are now heading back down to earth” = price drop of about 10-15%, which if not seized now, will bounce back up and regain, not because I don’t want you to have a home you can afford, but simply because the nature of the beast (capitalism) is such…

  10. 10

    CALL ME A PRAGMATIC CYNIC

    Seattle has a huge homelessness problem, low wages that can’t sustain rents for a good percentage of its population; yet, by gosh “Habitat for Humanity” houses the lucky 1 out of 100,000 of this mess.

    What I’d like to know, who gets these lucky lottery winner “Habitat for Humanity” homes? Friends of politicians?

    I’s be less cynical if they did it with like a Mega Million lottery. Calling this a charity is a charade too. How many Seattle working couples can’t afford the very homes they call charitable gifts?

    Give me a break.

  11. 11
    Sniglet says:

    If homeownership is a good thing, and I think it is, then falling home prices are also a good thing because they might allow more people to become homeowners.

    As much as I believe it is important for housing prices to come down (to clean the economy of mal-investments) I don’t think that lower prices, in and of themselves, will help the poor.

    Sure, in the LONG run the poor will benefit from a rejuvenated economy that no longer depends on real-estate for economic growth (i.e. as investment money is properly directed to more profitable, and productive, sectors). In the short-term, however, I suspect there will be a lot of economic pain, and rising unemployment, as the economy re-aligns itself.

    But even after this economic downturn has passed, I am not so sure we should be hoping that home-ownership rates skyrocket again. If housing is priced appropriately it simply shouldn’t make economic sense for many low-income folks to own homes at all. Maybe rents will be lower since the cost-basis of housing will drop, and in that way the poor could benefit, but I am not necessarily going to wish home-ownership on them.

  12. 12
    b says:

    NostraDamnUs –

    The nature of the capitalist beast ensures that 1) prices will drop more than that 2) they will not bounce back up 3) homes will return to affordability in order to maintain balance in the market.

    Good luck trying to sell $500k shitboxes to the 300 people left to buy them in 2 years. There sure isn’t a shortage of homes or a huge influx of people to prop up the current pricing.

  13. 13

    Sniglet,
    I’m with you. Nobody should buy a house they can’t afford, and it wouldn’t make sense from an economic sense that poor people should suddenly be able to afford to buy a home, but there will always be poor people out there unable to buy homes. What distresses me more is that too many middle class folks have been priced out of buying in the Seattle area..I just don’t want all my neighbors to be rich *ssholes.

  14. 14
    FreedomLover says:

    Ira:

    What Seattle needs is more rich people to prop up our status. We need to compete with the Joneses(Manhattan, etc…).

  15. 15
    Jeff says:

    Comparing the situation of those that benefit from a program such as Habitat for Humanity to the ‘plight’ of you and your disciples is a bit thin and in pretty poor taste.

    Saying ‘affordability is the main event’ suggests that you have taken up some sort of social cause here, but the reality is that this site is about real estate and nothing else. Lack of affordable housing is not a recent phenomenon… Many people couldn’t afford basic housing before the run-up, and they certainly cannot currently.

    Will you take up their cause once things return to the status quo? I am guessing you will not, just as I am guessing you didn’t give it much thought before you realized that you couldn’t afford the house you wanted, in the neighborhood where you wanted to live.

    Congratulations on finding yet another way to beat this very dead horse…

  16. 16
    Everett_Tom says:

    Here’s a fun article from the wall street journal.

    summary: If the government is going to do anything, it should buy unsold homes and knock them down (new homes too), then there will be less supply. It also doesn’t directly bail anyone out.

    Not sure if this is written in the same vein as “A modest proposal”… :)

  17. 17
    rose-colored-coolaid says:

    Expanding on #13

    What concerns me more is that even the upper/middle class people became nearly priced out. Imagine a young couple who both work for MSFT or something like that. I don’t know what they make, but it’s probably between $70k and $90k each, so let’s just call it $160k combined annual salary. $160k * 4 (3 times income + 25% downpayment) = $640k.

    They can afford a $640k house. Not bad! That’s a bit better than an average within a decent commute of their jobs (conveniently they both have the same employer). But wait! That $160k annual salary is like three times the median. It’s a couple standard deviations outside the norm. Middle class is priced out, upper middle class is nearly priced out, and the newcomers at the bottom of the upper class (our hypothetical DINKYs) actually have their work cut out for them too.

  18. 18
    rose-colored-coolaid says:

    #15 Jeff, how wise you are. Yes, it is hypocritical and therefore wrong for any person to have any vested interest in any legitimate cause. Forget consciousness raising when we it’s so much easier to make personal attacks. Your argument is like complaining that Susan B. Anthony fought for women’s suffrage when she was in fact a woman. Or perhaps you are unhappy that MLK fought for civil rights even though he was a black man.

    What’s a better solution? Should we do nothing because YOU might think it’s hypocritical? For the record, I too am interested in this topic because I have found it difficult to purchase my own home. But it has raised my conscience to the fact that nearly 100 million Americans are in a similar boat. I think if we are going to toot our own horn as the wealthiest nation in the world, this is a legitimate problem and we need to do something about it. Families shouldn’t have to decide whether to pay their rent or fix their car.

    But I guess we can’t all be quite as perfect as you Jeff. You’ll just have to bear it I guess. Which should be no particular problem; because you possess a grace that the people who contribute to this website can only hope to have themselves.

  19. 19
    Jeff says:

    @#18 ‘Should we do nothing because YOU might think it’s hypocritical?’

    And what is it that you are actually doing, beyond raising awareness that you have found it difficult to purchase a home?

    Do I have better solutions? I don’t think you are really trying to solve any problem, other than your own. That was my point.

  20. 20
    Matthew says:

    Nostradumbass,

    I relish the day when you actually add something to this discussion. Seriously, what are you even doing here? How many housing markets across the country have you seen drop 10-15% and then immediately bounce back up? I’m not seeing any according to Case Shiller…. Seattle will see 10-15 YOY decreases this July, and there will be no bounce.

    Move along Troll.

  21. 21
    Moe Ronn - Realitor® says:

    Regarding #16

    I sorta agree with you, except for the part where my tax money is used to buy stuff that I don’t need, and which will not be used by anyone.

  22. 22
    Matthew says:

    Jeff,

    How is pointing out that cheaper housing affords an opportunity for poor people to become first time home owners “beating a dead horse”? I have seen very little, if any, media coverage about this topic.

    I do see multiple stories regarding flippers going bankrupt, families with HELOC payments they can’t make, etc, etc…. But nothing in the way of what BENEFITS cheaper housing creates.

    Good job Tim, this article was a good find.

  23. 23
    rose-colored-coolaid says:

    #19. Jeff, I don’t even know what you would want me to do. I am raising awareness where I can and most of it has nothing to do with me being a homeowner. I worry about friends at work whose children are 16, and what they would go through if things don’t improve. I worry that the downtrodden of our society will realize the deck is stacked against them and that we’ll have a true revolution (or at least riots in the streets akin to what happened in France about 2 years ago). Does it really matter what percentage of this is altruism (I think it’s wrong anyone is homeless) vs selfishness (I don’t want riots in the streets because it’s not safe for me or my family).

    I’m not going to go into detail about what I’d like to see, because you aren’t open to it anyways, but I advocate a much more socialist society, which frankly would raise my taxes and today would do little to help me out directly. But I’m better off than most people, and I think it’s only proper that we all share a bit more than we do. However, that doesn’t sound capitalist enough to most people, so when I bring up specifics, people usually rally against it as being ‘not capitalist’. But I do have some ideas, and I write my congressmen/women when appropriate. I share what I can with friends and coworkers. This is how memes grow and spread, and that’s my main hope.

    You have have taken the alternative approach which is to hold no ideas (as you stated) and shout down anyone who does. Is it’s possible that one of Tim’s motivations to runs this blog is that he personally would like to buy more house for less money? Sure. But while he’s at it, what is wrong with him pointing out the millions of disadvantaged people who do benefit (not just from lower mortgages but lower rents as well) from lower housing prices? Feel free to ignore my question and instead write another name calling comment about anyone who holds an opinion differing from whatever it is you actually believe.

  24. 24
    Markor says:

    How nice of Habitat for Humanity to let someone have stuff they otherwise could not afford, like that fourth child. Won’t someone please pay for the school lunches too?

  25. 25
    singliac says:

    Jeff, I think you misunderstood the premise of the post. The post isn’t about Habitat for Humanity or Tim showing his philanthropic side. The post demonstrates how falling prices is not “doom and gloom.”

    ps: as far as habitat for humanity is concerned, I think it’s a fantastic organization. If you’ve ever talked to recipients of a habitat house, you know that there is no sense of entitlement. They are just incredibly grateful. The houses are built from DONATIONS. If you don’t like to support programs like this, don’t donate.

  26. 26
    The Tim says:

    The post isn’t about Habitat for Humanity or Tim showing his philanthropic side. The post demonstrates how falling prices is not “doom and gloom.”

    Exactly.

  27. 27
    Ubersalad says:

    It’s about the “kid”, can’t you see the picture?

  28. 28
    Sandy says:

    Tim–I totally agree with this perspective. I don’t know if you’re aware since I don’t advertise the fact very much, but I actually am the VP of Site Selection for Habitat in Snohomish county. One of the best things to come out of the current market for us has been that we are now able to get land owners to talk to us, where in the recent market it has been a struggle not just to find land we could afford but to find sellers willing to work with us through our somewhat lengthy and difficult land acquisition process.

    Now, the tables have turned, and they are approaching us. It’s a different world, and not a bad one. I think it helps me a lot in this market, being able to see this issue from a different perspective.

    There is a saying, there are no bad real estate markets…it’s always good for someone.

    Ira and Sorin also bring up a good point about the recent “flipper” mentality. Habitat believes that one of the benefits of homeownership is stability for families. But, there is also the question of stability for neighborhoods. When people are selling homes and upsizing every few years, they never really put down roots in a community. I think when you look at it that way, that is another benefit that is going to come out of this whole thing.

  29. 29
    Sandy says:

    Oh, there was one thing here I didn’t like and that was the use of this phrase, “middle-class, responsible people.” I am sure you didn’t intend it this way but it sounded a little bit as if you were implying that Habitat homeowners, or low-income people generally, are not responsible. I think you would be surprised to see just how responsible some of our homeowners are, and what a difference being a Habitat homeowner has made in their life.

  30. 30
    The Tim says:

    You’re right, I didn’t mean it that way at all. The “responsible” part was put in there as a contrast to the people over the last few years that have taken out irresponsible, flat-out dangerous loans for far more house than they could really afford.

  31. 31
    Ubersalad says:

    I think Tim meant that even the “responsible” middle class couldn’t afford this housing market, let alone lower class, and by stressing “responsible”, he meant those that did not risk Option ARM or interest-only ARM to get into a home.

  32. 32
    Ubersalad says:

    I find myself agreeing with Tim…something is going wrong in my head.

  33. 33
    Sandy says:

    I didn’t think that sounded like you, but thanks for the clarification. I did kind of have to stop and re-read it a couple of times. There are people like Markor who seem to think that Habitat is about letting people “have stuff they otherwise could not afford,” and while yes, we do believe in helping our fellow man, it’s by no means a handout. Habitat families put 300 – 300 hours of “sweat equity” into their homes, and are selected via a pretty rigorous family selection process.

    If you’re interested, here is some information about HFH. And if you’re interested in helping out, the local affiliates are always looking for volunteers for a variety of work, from swinging hammers to office administration.

    http://www.habitat.org/how/factsheet.aspx

  34. 34
    Sandy says:

    argh. That was supposed to read 300 – 500 hours of sweat equity.

  35. 35
    B&W Nikes says:

    What’s with the escalating grief toward flippers? Buying beaters and fixing them up is bad? There’s a real problem in looking for scapegoats to this huge problem that was passed down to main street through irresponsible institutional vehicles. Neither buyers or flippers get to “write down” losses or “deleverage”. I find I’ve a lot more grief with WAMU and JP Morgan than the local knuckleheads taking out risky loans for risky business propositions. The institutions providing these vehicles are exactly like loan sharks, they benefit from high failure rates and penalties – not successfully executed and repaid loans.

  36. 36
    Sandy says:

    B&W is right. It isn’t flippers I have beef with because a lot of times they do a good service by buying a home no one wants to take a chance on and fixing it up. There are bad apples in every barrel of course. Though, I think it is more fair to refer to those folks as rehabbers–they are adding value rather than just speculating.

    I guess I am thinking more of the way people in general have gotten away from the idea of buying a home for the long term and putting down roots.

  37. 37
    wreckingbull says:

    It isn’t flippers I have beef with because a lot of times they do a good service by buying a home no one wants to take a chance on and fixing it up.

    Perhaps in a sane market. Most of the flips I have walked through in the last five years were absolute hack jobs. To make matters worse, many of these hack jobs were done on decent homes with good bones….the perfect starter home for someone who wanted to put in some honest sweat equity and take a little pride in their work. (i.e. rehabbing).

  38. 38

    Actually I have more of a problem with developers/builders who buy nice old houses that should be rehabbed, but instead tear them down and build these tasteless townhomes.

  39. 39
    Matthew says:

    I would have more respect for flippers if many of them weren’t about half assed workmanship and making a quick buck.

    I’ve seen far too many amateur repair guys buying “how to” books, running to home depot for the cheapest materials they can find, not receiving the proper permits to do work they aren’t even remotely qualified for, and then throwing them on the market expecting to make a quick 100k.

    Don’t even get me started on the guys buying condos presale, doing absolutely nothing on them, letting them sit for 6 months and expecting to make a quick 50k.

  40. 40
    biliruben says:

    I have been watching a flipper/rehabber next door to my house for the last few months. Really nice guy. I started the “audacious flip..” thread in the forum, and I have no love for flippers, but watching this guy day in and day out working until midnight has given me a new appreciation for flippers. Sure, he’s doing some things quick and dirty, and I don’t agree with jamming a 3rd bedroom in a 840 sq/ft house, but he is working hard and my guess is he isn’t going to make a mint on this little cottage, nor does he appear to be looking to. It was very close to a tear-down when he bought it, and he salvaged it from that fate.

    We are going to be putting both our houses on the market at the same time at the same price. They were built at the same time with the same layout. Our house grew more organically, has a more open layout with a nice master, but only 2 bedrooms. His has all the cute touches with a bit of the flipper flash in the kitchen and bathroom and the cedar shake peak you always see on the rehabs.

    It will be interesting to see which sells faster and which sells for more. He asked me today what I was listing for, and I told him about what he was listing his for. He was surprised, thinking that I would ask 20k more than him. He’s done a number of these flips before, but I think he may have missed the turn in the market.

    We’ll see.

  41. 41
    S-Crow says:

    We’ve closed several transactions over the last yr. that were short sales or traditional sales all with the orientation of being flipped. In every case, none made a profit and some lenders were taking quite a bath.

    Some people (a few I’m personally aware of too) have removed their flips from the market and are in waiting mode via renting them out.

  42. 42
    biliruben says:

    Yeah, I think I’m suffering somewhat from stockholm syndrome.

    But it’s a modest house, he’s added real value (there was 3 inches of moss on the roof, and one wall had to be completely replaced when he bought it), and he is pricing it reasonably.

  43. 43
  44. 44
    Garth says:

    My flipper / investor hypothesis is that their density is directly related to the number of properties that they can purchase and rent in an area to cover as much as one million in interest only mortgage debt.

    In Seattle proper and on the eastside with median prices near $400,000 for quite a while the flipping system is too risky and expensive for masses of people to begin collecting multiple properties as a sideline.

    Before the boom, or the TV shows about flipping houses the only people I knew who bought and repaired houses were teachers who did the bulk of the work in the summer time.

    From everything I have read now, it appears to me that the CDO and SIV structures and their slicing up of debt to be sold by credit rating did a pretty effective job of disguising the fundamental weakness of much of the collateral in these obligations. It seems the money behind the creation of these vehicles kept “improving” them by removing risk from the top tier slices at the expense of all the other debt instead of trying to improve the accuracy of the rating of each slice of debt.

    Working with databases, I have read a lot about “quants” for quite a while, and in anything over a year old all the talk is about how these wizards at hedge funds developed complex algorithms and data tools to analyze markets and trigger the purchase and sale of stock. Super bankers were designing these SIVs and CDOs to properly spread the risk around according to credit rating. As soon as they stop selling easily and people take a peek inside it seems the “algorithm” was most concerned with the top tier, and the hedge funds stock trading systems often just copied each other. That is still pretty simplistic, but there is a reason Warren Buffet never bought any of these things.

    By hiding the activity off the balance sheet all over the place it has taken quite a while for the alarm bell to start going off and areas where prices, land availability and population growth converged had huge increases as investors piled up risky leverage and properties spurring builders to build more properties. So many of the foreclosures are in Florida, California, Nevada and Arizona where these conditions were so ripe, I am having a hard time figuring out what it means here.

  45. 45
    Alan says:

    Did you see the picture of the Detroit house in the NYT article? That is a beautiful house. And houses similar to it are selling for under $100k? That would be a $900k house here.

  46. 46
    The Dude Abides says:

    Well said, Tim.

  47. 47
    Ubersalad says:

    Detroit – foreclosure central. It’s very very sad…

  48. 48
    Markor says:

    There are people like Markor who seem to think that Habitat is about letting people “have stuff they otherwise could not afford,” and while yes, we do believe in helping our fellow man, it’s by no means a handout. Habitat families put 300 – [500] hours of “sweat equity” into their homes, and are selected via a pretty rigorous family selection process.

    Unless each hour of sweat equity is worth $200+/hr, it is by definition a handout. Handouts cause major problems in society. It wouldn’t be a handout if it was available to everyone, but it’s not. It’s not good for society to raise the standard of living of some people above the material standard of living of other people who have done the work & study that it took to make more income. (The same logic applies to lotteries and unlimited welfare–they do more harm than good too.) But I’ll shut up because I realize this thread is not about HfH per se.

  49. 49
    Matthew says:

    I know 2 people that I work with that were flipping houses on the eastside and in Seattle proper. These guys don’t have a friggin clue. I feel sorry for anyone that buys one of their flips.

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