Predictions: 2008 in the Bag, 2009 on the Horizon

Looking back at 2008
And now it’s the post we’ve all been waiting for (and by “we” I mean probably just me). Time to see which real estate “professionals” made housing market predictions that match closest with reality, which ones were more in line with the former Iraqi Information Minister, and what they’re all guessing for the coming year.

A year ago we rounded up 2008’s predictions into a single post: Predictions: 2007 Revisited, 2008 Prognosticated. As with last year, I’ll provide a list of the contenders, and a handly table for comparing our predictions with the reality of 2008. You can go back to the post to see the full context of all of the predictions.

The Contenders:

  • Glenn Crellin, director of the Washington Center for Real Estate Research
  • Matthew Gardner, local land-use economist
  • Steve Tytler, Everett Herald Real Estate Columnist / owner, Best Mortgage
  • Dick Conway, co-author of The Puget Sound Economic Forecaster / local economist
  • Tim Ellis, editor-in-chief, Seattle Bubble
  Crellin Gardner Tytler Conway Ellis King Co. SFH
Prices:  “a little” -5% to 0% -20% to -10% <1% -10% to -5% -7.24%

This year, the prize for the prediction closest to reality goes to… defending champion Tim Ellis of Seattle Bubble! Yet again, the total price change fell almost exactly in the middle of my range prediction.

To be fair, we are using King County SFH data as our sample set (as is standard practice on this site), while selecting different data sets makes some of the other predictions look better. For example, Steve Tytler forecast a ten to twenty percent drop for “the Puget Sound region.” If we look at all Puget Sound counties, the smallest drop was in Skagit, where prices fell 3.3%, and the largest drop was in Jefferson, where prices took a 23.6% plunge. However, that still leaves three counties (Skagit, King, and Jefferson) that were outside Steve’s range (four if we count San Juan County, where December’s median was down 45.6% from 2007, but based on just 9 sales).

On inventory, I predicted “year-over-year increases between 10% and 25% throughout much of the year.” Year-over-year inventory increases did not drop below 10% until September, so that looks like another win. My prediction on sales volume was arguably too optimistic, as I guessed they would drop “at least 5% to 15%.” Here in King County, total pending sales for the year were down 25%, while closed sales dropped 33%.

What’s ahead for 2009?
With 2008 out of the way, let’s look forward to 2009. Here’s a summary of all the predictions I was able to locate from local “professionals.”

Matthew Gardner:

Going forward, Gardner says, “we’ll be in a V-shaped year on prices.”

“The first half of the year we’ll continue to see declines,” he says. “The second half of the year we’ll start seeing a bit of an upward trend.”

In all, Gardner says, he wouldn’t be surprised if Seattle-area housing prices remain essentially flat — something that would actually be good news in some parts of the country.

Gardner qualifies his prediction in his quotes to the P-I:

Matthew Gardner, a Seattle land-use economist, said he expects prices to level off next summer, “if we see economic stimulus and further retraction in interest rates.”

Steve Tytler:

There is a fairly predictable 7- to 10-year real estate cycle and we are in the “down” part of that cycle. What makes the current cycle different is that we are entering what may turn out to be the worst national recession since the Great Depression. Now, I know that phrase is grossly overused. It seems that every few years some politician claims that the economy is the worst since the Great Depression, but this time I think it’s actually true.

I think that overall home prices will fall an average of 5 to 10 percent next year, but the depreciation rate will vary dramatically from city to city and neighborhood to neighborhood, just as we’ve seen wide variations this year.

J. Lennox Scott:

Scott thinks entry-level house prices (basically $500,000 and under in Seattle) have stabilized, so there may be no advantage to waiting.

In the mid- and upper-price ranges, “some people are waiting to see what’s happening,” Scott says, but even if those prices continue to decline, owners who sell at a reduced price also are likely to buy at a reduced price, so it’s a wash.

Looking forward, he is hopeful that the Obama administration will quickly pass a stimulus plan that will give the economy, and home sales, a boost.

More from Scott in a blog post by Aubrey Cohen:

But 2009 will be a year of “new beginnings,” Scott said. “It will also be a year of transition for the housing market, which will begin rebuilding itself starting with the more affordable price ranges.”

Unfortunately, those are the only firm predictions I could find from local “professionals.” Maybe they’re just trying to save themselves the embarrassment of being wrong yet again.

The Tim’s Predictions
My guess is that inventory in 2009 will be flat to slightly down from 2008 for most of the year. I am betting that the double-digit YOY drops in sales will not last beyond the first or second quarter, but will eventually flatten out and maybe even show YOY gains. My sales prediction is based largely on an assumption that home prices will continue to fall as well, eventually coming down to a level that is able to attract more buyers. This is what has happened in California over the last year, and I expect the trend will eventually make its way up north.

As far as a specific prediction on prices, my guess is about another 10 percent drop in 2009, which would put December 2009’s median at $363,150. My guess is that we may hit the end of the big price drops in 2010, then bob along on the bottom for a few years after that.

So there it is, your regularly scheduled doom and gloom. As always, what really happens is going to depend largely on a plethora of external factors that could go either way. Despite what so many people tried so hard to believe during the boom, Seattle is not encased in a giant glass bubble. Will Obama come riding in on a unicorn and magically save the economy? Will Boeing or Microsoft lay off tens of thousands? Does China decide to call their debts to America? Major issues like these will have big effects on our housing markets in 2009, and I’m sure whatever happens, we’ll be looking back a year from now in amazement.

What are your predictions? Let’s hammer this out in the comments. Also, here’s a poll:

What's your King County SFH median price prediction for 2009?

  • Less than -20% (5%, 31 Votes)
  • -20% to -15.1% (17%, 101 Votes)
  • -15% to -10.1% (39%, 235 Votes)
  • -10% to -5.1% (26%, 156 Votes)
  • -5% to 0% (8%, 48 Votes)
  • 0% to +5% (2%, 14 Votes)
  • +5.1% to +10% (0%, 2 Votes)
  • More than +10% (2%, 9 Votes)

Total Voters: 596

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.

52 comments:

  1. 1
    Ray Pepper says:

    Do you want some people to quote who are true “professionals”? They are not. They are just titillation to point at and say how wrong they are again. Ask your advertiser Brent Fosso. Ask the RE INVESTORS where they are placing their bets.

    People with real money spending their own cash at the foreclosure auctions will give you answers with guidance based on fact and not a hopeful guessing game. Be smart and find your GEMS in the years ahead.

  2. 2
    Ray Pepper says:

    In reading the predictions again I noticed nobody mentions the negative “Mantra” homeownership has taken. Between the depreciation, foreclosures, taxes, insurance, and upkeep I have found people in Washington, Oregon, Nevada, and Texas have become increasingly keen on renting for the years ahead. Under Obama I await to see the EXTRAVAGANT CARROT that will be dangled for homeowners in the coming years to actually buy. Interest rates alone will not do it.

    The pride of homeownership has been damaged. How long this will take to repair and the “carrots” that will be dangled are what I await.

  3. 3
    patient says:

    My guesses for 2008 was -10% for Case Shiller and -25% for median. So it seems like the actual value decrease of homes is something that is much easier for me to understand than the median. I thought high-end volume would die due to jumbo pricing and that low end would dominate but it seems probable that both low end and high end died and that the homes that are moving are concentrated around the median. So my guess for 2009 is a 5% decline in median and again a 10% for Case Shiller since that seem to be the going rate rate :)

  4. 4
    vboring says:

    If you exclude foreclosures, there is no sales volume in California. For Seattle to follow the California sales volume pattern, we’d first have to see huge price declines and foreclosure activity.

    With many major businesses in the area having trouble (Boeing announced 4500 layoffs today, MSFT is widely rumored to do the same) sentiment towards housing as an investment getting negative and the relative prices here compared to Ca, I think 2009 will be the year of foreclosures for Seattle, unless loan modifications become popular.

    With either foreclosures or cram down loan mods, prices and non-foreclosure sales volume will fall.

  5. 5

    V SHAPED RECESSION

    Even Dr. Doom (Roubini) isn’t just predicting a quickie V recession now, see his 1/7/09 prediction:

    “…Certainly, the United States will experience its worst recession in decades. The formerly mainstream notion that the U.S. contraction would be short and shallow—a V-shaped recession with a quick recovery like the ones in 1990–91 and 2001—is out the window. Instead, the U.S. contraction will be U-shaped: long, deep, and lasting about 24 months. It could end up being even longer, an L-shaped, multiyear stagnation, like the one Japan suffered in the 1990s….”

    I don’t want to be the bearer of bad news, but I think Dr Doom is too rosy, as I believe its slam dunk we’ll be in a long “L” shaped Japanese or Great Depression type housing price collapse; like lasting decades [it may eventually hit bottom, but never go back up]. What would make me believe it could be “U” shape [“V” shaped is a joke]? We may see a “U” shaped recession/depression [lasting a couple years or so] if and only if uncontrolled overpopulation is controlled and wages have a chance to sneak back up again. Do I believe in this hope? Hades no, we lost our Earthday depopulation environmental backbone a couple decades ago.

  6. 6
    Matt says:

    Since Seattle seems to be lagging the rest of the country in terms of the CS HPI trends, I would expect those other markets (especially the west coast markets) to really start to flatten out and then start to rise before Seattle does. That assumes that the lag is real, and that the 17 month delay in the declining index is not due to other mitigating factors (ie, Seattle’s specific economy).

    That would suggest that there will be decreases for the next 12 mo, not a continued drop and then going flat.

    dunno. just a guess.

  7. 7
    b says:

    This is the year of capitulation. Last year was the year of “maybe it will be better in 2009”. I would expect to see a drop of 15% in CS from today to years end.

  8. 8
    The Tim says:

    btw, the reason I don’t include Case-Shiller in my predictions is because then we’d have to wait until the end of February to do any recaps.

    I prefer the Case-Shiller index as a more reliable indicator of the actual change in home values (rather than just a measure of the mix homes that happened to sell), but it’s delayed so far it’s not especially useful for the calendar year predictions.

    Considering that Case-Shiller was down 7.81% for 2008 through October, I suspect the Case-Shiller HPI for Seattle will end up down nearly 10% December ’07 – December ’08.

  9. 9
    Steve Tytler says:

    Tim,

    Thanks for posting my 2008 and 2009 predictions.

    I just want to clarify my 2008 prediction. I said home prices would fall by average of 10-20% (depending on neighborhood) from the PEAK prices of 2007.

    I think I was right on the money.

    I do NOT believe that the average King County home value is down only 7.24% this year compared to 2007, that number is highly misleading.

    Yes there are areas like the Greenlake neighborhood of Seattle that have held up pretty well, but there are other neighborhoods where home values are down 10, 15 and even 20% from their peak value.

    So that’s why I always use a range in my predictions.

    It’s very hard to come up with a number to use and you had to pick one, so I understand that.

    Ironically, I have been slammed by commenters on this blog over the past year for being too bullish on the local real estate market while the facts show that I was clearly the most bearish predicter on your list.

    This year is extremely difficult to predict because I don’t know how the overall economy is going to affect the housing market. I am also in the bear camp when it comes to the economy and I think this will easily be the worst recession since the Great Depression. The stock market will probably continue to tank and it remains to be seen how that affects the real estate market.

    On the plus side, mortgage rates are very LOW right now … and home prices are also low. I think this is a great time to buy a home.

    We may not bottom out on home prices this year, but if you are buying a home to live in for the next 10 years, who cares?

    Real Estate is a LONG term investment, it’s not day trading.

    I know a lot some people on this blog will only buy a home when they feel prices have bottomed out. Nothing wrong with that.

    But for the average homeowner, a home is a place to live not an investment.

    Any home you buy today will be worth more money 10 years from now and in the meantime you have the pleaure of living in it.

    Now don’t get me wrong, I think we are still several years away from another housing boom, but it WILL come at some point in the next 10 years.

    I’m sure I’ll get slammed again by people who think home values will never get back to their 2007 peak prices again, but I’m confident that he market will bounce back eventually.

    Happy New Year!

  10. 10
    patient says:

    That home values will depricate is clear, what the mix of sales will be is more of a mystery. Say for example that $2m homes get discounted to $1m and all people in the market for a home of $2m type gets off the fence and buy at the same time the downpayment requirement becomes 50% and kills more or less every other action on the market. Say that the median becomes $900k. You have more than 100% median appreciation but homes sold has depreciated with 50%. Median is really pretty useless and hard to predict so I think c/s predictions would be better to have even if we need to wait until end of Feb for the results.

  11. 11
    patient says:

    Steve,

    ” I think this will easily be the worst recession since the Great Depression. The stock market will probably continue to tank and it remains to be seen how that affects the real estate market.”

    No need to wait. It will impact it negatively. If we had the greatest bull market since the beginning of the Dow and the highest GDP growth would you say it’s hard to predict how it will impact the real estate market? I guess not.

    “We may not bottom out on home prices this year, but if you are buying a home to live in for the next 10 years, who cares?”

    I do. If I can get the home 10% cheaper by waiting another year it will improve my cash flow for the time I have the mortgage. That is surely something to care about.

  12. 12
    Everett_Tom says:

    Hey Steve,

    While I do remember reading one of your articles which did specifically say peak, your Dec 16th 2007 article used in the earlier round up doesn’t say that.

    http://www.heraldnet.com/article/20071216/BIZ/843148875/1005

    And when I tried to find the one where you’d mentioned Peak, I found this one instead:

    In my column on Oct. 7, 2007, I predicted that home values in the Puget Sound region would fall by an average of 10 to 20 percent (depending on the neighborhood) during 2008.

    found here: http://www.heraldnet.com/article/20081109/BIZ/711099938/-1/COLUMN08

    All that being said, I agree that your certainly very close to what happened.

  13. 13
    The Tim says:

    Steve Tytler said,

    We may not bottom out on home prices this year, but if you are buying a home to live in for the next 10 years, who cares?

    patient said,

    I do. If I can get the home 10% cheaper by waiting another year it will improve my cash flow for the time I have the mortgage. That is surely something to care about.

    Say you are in the market to buy a home today, priced in the $400,000 range. You have $40k for a down payment. We will assume 5% interest rates.

    If you buy now, your monthly outlay for principal and interest only is $1,933. Over a 10-year span, you spend $231,960.

    If you wait a year and buy a similar house for 10% cheaper, your monthly outlay for PI is $1,718. Over a 10-year span you spend $206,160.

    That’s a monthly savings of $215 (over 10%), while the 10-year savings is $25,800. Also, this doesn’t even factor in the fact that your down payment would likely increase over the coming year as you continue to rent for much less than your eventual mortgage payment would be.

  14. 14
    Civil Servant says:

    Was going to post in reply to Steve’s rheorical question, but, Tim, you have beaten me to it. Thanks!

    I can think of a lot of things to do with an extra $215 per month. That’s real money to me, not chump change. If conventional real estate agents and professionals don’t understand this — and from their prevalent who-cares attitude, it seems like they don’t — then it is no wonder that future buyers like me are not interested in working with them.

  15. 15
    S. Marty Pantz says:

    Wouldn’t the poll option be “MORE than -20%”?

  16. 16
    The Tim says:

    S. Marty Pantz @ 15,

    Nope, negative 20% is below zero. -30% is less than -20%.

  17. 17
    Lake Hills Renter says:

    Steve, the reason it may seem you are raked over the coals here as it were is because you are one of the few in the industry that has the courage to come here and participate. And while you may catch some heat for not being bearish enough, in some peoples’ opinion, I thank you for participating. Your opinion is always welcome for me.

  18. 18
    Civil Servant says:

    Apologies if I sounded crabby or belligerent. I’m blaming office politics, which have me much on edge today and looking avidly forward to a cocktail. I don’t begrudge Steve T. his lack of bearishness, and it is refreshing to see someone on the other team showing up and keeping it friendly and coherent. It’s the glibness of the “who cares” that I objected to, as though the total savings that Tim calculated couldn’t possibly matter to a reasonable person. Or, what do I know, maybe Steve is accustomed to seriously high-end clients for whom that really is the case, and it’s he who would not be interested in working with me. That would be his choice, and I wouldn’t take it personally. Sorry if I was snotty, Steve!

  19. 19
    Lake Hills Renter says:

    For the record, I wasn’t referring to anything specifically in this thread. Steve usually catches some heat for his posts, and I wanted to make sure his participation was appreciated.

  20. 20
    Gary says:

    First of all I am happy that Steve is sharing his opinion and experience, that said, I believe that Boeing is going to lay off at least twice as many people as they have stated. After working for them for the past 20 years I have been through the ups and downs and this has always been the case. Secondly, I am now seeing properties in some of the best areas below the 500K mark with no takers. Finally, when you live in an area that has a median income of $48K and a median housing price of 400K we have a ways to go especially with the banking sector in a mode of 20% down or no deal. I believe that even Tim is being conservative at how bad this will get and unfortunately we will all suffer as a result regardless.
    On another note, have you seen Detroit?! Houses for $2000 and less which is crazy. It won’t happen here but it is frightening nonetheless.

  21. 21
    David Losh says:

    Real Estate never changes.

    A property is worth what it will rent for.

    If you put 20% down the rent should be very close to covering the mortgage. You may need to feed the mortgage for up to Five years, but rents should catch up.

    That’s Real Estate.

    There is hype, but the numbers are the numbers, and Real Estate is a numbers game.

  22. 22
    Leo says:

    Steve Taylor said:
    “On the plus side, mortgage rates are very LOW right now … and home prices are also low. I think this is a great time to buy a home.”

    –Steve, why home prices still fall if they “also low”… I guess they are HIGH and that’s why they going down

  23. 23

    for 2009, I’m predicting overall home prices to fall about 9%, settling down around October and staying flat for the duration of the year and this flatness will continue into 2012.

  24. 24
    Gene says:

    From a story in the Puget Sound Business Journal:

    “Taxes collected from real estate sales continued to sink, the Forecast Council said. Real-estate tax receipts from December were 48.9 percent below December 2007.”

    State tax collections were down 13.9% over last year, and were 9.4% lower than the latest prediction in November. Ouch.

  25. 25
    Pegasus says:

    Yo David Losh. Got any proof of your fabrication? I thought not. Just another twisted tale to sucker in the sheep. Put up or shut up. You forgot to fabricate a story about interest rates affecting your eroneous calculations along with a whole lot of other factors like systemic fraud, supply and demand and the economy. Keep spinning as I am sure sooner or later you will get it right like my broken watch does twice a day. REDFIN REDFIN REDFIN is suceeding because the public has figured out your bullshat stories are exactly that.

  26. 26
    Sniglet says:

    We may not bottom out on home prices this year, but if you are buying a home to live in for the next 10 years, who cares?

    If real-estate prices in the Puget Sound keep dropping another 70% over the next 10 years then it might matter to most home-buyers. There were people in Japan who thought it was a great time to buy suburban Tokyo homes in 1994, after prices had fallen some 35% from the ’89 peak. Unfortunately, prices kept right on falling an additional 40% from there and are still hovering near their lows some 20 years later.

  27. 27
    Andy says:

    Steve Titler,

    Real Estate (specifically the structure) is a depreciating asset, just look at what is does on any balance sheet. Just like a car.

    At the end of the day, you should never look at an ILLIQUID ASSET as an investment. Also, you do not own a home until you have paid off your bank loan.

    Therefore, you are an effective renter – unless you buy in cash.

    “””Any home you buy today will be worth more money 10 years from now and in the meantime you have the pleaure of living in it.”””

    If you were a stock broker, you would be in jail. How can you make this statement? You are a scam artist and I hope that someone sues you for the damage you caused through the boom…

    I’m sure there are many people in foreclosure that have listened to you!

    I have seen the face of the devil, and he is trying to give us advice…

  28. 28
    Andy says:

    Steve,

    I think that Washington State should investigate your company books; and make sure you don’t have any “easy” appraisers working for you.

    Common trick for these debt pushers is to convince a”pocket” appraiser to use better comps to inflate the value of any home. They use this to achieve an easier refi or HELOC.

    After this is done, these animal mortgage brokers will straddle plenty of “points” on their prey. Usually, these bottom-feeders will open offices in middle-class or poor areas so that they can screw the uneducated (by straddling them with Alt-A’s, ARMS, interest only)…

    Disgusting business; usually only the big smiling, beady eyed types survive…Most people cannot live with themselves for destroying others…

    Nice to see you can, Big Steve..

  29. 29
    Thomas B. says:

    I predict, nation-wide, prices will flatten towards the 3rd and 4th quarter of the year, but I make no such prediction for the Seattle area. Too many bad things are happening in the economy of Seattle that is really putting the chances of rebound in serious doubt. The last of the WAMU execs will be gone by mid-summer; Boeing will be layoff workers and managers; Microsoft will be trimming their numbers; Starbucks may not survive 2009; etc. That’s a lot of good paying jobs that are gone or will be gone in 2009. No job=no money; no money=no home. Simple as that.

  30. 30
    Jillayne says:

    Thomas B.,

    Do you know something about Starbucks that you’d care to share with us?

  31. 31
    Sniglet says:

    I feel pretty confident in saying that prices in January 2011 will be at least 30% lower than they are now, but I am less certain about how much the drop will be in 2009 or 2010 respectively. If I had to guess, I would say that the Puget Sound would see a 20% to 25% drop in Puget Sound median prices by the end of 2009 and a further 15% to 20% decline by the end of 2010.

    We might see a false bottom in the market by the end of 2010 that could last for 6 to 10 months.

    Unfortunately, I think this deflationary cycle is going to last for quite a while, and job losses will continue unabated. Welcome to Japan…

  32. 32
    mukoh says:

    I think Tytler, is as close to right as other economists and banking managers I have met with throughout this process.
    Sorry that doesn’t include Sniglet or *ELUAEAEIUA

    This is a 7-9 year cycle. It will be some time to realize bottom and averages.

    All the psychic predictions for 80-90% declines are always fun if a looney bin is where people love to spend their free time.

    So far two years in on +- 2 months range. That is what people who make money say.

  33. 33
    Sniglet says:

    Sorry that doesn’t include Sniglet

    I never predicted we would see an 80% or even a 30% decline in prices all in one year. I have consistently said that this will happen over a 4 or 5 year time-frame (and maybe even a little longer). It only takes 5 years of 15% price drops to reach an 85% drop.

    2008 is keeping things right on track…

  34. 34
    jon says:

    “It only takes 5 years of 15% price drops to reach an 85% drop.”

    5 years of 15% drops is a drop of 56%.
    To get 85% drop in 5 steps, you need to drop by 32% each year.

    If you meant 15% of peak each year, then that last drop is 50% YOY.

  35. 35
    Ray Pepper says:

    “Any home you buy now will be worth more in the next 10 years”

    Idiotic statement. How much more? 3%, 5%, 20%..Then you also say “any home”. I also disagree. You can get yourself buried HERE AND NOW. When you choose to Buy (and not rent) it IS an investment. It will always be an investment when you choose to pay a mtg, taxes, insurance, and upkeep. ALWAYS!

    Again I question the professionals Tim chooses to predict. Are these guys the best you can find? I mean seriously. Don’t choose anyone in the industry that makes money off people buying and selling.

    One other thing that will cause a longggggggg delay in home prices recovering that our beloved Mtg Reps do NOT discuss but is happening daily:

    The public in less then 90 days will realize that refinancing is absolutely STUPID when they can just not make a payment for 90 days, get a free rate reduction to 4.25%, extended term to 40 years, and a far lower payment. Primetime, 60 Minutes, or Dateline. Pick your poison but the TRUTH will be outted as to what the investors have started doing 6 months ago.

    Educate yourself Washington and position yourself for a once in a lifetime opportunity! Everyone will be lining up for their slice of the cheese!

  36. 36
    Ray Pepper says:

    One last topic. HELOC 2nds. Do you honestly believe people will pay these each month. Do you think the Lender will push to foreclose on a property that is NOT even worth the value of 1st. The holders of these 2nds have already been renegotiating these aggressively chopping payments by 50% in order to show some returns.

    Again, Educate Yourself Washington!

  37. 37
    Andy says:

    Jillanyne,

    This Seattle job market is very weak
    Very few high paying jobs (>250k) unless you are at an executive level
    This area should not even have ONE million dollar home

    Seattle is the most inflated market – people here think they are New Yorkers but with Alabama type salaries…

    The King County market needs to drop at least 50%…

  38. 38
    FreedomLover says:

    If Great Depression 2.0 is about to hit, then all bets are off regarding how low the floor can go. If people don’t have jobs, then they can’t pay anything for a house. With our service-based economy I can see unemployment hitting 80%. I mean think about it, manufacturing/agro is 30% and that will take a huge hit when Detroit 2.5 goes under(2-3 million jobs right there). The de-leveraging will basically wipe out the “information economy” in 4-5 years or even sooner.

  39. 39
    FreedomLover says:

    Andy – I am with you emotionally, however the most inflated markets are SFO and NYC by far.

  40. 40
    David Losh says:

    I see my comment was ignored except for comment #25.

    It’s the basis of Real Estate. Real Estate is not glamorous. Real Estate is hard work that pays a return if you take care of your properties and get good tenants. It never changes.

    Interest rates are a suckers bet. Sure if rates go down you have better payments that are tied to income, but how much does that change the price? Then if interest rates change the price of Real Estate all Real Estate is going up and down based on interest rates and the renters ability to pay.

    These are the principles of the Real Estate business. CAP Rates, in my opinion, are way over rated. I want Return On My Investment. That’s the criteria I push, and always have. It doesn’t change because some idiot was paying more than properties were worth.

    I also talk about how you are going to pay the property off. That’s the other basis of Real Estate. It’s only an asset when you own it free and clear. If you leverage you do it with the idea of paying down the principle balances.

    Every Real Estate Professional should recognize these are basics in the business.

  41. 41
    Thomas B. says:

    @30

    I think it’s pretty obvious that Starbucks will have a hard time staying open due to a recession without massive layoffs or selling itself to a larger company. Starbucks has just escaped the headlines so far because of all the other bad news in the area. But needless to say Starbucks is in trouble when they stop paying matching funds for the employee’s 401K. See Link . Additionally, Starbucks isn’t like Microsoft, it doesn’t have huge amounts of cash sitting around. Starbucks actually has to generate revenue and borrow to continue to remain viable. Hence, there are only two choices: layoff employees or sell the company. Either way it’s going to be a hit to the local economy.

    I also forgot to mention the Seattle PI shutting down, but I don’t know if those wages were high paying like WAMU, et al. Regardless, the area has lost and will lose a lot of well paid jobs. Pretty soon we will be a city of people making only 1.5 times minimum wage.

  42. 42

    There is a really solid article on Seeking Alpha (written by John Lounsbury. LOTS of data.

    http://seekingalpha.com/article/113843-housing-where-is-the-bottom?

    Its a long article, but probably one of the best summaries I’ve read.

  43. 43
    dogwood says:

    As some others have mentioned in this thread, I think it’s time to scrutinize the mantra that everything will be fine if only one has a magical 10-year horizon. A colleague of mine purchased a house in Japan in 1988. He was afraid of ‘being priced out forever’, so he took out a 50 year mortgage for ~$600k for a house that is about 90 minutes’ commute (one-way) from work.

    His second child is heading off to college later this year, so he and his wife started looking into selling the house and moving into something smaller. The house was appraised at $240k last year. That’s 60% depreciation over 20 years, with another 30 years to pay it off. In the meantime, the government has cut his salary twice. (COLA works in the opposite direction in times of deflation.) On the upside, he’s been able to take advantage of historically low rates to refinance, but he’s still stuck in a big hole (and commuting 3 hours per day until retirement).

    Statements like: “We may not bottom out on home prices this year, but if you are buying a home to live in for the next 10 years, who cares?” may seem reasonable at first glance. I’m sure this kind of thinking made sense in Japan 20 years ago.

  44. 44
    David Losh says:

    Funny article. Yes Japan should have been a warning to every one. It was there, discussed, and an example of what could happen here since 1987. Why is this such a surprise to so many people?

    Housing is not the stock market which is built on paper profits. The price of housing units are tied to rental income. It’s Real numbers that have been around since the beginning of time.

  45. 45
    patient says:

    I think people here are civil enough towards people who makes statements that now is a good time to buy and who cares what prices are if you are going to stay in the home for the long run. This is just the kind of real estate garbage lingo that contributes to people making bad decisions like the ones that caused the housing bubble. Ask the person at Boeing that didn’t participate in the bubble and will now be laid off and can no longer support his family if we are to harsh, or the graduates that will not be able to enter the job market or the retire that got his monthly paycheck cut by 50% etc, etc. Re professionals must stop the the nonsense if they don’t want endup being chased by torches and pitch forks. And if you make “now is good time to buy” statements at Seattle Bubble you should expect to “raked over hot coals.”

  46. 46

    […] comments are similar to something that was said in yesterday’s comment thread by Steve Tytler: We may not bottom out on home prices this year, but if you are buying a home to live in for the […]

  47. 47
    Andy says:

    David,

    Would you agree that home owners need to come down at least 50%?
    I mean, foreclosures are the real market, no?
    If WaMu/JPM recently dumped Seattle area real estate MBS for 20c on the dollar (of the defaulted LOAN!) – what does that tell you….?

    This area might be over inflated by 80%…WOW!!!!!!!!!!!!

  48. 48
    Andy says:

    Seattle is not a high end area
    This area is middle class; mostly degenerate community (few normal “average” areas include Bellevue)
    No good restaurants, little high end jobs, little culture
    Just rain, mold, and beards (lumber jack wannabe software douche bags)
    West Virginia has a better job culture – (Boeing, Amazon, MSFT all giving notice on overpaid idiots)

    Lets not think we are New Yorkers or from New Jersey – they make far more money $$$
    This area is poor – and our real estate should reflect our purchasing power….

    1MM homes should be worth less than 400k…

  49. 49
    mikal says:

    West Virginia is a $hit hole. It is also full of morons that still vote republican.

  50. 50
    B&W Nikes says:

    Pogonophobia making you itchy again Andy?

  51. 51
    mukoh says:

    Andy, There was no dumping of real estate, in the JPM/WaMu deal. Its still fixed and still in JPM, haven’t seen it dump on loan balances have you?

    As far as your blabbering about the are, just pack it and find a better place, if you can find a job as a lumberjack. :)

    To accomodate Andy’s high style of living the sellers probably need to come down 98.56%. As I can tell living high is hard.

  52. 52

    […] in January I predicted that sales would “eventually flatten out and maybe even show YOY gains” in 2009. Given that […]

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