Are Home Price Drops Around Seattle Mostly Over?

I was thinking recently about the claim that we’ve been hearing lately from some sources that Seattle home price declines are over. The primary evidence they seem to provide for this hypothesis seems to be the slight bump in some Seattle-area median prices, and the uptick in sales.

I’m not convinced, but rather than just dismissing these predictions out of hand, I thought I’d try to compile a list of factors for and against the notion that local home price drops are over.

Seattle-area home price drops are probably over because:

  • King County’s single-family median price rose over $30,000 from March to June
  • Pending sales are up around 25% from a year ago.
  • Closed sales are up slightly from a year ago.
  • Inventory is down around 20% from a year ago.
  • There’s a lot of wealth in the Seattle area.
  • Mass psychology could suddenly turn and drive up prices again (i.e. – Robert Shiller’s Animal Spirits)

Seattle-area home price drops are probably not over because:

Personally I’m not convinced that home price drops are over, despite the slight upticks we’ve seen this spring and early summer. There are just too many factors at play that continue to put downward pressure on home prices, and too few factors pushing them up.

Of course, it’s entirely possible that I may have missed something, so let’s hear from some of you who believe that price drops are mostly over. What am I not considering? What’s your best argument for the claim that the bottom is in? What about those of you that think prices will continue to fall even further—have I left anything out of that side of the argument?

Let’s hear the best comprehensive arguments from both sides, so we can come to an informed conclusion.

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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.

218 comments:

  1. 1
    pfft says:

    my method stays the same. we may have hit bottom when we have 3-6 relatively consecutive months of YOY price increases.

  2. 2
    S-Crow says:

    Every purchase that occurs in this market at his time places a building block for sustained prices at that price range. The more sales, the more of a foundation. There are, however, numerous points The Tim makes regarding the uphill battle the markets will encounter in this phase of the correction. The REO inventory that is to come to market in the months ahead has to get worked through. There are also global political problems going on that can have an impact. I spent about an hour reading British and other newspapers yesterday and the economies elsewhere are not well.

    The one thing people can’t control is the psychology of the consumer and American culture. I still think the consumer is fragile/sensitive to pull backs in the stock market or other somber news. Housing is still a top conversation piece in a few of the summer functions I’ve attended.

  3. 3
    Kary L. Krismer says:

    RE: pfft @ 1 – I’ve said we won’t know until two years after it’s happened.

    I don’t really consider the recent upswing in price to be all that compelling, because it’s rather weak for a seasonal change. The one last year at this time was stronger, and it fell apart even before Paulson’s comments about a possible systemic collapse of the economy.

    The volume change is more encouraging, but how much of that is driven by the tax credit?

  4. 4
    Kary L. Krismer says:

    On the REO issue, you could make an argument that below some threshold it’s irrelevant. Some people just are not interested in properties that are a mess, even if all that’s needed is paint and carpet. So REO is a separate market, which explains why normal listings don’t have to price at the same level.

    That said, they are a drag on the market, but I’ve seen buyers not interested in REOs even at 20% savings.

  5. 5
    Pankaj says:

    Don’t home prices always show an uptick from March-June? I remember seeing this presentation back in October or November, a pretty detailed and comprehensive piece, that showed a graph going back years and you could see a consistent local peak every spring.

    What I’d like to know is how this median price increase of $30K compares with price increases every spring.

  6. 6
    Kary L. Krismer says:

    RE: Pankaj @ 5 – Rounded:

    Mar-Jun 2006 405-435
    Mar-Jun 2007 455-470
    Mar-Jun 2008 440-450
    Mar-Jun 2009 364-395

    March gives the biggest increase for 2009 because that was the low point for our median. Using any other month it wouldn’t be so strong. But that’s what you asked for. ;-)

  7. 7
    dw says:

    I don’t think prices are off bottom (and I certainly hope they’re not since we’re ready to buy in the fall). And I certainly don’t think looking at March-June is a good indicator at all, especially since the summer is the main part of the season.

    I think most of the price hop was because there were few homes, greatly overpriced, and few buyers in the winter and spring, while now there seems to be more houses more reasonably priced and more buyers looking to scoop up a deal.

    That said…

    IF we’re coming off bottom, I think there’s one sign pointing to it:
    http://www.redfin.com/city/16163/WA/Seattle

    Note how the sold $/sq.ft has bounced back up to January levels. This seems to suggest, at the very least, a dead cat bounce.

    And certainly we’re seeing some psychological things come up in the broader markets — some employers are bringing back laid off employees because they cut too deeply, the Dow and S&P are way up off their lows because of a feeling of overcorrection, and there’s talk of money moving out of bonds and into stocks as investors, not wanting to miss a possible bull market, start taking on risk again.

    It’s easy to see how this could translate into wanting back into real estate. A year ago we were all running from risk. That fear has subsided, and I think that’s translating into a bunch of buyers snapping up what they see as bargains.

    But it does seem extremely premature to call this the bottom. What happens when the tax credit expires? What happens if a major bank fails to keep itself adequately capitalized and gets shuttered, sending us through another Lehman sort of aftershock?

    And the big one… there is a huge glut of apartments in the Seattle market, and rents are plummeting as vacancies rise and condos and houses are converted to rentals. If the spread between rent and mortgage rises too high there will be no real impetus for renters to convert to mortgage holders, and the FUD of not being a homeowner is not going to drive people into houses.

    And even if this is bottom, there’s little likelihood we’re going to see prices rising at the rates of the last decades after the dead cat bounce is over. We’re probably looking at 1-3% a year, and with the possibly of an inflationary cycle at hand that would mean values would actually be falling.

    So. Yes, maybe we’re off bottom. But don’t run around selling it like it’s back to the days of 2007.

  8. 8

    RE: dw @ 7

    GOOD LUCK ON YOUR NEW INVESTMENT

    IMO, take whatever loan they qualify you for and divide it by two. That way your income will be big enough [assuming you’re frugal] to like go to a 10/20 30 yr fixed loan and you’ll have a very good chance of paying off the house principle in ten years [you’ll have enough net pay to theoretically save in a cash can], before the loan is automatically re-financed [no charge] for another 20 yrs.

    This technique protects you from lay off too; since you’ll have all that extra delicious cash in your cash can…LOL.

    If you want to ignore my advice and buy the maximum house you can, don’t forget, those large McMansions eat whopper sized utilities with whopper sized property tax payments, especially winter-time.

    If you’re purchasing more RE [like extra land to open a rental horse barn] to make money on, that’s different…..unless the economy goes sour on your optimism and/or the rental income won’t pay the extra mortgage payment [like David always says].

  9. 9
    98115Renter says:

    Personal Anecdote:

    I have an interview with a high-tech firm in a Denver exurb that boasts a reasonable quality of life, though it is somewhat suburban.

    I was browsing real-estate in said town and what struck me the most is that I could purchase a POS there for <$150k similar to the 2bd 1bth bungalows in Ballard that were listed for $450 when I first moved to Seattle.

  10. 10
    Interloper says:

    We’re seeing a very predictable seasonal bounce. And if we’re wrong about that, the Case-Shiller will make it plain within a few months.

    What I think is going to happen next is that Real Estate agents will create a lot of buzz about a rebounding market (for them) since volume will be up, but prices will continue to decline through the next year. The local news media as usual will parrot the excitement of the Real Estate sector, and since they prefer to cite the highly variable price data from NWMLS rather than Case Shiller index it will take many months for the general public to realize prices are still declining.

  11. 11
    Ryan says:

    What I think will happen is all of the bubbleheads will continue renting indefinitely under the belief of home prices still having so much room to fall when in reality they are just scared to pull the trigger. Keep hiding behind the charts and graphs while you try and tell everyone how smart you are…..

    Software engineer, your plan is dumb… why don’t you qualify for a mortgage and then divide it by 3 and save even more money? lol.

  12. 12
    The Tim says:

    RE: Ryan @ 11 – That’s your best comprehensive argument? Wow.

  13. 13
    Gene says:

    We may also see a longer “seasonal bounce” this year since properties are taking longer to close. I’d think that could extend any spring/early summer bounce we normally see by at least 4-6 weeks. As Kary said, we won’t know if prices are leveling till at least a year or two after they have done so.

    We still have a big batch of pay-option ARMs coming due over the next year+ though you could consider those to be part of the foreclosures still rising that The Tim mentioned.

    Even if we do get a bit of stability to the market, I don’t see pricing shooting up anytime soon. About the only thing I could see causing that in the next couple of years would be rampant inflation…

    Gene

  14. 14
    Kary L. Krismer says:

    By Interloper @ 10:

    What I think is going to happen next is that Real Estate agents will create a lot of buzz about a rebounding market (for them)

    With the declining number of agents, volume individually can increase without an increase in volume.

  15. 15
    Ryan says:

    RE: The Tim @ 12

    Yes, I have a job and don’t have time to blog all day about housing. I don’t need to have a comprehensive argument b/c I put my money where my mouth is and bought a home last August. It is comical to watch how super intelligent people on this website get caught up in the emotion and try and time the market. Timing the housing market is no different than the stock market; it is unpredictable and despite reliable data, the market can move contrary to what the data suggests.

    Most people on this board are going to miss the bottom when it arrives b/c they are too involved in the sarcastic and negative comments that are posted everyday.

  16. 16
    Kary L. Krismer says:

    BTW, Tim, that’s a pretty good list. I’d remove the pendings from the positive and the interest rates rising from the negative. And I might add to the positive that it’s only 3 months until we’ve gone a whole year without a financial crisis! ;-)

  17. 17
    98115Renter says:

    RE: Ryan @ 15

    Sounds like you have more of a vested interest in seeing the market go up than most here have seeing it go down.

  18. 18

    RE: Ryan @ 11

    I’M DEBT FREE RYAN

    I’d bet a million bucks, you aren’t. In fact, I’d say you’re in horrifying debt IMO.

    My head hits the pillow at night and I go right to sleep at night. Do you?

  19. 19
    Ryan says:

    RE: 98115Renter @ 17

    Don’t care either way b/c I didn’t buy with the intention of selling next year. My interest is irrelevant to the market although i could argue for the benefit of lower prop taxes with further declining prices. Wishing something doesn’t make it so….prices will not fall forever.

    I am not sure what point you are trying to make; b/c I don’t have the same interests then my view is wrong?

    I have already spent too much time this morning on here….I will try and check back later to see all the hate mail I receive :)

  20. 20
    David says:

    Wow Ryan I’m so sorry you bought at near the worst possible time, had you waited even till now you could have saved yourself so much money.

  21. 21
    cm says:

    How much could Ryan have saved if he had waited until now to buy?

  22. 22
    Kary L. Krismer says:

    By David @ 20:

    Wow Ryan I’m so sorry you bought at near the worst possible time, had you waited even till now you could have saved yourself so much money.

    That’s rather simplistic, even ignoring the fact he missed the peak by a year.

    I bought much closer (but still after) the peak, and hardly consider it a mistake. For one thing the house we owned before probably dropped pretty much the same as this house, or close enough. For another, we really needed to get out of there.

    But beyond all that, even with a late 2007 purchase, the drop in prices and all the houses I happen to personally visit, there have only been less than 5 houses I’ve seen that I’d even consider relative to the one I bought, even though yes entire neighborhoods have come within our price range now that were outside it before. Simply put, price isn’t everything when you’re buying a house.

  23. 23
    The Tim says:

    RE: Ryan @ 15 – It’s amusing how similar you sound to some people who used to comment on here in 2007 and early 2008. No actual fact-based arguments, just insults and empty assertions that the market would pick back up in the spring, just wait and see all you bitter renters will be so sorry, etc.

    Also, if you really don’t care about the market and you’re as confident about the near-term direction of home prices as you claim to be, why would you even be wasting any time on this site at all?

  24. 24
    Niz Monkey says:

    RE: Ryan @ 15

    Bought last August? Ouch. You could have thrown a year-long kegger concluding with fireworks every night for the money that has evaporated as your down payment. At least that way you would have gotten something out of it.

    P.S.-i wouldn’t normally post a direct jab at someone, but you sound pretty arrogant and i couldn’t resist. I am going to guess that your next comment will be about how much money you make and how sweet your car is, and therefore you don’t have to prove anything to mouth-breathing renters like us.

  25. 25

    I wouldn’t say that price drops around here are mostly over, but I think we’re more than halfway done in the decline, meaning I think we will hit bottom before July 2011( since we reached the peak in July ’07)…

    I don’t think the 8000 dollar first time homebuyer’s credit has had much impact, so it’s ending will also not have much impact.

    As the Tim has pointed out, current pending sales figures are pretty meaningless.

    Interest rates may be low, but unemployment is still quite high, and people are still conserving expenditures and trying to avoid risk. Buying a house is no longer considered a sure thing. I think it’s going to be a while before things turn around.

  26. 26
    calebb says:

    @cm: Over $9000 I bet.

  27. 27

    RE: cm @ 21

    HI CM:

    Using Tim’s charts….it depends on where he bought….Seattle homes went down about 10% YOY, I believe. But the average prices sold even today include a convoluted analyses array too…especially foreclosed or HUD home bargains.

    The 1999 price I paid in Kent went up about 50%, peaking out in approximately 2006. The HUD home next door to me, that’s been unsold on the market for 2 years at approximate 90s prices [33% drop]; got new exterior panels, upgraded new rugs and mahaony floors, new kirchen, completely re-repainted, etc, etc [if we hired a contrator the bill would be close to $100K IMO, albeit the bank’s contractor had to be on the cheap]. Its been for sale at $139K [$29K more] for weeks now….still unsold.

    My point, if you “POUR MONEY” into the money pit, you can ask more and still not get a buyer…..makes RE prices anomalous, especially compared to the boom 2006 period when everything sold fast with multiple offers. IMO the amount of sweat labor or contractor upgrades was nothing compared to today, to keep the losses around 10% to the peak price [meaning: you can likely pick up a bank owned loss property fixer upper for like 20% on sale compared to 2008 YOY].

    Smart Money magazine [WSJ] had a good article about this “money pit” home selling change this month to get top dollar; even has a cartoon of the “new style” realitor mowing the lawn to make a sale…LOL…TIM also had a good blog on this topic too, with similar potential “money pit” upgrade suggestions to get top dollar for the seller.

  28. 28
    SeattleMoose says:

    yawn…..dead cat bounce

    long way to go yet folks

  29. 29
    BillE says:

    I think there will be a push by many first time buyers to purchase in the next few months. I’ve talked to a few other potential first time buyers and they all say they want to buy before the tax credit is gone. Some have also mentioned buying while rates are low. They haven’t thought about what will happen to prices when the tax credit expires and rates go up or the benefit of buying at a low price instead of a low interest rate.
    I still see unemployment and foreclosures as the biggest hurdle to local prices. Foreclosures have been going up and many of those have yet to hit the market.

  30. 30
    Rojo says:

    RE: Ryan @ 15
    Dude, don’t waste your time and energy arguing.
    Read it and enjoy the free entertainment and some reality :)

    Some people talk some sense and then there are others like vultures waiting for things to crash and burn so they can pick off the dead.

    There was one post on the forums where one guys was wondering how long would it take for a house currently list for 900K to fall to 400K in Kirkland. Those are the kind of losers who provide entertainment :)

  31. 31
    David says:

    By Kary L. Krismer @ 22:

    That’s rather simplistic, even ignoring the fact he missed the peak by a year.

    I bought much closer (but still after) the peak, and hardly consider it a mistake. For one thing the house we owned before probably dropped pretty much the same as this house, or close enough. For another, we really needed to get out of there.

    But beyond all that, even with a late 2007 purchase, the drop in prices and all the houses I happen to personally visit, there have only been less than 5 houses I’ve seen that I’d even consider relative to the one I bought, even though yes entire neighborhoods have come within our price range now that were outside it before. Simply put, price isn’t everything when you’re buying a house.

    Moving from one house to another is not the same as moving from renting to owning a home. If you are already on the “wave” of the real estate prices buying one overpriced house after you’ve sold your previous overpriced house doesn’t really have a big end result.

    However if you had sold your house in 2007 and rented the last few years you could buy a new place now and you would be a lot farther ahead.

  32. 32
    Kary L. Krismer says:

    By David @ 30:

    However if you had sold your house in 2007 and rented the last few years you could buy a new place now and you would be a lot farther ahead.

    Never happen. I rented for 2-3 months while remodeling the old house. I hate both renting (I’m a control freak) and moving.

    But if I had done that, real estate prices would have probably continued to go through the roof! ;-)

  33. 33
    Kary L. Krismer says:

    By BillE @ 28:

    I think there will be a push by many first time buyers to purchase in the next few months. I’ve talked to a few other potential first time buyers and they all say they want to buy before the tax credit is gone..

    I suspect the credit will be extended, but if not those people better get off their butts. Assuming that’s their most important consideration (which I’m not saying it should be) they need to actually close by November 30, which means probably an offer no later than about October 15th. That’s only 2.5 months to find a place, which if you’re picky isn’t that much time. And once you get closer to that time, your ability to negotiate will disappear. We were in negotiations over our house for about 2 weeks. Get too close to the deadline and that ability disappears.

  34. 34
    cheapseats says:

    By Ryan @ 11:

    when in reality they are just scared to pull the trigger.

    I won’t disagree that I am afraid to pull the trigger. But I see little down side for the decision to wait.

  35. 35
    cm says:

    If Ryan bought at the median price in Aug 08 of 423,950 vs June 09 of 395,000 it is clear that he lost 28,950 in real dollars. But if he is going to live in this home for 30 years is that relevant? For 10 years? If he put 10% down, he had to pull an additional 2,895.00 out of his savings for the down payment, but if he paid attention he should have a rate in the mid 4%’s vs one in the mid 5%’s so the monthly payment is probably about a wash. I agree that everyone wants to buy at the lowest price they can, but the numbers over the past year just don’t make that much of a difference to me if you are going to live in the house for 10 years or more, just my opinion.

  36. 36
    Dave says:

    Hi Guys;

    I’m not pitching support behind Ryan – lord knows I don’t need to add to a flame war. The things is – there’s not much here for anyone who doesn’t agree with you. It’s an echo chamber pushing the downside.

    If you think Ryan’s tone was aggressive or insulting I have to admit alot of the posts here come off the other way – “You are an idiot if you bought”. I have to say I may agree with the orignal thought Ryan had – the majority of the people here will miss the turn around due to doom cheerleading or the simple fact they can’t afford a house regardless of the economy.

    Find me insulting? Welcome to the attitude I get when I read about my decidion to buy a house. I’m having less and less reason to check out this site.

    My two cents,
    Flame away,
    Dave

  37. 37
    WestSeattleDave says:

    RE: Ryan @ 15 – “Most people on this board are going to miss the bottom when it arrives b/c they are too involved in the sarcastic and negative comments that are posted everyday.”

    Well Ryan, since you bought last August, you too missed the bottom. Say goodby to your down payment.

  38. 38
    Smitty says:

    Excess consumer debt will put downward pressure on home prices, especially the lower end of the market for first time buyers. College students are graduating with an average of $20,000 in student loans, plus a few thousand in credit card debt and maybe a car payment. Young people are buried under a pile of debt even before their first day on the job. I believe in the 28/36 rule. Though prices have come down, they’re still too high relative to stagnant incomes and increased debt levels.

  39. 39
    Ryan says:

    RE: softwarengineer @ 18

    What does my debt level have to do with anything? Are you saying that only those with no debt should buy a home? I currently have a mortgage and a car payment (i paid my school loan off when I purchased last year). I am not sure if this counts as horrifying but I can tell you that I am able to sleep at night.

  40. 40
    Ryan says:

    RE: David @ 20

    David, did you know exactly when prices were going to go up and down? I bought when the home I wanted had a nice price reduction. I paid $173 a sq/ft and the homes with the same floor plan are still selling in my neighborhood for roughly the same price (give or take 5-10 bucks). I am assuming that your clairvoyant powers allowed you to know the exact right time to buy?

  41. 41
    Ryan says:

    RE: cm @ 21

    Honestly, I might have saved a little bit of money but i might not have qualified for financing.

  42. 42
    sasha says:

    I think prices going up are linked to quality of houses sold. I’ve been looking for a house since january and honestly.. most of houses on the marked that are cheaper are crap.. real crap.. if a nice house is coming on the market and is reasonable priced.. it goes with multiple offers.

    I don’t think prices will go up… most probably they will go down. But even though I bought a house (closing in August) I’m happy.. I was able to afford a house that a year ago wasn’t even in my wildest dreams. Can I lose money? maybe (I got it at 40% off peak), will I loose money in next 5 years? I honestly don’t think so.

    One more point: Around MSFT (that’s where I bough) prices didn’t really go down.. MS still pays good money.. and if prices go down another 15% a new hire will be able to afford a 1800 sqft single family home close to work… I think that will never happen.

    And to answer “new hire” posts, MS will be hiring, life is still going on.

    Thanks
    Sasha

  43. 43
    rmsnickers says:

    RE: The Tim @ 23

    I hate to tell you this tim but most comments on here are not fact based. I don’t need snazzy tableau software to point out a bunch of data that shows the past and does not predict the future. Like I said, your data just makes the renters on here feel good about their inability to step to the plate.

    Don’t get me wrong, I have nothing against renters. I do have a problem with smug, self righteous renters that use someone else’s thinking as their own and use it to justify their personal attacks on anyone who has bought a place recently.

    btw tim, can you please explain your last sentence in relation to this thread? I can’t find where I said I was confident about the near-term direction of home prices?

  44. 44
    rmsnickers says:

    RE: Niz Monkey @ 24

    I am not trying to prove anything to anyone and I don’t mean to sound arrogant. I just don’t subscribe to the group think here that everyone that purchased a home in the past couple of years here is an idiot and the only smart people here are the ones renting and waiting for armageddon. I have a modest income and car although a lot of the people I see with the flashy rides are the ones renting :)

  45. 45
    Sid says:

    Housing has already hit bottom. As I have said before, we are now climbing the “wall of worry” in the housing market. Those who have bought in the last three months and were able to get a sub 5% rate will be very happy in the long run. Prices will go up at a slow pace, however interest rates will also rise.

  46. 46
    rmsnickers says:

    RE: Rojo @ 29

    Lol…you are spot on. The entertainment value is priceless :)

  47. 47
    rmsnickers says:

    RE: cheapseats @ 33

    Until prices start to go up or the home you want is sold. There is nothing wrong with delaying a giant decision like a home purchase; it is the rationale of trying to predict the market that I don’t agree with. If you are delaying b/c you haven’t found the home you want or are unsure if you may lose your job, I get that. I don’t mean to insult those people who are procrastinating b/c they are just unsure; just those people who follow tim’s historical analysis to try and predict the future.

  48. 48

    RE: Ryan @ 39

    Ryan,
    I consider myself a bubblehead, but I’m also a homeowner without a mortgage , and a real estate agent.
    I don’t think you did a bad thing by buying a house last August, especially if you like the house, can afford the payments, intend on staying a while, and got your house at a good price, and it sounds like you did.
    But…you act like everybody who comments here is of one mind, that they’re all bitter renters, and your initial comment
    ( # 11) was almost inviting attack…It’s fine that you bought your house. If it weren’t for people like you I wouldn’t be making any money.
    But just because it worked for you doesn’t mean that waiting a year or two won’t work for others.

  49. 49
    rmsnickers says:

    RE: WestSeattleDave @ 36RE: cm @ 34

    So the only people who purchase a home are those who know exactly when the bottom is so they don’t lose any of their down payment? It is staggering just how idiotic some of you can sound. I seriously hope you don’t talk like this in public or around anyone else that is not the equivalent of a financial moron. Subscribing to your thought process, anyone who buys a stock that declines in value (regardless of what they sell it for) is an idiot?

    Tim’s army might possibly be one of the most ignorant bunch of sheep I have ever encountered.

  50. 50
    rmsnickers says:

    RE: Ira sacharoff @ 45

    Very true, your comment is accurate. I logged in btw so instead of ryan it is rmsnickers now (just so all my fans can follow). I have no problem with people who choose to wait based on uncertainty. I have a problem with the ones here who are know it alls and act like the people that did buy are idiots.

    fyi, a lot more people should be thanking me and the others like me who did purchase in the past year. Had none of us bought, we might have seen an even worse economic collapse with even more jobs lost. but to most, i just made the biggest mistake of my life.

  51. 51
    uʍop ǝpısdn says:

    October-November house sales will be BETTER than expected.
    Right now a lot of people are seating on the fence waiting for house prices to go down. In September they will see that prices are not going down as much as they expected. In October and November they will jump in to get an advantage of $8000 credit for first time home buyers.

    I don’t know about your area but in Lynnwood (98036, 98037) sellers are holding tight. If a good house for a good price appears on the market it sells fast, really fast. Inventory is very limited.

  52. 52
    Sarge says:

    I doubt many are really trying to ‘time the bottom’. Personally, I know I will miss the bottom, what I am waiting for is a stable market. I have no doubt there will be another ‘buying frenzy’ when there is a strong indication of a bottom. I think I will let the market bounce a few times before I buy (or when I am comfortable with the level of risk; yes I am afraid to ‘pull the trigger’ now). As many others have said; there is a lot of risk with buying today, no risk with waiting.

  53. 53
    jillayne says:

    CR has a great post today about how price declines kept going on years after new constr housing starts bottomed.

  54. 54
    David says:

    By Ryan @ 38:

    RE: David @ 20

    David, did you know exactly when prices were going to go up and down? I bought when the home I wanted had a nice price reduction. I paid $173 a sq/ft and the homes with the same floor plan are still selling in my neighborhood for roughly the same price (give or take 5-10 bucks). I am assuming that your clairvoyant powers allowed you to know the exact right time to buy?

    I can’t promise to know the future, but I do know in the last year prices are down, so if you had waited (as most people on here believe is the right thing to do based off historical prices) you could have saved a lot of money.

    Tim has covered many times how you can gauge if a market is overpriced, and all signs pointed to that Seattle was and still is overpriced.

    I’ve yet to see one of the “buyers” come on here and present data to support their idea that buying in the last few years or even now is a good idea. All the historical price data and sales trends indicate that if you had the money to buy a home in the Seattle area as an investment properly you would be losing money on it. This to me means I do not want to put money into a home here as it is cheaper for me to rent and use the extra money to invest into something else.

    I moved here from a different market where I did own a home, the prices matched the proper income to price ratios so I bought a home. Not surprisingly, the prices there have not gone down because they never bubbled up.

  55. 55
    marlon says:

    The only thing I would like to point out:

    – The argument that prices in Seattle should go down further till it matches South California may not be necessarily right. I see the other way:Seattle was one of the last markets to enter into the housing recession, and that may indicate it should be one of the first to get out.

    – Personally I think that from now on, major employers such as Microsoft will need to put up with fierce competition from Google and open source, but Microsoft still is around. I think that neighborhoods far away (Kenmore, Bothell, etc) may not see price increased as much. However, Bellevue, Redmond and other prime neighbhoords may well see a rebound more rapidly. By the way, I own a property in Redmond!

    – Immigration trends:Look at how many people are moving to Seattle. This is still a very desirable place to live and I think that may help stabilize prices here. Even you tell me immigration is down now, once people hear that the economy is improving I can tell you that Seattle should be one of the best places to live in the US and people should continue to come here.

    So I think it is going to be a matter of waiting and see what happens. Personally I think that the government pushed really hard to see house prices artifically inflated and I believe it will continue to do so. That said, I expect to see the economy and housing market improvement in the next 2 years. After that, I believe that all this bailout money and artificial mechanisms will come to surface and then you will see me starting the http://www.seattlerealbubble.com .

  56. 56
    Matsayswhat says:

    I’m going to go somewhat “middle of the road” on this and say that I think we’ll see a bit more of a drop once the summer selling season is over (likely starting October-ish), but barring some kind of additional catastrophic economic event (which is certainl possible, but unlikely imo), prices will probably be back to where they are now next summer.

  57. 57
    Elizabeth says:

    I dunno… I think the past year was pretty scary for a lot of people, especially those families accustomed to living on two incomes. There’s no way my family is going to buy a house we can only afford if both of us are working. Reading stories of layoffs last year solidified that for us. Even with a household income well above the median, we couldn’t comfortably afford the median priced house right now, factoring in private school, student loans, economic uncertainty, etc. We also won’t live more than 3 miles from our child’s school in N. Seattle, as we bike commute. If I have to move farther out, it’s like adding tens of thousands of dollars to the price for us.

    FWIW, we owned a home for a few years in the Midwest. We bought around the peak there and barely broke even when we sold after 5.5 months on the market, considering ourselves lucky, as we had already moved to Seattle. I’ll never put my family in that position again. We had planned to be in that dream (for us) house for the rest of our lives, but a few years later, life changed and grad school beckoned. You just never know.

  58. 58
    Notorious ART says:

    RE: Ryan @ 15

    “Most people on this board are going to miss the bottom when it arrives b/c they are too involved in the sarcastic and negative comments that are posted everyday. ”

    Once the Seattle RE market is in line with fundamentals(ie income,P/R ratios etc), The Tim’s posts will come to the conclusion, that it is a “Good Time to Buy”. No one can predict the bottom, but I think people on this site will get close. I guess time will tell.

  59. 59
    Ryan says:

    Interesting that multiple responses I have made (#23, 24, 29, 33, 34, 36, 41) are not posted. They were awaiting the moderator….tim, did you delete my posts or not approve them?

  60. 60
    Ryan says:

    Tim-

    While you’re at it, please explain the following sentence you typed at #23 to me:

    Also, if you really don’t care about the market and you’re as confident about the near-term direction of home prices as you claim to be, why would you even be wasting any time on this site at all?

    I can’t find where I said I am confident about the near-term direction of home prices but I am sure you will find it.

  61. 61
    Scotsman says:

    Dead cat bounce. I originally thought we would start back down by this fall, but a variety of mathmatical quirks in the way national data is reported along with reporting delays may have things looking brighter than they actually are, and delay to next drop down until next spring. But continue down we will. Bottom in 2014, then flat.

    There is no sustainable, positive, economic news on the horizon. There is a lot of market manipulation, poor or biased reporting, and short-term gaming that holds the facade of a turn-around together. The reported “green shoots” are mostly weeds, not real growth, and they will die with the change of season.

  62. 62
    BillE says:

    By Ryan @ 15:

    It is comical to watch how super intelligent people on this website get caught up in the emotion and try and time the market.

    It would be easy to argue that people who bought houses were the ones caught up in their emotions. Considering some of the factors that influence housing prices takes a bit of the emotion out of the decision. Buying at a lower, more reasonable price will save a lot of money over the life of a loan.

    It would eat me up to buy a house and then find that I could have paid significantly less or got a nicer home by waiting a little longer. I’ve worked too hard and sacrificed too much saving up my down payment to spend it and then watch it evaporate. I guess in that respect I am afraid to pull the trigger and going on emotion.

  63. 63
    deejayoh says:

    By Ryan @ 19:

    My interest is irrelevant to the market although i could argue for the benefit of lower prop taxes with further declining prices. Wishing something doesn’t make it so….prices will not fall forever.

    this is not how property taxes work. the change in your assessment is only relevant insofar as it goes up or down more or less than everyone elses. even if your assessed value drops, your taxes can still rise.

  64. 64
    Ryan says:

    RE: BillE @ 62

    Well Bille, unless you time it perfect, there is always a chance that your home value could decrease some. It blows me away that people still look at homes as investments; if you didn’t then you wouldn’t be concerned with the short-term ups and downs. Don’t forget that low mortgage rates are also a factor and you are likely not going to see these kind of rates in the future. Even though your payment is the same, you might get a lot less house because of the increase in rates.

    At least a few people here have admitted they are scared to pull the trigger….the others are still hiding behind the tim and his cool software that makes really neat graphs and predicts the future.

    I wonder where tim is at since about a half dozen of my earlier comments have been deleted (including a reply to Ira’s last post at 48 which was excellent). Looks like he has conveniently disappeared.

  65. 65
    Ryan says:

    RE: deejayoh @ 63

    You are correct, the taxing jurisdiction can adjust the rate however they like. I am merely pointing out that there could be arguments made on both sides that i want prices to go up or down. bottom line, i don’t really care (with a slight bias towards the up side obviously).

  66. 66
    BillE says:

    By Kary L. Krismer @ 33:

    I suspect the credit will be extended, .

    Me too. I’ve even read that there’s a few in DC trying to bump the credit up to 15k. I have no idea if that will happen, but it’s been proposed.

  67. 67
    Fran Tarkenton says:

    By Ryan @ 15:

    Yes, I have a job and don’t have time to blog all day about housing. I don’t need to have a comprehensive argument b/c I put my money where my mouth is and bought a home last August.

    In six hours you’ve posted maybe a dozen times. How many times would you have posted if you did have the time to blog all day about housing?

  68. 68
    BillE says:

    Ryan, if interest rates go up, what’s that going to do to prices? I would rather owe less at a higher rate. It would make an early payoff easier.
    I’m not looking at buying a house as an investment. I’m trying to get a better price, just like any other purchase. If I was buying a new car and had info indicating that it would be on sale next week, I’d wait until next week. Right now all the info on housing points to lower prices in the future.

  69. 69
    The Tim says:

    RE: Ryan @ 59 – I was away from the computer for a few hours. When you changed names it required approval by the system.

    RE: Ryan @ 60 – You didn’t outright say that you know what direction home prices are going to go, but your comments that “I don’t need to have a comprehensive argument b/c I put my money where my mouth is and bought a home last August” and the blatantly antagonistic remark @11 certainly imply that you are confident that home prices will begin to rise soon and people who believe otherwise are just “scared” and “hiding behind the charts and graphs.”

    Also, I agree with what another poster said above. You are painting the commenters here with a very broad brush. Sure, a few people will tell you that buying a home last year makes you an “idiot,” but there are just as many people that will say if it made sense to you, then more power to you.

    Heck, on the About page for this very site, linked in big bold letters at the top of every page it says:

    …whether or not to buy is a personal decision that only you can make.  Don’t let a blog or a real estate salesman make that decision for you.  Consider all the options and risks, and make an informed decision based on your unique circumstances.  If you find a home that you love, at a price that you’re comfortable paying (i.e. – you wouldn’t be upset if the price dropped another 10-20%), and you plan to live there for a long time, then go for it.  If you are looking at a home as a place to invest your money, then you should probably reconsider.

    Again, don’t take our word for it. Go out there and do your research, and make an informed, intelligent decision.  You’ll be glad you did.

    Just a suggestion, but maybe if you don’t want people to respond to you with attacks and name-calling, you shouldn’t lead off the discussion with an attack and name-calling of your own.

  70. 70
    The Tim says:

    RE: Fran Tarkenton @ 67 – Rather amusing that he says “I have a job and don’t have time to blog all day about housing,” then gets on me for not being at the computer every minute of the day to approve each one of his 16 comments (so far) in this thread.

  71. 71
    seattlerenter says:

    Ryan people make decsions for a variety of reasons. You made your decision based on your own beliefs and feelings which is fine. Others have different opinions, and you know what they say about opinions. So any personal decision is just that personal. If you have such anger and resentment towards those that have a different opinion then do not come to this site. I agree nobody should make others feel bad about their decisions which is what is sounds like you are doing on the other side.

  72. 72
    Racket says:

    Wow 71 posts allready?

  73. 73
    Racket says:

    By Ryan @ 64:

    RE: BillE @ 62
    It blows me away that people still look at homes as investments; if you didn’t then you wouldn’t be concerned with the short-term ups and downs.

    At least a few people here have admitted they are scared to pull the trigger….the others are still hiding behind the tim and his cool software that makes really neat graphs and predicts the future.

    I really think it’s foolish not to look at real estate like an investor. There is money to be made, and we will continue to do so in the future. I do think it’s foolish to use your house as an ATM however.

    One thing rarely discussed here is that 90% of the people here have an interest in buying and owning housing. That is why they are here, the other 10% are doomsday economy junkies.

    I am scared to pull the trigger, and want to find a property at a bargain basement price that way if we do drop another 30% I will be OK, not great, but OK. I feel that buying a house right now at market is a mistake, unless you really want the house, and know you are paying a premium to live there. Not always can you find quality rentals in desirable (subjective) locations, for significantly less than a mortgage.

    We have room to drop and we probably will, but how much how quickly and for how long, only a fool or a genius could answer that problem.

  74. 74
    phil says:

    if you find a gem (a good buy vs. the overpriced bad buy houses), buy it!

  75. 75
    pfft says:

    these scare tactics to get people to buy an overpriced home is hilarious. we’ve heard “fence sitters” degraded for years. their bank accounts aren’t degrading, that’s for sure.

    home prices exhibit strong serial correlation. that means if they have fallen over a certain period of time it’s very likely that they will keep falling. same for prices rising. you won’t get a situation like in the stock market where the market is up 30% or more in 3-6 months. likewise home prices probably won’t turn around and fall that quickly.

    that means there is little incentive to buy if you are basing your caution on prices still falling. the home market is a large ship that takes a long time to turn around in any direction. sales aren’t going to tell you anything about prices rising. in fact, rising prices may mean a market in finally clearing and that will result in prices FALLING.

    like I said before, wait for sales, inventory and affordabillity to come back. if you are just watching prices, just wait for 3-6 consecutive months of YOY rising home prices. as far as I know we are not anywhere close to even one month of YOY prices increases.

    prices are falling at the rate of 10-20% right now. that is a big risk.

    I can’t remember where I read about serial correlation in housing but a quick google search brought about this paper.

    however, I cannot access it.

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=9132

  76. 76
    wreckingbull says:

    We have not seen tools like Ryan for quite some time. Not very entertaining anymore.

    Anyway, I’d like to point out something that is often overlooked. Whether you like it or not, historical P/E will be the best indicator. When you can own for a little more than you would be renting, I’d say think about buying. When I look at my current rent and the still-hilarious asking prices, we are not even close.

    Sorry Rye-guy.

  77. 77
    Mojo says:

    In my neighborhood, I don’t believe prices have bottomed for condos. Just from a quick check there are 129 condos listed (probably much more than this, because there are several large projects in my area and I can tell that not all of the units are listed). In the last 3 months of increased sales activity, there were 45 sale records. That’s about 12 MOS, not including the 50-100 units that I know are not being listed by the developers (so probably closer to 15-18 MOS). If the developers were to convert the units to rentals, that could significantly reduce inventory. Conversions are entirely possible, since most of the large buildings are less than 40% sold…and who knows how many people will fall through when it comes time to actually close.

    The average list and sold $/sq are $435 and $385, respectively. The units being auctioned off at Lumen and Queen Anne High School were mostly in the $280-$350/sf range for new construction. I imagine that sale prices for my area (Eastlake) will probably move to those numbers, since that seems to be what people are willing to pay and since there is no shortage of condo inventory right now. In other words, that would be another 10%-25% drop in sale prices for condos.

    I wouldn’t bet that condo prices would fall much more than that, because at $280-$300/SF I (a first time buyer) would be ready and able to buy the nice condo I’ve been waiting for over the last five years…and I imagine that there are probably a number of other first time buyers that would do the same.

    Until then, I’m more than happy to let my downpayment multiply in the stock market for another year rather than erode in an overpriced condo.

  78. 78
    Jonness says:

    By Ryan @ 11:

    Keep hiding behind the charts and graphs while you try and tell everyone how smart you are……

    Let me guess. Your disdain for using intelligent data analysis led you to purchase a home in 2007 when all the “experts” were claiming house prices would go up forever?

    Now you’re fuming because you’ve spent the last year or so watching the smart bubblites save well over 6 figures while you’ve plummeted underwater with your data-less viewpoints.

    In anticipation of your reply, I don’t believe you. Why else would you be so bitter?

  79. 79
    Laurie Lapellegrina says:

    I don’t believe for one minute that house prices are stable or have hit anywhere close to the bottom at all. Now that you must prove your in income, salary, assets and/or document a full loan package this alone is going to dampen prices for the forseeable future. The only thing propping up prices from 2003 through 2007 were loans that did not have to be fully documented or not at all. While some may want to buy they will be unable to do so due to income not supporting prices that set a price point built on a house of cards. It will be quite some time to
    see any sort of recovery built on reality. For many people who did buy and are now stuck with high mortgage amounts or can’t sell because the market doesn’t support what they need to sell for I can only say that real estate is not always a good investment as these times clearly illustrate.

  80. 80
    Jonness says:

    “Tim’s army might possibly be one of the most ignorant bunch of sheep I have ever encountered.”

    Spoken by a man who went against Tim’s advice and is currently losing at the rate of over $20,000.00 per year. Wait; let’s look a little closer. You had to finance that $20K, so you’re losing money at the rate of $40,000.00 per year. If you’re this bitter now, imagine how you’ll feel next year.

    Meanwhile, I own one house outright. That means I can save most of my income while the market continues to go down. I’ll buy a second home right about the time the bank takes possession of your only home.

    Baaaaaaah!

  81. 81
    bubblebuyer says:

    It always amuses me how caught up bubbleheads and home buyers are in their own paradigms. It reminds me of the democratic left wingers debating abortion and affirmative action with republican right wingers. In the end both extremes are irrelevant because most Americans are centrist…at least the ones that count. So too the reality of the housing market falls somewhere in the middle.

    I don’t think a rational person can tell if the market is at or near a turning point. We are way beyond the point of being able to draw upon historical norms or trends. The federal government is intervening and distorting the markets on an unprecedented basis. Geitner has ramped up the printing presses and is debasing the US dollar to buy up mortgage paper. The USA is approaching debt levels not seen since world war two and the deficit will continue to grow under the new regime. Manufacturing has been eviscerated by globalization and a failed trade policy. The social security, medicare / medicaid ponzi schemes are rapidly running out of cash – actually, they ran out a long time ago as congress has misappropriated these funds for additional reckless spending. The USA has become a country of fat, lazy consumers that produce little of value and live off the hard work and thrift of exploited Chinese laborers and the goodwill of the Chinese ruling class who continue to buy our increasingly worthless treasuries. I could go on about the trade deficit and the other indicators that portray a country past the inflection point of decline. A realist would forecast a worsening economic environment for the USA for the foreseeable future.

    So what do you do? Move into a bunker, stock up with automatic weapons, ammo, canned food and 2 buck chuck? A rational person probably would be tempted after considering the macro economic tsunami. My view is do what makes you happy. If you value flexibility, enjoy spending your cash on living (restaurants, wine, vacations in Europe, dating, expensive hobbies….) and think cash is king or have difficulty sleeping if an investment loses value…continue to rent. If you have the cash, are secure in your career, have the cashflow to support a mortgage, are at the right point in your life and find a well priced home you like…buy a house. Either way, life is too short to walk around with a chip on your shoulder. Do what you are comfortable doing and be happy!

    PS: This coming from a guy that is down around $140,000 on his home and still enjoys walking in the front door. And excuse the spelling and grammar this posted after a day of flying and 3 glasses of Holiday Inn house Merlot.
    .

  82. 82
    What The Heck says:

    RE: bubblebuyer @ 81
    Very nicely put. You have to live your life and try to enjoy it as much as possible. Too often, life ends before one plans it.

  83. 83
    b says:

    I think Ryan is a perl script written by tim to try and drive some high comment traffic, this site has been pretty dead lately otherwise.

  84. 84
    David Losh says:

    I would like to see the comments by Ryan awaiting moderation or were they deleted?

  85. 85
    Sniggy says:

    By bubblebuyer @ 81:

    PS: This coming from a guy that is down around $140,000 on his home and still enjoys walking in the front door. And excuse the spelling and grammar this posted after a day of flying and 3 glasses of Holiday Inn house Merlot.
    .

    I don’t know which one is worse. $180k Drop in house prices, or having to stay at a Holiday Inn.

  86. 86
    wreckingbull says:

    RE: bubblebuyer @ 81 – Wise words indeed. Speaking of paradigms, here are a few that I have been pelted with over the years.

    “Real estate always goes up.”
    “Buy now or be priced out forever.”
    “You are just paying your landlord’s mortgage.”

    At least the conversation here is data-driven, regardless of if one agrees with the conclusions. I’ll take that any day over most other forums.

    Here is one last paradigm to bust: renting != slumming. This housing crash has allowed me to rent a place which I would only have dreamed of a few years back. I too, can’t wipe the grin of my face when I walk in the front door each day. Plus, all the money I save allows me to buy the “Kirkland” brand pale ale I am drinking right now. (Actually not that bad…I did a little sleuthing and found it is brewed by Gordon Biersch)

  87. 87
    The Tim says:

    RE: David Losh @ 84 – No, they are all present. They’re the ones under the name “rmsnickers.” As I mentioned @69 above, they only went into the moderation queue because he changed his posting name after already having comments approved under another name, and I was out at a meeting for the better part of the afternoon.

  88. 88

    RE: Sniggy @ 85

    And you just know that Holiday Inn house Merlot is highly prized. You really appreciate it after 3 glasses.

  89. 89

    RE: wreckingbull @ 86
    Really? Costco has their own pale ale? That I’d try.

  90. 90
    Sniggy says:

    You can return it if you don’t like it.

    Trader Joe’s has the same stuff but a better variety.

    ‘This housing crash has allowed me to rent a place which I would only have dreamed of a few years back”

    But how long will that last, something will have to give somewhere. Rents that much lower than house payment will see a corrective measure somehow. Whether it’s rent going up, or house prices going down.

  91. 91
    Sniggy says:

    By Ira sacharoff @ 88:

    RE: Sniggy @ 85

    And you just know that Holiday Inn house Merlot is highly prized. You really appreciate it after 3 glasses.

    Ohh I remember seeing it in wine spectator, didnt it score a 100?

  92. 92
    wreckingbull says:

    RE: Sniggy @ 90 – You are corrrect. It won’t last forever. That is why I did not sign a lease with a duration of forever. With 10% unemployment, I think it is pretty clear how equilibrium will be met.

  93. 93
    Eastside Westside its all Good says:

    I think we are still headed down and am seeing recent closings reflect this. Though the mix has changed a little, pushing up the median, looking at prices closing by closing versus prior sales shows a clear downward trend in home values. I think April and even May showed some surprises in closing price (higher than expected), nothing in June

    This is related – has anyone noticed that 2010 King County appraisals are appearing in the property records and valuations are down approximately 15-18% from 2009? Apologies if this item has already been discussed.

    I thought there was some funky data at first because the numbers didn’t match anything in the eReport. Also because, to my slight embarassment, my realtor told me the numbers were wrong. But I’ve noticed that a few properties already have the 2010 line appearing in the eReport. My guess is that updating the feed which shows the 2010 numbers for appraised value is much easier than converting the eReports into PDFs and adding those to each proerty record.

  94. 94
    Ross Jordan says:

    As I see it, there’s 3 ways out of the housing bubble.

    1) “Free market solution”. No intervention – let market forces take care of the problem. [Technically we’re already too late for this, as the Fed has already hugely interfered with the market]

    – House prices adjust down to historical norms. Perhaps 30-50% off the peak gets us back to those norms (though a correction combined with a recession could easily overshoot).
    – Causes vicious cycle:
    * “you can’t lose” psychology to home buying reduces # of irrational decisions on home buying
    * home prices falling lead to further foreclosures, high supply and further dropping prices
    * No one wants to enter the market as prices are falling, so reduced demand
    – Solution is “fair”? Punishes people who took big risks (but also punishes people who took “reasonable” risks as their assets fall in price too). Renters “win”, for once (if they don’t lose their job)
    – Housing deflation spreads to equities (this happened already), commodities (this happened already to some extent), consumer goods (minor deflation so far), wages (hasn’t really happened widely) and the entire economy (hasn’t really happened across the board)
    – Probably depressionary. Many “innocent bystanders” get hit by weak economy (high unemployment).
    – Depression isn’t politically popular =)

    2) Mortgage cramdown. Government bails out underwater (and possibly above water) homeowners by reducing mortgages or tax rebate paid for by taxes
    – Probably politically impossible unless home prices fall sufficiently that a majority would benefits
    – “Un-american” / “Un-capitalist”
    – Puts huge losses onto the fed’s balance sheet. Bill Gross’s estimates for the sub-prime mortgage market delinquincy was 5T. Add Alt-A and prime mortgages and the gross value of housing across the US exceeds 50T. So add 5T-10T of debt to the fed’s balance sheet for the cramdown. Debt/GDP ratio skyrockets to 200%+, credit rating writedowns for US, treasury/financing problems. Huge fears of default from creditor nations
    – Probably will lead to high inflation in the long run anyways

    3) Promote moderate level of inflation (i.e. 3-6%) while implementing measures to reduce losses in housing.
    – Solves “housing price” problem in a couple years (1.05^4 = 21.5% inflation). Underwater folks get out of underwater if they can last 4 years.
    – Inflation rewards debtors and penalizes lenders (more pain for banks holding debt, but politically popular as most of the US is in debt to some degree)
    – Causes problems for those living on fixed income not tied to inflation (seniors, pensioners etc)
    – Penalizes those holding cash or equivalents
    – Generally easier political sell, since if inflation is sufficiently low, few people will notice or care
    – Fears or hyper-inflation and default causes people to transfer cash into assets, commodities, housing (perhaps restarting a housing/asset bubble)
    – Risks of spooking creditor nations and ending the implicit trust of USD (end of USD as default world fiat currency would be inflationary)
    – Fed risks overshooting and causing over-inflation

    To me #3 seems like the most palatable political outcome and probably the least painful (assuming our creditor nations don’t become too scared) , regardless of which solution would be the most “fair”. #2 anyways leads to inflation. #1 most people want to avoid. It could also be some combination of the 3 options which could be deflationary in the short term and inflationary in the long term.

    My point is, I think that housing prices will normalize in the medium term through inflation and we’re probably close to the end of nominal price drops (but it kinda depends how the economy at large fairs).

  95. 95
    Jonness says:

    “But how long will that last, something will have to give somewhere. Rents that much lower than house payment will see a corrective measure somehow. Whether it’s rent going up, or house prices going down.”

    Most of us bubble-heads are betting it will be house prices going down. This is largely based on over a hundred years of historical house prices in relationship to incomes. It’s important to note, the main driver of this correction is tightened lending standards–just as the main driver of historically high prices was loosened lending standards. At some point, people could no longer afford to pay back the freely available loans, and a correction was set in motion. The direction of this correction is self-reinforcing due to the now tightened lending standards, which, most likely, will not loosen up for many years.

    Most people could give a rat’s rear-end about charts and graphs. If the bank will loan them the money, they will pay any amount asked for a house. So it comes down to the fact that banks can no longer lend at bubble levels because they are not capitalized well enough and are unwilling to take the risks involved so soon after being wiped out. We could very well see another housing bubble. But, it most likely will not happen for at least a decade.

    Amateur investors usually cite all the popular investing books saying you can’t predict the market blah, blah, blah. These people don’t understand probability theory. They misunderstand that you can’t pick market direction with 100% certainty, but you can increase your probability of winning by using fundamental and technical indicators. This concept is similar to when you go to Las Vegas and play against the house. The house doesn’t get rich overnight. Instead, it plays a massive amount of hands using a slight advantage against the players.

    As for houses, home sales ticking up volume-wise doesn’t necessarily mean prices will head back up any time soon. Since sales can’t approach bubble levels, they will most likely stay at historically sustainable levels. Thus, we will see the current 67% homeownership rate head back toward a more normal rate of 60%. This means house prices will slowly correct over the course of the next few years similar to the Japanese example, albeit at a faster rate of correction.

  96. 96
    Jonness says:

    Here’s a good read written by an observant person, just prior to the correction (January 20, 2005). This stuff isn’t necessarily rocket science. But it helps to keep the emotions out of the analysis.

    http://www.itulip.com/housingbubblecorrection.htm

    Note in the following chart the period between 1985 and 1990 and the subsequent correction over the next 7 years before house prices started heading back toward the bubble price again. Then notice how the currently correcting bubble makes the 1990 bubble look like child’s play.

    http://housingcorrection.com/SantaBarbaraMedianPriceChar.gif

  97. 97
    Scotsman says:

    Well, it took almost two years, but my cousin has walked from his “dream home”, taking a $200K+ hit, and also from his “investment” property, a flip that is also upside down although I’m not sure by how much. He’s renting a home very similar to the one he’s walking from- in fact it’s in the same development, about a block and a half away. He was over-extended to begin with, but job changes and health issues finally put him over the edge. I’m sure there will be many others over the coming years. My own landlord plans to walk 1-1-2011 when the neg -am loan payment he has almost triples. For now, he waits for that magical government program that will allow a refinance of 125% of the peak bubble price and save his credit.

    How anyone thinks this can end well completely escapes me.

  98. 98
    mr.finviz says:

    By Ryan @ 15:

    Timing the housing market is no different than the stock market; it is unpredictable and despite reliable data, the market can move contrary to what the data suggests.

    Most people on this board are going to miss the bottom when it arrives b/c they are too involved in the sarcastic and negative comments that are posted everyday.

    When the “reliable data” says the market went down 20% from peak, may be yours was up 20% contrary to what the data suggested… I know you have picked the right one!!

    When I read such “emotional” arguments with out any substance I know we have not hit the bottom yet!!

  99. 99
    Scotsman says:

    RE: Jonness @ 95

    “Amateur investors usually cite all the popular investing books saying you can’t predict the market blah, blah, blah. These people don’t understand probability theory. They misunderstand that you can’t pick market direction with 100% certainty, but you can increase your probability of winning by using fundamental and technical indicators. This concept is similar to when you go to Las Vegas and play against the house. The house doesn’t get rich overnight. Instead, it plays a massive amount of hands using a slight advantage against the players.”

    Now there’s some wisdom. Even better, one can actually make money when the odds are slightly against you through the use of proper money management techniques. But very, very few folks understand this. And in our current situation where the probabilities are strongly in favor of a specific long term trend, it’s as though the savvy investor has been given a license to print money. Nothing works all the time, but this is one of those rare eras when the possibilities are easily identified and played.

  100. 100
    ray pepper says:

    You know where I stand on this topic Tim…… Now instead of me saying it again……………

    Can you………

    Place that picture of YOU and Robert Schiller together with one of me from his lecture? ……so us 3 are standing side by side.

    That will indicate where my belief stands………without rehashing it over and over.

    Heres my Pik…

    Ah well……it didn”t take………..Dang…………………..

  101. 101
    Kary L. Krismer says:

    By Jonness @ 95:

    “Most of us bubble-heads are betting it will be house prices going down. This is largely based on over a hundred years of historical house prices in relationship to incomes.

    So bubble-heads are living in the past? Do they keep their women barefoot and pregnant too? ;-)

  102. 102
    deejayoh says:

    By Ira sacharoff @ 88:

    RE: Sniggy @ 85

    And you just know that Holiday Inn house Merlot is highly prized. You really appreciate it after 3 glasses.

    By Ira sacharoff @ 89:

    RE: wreckingbull @ 86
    Really? Costco has their own pale ale? That I’d try.

    Ira makes me laugh.

  103. 103
    Herman says:

    I admit that I’m afraid to pull the trigger. A 10% price drop would wipe out two years of savings from salary. That seems entirely possible, and a lousy way to waste two years worth of work.

    But I am willing to buy at fair market price today, and I’d take the risk of future loss. I made an offer on a house last week. There’s a disagreement over price. I am negotiating directly with the seller’s agent, seeing little value in representation when I negotiate deals for a living anyway.

    The fear of overpaying led me to do a lot of research to calculate the FMV for this house. I am presenting an airtight case for the FMV of the property, based in part on the wealth of statistics available here. My FMV is triangulated based on micro-comps and macro-trends. Every valuation method I’ve used puts me at the same range.

    The seller’s agent cannot seem to muster logical arguments to the contrary, though I could be persuaded if he had them. Rather, the arguments are emotional, that the house is unique and special. I can’t seem to break through that. But that is the gap. I have statistics and he has none. Rational vs. emotional means a $100k gap, and that won’t get the deal done.

    It’s really a shame, since there’s probably a deal here, it’s just that I don’t think we have the right formula to find it.

  104. 104
    David Losh says:

    The Real Estate market is much different from stocks or bonds.

    It’s all numbers. Cash in cash out.

    Let me say that all the charts in the world are useless to the Art of the Deal. People are making money today buying Real Estate. They always do, they always will, and they always have.

    There is no top or bottom in Real Estate there is only the deal you can make today.

    August of 2008 was a fine time to make a deal, maybe better than today, not as good as next September of 2010, or 2011.

    What I have yet to understand is why there is so much harping.

  105. 105
    Lamont says:

    spring bounces in home sale volume always give some support to home prices, its a really obvious annual pattern.

    wait until volume dries up this winter and we’ll talk about a bottom happening or not.

    we also had this same story last year, when the “recovery” in spring was larger.

    markets love to suck people in with dead cat bounces, and the housing market has a built-in annual dead cat bounce every spring.

    until the y-o-y housing price stabilizes, we’re still in a down market (although this is a slightly lagging indicator and will miss the bottom by about 6 months — we’re still not 6 months away from crossing the zero line on y-o-y prices).

  106. 106
    melonrightcoast says:

    I didn’t have time to read all 100+ comments, but I would like to add the following to the “Seattle-area home price drops are probably over because:” column:

    -Federal and state governments seem hell-bent on keeping the housing bubble inflated

    This opinion is due to the $8000 first-time home-buyer credit by the federal government that many state governments have started giving loans so that people can use it as a downpayment AND the Fed Reserves buying treasury bonds to keep the interest rates very low (at least, I think that is why they are doing that).

  107. 107
    Tsuru says:

    I just negotiated a 10% discount on my rent in Redmond on a 14 month lease. The property management company was VERY interested in negotiated with me. I had already made up my mind to move, and threw out my “this is what it will take to get me to stay” number and they said “okay” right away.

  108. 108
    David McManus says:

    CNN is now calling the bottom. Monthly home price rise for the first time in three years. So…..home prices are stabilizing. Guess we should all jump in now, eh?

    http://money.cnn.com/2009/07/27/real_estate/May_Case_Shiller/index.htm?postversion=2009072809

  109. 109
    bubblebuyer says:

    @ Sniggy » Jul 27, 2009 at 8:39 pm

    LOL, I was thinking the same thing. Unfortunately, clients keep locating businesses in the worst flyover locations imaginable. Hence the Holiday Inn and house wine!

  110. 110
    WaileaKid says:

    Here are the price drops on the eastside in reverse chronological order. Collected from redfin. More details on the eastsideflops thread in the forum.

    7/11- 7/25 500+
    6/27 – 7/11 408
    6/13 – 6/27 399
    5/30 – 6/13 440
    5/16 – 5/30 359

    I don’t see what makes you think that the price drops are over. At least not on the eastside.

  111. 111
    Kary L. Krismer says:

    I would add low consumer confidence to the negative factors. I think that’s a huge factor.

    http://seattletimes.nwsource.com/html/nationworld/2009552389_apuseconomy.html

  112. 112
    WestSideBilly says:

    RE: Mojo @ 77 – With respect to Repartmenting of condos, the market place for conventional apartments isn’t exactly robust. Adding hundreds of converted condos to the mix would likely drive down rental rates in that area.

    Also, the $/SF rates for condos are so misleading. I’ve seen a couple that were priced fairly well, but had $300/mo association dues.

  113. 113
    Notorious ART says:

    RE: Scotsman @ 99RE: Jonness @ 95
    I agree words of wisdom.

  114. 114
    Notorious ART says:

    RE: Ryan @ 64
    “At least a few people here have admitted they are scared to pull the trigger….the others are still hiding behind the tim and his cool software that makes really neat graphs and predicts the future. ”

    I don’t think anyone is hiding behind anything. If you don’t agree with Tim’s method of using graphs and data to make informed decisions about RE then fine, perhaps you can start your own website touting your own ideas. Furthermore, Seattlebubble isn’t the only place spreading the “negativity” as you say. Any person who regularly visits seattlebubble can point you to countless other blogs that have arrived at similar conclusions about RE. Before you start thinking I’m just a bitter renter, full disclosure, I’ve been a homeowner for several years and consider myself a bubblehead.

  115. 115
    Sniglet says:

    I will have to say that we are nowhere close to the bottom of Seattle area house price declines. As I’ve said before (ad nauseum), the US (and most of the world) is just starting to enter a deflationary depression which will last for a decade or more.

    I don’t think that a few months (or even a year) of house price increases is sufficient evidence that the bottom is in. Using my favourite (and much maligned) example of Japan, they saw periods of well over a year where asset prices increased substantially over the last 20 years, yet the over-all deflationary decline would assert itself yet again and drive prices even lower. I agree with earlier comments that we likely won’t be able to tell that the bottom is really in until at least 2 years after it occurs.

    Regardless of WHEN the bottom occurs, the last thing anyone should be worried about is missing it. When we hit the bottom on Seattle house prices, the market will drag along for 4 to 8 years before any substantial appreciation is seen.

    The very fact that so many people are even trying to call a bottom right now is proof enough that it hasn’t occured. When the actual bottom arrives, no one will care, and few people will be interested in buying real-estate anymore (certainly not for investment purposes).

    Like I’ve said on numerous occassions, we will likely see a drop of 80% (or more) from average peak prices when we hit bottom. We have a LONG way to go…

  116. 116
    Dr. Leo Marvin says:

    RE: Sniglet @ 115

    Sniglet,

    This is Dr. Marvin. Have you taken your meds lately?

    Please call my office at once!

  117. 117
    Kelly says:

    By marlon @ 55:

    – Personally I think that from now on, major employers such as Microsoft will need to put up with fierce competition from Google and open source, but Microsoft still is around. I think that neighborhoods far away (Kenmore, Bothell, etc) may not see price increased as much. However, Bellevue, Redmond and other prime neighbhoords may well see a rebound more rapidly. By the way, I own a property in Redmond!

    – Immigration trends:Look at how many people are moving to Seattle. This is still a very desirable place to live and I think that may help stabilize prices here. Even you tell me immigration is down now, once people hear that the economy is improving I can tell you that Seattle should be one of the best places to live in the US and people should continue to come here.
    .

    With all due respect, time to take off the rose-colored glasses. Microsoft has a 5+ year history of failing at almost everything it tries to accomplish. Almost every software update they send out requires a patch a day or two later. It’s laid of thousands since the beginning of the year and yet it’s stock price is still stuck in the 20’s.

    Then there’s Boeing. It won’t happen for a couple of years, but Boeing WILL LEAVE TOWN. Why should they stay if they can move to the south and pay their employees Walmart wages? And even if they don’t leave, the news about delays with the Dreamliner are just the tip of the iceberg. The Big B is a sinking ship, pardon the bad pun.

    And just because people are moving to the area (if that’s true), it doesn’t mean they can afford a house or condo.

    Just my two cents. :)

  118. 118
    melonrightcoast says:

    RE: Sniglet @ 115

    “The very fact that so many people are even trying to call a bottom right now is proof enough that it hasn’t occured. When the actual bottom arrives, no one will care, and few people will be interested in buying real-estate anymore (certainly not for investment purposes).”

    Our accountant told us this when we sold our home in 2006 in Boston. Almost verbatim, which is kind of uncanny.

  119. 119
    melonrightcoast says:

    RE: marlon @ 55

    “- Immigration trends:Look at how many people are moving to Seattle. This is still a very desirable place to live and I think that may help stabilize prices here. Even you tell me immigration is down now, once people hear that the economy is improving I can tell you that Seattle should be one of the best places to live in the US and people should continue to come here.”

    We chose not to move to Seattle for the following reasons:
    -after doing some searching, checking with headhunters and a few friends in technology in Seattle, my husband felt that his career opportunities would be too limited.
    -AND salaries are low
    -public transportation… what public transportation?
    -housing prices in excellent school districts are still pricey, especially once you factor in the low salaries
    -9 months of cloudy/rainy weather

    I think that people that live in an urban area usually live there because they love it (with the exception of Philadelphia, from my experience) and are therefore biased about their city. Boston, NYC and SF are certainly that way, and I can see how Seattle would be that way, too. So just because YOU and other people that you know that live in Seattle think that it is the best place to live, doesn’t mean other people do. Once home prices in SF Bay drop some more, I’ll bet that you are going to see ex-BayArea residents packing up and heading back to that near perfect weather.

  120. 120
    Lake Hills Landlord says:

    RE: Sniglet @ 115

    I hope I can keep my job through this. If I do, I plan to buy a house with cash. I will be a renter at that point as I plan to walk when I hit $100k underwater (breaking even now). I expect the first milestone to be late next year. Saving $20k a year in a highly deflationary environment should be a piece of cake. Maybe the bank will let me rent my house from them when I mail the keys in. Then I can buy it back for cash after five years.

  121. 121
    MacroInvestor says:

    RE: Ryan @ 15

    “I don’t need to have a comprehensive argument b/c I put my money where my mouth is and bought a home last August. It is comical to watch how super intelligent people on this website get caught up in the emotion and try and time the market. Timing the housing market is no different than the stock market; it is unpredictable and despite reliable data, the market can move contrary to what the data suggests.”

    Wow, Ryan. That’s really a bad comparison. When your stock investment goes south, you can dump it for a small loss instantly and move on. That house you bought last year is down a lot. Let’s see you find a buyer willing to take it off your hands. You are stuck like everyone else.

  122. 122
    Jonness says:

    By Kary L. Krismer @ 101:

    By Jonness @ 95:

    “Most of us bubble-heads are betting it will be house prices going down. This is largely based on over a hundred years of historical house prices in relationship to incomes.

    So bubble-heads are living in the past? Do they keep their women barefoot and pregnant too? ;-)

    2000 years of the world’s economic observation and learning trumps the amount of observation and learning you experienced during the Greenspan economic bubble-era.

    Remember? Asset prices will rise forever. We’ve reached a new economic era.

  123. 123
    Sniggy says:

    By MacroInvestor @ 121:

    RE: Ryan @ 15
    Wow, Ryan. That’s really a bad comparison. When your stock investment goes south, you can dump it for a small loss instantly and move on. That house you bought last year is down a lot. Let’s see you find a buyer willing to take it off your hands. You are stuck like everyone else.

    If you bought a house for $100k and it dropped 80% you’d have 20k in equity. (and a place to live)

    If you bought a stocks for $100k and it dropped 80% you’d have 20k in “equity” ( and some paper) try selling a stock when its plummeting.

    Bottom line you still lost $80k

    If I had to pick which one tanks more frequently, I’d pick stocks, but the gains can be more rapid.

    Housing still typically tends to be less volatile.

  124. 124
    deejayoh says:

    By Sniggy @ 123:

    If you bought a house for $100k and it dropped 80% you’d have 20k in equity. (and a place to live)

    If you bought a stocks for $100k and it dropped 80% you’d have 20k in “equity” ( and some paper) try selling a stock when its plummeting.

    Bottom line you still lost $80k

    If I had to pick which one tanks more frequently, I’d pick stocks, but the gains can be more rapid.

    Housing still typically tends to be less volatile.

    Hard to get 5x or more leverage on stocks though. and harder still to buy a house with cash.

  125. 125
    Jonness says:

    By bubblebuyer @ 109:

    @ Sniggy » Jul 27, 2009 at 8:39 pm

    LOL, I was thinking the same thing. Unfortunately, clients keep locating businesses in the worst flyover locations imaginable. Hence the Holiday Inn and house wine!

    My GF and I just returned from California. Modesto and Patterson really opened my eyes to just how little a well appointed 3000+ sq ft house can sell for (about $150-$200K). in some areas, entire streets were vacant. Then again, who would want to live there?

    I’m not ashamed to say that the Holiday Inn and house wine are too expensive for my budget. We lived on the cheap and had a blast. Here is a picture of me on the rock just below our $75 per night ocean-front cabin.

    http://housingcorrection.com/beachcabin.jpg

    We cooked our own organic vegetarian food and drank beer from the grocery store. IMO, it was better than any restaurant and much cheaper. Money can definitely be a myth when it comes to quality of life. The Michael Jackson tragedy comes to mind.

  126. 126
    Sniggy says:

    From Wikipedia.

    ” The area is plagued by some of the worst air quality in the nation, on occasion surpassing even that of Los Angeles. Modesto had the highest auto theft per capita rate in the United States five of the last six years. Its suburbs are among the most impoverished in the nation, ranking sixth poorest out of the 100 largest metro areas. It is a major meth distribution hub and was considered for many years to be the “Methamphetamine Capital of the World.” In 2007, Modesto was named last in a list of best American cities in Cities Ranked & Rated, 2nd Edition[1] Number 23 on the top 400 most dangerous metropolitan areas in 2007 Morgan Quitno[2] (it ranked 16th in 2006[3] and 39th in 2008[4]). In 2009, Forbes Magazine ranked Modesto the worst metro area with over 500,000 residents[5] just months after placing it 5th on the list of most miserable American cities.[6]”

  127. 127
    Kary L. Krismer says:

    By Jonness @ 122:

    By Kary L. Krismer @ 101:

    By Jonness @ 95:

    “Most of us bubble-heads are betting it will be house prices going down. This is largely based on over a hundred years of historical house prices in relationship to incomes.

    So bubble-heads are living in the past? Do they keep their women barefoot and pregnant too? ;-)

    2000 years of the world’s economic observation and learning trumps the amount of observation and learning you experienced during the Greenspan economic bubble-era.

    Remember? Asset prices will rise forever. We’ve reached a new economic era.

    Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. That’s rather obvious I thought. Even throwing out the idea of looking at 100 years of ratios is absurd. You’d have to be completely ignorant of history to suggest such a thing.

    So yes, my learning does trump your comment, because I’ve been at least somewhat aware of trends over the years.

  128. 128
    Racket says:

    Also what were people living in 100 years ago. Many houses didnt even have toilets in them. Let alone electricity.,

  129. 129
    dydx says:

    This article in today’s online New York Times may be of interest:

    http://www.nytimes.com/2009/07/29/business/economy/29housing.html?_r=1&th&emc=th

    “Recovery Signs in Housing Market Stir Some Hope”
    By DAVID STREITFELD
    Published: July 28, 2009

    What do y’all think?

  130. 130
    Markor says:

    RE: Lake Hills Landlord @ 120

    Time it right, the banks will be overwhelmed with others doing the same. Demand they produce the note that proves you owe them anything, then rent for $0 until they do. If/when they show the note, offer $100/month to keep the place free of vandals until they unload it. Time to play hardball since taxpayers are on the hook for the huge profits the banks are making now. Those who can recoup that future loss, should.

  131. 131
    Markor says:

    RE: dydx @ 129

    The problems at the high end (mentioned in the article) foretell what’s in store for the low end. McMansions in the Seattle area are sitting, and sitting. One in my old neighborhood is languishing at 30% off peak. Eventually these sellers will realize that they either lower their price, walk away, or stay put indefinitely.

    And what’s that 64-year-old retired guy thinking buying a $260K 5-bedroom house with a mortgage?

  132. 132
    Scotsman says:

    RE: Kary L. Krismer @ 127

    “Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. That’s rather obvious I thought”

    Not true- the trend toward dual income households only cut the value of labor. Remember, increase the supply of something and it’s price goes down? That’s rather obvious, or so I thought.

    Housing prices over time actually reflect the value of all labor relative to productivity gains. The long term trend as presented is completely valid.

  133. 133
    vermillionsky says:

    By Kary L. Krismer @ 127:

    Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. That’s rather obvious I thought. Even throwing out the idea of looking at 100 years of ratios is absurd. You’d have to be completely ignorant of history to suggest such a thing.

    So yes, my learning does trump your comment, because I’ve been at least somewhat aware of trends over the years.

    Johness was talking about “historical house prices in relationship to incomes.” Aren’t these ratios based on household income, not individual income? Yes, prices will rise if household income increases, but the ratio of prices to household income should follow the same historical trend, no matter what causes the income increase, shouldn’t it?

  134. 134
    Kary L. Krismer says:

    By vermillionsky @ 133:

    By Kary L. Krismer @ 127:

    Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. That’s rather obvious I thought. Even throwing out the idea of looking at 100 years of ratios is absurd. You’d have to be completely ignorant of history to suggest such a thing.

    So yes, my learning does trump your comment, because I’ve been at least somewhat aware of trends over the years.

    Johness was talking about “historical house prices in relationship to incomes.” Aren’t these ratios based on household income, not individual income? Yes, prices will rise if household income increases, but the ratio of prices to household income should follow the same historical trend, no matter what causes the income increase, shouldn’t it?

    No. As you make more money, you can afford to spend more of it on a home. And that’s what people have chosen to do in many instances. Crazy percentages of income, IMHO, but it’s their choice.

    But just to put it to numbers, let’s say food, utilities, transportation and misc. cost you $1,200 a month. If you take home $2,400 a month, you could spend up to half your income on housing (although that wouldn’t be recommended). If you bring in $3,600 a month, you could spend 66% of your income on housing.

    With a two income household, assuming the higher paid of the couple made enough to support the family, 100% of the earnings of the lower paid could be spent on housing, if that’s what they wanted.

  135. 135
    Kary L. Krismer says:

    By Scotsman @ 132:

    RE: Kary L. Krismer @ 127

    “Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. Thatâ��s rather obvious I thought”

    Not true- the trend toward dual income households only cut the value of labor. Remember, increase the supply of something and it’s price goes down? That’s rather obvious, or so I thought.

    Housing prices over time actually reflect the value of all labor relative to productivity gains. The long term trend as presented is completely valid.

    When you only look at one factor, you’re often wrong. True the supply of labor increased, but the investment in labor-saving tools also increased dramatically. That seemingly would also reduce wages, but the thing is, making everyone more productive allows more to be paid. So, what you might consider “obvious” is simply wrong.

    http://www.census.gov/hhes/www/income/histinc/f07ar.html

  136. 136
    tommy loyd says:

    King co has 3643 pending sf homes currently on the mls with 10060 active sf listings. App 36%. Not bad. But 950 of the pendings are short sales. Not good. They take 3 times as long to close (if they close) and create a distorted picture. Not a real uptick in pendings. The whole NW market is in a shambles during the peak of the selling season. Foreclosures are comming unglued. Unemployment is heading up. Banks are tight. Buyers are few. November is comming.

  137. 137
    tommy loyd says:

    Do people chose to spend larger percentages of their income on realestate that is loosing value or just when they percieve a financial gain?

  138. 138
    Scotsman says:

    RE: Kary L. Krismer @ 135

    “When you only look at one factor, you’re often wrong”

    True enough, and in this case you are wrong, ironically because you’ve only looked at one factor.

    The chart you reference shows only inflation adjusted gross income, income that has been essentially flat for almost 40 years. Unless you want to argue that a 15+% increase is significant, all else considered. Trust me, it isn’t, and I’m prepared to blow any argument you come up with out of the water.

    There are hundreds of studies on the effects of the transition to two income families, as well as the effects of one income earner holding multiple jobs. They all show essentially the same result- no real net gain in disposable family income. Why? Because there’s “more than one factor”… gross income… to consider. That second income has costs associated with it- transportation, clothing, child care, etc. that, along with the decreased value of labor, (thanks to an increase in its supply) almost completely negates any perceived gains. Thus, the transition to more two income families has had no appreciable effect on housing prices.

    Kary, no matter how heavily tinted your rose colored glasses are, housing prices are going to continue to fall, and everyone you sell a house to over the next couple of years is going to lose money. Stop trying to pretend differently, and stop trying to twist the facts around to cover it up.

  139. 139
    vermillionsky says:

    By Kary L. Krismer @ 134:

    But just to put it to numbers, let’s say food, utilities, transportation and misc. cost you $1,200 a month. If you take home $2,400 a month, you could spend up to half your income on housing (although that wouldn’t be recommended). If you bring in $3,600 a month, you could spend 66% of your income on housing.

    With a two income household, assuming the higher paid of the couple made enough to support the family, 100% of the earnings of the lower paid could be spent on housing, if that’s what they wanted.

    But the ratios you are talking about, the historical data that compares prices to income are for household income, which is the combined income of all earners (single-income or dual-income), not the income of one of the earners. Suppose each person brings home $1200/month, and as a household they spend $1200/month on their housing. The percentage of income for the household is still 50%, not 100%. Even if you were to think of it as 100% of the second income going toward housing, you would still have 0% of the first income going toward housing, and the average over both earners would be 50%.

    People spend as much, as a household, as they are able to afford. It doesn’t matter if a household income is higher because its single income-earner is a surgeon, or because its two income-earners are engineers… a household that has a higher income is likely to have a more expensive house than a household with a lower income, but the ratio of price to income shouldn’t change… it should still remain within what is affordable to the couple.

    Or is your argument that dual-income households tend to be more careless with their money and thus tend to spend more as a percentage of their household income than single-income households?

  140. 140
    vermillionsky says:

    I wanted to add that I do believe many people today spend more on their housing than they can reasonably afford. However, I don’t believe that has to do with dual-income households as much as it has to do with the availability of credit. All households, dual- or single-income, qualify for much more credit than they can afford (a higher percentage of income than they would have qualified for in the past). I have seen both types of households fall into this trap.

  141. 141
    Kary L. Krismer says:

    By Scotsman @ 138:

    The chart you reference shows only inflation adjusted gross income, income that has been essentially flat for almost 40 years. Unless you want to argue that a 15+% increase is significant, all else considered. Trust me, it isn’t, and I’m prepared to blow any argument you come up with out of the water.

    Where do you get 15%? Going back only 50 years, rather than 100, the rise in median income for married families was over 100%, accounting for inflation.

    Your arguments may blow mine away, but only if you alter the data.

  142. 142
    Kary L. Krismer says:

    RE: vermillionsky @ 139 – Huh? I’m assuming that two people will earn more than one.

    BTW, I should clarify too. The comments I’m having with vermillionsky pertain to two income households, while the discussion I’m having with Scotsman pertain just to rising household income in general.

  143. 143
    Scotsman says:

    RE: Kary L. Krismer @ 142

    Nice try. We’re all talking about two income households. Re-read the posts. Unbelievable.

  144. 144
    David Losh says:

    RE: Kary L. Krismer @ 141

    Not even close. It’s been years since i looked at house hold income but I do know that in the 1960s and early 1970s a single income white professional could drive a sport car, live in a nice house, have a stay at home wife, kids, beer and cigarettes. The comparable life style today would take two professionals.

    I’m just saying comparable life styles. There was a study done in the 1990s that was clear about that.

    “the rise in median income for married families was over 100%, accounting for inflation.” It just isn’t correct.

    As far as housing, housing is a commodity. It has a financial value. Just because you pay above value doesn’t make it worth more. In terms of over all expense that is 25% to 30% of income. It also has a relationship to over all debt ratios.

  145. 145
    vermillionsky says:

    By Kary L. Krismer @ 142:

    RE: vermillionsky @ 139 – Huh? I’m assuming that two people will earn more than one.

    BTW, I should clarify too. The comments I’m having with vermillionsky pertain to two income households, while the discussion I’m having with Scotsman pertain just to rising household income in general.

    yes, two incomes will earn more than one, but the affordability of their home will follow historic trends for “household” income, not individual income. Thus, they will buy a house that costs more than a household with a smaller income, but the ratio of price to household income should follow the historic trends. I don’t think you’re looking at it as a ratio, but just looking at the price. Saying that an increase in dual-income households drives up price makes sense; saying that it drives up the price-to-income ratio doesn’t, assuming that income means household income.

  146. 146
    Jonness says:

    RE: Sniggy @ 126

    “[Modesto is cheap.] Then again, who would want to live there?”

    “$75/night cabin [on Stinson Beach]”

    It’s not all about money

  147. 147
    Kary L. Krismer says:

    By Scotsman @ 143:

    RE: Kary L. Krismer @ 142

    Nice try. We’re all talking about two income households. Re-read the posts. Unbelievable.

    You’re not. You’re the one who claimed pay had gone down because of the dual income households increased supply. Rather obviously it didn’t, because dual income households are still making more now than 50 years ago, which was my point before. And the single income households are making more too. The difference is, 50 years ago there were not so many dual income households. So the increase in supply didn’t reduce the income of anyone, contrary to your claim.

    I swear I have to explain things twice to you to disprove your points.

  148. 148
    Kary L. Krismer says:

    By David Losh @ 144:

    RE: Kary L. Krismer @ 141 – “the rise in median income for married families was over 100%, accounting for inflation.” It just isn’t correct.

    Well take it up with the census bureau. ;-)

    50 years ago houses were built mainly with one bathroom, people had one TV and one phone. The standard of living has gone up considerably since then.

  149. 149
    Jonness says:

    By Kary L. Krismer @ 127:.

    Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. That’s rather obvious I thought. Even throwing out the idea of looking at 100 years of ratios is absurd. You’d have to be completely ignorant of history to suggest such a thing.

    So yes, my learning does trump your comment, because I’ve been at least somewhat aware of trends over the years.

    “There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy.”…Shakespeare

    http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

  150. 150
    Jonness says:

    By Racket @ 128:

    Also what were people living in 100 years ago. Many houses didnt even have toilets in them. Let alone electricity.,

    Horatio. Is that you?

  151. 151
    Scotsman says:

    RE: Kary L. Krismer @ 147

    I swear, you can’t read. “40” is not “50.” See post 138.

    True, we no longer live in caves. What a brilliant deduction. Have you noticed any other lifestyle improvements over the last 100 years you want to bring to our attention along with your clarvoyant understanding of economics? Did you know we have cars? Telecommunications? Why, some even have indoor plumbing! What’s the point?
    .
    The discussion was about two income families (a trend that gained real traction in the late 1960’s/early 1970’s)
    and the impact they had on housing prices. That’s a 40 (i.e. NOT 50) year old time line.

    If you’re going to fill up these pages, at least try to be accurate, additive, and interesting. And please, get out of debt and raise as much cash as you can. Really.

  152. 152
    Sniggy says:

    By Kary L. Krismer @ 148:

    By David Losh @ 144:

    RE: Kary L. Krismer @ 141 – “the rise in median income for married families was over 100%, accounting for inflation.” It just isn’t correct.

    Well take it up with the census bureau. ;-)

    50 years ago houses were built mainly with one bathroom, people had one TV and one phone. The standard of living has gone up considerably since then.

    The only problem I have with that is that houses built 50 years ago are still selling for $$$..

  153. 153
    Jonness says:

    The chart I posted above disproves 100% of Kary’s assertions on the topic. But I find this of interest as well.

    “While household income has increased, its growth has been slowed by a decrease in married-couple households who tend to have two earners and, therefore, higher incomes. While the proportion of wives working year-round in married couple households with children has increased from 17% in 1967 to 39% in 1996, the proportion of such households among the general population has decreased. This means that the […] most economically prosperous type of household has been dwindling in the United States. In 1969, more than 40% of all households consisted of a married couple with children. By 1996 only a rough quarter of US households consisted of married couples with children. As a result of these changing household demographics, median household income rose relatively slowly despite an ever increasing female labor force and a considerable increase in the percentage of college graduates.”

    http://en.wikipedia.org/wiki/Household_income_in_the_United_States

  154. 154
    David Losh says:

    RE: Kary L. Krismer @ 148

    I don’t think you are looking at the Census Data correctly. If you look at the 2006 dollars there is an increase. After that if you adjust for after 2006 in the price of housing you’ll see that housing has out stripped inflation. This next Census will beat the crap out of existing data.

    They are only comparing inflated dollars and not what they will buy, especially in terms of housing.

  155. 155
    Scotsman says:

    RE: Jonness @ 153

    The change in the statistical calculation as explained by Wikki explains part of it, but misses the main point.

    Here’s another way to think of the situation: the U.S. has at any specific time a certain asset base and a given level of productivity. Thus, the total assets of the country produce a certain level of output or income that gets divided up among those working to produce it. Say we have a GNP or income of 10, and a working population of 10- everyone earns a dollar. But if our employed population of 10 working husbands is joined by their 10 previously non-working wives, now the national income is divided by 20 workers, each earning only fifty cents, or a dollar per household- the same household income as before. Obviously, the pie or income grows a bit each year as some income is reinvested, technology changes, etc., but you get the idea. How we count the workers (households) has some impact too, but in no case does the entirety of the population suddenly see a doubling of their income, or more accurately purchasing power just because both husband and wife are working.

    That total available real wages have been as flat as they have for the last 40 years is a secondary issue, and in many ways a precursor to the coming collapse. We have sold/squandered our true productive capacity and its ppotential for additional income growth to become consumers and paper shufflers/fee collectors. And it’s time to pay up.

  156. 156
    Jonness says:

    RE: Scotsman @ 155 – I believe that’s what vermillionsky was getting at in post 145.

    IMO, Kary’s mistake in this argument is making assumptions without first checking the data. His assertions do not match the 100+ years of historical data I posted. IOW, for his assertions to be correct, the U.S. would have to have become a dual income nation sometime between 1997 and 2000, as that’s when the spike in inflation adjusted price began to skyrocket to Pluto. Yet, the bit from the Wiki shows dual incomes actually declined from previous levels during this period.

    Kary is in checkmate.

  157. 157
    David Losh says:

    Working mothers, single moms, or dividing up the GNP, are totally seperate from the issue of housing or more specifically what the dollars will buy.

    Inflation can be simply calculated by the Consumer Price Index. Those are goods and services.

    What house hold income, the CPI, or inflation over looks is new products or products that have gone off the chart, like housing.

    The point is that the income is only relative to what you can buy with it. Bread is a constant, Cheeses seems to be holding it’s own. Meat has gone up a lot compared to inflation, and potatoe chips, or snacks in general seem to have far exceeded any comprehensible logic in terms of value.

    The price of housing, no matter how you calculate it, is high compared to the buying power the consumer has.

  158. 158
    jon says:

    By Scotsman @ 155:

    RE: Jonness @ 153
    Say we have a GNP or income of 10, and a working population of 10- everyone earns a dollar. But if our employed population of 10 working husbands is joined by their 10 previously non-working wives, now the national income is divided by 20 workers, each earning only fifty cents, or a dollar per household- the same household income as before.

    For that to be true, you would have to assume that the wive’s additional productive output is zero. If one assumes that their productivity is equal to the husbands, then the income would double. There are additional child care costs of course, but that is economic activity as well. Really the change is to take the non-monetary housework that stay-at-home moms do with cooking, watching the kids, and cleaning up and shifts it into the economic areas of restaurants, day care, and maid services. This provides additional employment for low-skill people and frees up high-skill women to earn as much as men.

  159. 159
    deejayoh says:

    By Jonness @ 156:

    Kary is in checkmate.

    C’mon. Chuck Norris couldn’t prove Kary wrong.

  160. 160
    Kary L. Krismer says:

    By Scotsman @ 132:

    Not true- the trend toward dual income households only cut the value of labor. Remember, increase the supply of something and it’s price goes down? That’s rather obvious, or so I thought.

    This is getting ridiculous. I have to directly quote you so that you know what you said. Here is where you raised the issue of labor dropping.

    That’s why I was having two discussions. One about dual income houses and one to refute your incorrect argument regarding the effect of dual income households on incomes generally.

    And once again, just so you get it, the stats I cited to showed both dual income and single income households increasing, and thus the entry of the second wage-earner into the equation did not drastically flood the market with labor and force prices down considerably.

  161. 161
    Kary L. Krismer says:

    By vermillionsky @ 145:

    By Kary L. Krismer @ 142:

    RE: vermillionsky @ 139 – Huh? I’m assuming that two people will earn more than one.

    BTW, I should clarify too. The comments I’m having with vermillionsky pertain to two income households, while the discussion I’m having with Scotsman pertain just to rising household income in general.

    yes, two incomes will earn more than one, but the affordability of their home will follow historic trends for “household” income, not individual income. Thus, they will buy a house that costs more than a household with a smaller income, but the ratio of price to household income should follow the historic trends. I don’t think you’re looking at it as a ratio, but just looking at the price. Saying that an increase in dual-income households drives up price makes sense; saying that it drives up the price-to-income ratio doesn’t, assuming that income means household income.

    No they won’t follow historic trends. As real income rises the amount of discretionary income increases by definition. People can put that income to whatever use they want, again by definition. In the recent past they’ve directed it into housing and cars. That basically is increased demand. Directing increased income into housing is one of the factors that caused the price of housing to rise.

  162. 162
    Kary L. Krismer says:

    By Scotsman @ 151:

    The discussion was about two income families (a trend that gained real traction in the late 1960’s/early 1970’s)
    and the impact they had on housing prices. That’s a 40 (i.e. NOT 50) year old time line..

    Wow, are you trying to be obtuse? A change that occurred within the last 40 years is something that makes 50 year (or 60, 70, 80, 90, 100 year) ratios rather irrelevant.

    Now admittedly a 50 year ratio would be better than a 100 year ratio, but I wouldn’t use either where there was a major social change during the period. At most I’d probably go back 20 years, because dual income households were rather common back then.

  163. 163
    Kary L. Krismer says:

    By Sniggy @ 152:

    By Kary L. Krismer @ 148:

    By David Losh @ 144:

    RE: Kary L. Krismer @ 141 – “the rise in median income for married families was over 100%, accounting for inflation.” It just isn’t correct.

    Well take it up with the census bureau. ;-)

    50 years ago houses were built mainly with one bathroom, people had one TV and one phone. The standard of living has gone up considerably since then.

    The only problem I have with that is that houses built 50 years ago are still selling for $$$..

    A one bathroom house (or even 1.5) sells for considerably less than a 1.75 bathroom house, all other things being equal.

  164. 164
    Kary L. Krismer says:

    By David Losh @ 154:

    RE: Kary L. Krismer @ 148

    I don’t think you are looking at the Census Data correctly. If you look at the 2006 dollars there is an increase. After that if you adjust for after 2006 in the price of housing you’ll see that housing has out stripped inflation.

    Actually, that’s what you’d expect if I’m right. If people have more income that they are directing to housing, the price of housing will rise relative to other goods.

    Stated differently, what some of you think are out of whack ratios are merely the result of increasing real incomes (that and financing changes).

    It’s the same with health care. People have more funds they can direct that way too, because of insurance, medicare, etc., and thus health care expenses have been rising at higher rates than inflation too.

  165. 165
    Kary L. Krismer says:

    By Jonness @ 156:

    RE: Scotsman @ 155 – I believe that’s what vermillionsky was getting at in post 145.

    IMO, Kary’s mistake in this argument is making assumptions without first checking the data. His assertions do not match the 100+ years of historical data I posted. IOW, for his assertions to be correct, the U.S. would have to have become a dual income nation sometime between 1997 and 2000, as that’s when the spike in inflation adjusted price began to skyrocket to Pluto. Yet, the bit from the Wiki shows dual incomes actually declined from previous levels during this period.

    Why do you say that? Prices of housing didn’t just start rising in 1997. I’m talking about the total money spent on housing, not just the change in value of individual houses. That’s why I’m mentioning bathrooms

  166. 166
    David Losh says:

    RE: Kary L. Krismer @ 163

    OK, I’m trying to stay focused on the income, but it’s kind of hard here with these kinds of red herring comments. A post war rambler has more value than a three bedroom two bath town house and yet it can sell for the same price.

    I just saw a blocker sell for $585K.

    Making claims like a 100% rise in, or cutting the dollars of GNP, all sound very official and especially when you include Census Data, but this just shows how data can distort things. Data can prove anything. Lying with Statistics should be on the Amazon.com list in the side bar so we can have some transparency.

    Household income has risen from $43K to $77K since 1947 adjusted for inflation. You can do the calculation two income or single, but it is irrelevant to the household argument. Now you have to factor in those things that are not counted in inflation such as housing.

    We are in for some very heavy discounts on housing. The same as we are now seeing a drop in gas prices from an all time high in the price per barrel of oil. The speculation aspect has shifted to something else so the pricing will reflect that.

    The problem is the debt associated with the pricing. If you wanted to address debt that is something completely different. All of you have brought it up, but debt service is an issue all on it’s own. You can service debt with debt irregardless of household income.

  167. 167
    David Losh says:

    RE: Kary L. Krismer @ 164

    And now you are just red baiting me. That’s when some one calls another person a communist to get a rise out of them.

    Inflation adjusted dollars show the relationship to those goods and service that a household uses. Housing is separated out because housing can mean a wide variety of things.

    Speculation dollars are based on a return. Mortgages have been based on that speculation and the return has been outstanding. There is nothing to say it won’t continue or that the bubble will not happen again. In my opinion there is more money out there to be made. Corn comes immediately to mind. Who would have thought that having Willie Neslon get on a bus powered by corn would drive up the price per bushel?

    Health Care speculation, oil, corn, housing, ETrade, redfin, pet rock, what will be the next place to “invest.”

  168. 168
    Kary L. Krismer says:

    David’s seeing a lot of red today!

    Let’s change the topic slightly. If I said real estate prices rose because of greatly increased credit availability, no one here would probably question that. Both increased income (for any reason, not just dual incomes) and increased credit increase the demand for real estate, and thus the price of real estate. That’s fairly basic.

    The question would be is the factor that increased the demand sustainable? I think most of you would say for financing, no it wasn’t, and that’s why prices dropped. And I’d agree with that.

    But rather than dispute whether dual income (or other increases in income) increased demand for real estate, and thus prices, you’d be much better off arguing that the increased income isn’t sustainable. For dual income, I sort of doubt you’ll see a significant decrease in the percentages. But for overall income–I wouldn’t be so sure.

  169. 169
    brianinboise says:

    I am going to buy more house than I can afford, since the government’s roles now include forcing lenders to ease the loan terms (after the fact), not to mention the writing down of principal. (Sweet!) And I will send a thank you note to each of my fellow taxpayers for helping to make it all possible (and one each to Uncles Barney and Barack as well).

  170. 170
    David Losh says:

    RE: Kary L. Krismer @ 168

    Boy, I haven’t heard this argument for years.

    You’re dodging the fact that income went out the window some time in the 1990s. No body cares about income. No one cares about the ability to repay the debt. No one cares about thirty years from now, except maybe the Chinese, even that is questionable.

    Credit has nothing to do with home prices. Mortgages are securing debt instruments that have been repackaged, then sold again.

    All the hysteria is about the investors who are losing and stock holders who are losing. It has nothing to do with housing. It has to do with financial instruments.

  171. 171
    David Losh says:

    RE: brianinboise @ 169

    Your lender will come after you tooth and nail until the day you die or have the Note you signed paid in full. it’s all free money to them.

    Your government doesn’t care about you. They will hang you out to dry. Your government will blame you for the mess, maybe even jail you.

    Welcome to America.

  172. 172
    Kary L. Krismer says:

    RE: David Losh @ 170 – Many factors affect real estate. Credit is one. Income is one. There are a lot of others. Just because credit might (probably?) was the most dominant factor, doesn’t mean the other factors don’t continue to play a role.

  173. 173
    David Losh says:

    RE: Kary L. Krismer @ 172

    That’s just not true. It’s a point of confusion, it’s disinformation.

    Housing is a product, it’s actually a commodity. Commercial Real estate is for sure a commodity, but the housing unit has become highly commercialized.

    Massive residential development didn’t just answer a demand, it created it. All of the hot spots of Arizona, Nevada, Florida, and California were manufactured market places.

    Real Estate is worth what it will generate as a return on investment. There are exceptions like a 1957 two story with a steel beam running down the center of the 14 foot basement. Like custom crafted anything there is a value beyond the numbers. By and large, in all cases, as a rule of thumb. return on investment has, and always will be, the determining means for the value of a Real Estate.

  174. 174
    Jonness says:

    By Kary L. Krismer @ 165:

    Why do you say that? Prices of housing didn’t just start rising in 1997. I’m talking about the total money spent on housing, not just the change in value of individual houses. That’s why I’m mentioning bathrooms

    You are incorrect. Inflation-adjusted prices did start rising in 1997. Have a look at the chart of inflation adjusted historical house prices again.

    Number of bathrooms is insignificant. People’s computers today in many ways are at least 1000x better than their computers in 1997. Most people in 1950 didn’t have a TV. Microwaves were not in people’s kitchens. What does any of this have to do with the argument? We are not debating whether or not manufacturing technology has advanced since the 1950’s. We are debating whether the average Seattle family can afford to spend more on a house in 2009 than it could in 1997.

    Your dual income argument has a gaping flaw. The start of the bubble does not correlate with an increase in the number of dual incomes. Yet, it fully correlates with loosened lending standards. Dual incomes did not cause house prices to increase. The bubble itself caused an increase in paper prosperity, thus its wealth generation was a self-reinforcing phenomenon. The feeling of wealth you had was not from dual incomes. It was from living as an RE agent smack dab in the middle of the biggest housing bubble in history.

    Your assertions do not fit this chart in any way shape or form:

    http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

  175. 175
    Kary L. Krismer says:

    RE: Jonness @ 174 – Well first, if you think Case-Shiller can accurately determine the value of houses back to 1890, I have a bridge or two to sell you. They probably can’t even accurately go back to 1960 using their methodology. That’s clearly an area where median price would have an advantage. It’s not subject to so much uncertainty and subjectivity.

    And second, Case-Shiller completely ignores the changes in the mix of houses over time. They basically take the change in mix out of the equation–remember? That’s supposedly their advantage over median. So their numbers don’t fully reflect the fact that Americans were spending a ton more money on housing. They just try to show what a given house would increase or decrease over time, not that the house itself would change from being a 1200 square foot 3 bedroom one bath to being a 2700 square foot 4 bedroom, 2.75 bath. Stated differently, they probably reflect the change due to financing more than the change due to changes in income, because they don’t reflect the fact that people wanted larger houses.

  176. 176
    Jonness says:

    RE: Kary L. Krismer @ 175

    Kary, you’ve offered no new information in this post that I haven’t already conclusively disproved. Please go back and read my previous post with an eye toward figuring out its meaning.

    Your argument against the CS has absolutely nothing to do with the chart I’ve posted. I did not post the 20-city composite. I posted a chart of house prices adjusted for inflation. Are you telling me Case and Shiller are so incompetent they can’t even inflation adjust house prices? I hope not, because that statement would be completely absurd.

    Even if your bogus claim was correct that the chart is only accurate back to perhaps 1960, you only need go back to the period of the latter 1970’s and 1980’s to get a meaningful comparison to the current boom and bust. Seriously, have you even taken a look at the chart you’re critiquing?

    You need to keep your argument straight because you are changing it as you go. You implied that I am an idiot because I study historical data. You went on to state that such data is completely useless because it’s obvious that the increase in house prices was due to dual income families; therefore, Seattle house prices are currently fairly valued.

    I have 100% disproven your assertions. Yet, you haven’t even taken the time to read the chart I posted. And you are repeating the same claims I disproved way back in the thread.

    Please do me a favor and at least figure out what the chart I posted is and how it pertains to this discussion before repeating a new version of the same old claims.

  177. 177
    Sniggy says:

    Sure they can compensate for inflation, but do they factor in things like population growth?

    The population of king county was approx 1,875,519 in 2008

    It was 732,992 in 1950

    Roughly a 255% increase in 58 years.

  178. 178
    David Losh says:

    RE: Jonness @ 149

    It was confusing to find which chart you were referring to so I brought that comment down here.

    This is exactly the chart used repeatedly to show the speculation dollars dumping into Real Estate.

    There are two factors to return on investment in real estate, one being rental income, and the other interest income from mortgages. The interest income also went out the window when combining financial debt packages. What I mean is by converting unsecured debt into mortgages.

    All of the income and debt ratios went out the window.

  179. 179
    Jonness says:

    By Kary L. Krismer @ 127:

    By Jonness @ 122:

    By Kary L. Krismer @ 101:

    By Jonness @ 95:

    “Most of us bubble-heads are betting it will be house prices going down. This is largely based on over a hundred years of historical house prices in relationship to incomes.

    So bubble-heads are living in the past? Do they keep their women barefoot and pregnant too? ;-)

    2000 years of the world’s economic observation and learning trumps the amount of observation and learning you experienced during the Greenspan economic bubble-era.

    Remember? Asset prices will rise forever. We’ve reached a new economic era.

    Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. That’s rather obvious I thought. Even throwing out the idea of looking at 100 years of ratios is absurd. You’d have to be completely ignorant of history to suggest such a thing.

    So yes, my learning does trump your comment, because I’ve been at least somewhat aware of trends over the years.

    Please look at the chart of 100+ years of inflation adjusted historical house prices and explain how the period from 1970 to present fits your claims. The fact is, this chart 100% disproves your claims, and no rational argument exists that can explain it away. Dual income households didn’t magically double in 1997 from what they were in 1995, thus causing all houses to suddenly have 4 bathrooms instead of 1 and be worth 2x the price.

    http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

  180. 180
    Jonness says:

    RE: Sniggy @ 177 – If you look at the chart I provided, the period in question is between 1997 and present. 1950 is a date Kary seems fixated on for reasons I can’t explain. I suspect, since he dislikes historical data, he is figuring out when house prices rose compared to inflation from his memory of being alive back then. Thus this ridiculous statement that houses only having 1 bathroom in 1950 is supposedly relevant to this discussion was born and keeps getting repeated like a mantra.

  181. 181
    Jonness says:

    RE: Sniggy @ 177 – BTW, I’m not discounting the value of historical data. I’m just saying that none of the critics have sufficiently explained the period in question.

    BTW, please explain what population growth has to do with this discussion. You cited a fact, but failed to explain its relevance. Are you implying something about population growth vs. GDP growth during this period?

    I’m keeping in mind the discussion pertains to home prices vs. incomes and am finding it difficult to interpret your post.

  182. 182
    Scotsman says:

    RE: Jonness @ 176

    The emperor has no clothes!

    From Wiki: “An emperor of a prosperous city who cares more about clothes than military pursuits or entertainment hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or unfit for his position. The Emperor cannot see the (non-existent) cloth, but pretends that he can for fear of appearing stupid; his ministers do the same. When the swindlers report that the suit is finished, they dress him in mime. The Emperor then goes on a procession through the capital showing off his new “clothes”. During the course of the procession, a small child cries out, “But he has nothing on!” The crowd realizes the child is telling the truth. The Emperor, however, holds his head high and continues the procession”

  183. 183
    Herman says:

    As an impartial reader of this argument, this is my judgment.

    Kary is wrong in the following assertion. I think Jonness did a good job disproving it by showing the insignificance of it wrt household demographics. I buy Scotsman & Losh who made the point that even if it were a significant trend, the net effect has only been to reduce the relative income of a single wageearner. At this point Kary should drop the dual-income argument and focus only on rising household income, without also trying to assert that it was women in the workforce that caused it.

    So bubble-heads are living in the past? Do they keep their women barefoot and pregnant too? ;-)

    Below, Kary cites the standard of living as an upward driver for house prices. Although no evidence was cited, I am willing to believe that it took 500 Units of material and labor to create a typical house in the 1950’s, and that it now takes 1,000 Units, even factoring in new tools and production methods. But Kary has not proven that this is a result of a connection to dual-incomes, nor any other cause, other than by citing a correlation:

    “the rise in median income for married families was over 100%, accounting for inflation.”

    50 years ago houses were built mainly with one bathroom, people had one TV and one phone. The standard of living has gone up considerably since then.

    In this next post I think Kary frames the argument. The expansion of credit, reduction in savings, and speculation – meaning more movement of capital into housing than was justified by demand – has been credibly cited as the reasons for price inflation in the timespan that you guys are discussing (past 50 years). This could also have paid for the increase in house quality (e.g. number of bathrooms).

    After acknowledging this, Kary goes on to add that rising incomes would also drive up prices over this period, but without evidence to support it, it is an empty statement. The basis for Kary’s claim is that household incomes rose over the past 50 years faster than the rate of inflation reduced the buying power of those incomes. And further, that this effect over the past 50 years is a departure from historical norms over the previous 1,000 years.

    I think if Kary can provide evidence that this is true, and that households spent this growth on housing instead of pet rocks, then his basic point will be made. If not, then Kary loses the argument.

    If I said real estate prices rose because of greatly increased credit availability, no one here would probably question that. Both increased income (for any reason, not just dual incomes) and increased credit increase the demand for real estate, and thus the price of real estate. That’s fairly basic.

  184. 184
    Sniggy says:

    By Jonness @ 181:

    RE: Sniggy @ 177

    BTW, please explain what population growth has to do with this discussion. You cited a fact, but failed to explain its relevance. Are you implying something about population growth vs. GDP growth during this period?

    I don’t know maybe this little thing called supply and demand?

    Wouldn’t it be stupid to ignore all factors in determining whether pricing for something is justified or not?

    What do you think would have happened to house prices in this area, if all the 1,000 house tracts weren’t built?

  185. 185
    David Losh says:

    RE: Herman @ 183

    That is a nice recap. There are good points in the discussion. The chart does speak for itself.

    The dual income argument, or discussion is an old one. I hadn’t heard it in years and pretty much forgot about it. All things changed in 1997. In my opinion it was the Microsoft Monopoly Federal Action that chased tech stock profits into the “safe” haven of Real Estate.

    There was more money in loans than purchases. Investor dollars flooded the mortgage markets and housing was built to meet that demand. Construction lending only had to last until a unit was sold. Once the housing unit was sold it made no difference if the loan performed. All of the loans were packaged and sold as mortgage backed securities.

    We are simply at the end of another speculatative cycle.

  186. 186
    Kary L. Krismer says:

    By Jonness @ 176:

    RE: Kary L. Krismer @ 175

    Kary, you’ve offered no new information in this post that I haven’t already conclusively disproved. Please go back and read my previous post with an eye toward figuring out its meaning.

    Your argument against the CS has absolutely nothing to do with the chart I’ve posted. I did not post the 20-city composite. I posted a chart of house prices adjusted for inflation. Are you telling me Case and Shiller are so incompetent they can’t even inflation adjust house prices? I hope not, because that statement would be completely absurd.

    I’d say you need to go back and read my posts, because you’re missing something big.

    Again, Case-Shiller doesn’t get affected by changes in the mix. Thus, the Case-Shiller numbers won’t be affected by houses moving from 1200 square foot 3 bedroom one bath to 2700 square foot 4 bedroom 2.75 bath homes. The chart you use doesn’t reflect that, and that change started happening before 1997 or whatever date you pick.

    BTW, you haven’t conclusively disproved anything. It’s rather childish to even make such claims. Especially when you apparently don’t even understand the basics of Case-Shiller.

  187. 187
    Kary L. Krismer says:

    By Jonness @ 180:

    RE: Sniggy @ 177 – If you look at the chart I provided, the period in question is between 1997 and present. 1950 is a date Kary seems fixated on for reasons I can’t explain. I suspect, since he dislikes historical data, he is figuring out when house prices rose compared to inflation from his memory of being alive back then. Thus this ridiculous statement that houses only having 1 bathroom in 1950 is supposedly relevant to this discussion was born and keeps getting repeated like a mantra.

    Three posts in a row by you saying the same thing, and I’m repeating things like a mantra?

    Here’s my new mantra: Jonness doesn’t understand Case-Shiller. I’ve conclusively proven that.

  188. 188
    Kary L. Krismer says:

    RE: Herman @ 183 – Fair comments, but as for data, here are inflation adjusted home values for the United States:

    http://www.census.gov/hhes/www/housing/census/historic/values.html

    The first sentence states: “Median home values adjusted for inflation nearly quadrupled over the 60-year period since the first housing census in 1940. ”

    Note that they do not follow the Case-Shiller graph as being flat prior to 1990 because they do account for the change in the mix. They also don’t show the same extreme runup at the end that Case-Shiller did, but that’s because 2000 is the last year, and most the Case-Shiller runup was this century.

    Case-Shiller–not affected by the mix
    Median–affected by the mix.

    Comparing the Case-Shiller graph with the data above shows that.

  189. 189
    brianinboise says:

    RE: David Losh @ 171 -David, brianinboise here. I was just trying to create a bit of controversy, although surely you know that the government is already using our tax money to pay off some homeowners’ debt. As an example, under at least one foreclosure prevention program, the government is using our tax dollars to help reduce borrowers’ payments to 31 percent of their income (disposable income, not gross [I believe]). As another example, HUD announced today that FHA will also participate in the Making Homes Affordable Program. One component of that program (the FHA’s version, at least) is that a sizeable portion of the principal will no longer incur any interest. (And that is what they call free money, si?) Guess who is paying for that subsidy? No, not de banks, but you and me.

  190. 190
    Kary L. Krismer says:

    Here are some stats I pulled regarding houses that sold in King County this year:

    The median house built in the 40s was a 3 bed, 1.5 bath house that was 1555 square feet.
    The median house built in the 50s was a 3 bed, 1.75 bath house that was 1650 square feet.
    The median house built in the 60s was a 3 bed, 2.0 bath house that was 1900 square feet.
    The median house built in the 70s was a 4 bed, 2.25 bath house that was 1980 square feet.
    The median house built in the 80s was a 3 bed, 2.5 bath house that was 1960 square feet.
    The median house built in the 90s was a 4 bed, 2.5 bath house that was 2265 square feet.
    The median house built in the 00s was a 4 bed, 2.5 bath house that was 2360 square feet.

    The median sales price was a low of $320,000 for the 60s built homes, to $430,000 for the homes built this century. The 40s and 50s homes both had a median of $330,000. All the others stepped up each decade.

    Note that the older a house is the more likely it is to have been remodeled, and so it’s possible that the older houses were not as big when originally built.

    Going back to my census data post, note their too that the median for each decade included houses built before that decade, so those houses actually held the numbers down!

    But whatever, Jonness has conclusively proven that increased incomes don’t result in increased house prices, so I don’t know why I bother! ;-)

    Oh, and numbers from NWMLS sources, but not compiled or guaranteed by the NWMLS.

  191. 191
    David Losh says:

    RE: Kary L. Krismer @ 190

    Kary, you must be a contrarian. I like that word and is one of the many things I have learned from the SeattleBubble Blog.

    Number one the Census data will change dramatically next year so that home price data, well……..

    The second is the median home price is relative to size also. If you take all the 2000 sq ft and 3000 sq ft, then compare to 1800 sq ft and below no matter when they were built consumers are paying a sq ft price depending on condition, location, and view.

  192. 192
    David Losh says:

    RE: brianinboise @ 189

    Claro!

    All of the mortgage stuff has to do with the investors who bought Notes or invested in mortgaged backed securities. The whole idea is to keep the income flowing.

    The person making the payments is screwed any way you look at it. They signed a Note.

    The tax payers are paying large corporate interests to continue to invest in mortgages. Our tax dollars go the salaries of hedge fund managers so they will continue to sell, encourage, and manipulate mortgages as an investment.

    The person paying the Note is just getting a break on interest. Even at 0 interest the investor is getting the money back as opposed to foreclosure where they will be getting less in the near future.

  193. 193
    Kary L. Krismer says:

    By David Losh @ 191:

    RE: Kary L. Krismer @ 190

    Kary, you must be a contrarian. I like that word and is one of the many things I have learned from the SeattleBubble Blog.

    Number one the Census data will change dramatically next year so that home price data, well……..

    The second is the median home price is relative to size also. If you take all the 2000 sq ft and 3000 sq ft, then compare to 1800 sq ft and below no matter when they were built consumers are paying a sq ft price depending on condition, location, and view.

    Yes, I am a contrarian, and have stated that several times.

    And yes, the median price is relative to size. That’s why I’ve pointed out repeatedly that as incomes increased people were willing to pay more for a house. By saying that I didn’t mean that they were willing to pay more for the 3 bedroom, 1 bath, 1200 square foot home, I meant they were willing to buy more home.

  194. 194
    Jonness says:

    By Sniggy @ 184:

    By Jonness @ 181:

    RE: Sniggy @ 177

    BTW, please explain what population growth has to do with this discussion. You cited a fact, but failed to explain its relevance. Are you implying something about population growth vs. GDP growth during this period?

    I don’t know maybe this little thing called supply and demand?

    Wouldn’t it be stupid to ignore all factors in determining whether pricing for something is justified or not?

    What do you think would have happened to house prices in this area, if all the 1,000 house tracts weren’t built?

    But you still fail to explain anything. All’s you say is supply and demand is meaningful to the argument. You haven’t shown a single bit of data showing the supply demand ratio in the past compared to now and explained how it supports your claims. Or are you claiming that since more people are alive now, it must mean that demand now outstrips supply? You and I both know that is an empty claim, because, like Kary’s claims, it does not put things into perspective relatively.

    Think of it this way. These days you get a lot more house when you buy the average house than you did when you bought in 1950. By the same token, you get a heck of a lot less land. So do you really get more for your money now than you did then? In those days, you got 10x the land. So are houses now worth 1/10th the value that they were in 1950 and set to collapse in the sewer? Well, if I’m to believe Kary that 4 bathrooms compared to 1 means houses are now worth more, then doesn’t it stand to reason a puny lot now compared to a huge one then means houses are now worth less.

    Of course, none of this is meaningful to the argument, because it fails to look at the picture in a relative sense. IOW, I believe you guys are not looking at the full picture. You’re simply breaking off the pieces that fit your assumptions and stringing them together to suit your needs. Then when anyone disagrees with you, you break out words like “stupid” and “ignorant.” Yet, at no point do you back your claims up with verifiable evidence. Instead, you claim that looking at the data is not necessary because “it’s obvious your claims are correct.”

    As a professional data analyst, I assert considering all available data when formulating a hypothesis is extremely important to understanding the truth. For instance, Seattle led the nation in increased foreclosure activity percentage-wise in the first half of 2009. Is this not meaningful to whether or not Seattle homes have reached a bottom?

    http://money.cnn.com/2009/07/30/real_estate/worst_hit_foreclosure_cities/index.htm?

  195. 195
    Jonness says:

    By Kary L. Krismer @ 186:

    I’d say you need to go back and read my posts, because you’re missing something big.

    Again, Case-Shiller doesn’t get affected by changes in the mix. Thus, the Case-Shiller numbers won’t be affected by houses moving from 1200 square foot 3 bedroom one bath to 2700 square foot 4 bedroom 2.75 bath homes. The chart you use doesn’t reflect that, and that change started happening before 1997 or whatever date you pick.

    BTW, you haven’t conclusively disproved anything. It’s rather childish to even make such claims. Especially when you apparently don’t even understand the basics of Case-Shiller.

    I’m not missing anything. In fact, you are attempting to quietly drop your original argument about dual incomes. That’s because I have conclusively disproved it. I suspect that if you call me enough derogatory names, such as “childish” and “ignorant,” it will make you feel better, and perhaps you can steer the debate to the one thing you think you have left–houses getting bigger over the years. But that claim has nothing to do with your original claim. So let’s once again look at your original claim:

    “Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households. That’s rather obvious I thought. Even throwing out the idea of looking at 100 years of ratios is absurd. You’d have to be completely ignorant of history to suggest such a thing.”

    Your tactic is an old debate tactic that I am quite familiar with. I have conclusively disproved your original claim, so you pretend you didn’t make the claim and begin debating a new claim that you feel will make you appear to be correct. But I’ll go ahead and dismantle your new claim just as I did your original claim. Thus, you are getting 2 for the price of 1 today.

    First let’s look at why I picked 1997, and why it is so meaningful to this discussion. I picked 1997 because, if you would look at the chart I supplied, you would learn that’s when inflation adjusted home prices skyrocketed beyond historically sustainable levels. The chart reveals in 1955 inflation adjusted house prices were about 15% higher than they were in 1997. By 2006, inflation adjusted house prices had approximately doubled from 1997 levels. You claim that the massive rise since 1997 is not meaningful to whether house prices are fairly valued, and all that matters is that house sizes are larger now than in the past. Therefore, Seattle house prices are fairly valued.

    The problem with that argument is, if houses were fairly valued in 1997 and cheaper inflation-wise than they were in 1995, then how can house prices currently be fairly valued compared to 1955, since inflation-wise, house prices currently cost much more than they did in 1955? IOW, the growth in house sizes has been roughly linear from 1955 to present. For your claim to be correct, house prices would have to have began increasing at roughly 2x the rate from 1997 to present compared to the rate of house size increase from 1955 to 1997.

    And your claim completely fails to account for the fact that, as house sizes have grown, lot sizes have shrunk. If your argument was true, then the median house in 1955 should be worth more in 1955 in inflation-adjusted dollars than now because you got so much more land for your money in those days. Or at a minimum, the shrinking lots should offset the growing house sizes for a neutral net effect.

    But really, it doesn’t matter what was bigger or smaller then or now. What matters in determining if Seattle house prices are fairly valued is–is the percentage of income people could afford to pay for a house prior to the bubble roughly the same compared to the percentage of income houses now cost. The unemployment rate also matters, as does the fact that Seattle is now leading the nation in increased foreclosure percentage in 2009.

  196. 196
    Kary L. Krismer says:

    You still don’t even understand the chart you’re citing to. You must be both very young (in your 30s) and very ignorant of real estate to think that the Case-Shiller graph means what you think it means. Trying to claim that the size of lot counters the size of house equally merely confirms your ignorance of real estate matters. Yes, lot size does make a difference, but it’s typically far overwhelmed by the house factor. I’ve seen situations where having over twice as much land made no appreciable difference in the value of a property.

    And no, I’m not backing away from my claim that dual income houses affected values, it’s just that you can’t really break would that well how that change of income affected housing relative to the overall rise in income.

    You’re trying to prove a point that is absurd, and don’t even realize it. Imagine you had a twin brother who made just as much income as you, but you were single and your brother had a wife that earned $50,000, and all three of your incomes were stable and expected to remain stable. Chances are that if you were both in the market for a house at the same time, that your brother would buy a larger, more expensive home. Currently there are a lot of dual income households in our society, and that increased demand has driven up the size and cost of homes. To deny that you’d need to have your eyes closed.

    And as to having your eyes closed, that’s apparently why you haven’t even addressed either the census data or my NWMLS data that “conclusively proves” your Case-Shiller data doesn’t say what you says it does.

  197. 197
    Kary L. Krismer says:

    By Jonness @ 194:

    BAs a professional data analyst, I assert considering all available data when formulating a hypothesis is extremely important to understanding the truth. For instance, Seattle led the nation in increased foreclosure activity percentage-wise in the first half of 2009. Is this not meaningful to whether or not Seattle homes have reached a bottom?

    http://money.cnn.com/2009/07/30/real_estate/worst_hit_foreclosure_cities/index.htm?

    Again, you’re just ignorant of real estate matters. As has been explained here, in several different threads, state laws changed July 26, 2009, and it’s very likely that many banks were rushing to beat the law change. It’s even possible that for some smaller lenders the choice was to beat the law change or proceed judicially. We’ll know for reasonably certain in a month or two. It’s also possible that some states have moratoriums or other matters that are slowing lenders down relative to us. For example, if a state had passed similar legislation as ours, but passed it on an emergency basis with a immediate effective date, that such a state would have a gap period where there were relatively few foreclosures compared to us. So we clearly have something that could be causing banks to rush here, and possibly have things elsewhere that could be slowing them down. Once again your stats don’t necessarily mean what you think they mean.

    Edit: Here’s an article indicating California enacted a 90 day moratorium effective the middle of June.

    http://www.realtor.com/blogs/2009/06/17/california-mortgage-moratorium-gets-banks-to-modify-loans/

    On your main argument with Sniggy I’d tend to agree with you, except for the land thing about size of lot. The sub-dividing you’re referring to (as well as condominium creation), however, is what keeps house values from skyrocketing. So you’re right to that limited extent. But if you think about it at all, that’s why lot size isn’t that important. If it was, you wouldn’t be seeing smaller and smaller lots, especially in the more outlying areas.

  198. 198
    Kary L. Krismer says:

    Thinking about it further, the California moratorium is another likely cause of our increase. A lot of these deed of trust trustee entities are multi-state entities that also operate in California. If they can’t proceed down there, their options would be to temporarily lay people off, or to move them to processing claims in other states.

  199. 199
    Jonness says:

    By Kary L. Krismer @ 196:

    You still don’t even understand the chart you’re citing to

    I understand it fully. It is a chart of historical house prices adjusted for inflation. You appear to be confusing it with something it’s not.

    Trying to claim that the size of lot counters the size of house equally merely confirms your ignorance of real estate matters.

    If you read my post, I never made that claim at all. I simply applied your logic to the situation to show how ridiculous your claim is. Yes, that claim is completely absurd, just as your similar claim is. Size of lot and size of house is meaningless for reasons numerous others have already pointed out. I don’t need to repeat their arguments, because the chart I posted provides elegant conclusive proof in itself.

    And no, I’m not backing away from my claim that dual income houses affected values, it’s just that you can’t really break would that well how that change of income affected housing relative to the overall rise in income.

    As stated by others in this thread, I’ve disproved your ORIGINAL dual income hypothesis. It’s OK if you can’t admit it. But it doesn’t change the truth. I’m now addressing your House sizes have increased; thus, people have to pay a higher percentage of their incomes for a house now than they did in the past hypothesis. I suspect you will also fail to admit your logic errors in this matter and leave the discussion falsely believing your are correct. That is OK. I can tell you the truth, but I can’t force you to believe it.

    You claim that the chart I provided is meaningless because it shows historical median house prices adjusted for inflation, but it does not take into account the fact that houses have increased in size throughout the years because people with dual incomes can afford more house. However, you fail to see that the beauty of the chart is that it does not account for any changes in house size or quality. It simply provides house prices in relative terms. So let’s look at the proof in the chart.

    1) Adjusting for inflation, house prices in 1955 cost more than they did in 1997. Yet, houses in 1997 were much larger than they were in 1955 and the percentage of women in the workforce was much higher in 1997. If your claim had the slightest bit of merit, the price in 1997 would have been far beyond the price in 1955. That in itself disproves your theory with 100% clarity. But lets move on to further clarify the issue.

    2) In 2006, houses cost almost double what they did in 1997 in inflation-adjusted dollars and remain well above their 1997 levels. You claim this is because house sizes increased because people with two incomes could afford more house. Thus, houses now cost more in inflation adjusted dollars; thus, Seattle houses are fairly valued. However, the data in 1) clearly disproves this assertion because your reported dual incomes and rising house sizes had the opposite effect during that period.

    We had a housing bubble Kary. It was due to loosened lending standards. It has now popped, and house prices are heading downward toward historic trends. This is not rocket science.

    And as to having your eyes closed, that’s apparently why you haven’t even addressed either the census data or my NWMLS data that “conclusively proves” your Case-Shiller data doesn’t say what you says it does.

    Instead of making wild claims without logic or support of why those claims are true, please look at the chart I posted above and coherently explain why my assertions in 1) and 2) above are incorrect. Insulting me and calling me names is most likely fun for you, but it does little to prove your claim. If your claim is accurate, then explaining how it fits 1) and 2) above should be a simple matter for you.

  200. 200
    Jonness says:

    Again, you’re just ignorant of real estate matters. As has been explained here, in several different threads, state laws changed July 26, 2009, and it’s very likely that many banks were rushing to beat the law change.

    I’m not a professional RE agent, and I don’t profess to have anywhere near your wealth of knowledge in RE matters. However, I believe you fail to acknowledge the significance of my claim. It’s a fact that Seattle foreclosures increased by 72% since last year. How or why you claim it rose is less important than the fact that it rose. We all know that foreclosures create a lag effect on real estate prices. Thus, the pain from the foreclosures that have already happened is yet to come.

    As I indicated a month or so ago, WA has not worked through its subprime mess as completely as most other states, so we would see an increase about this time. We also have the upcoming commercial RE mess and alt-a/option ARM mess up ahead. We are nowhere near out of the woods.

    Most likely, we’ll get a nice little June bounce and then start heading toward a fairly brutal winter.

  201. 201
    Racket says:

    Actually I think what Kerry is saying it important, but the relevance of it, will only be noticed in the next few months.

    If there is a huge spike in July, then a drop off after that there is a huge bit of relevance.

    The sky may be falling, but I agree we should wait a little bit to make that determination.

    “As I indicated a month or so ago, WA has not worked through its subprime mess as completely as most other states, so we would see an increase about this time. We also have the upcoming commercial RE mess and alt-a/option ARM mess up ahead. We are nowhere near out of the woods.”

    Maybe the difference is that people are ok being 20% down, but 40% is a huge mess. Maybe the gov programs giving incentives to banks came in at a good time for Seattle area markets, and too late for others.

  202. 202
    Kary L. Krismer says:

    By Jonness @ 199:

    By Kary L. Krismer @ 196:

    You still don’t even understand the chart you’re citing to

    I understand it fully. It is a chart of historical house prices adjusted for inflation. You appear to be confusing it with something it’s not.

    Wrong. Thank you for proving my point that you don’t understand the information you’re citing to. Where on your chart does it indicate any prices?

    Over and over again we here that Case-Shiller is better than the median because it isn’t affected by the mix. Tim is currently making the point that the mix now is different than say a year ago, and that it is affecting the medians. Over a five year period typically it isn’t that big of a deal, but over the 50 or 100 year period of the graph you’re trying to rely on, it’s a huge deal.

    That’s why the census information I cited to doesn’t match up with Case-Shiller. The census information deals with median price. Case-Shiller does not.

  203. 203
    Kary L. Krismer says:

    By Jonness @ 199:

    If you read my post, I never made that claim at all. I simply applied your logic to the situation to show how ridiculous your claim is. Yes, that claim is completely absurd, just as your similar claim is. Size of lot and size of house is meaningless for reasons numerous others have already pointed out.

    House size is meaningless? Others are claiming that? I think you’re on your own on that assertion. And again, I think you only believe that because you don’t understand how Case-Shiller works. In coming up with their numbers they compare sales of the same house at different points in time. If it’s changed too far from the norm for other houses over a similar time they assume that the size or condition has changed and exclude it. But otherwise, they use that sale to determine their number for the given month. Size is unimportant to them only in that in dealing with paired sales they assume the size is the same.

    For buyers and seller and value, the size of the house is a very critical factor.

  204. 204
    David Losh says:

    RE: Kary L. Krismer @ 197

    I’m going to address your arguments because they are the ones I am most familiar with.

    First, the dual income argument would be if all wages were equal. They are not. It does take two incomes to get anywhere in today’s economy. In the 1960s one wage actually had buying power that is lacking today.

    Second a 4000 sq ft house in 1955 was an expensive item. If you want to discuss the extra bath it’s value is $5K, if you want to adjust for today’s value it’s $30K. You can compare a town house to a post war rambler if you want, you’ll find the numbers strikingly similar. The lot size is a good argument for another day.

    What took me by surprise and confused me was the mortgage money. Foreclosure, or short sales aside the fact you can borrow a half of a million dollars is mind boggling. How can anyone, two incomes or single expect to pay back a half of a million dollars on today’s wages? OK let’s say a quarter of a million dollars.

    Let’s add in a $30K line of credit or credit card. It’s a staggering amount of debt for a family. In your day opening a law office was kind of a no brainer. Today you need a full page ad in the yellow pages and owe a bunch in student loans.

    The fact is that as much as we ignore Ray Pepper of 500 Realty he is absolutely correct, people will NOT pay for an asset that is dropping like a rock in value. People will NOT pay 30% interest on credit card debt. People will NOT pay and the perceived deflation will continue.

    The asking price of Real Estate will continue to go down and the only way to build equity will be to either pay down principle, debt forgiveness through foreclosure, or to buy a REO for whatever the banks can get.

    Judicial foreclosure? Maybe, if the banks want to spend the time to build cases. In the mean time people, Congress, and especially Note holders will be asking hard questions.

    We are in for a long drawn out market correction.

  205. 205
    Kary L. Krismer says:

    By Jonness @ 199:

    2) In 2006, houses cost almost double what they did in 1997 in inflation-adjusted dollars and remain well above their 1997 levels. You claim this is because house sizes increased because people with two incomes could afford more house. Thus, houses now cost more in inflation adjusted dollars; thus, Seattle houses are fairly valued. However, the data in 1) clearly disproves this assertion because your reported dual incomes and rising house sizes had the opposite effect during that period.

    I’ve said above part of the increase was due to increased availability of financing, but that’s the last 10-15 years. I’ve been talking about increases in price over the last 40-50 years. That’s what’s income related. The past 10-15 years are both income and finance related (plus a bunch of irrational exuberance)

  206. 206
    Kary L. Krismer says:

    RE: Jonness @ 200 – I’m not trying to downplay the importance of foreclosures, only trying to point out that the significant rise the past two months may be temporary, and may be offset by decreases the next few months.

    As I indicated in another thread, the notice of trustee’s sale documents this last week (after the change in the law) were coming in at only about 20-25% of the level of the prior weeks. If that keeps up for two months, it would offset what’s happened the last two months.

    Of course for the people involved, it’s going to hurt them greatly whether I’m right or wrong about the reason for the increase.

  207. 207
    Kary L. Krismer says:

    By David Losh @ 204:

    First, the dual income argument would be if all wages were equal. They are not. It does take two incomes to get anywhere in today’s economy. In the 1960s one wage actually had buying power that is lacking today.

    Actually, if you look at the census data I provided above, that’s not true. Even a single family home has more buying power if you use median income adjusted for inflation as buying power. It actually surprised me how much income has gone up over the years–again adjusted for inflation. From memory the dual income homes only had about a 15% advantage, which is smaller than I thought, but I guess if you have a major breadwinner the other spouse is less likely to work. Most of the change is just due to rising incomes.

    If I had to guess, that’s technology driven. Most people in this country no longer do stuff that is menial. For example, bank statements are all processed, printed and mailed by computers and machines. That allows people to do more meaningful things, and companies can pay them better to do those things because they aren’t paying for the other things to be done.

  208. 208
    David Losh says:

    RE: Kary L. Krismer @ 207

    It’s actually because inflation is based on a basket of goods that a typical family would use. Housing and cars are not included. Once you factor in things like computers and plasma TVs, forget about it.

    The second is house size used to mean something. If you had a big house in the 1940s or 1950s it was a big deal. Today we throw up big houses to capture a nostalgia.

    I don’t really care because it is the mortgage money that has driven up the price of houses, which brings me to my point.

    After all of this discussion I’m not seeing the value. There really is nothing new. It’s a rehash of a dozen points that all come down to the same thing; Real Estate prices are too high. There are no solutions, just a lot of negativity.

  209. 209
    Kary L. Krismer says:

    RE: David Losh @ 208 – Housing prices were previously included, but then taken out. I think that was 10-15 years ago. I doubt they went back and revised the numbers when they made the change.

  210. 210
    David Losh says:

    RE: Kary L. Krismer @ 209

    That still won’t address the issue of cigarettes and beer. Sorry, It’s a done deal. The massive increase in housing prices can’t be explained with the Census or housing sales data. It’s over the top. If we don’t have inflation, and I mean massive inflation, then home prices need to come down.

    The real point of my comment was that you made the statement that some one doesn’t know anything about Real Estate, which is true. I’m finding more of that.

    People come to this blog or any blog and have no concept of Real Estate. Many of those people are brokers and Real Estate agents. I’m questioning the investment of time.

    The 2008 Real Estate season was dismal, but this year was far worse. Many people claiming the bottom of the market, and extolling interest rates as a reason to buy at these prices found a following. Now the market needs to correct further.

    The internet has been very good to me, just not in terms of getting out a message of hiring a professional to help you buy or sell Real Estate.

  211. 211
    Jonness says:

    Wrong. Thank you for proving my point that you don’t understand the information you’re citing to. Where on your chart does it indicate any prices?

    Please read the first sentence of the chart I posted:

    “The Yale economist Robert J. Shiller created an Index of American housing PRICES going back to 1890.”

    http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

    The chart compares standard house prices, adjusted for inflation, through time. If it adjusted for size, dual incomes, and all the other potential hypothesis, it would lose it’s value as an analysis tool by which to test hypothesis. That’s why this chart is valuable.

  212. 212

    David Losh said “The internet has been very good to me, just not in terms of getting out a message of hiring a professional to help you buy or sell Real Estate. ”

    I think that’s because you’re more honest than you are slick, David, and that’s a good thing.

  213. 213
    Jonness says:

    I’ve said above part of the increase was due to increased availability of financing, but that’s the last 10-15 years. I’ve been talking about increases in price over the last 40-50 years. That’s what’s income related. The past 10-15 years are both income and finance related (plus a bunch of irrational exuberance)

    I do not disagree with that statement. However, my original claim was meant to contrast the most recent 10-15 year period to previous years of data in order to show that house prices are not currently fairly valued in Seattle.

    My claim:

    “Most of us bubble-heads are betting it will be house prices going down. This is largely based on over a hundred years of historical house prices in relationship to incomes.”

    You said:

    “Did you miss the point entirely? 100 years of historical price relationships are irrelevant because of dual income households.”

    I interpreted this as you claiming the past 10-15 years were solely due to dual income households; thus, house prices are currently fairly valued. The chart I posted is intended to dispute this claim, because the spike of the last 10-15 years is quite obvious when compared to previous periods. Perhaps I misinterpreted your claim. If so, I apologize.

    Implicitly, I do not believe the last 100 years of data is irrelevant because contributing factors (whatever they may be) can be identified and accounted for.

  214. 214
    Jonness says:

    By Ira Sacharoff @ 212:

    I think that’s because you’re more honest than you are slick, David, and that’s a good thing.

    Yes, but so are you Ira. I hope it has been serving you both well in life and business.

  215. 215
    David Losh says:

    RE: Jonness @ 213

    You’re missing the arguments Kary has been making. They are valid in that without the dual income and without the size of houses the run up would not be possible.

    Never mind the logic or reasoning, it’s just there, and has been there for the past ten years.

    The McMansion mentality is very real. “I can afford a McMansion because my spouse works” or we work so hard we deserve a McMansion is psychological.

    It’s all in the data. How else do you explain what happened? You have a chart, Kary presents charts, but how does that explain the spike?

    It doesn’t. It doesn’t compute any more than why the stock market keeps going up. Better put the spike explains why the stock market keeps going up.

  216. 216
    Kary L. Krismer says:

    RE: Jonness @ 213 – Fair enough, and thank you. I just think it’s very difficult to account for what is what. How much is income, how much is financing and how much is something else entirely?

    It’s like the current issue on deed of trust foreclosures. How much of the recent increase was due to Washington’s change of law, and how much was due to California’s change of law? You could probably get a rough idea of that by comparing the volume of local trustees to interstate trustees, but with the issue of financing vs. income there is no easy way to test that.

  217. 217
    Kary L. Krismer says:

    By David Losh @ 215:

    It doesn’t. It doesn’t compute any more than why the stock market keeps going up. Better put the spike explains why the stock market keeps going up.

    That is a third factor–I referenced Greenspan’s phrase about the stock market above–irrational exuberance. Clearly that was a third factor on top of income and financing.

    But to your comment, with stocks just the fact that it’s going up can reach a point where it goes up more. That’s because the supply can actually drop when the price goes up! People holding the stock are happy with its performance and think it will continue, and are very unlikely to sell. Others will want to buy because of the performance. Once it reaches a certain point, there’s no way to tell how high it will go.

  218. 218
    David Losh says:

    RE: Ira Sacharoff @ 212

    The issue is if the internet is pushing the Real Estate market and why.

    Let’s go back to my favorite discussion about the Central area. There are realities to the development of that area. Most of those realities have to do with gentrification. The data never shows the demographic, or should I say that it does, but it can be presented any way I want. In the 1980s I encouraged clients to buy there, by the 1990s it was over. What the data never showed was the rise in the Viet Namese population to the Rainier Valley.

    I bring this up because i just had this discussion again three weeks ago with a Real Estate agent/investor. He found out my office was in the International District and started in on the appreciation potential of the area. When I point out the cultural aspects of an investor from outside of the community moving in he just glazed over.

    The web 2.0 experience is supposed to be transparent. People all the time tell me about the market place by what they read on the internet. I’m going to say that I think this spike in Real Estate prices is because of the internet. Any one can get on the internet and start making definitive statements about the appreciation, of, or the investment potential of Real Estate.

    It’s like talking about the City of SeaTac as opposed to Burien. You either know how to read the statistical data or not. I can make a case for either city, but there is only one of the two with a higher potential for appreciation.

    For all the changes in Real Estate all any one has to do is put up a web site and become an expert. We are on a blog set up by an electrical engineer who says he just trying to figure stuff out. Now he’s an expert because he doesn’t have a Real Estate license so he can be trusted.

    The bottom line is the consumer gets hurt. The consumer goes into a Real Estate transaction worth a quarter to half of million dollars armed with questionable information. That information is still presented by huge corporate interests with the where with all to invest millions of dollars in internet presence, but because it’s “free” information it must be correct.

    I’m finding it hard to fight that kind of logic.

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