Bottom-Calling Checkup: Still No Bottom Sighted

Speaking of the bottom, let’s have another checkup on how things are progressing with respect to our bottom-calling series from February, in which we explored six different methods of forecasting the bottom for Seattle-area home prices.

Not a lot of news since our last checkup in December, when we had passed three of our six potential bottoms with no bottom in sight.

As of the latest Case-Shiller data (December), Seattle-area home prices have hit another new low at 23.3% off the peak. We are now well past the bottom prediction for the Dollars per Square Foot Linear Forecast, especially since my original calculations were off by a few months and the bottom call of 30.7% off in December 2009 should have been set in October 2009.

Here’s an update to our dollars per square foot bottom call chart:

Bottom-Calling Method 2: Dollars per Square Foot Linear Forecast

The tax credit definitely seems to have leveled things off for the better part of 2009, but ever since November, things are headed south almost as strongly as they were in 2008.

For comparison, here are similar charts for King, Snohomish, Pierce, and Seattle proper from Redfin:

Median Price per Square Foot: King County

Spring: $199/sqft. Summer: $205/sqft. Latest: $190/sqft.

Median Price per Square Foot: Snohomish County

Spring: $172/sqft. Summer: $176/sqft. Latest: $163/sqft.

Median Price per Square Foot: Pierce County

Spring: $132/sqft. Summer: $138/sqft. Latest: $126/sqft.

Median Price per Square Foot: Seattle

April low: $270/sqft. August mini-peak: $280/sqft. Latest: $261/sqft.

I also love how sharply the listing prices are shooting up in the last couple months, despite the continued decline in sold prices, especially in Seattle proper. Hello, wishful thinking!

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.


  1. 1
    LA Relo says:

    My guess is listings are up because the $8000 in hot air the gov’t has been injecting. Sold $/SqFt might creep up a bit as before it runs out, but I expect both to go right back down.

    All the $8000 credit did was raise the price of every home in the country by $8000.

    My guess is no bottom until 2012.

  2. 2
    CCG says:

    They need to send a message to those @#$ buyers and let them know they waited too long.

  3. 3
    CCG says:

    By LA Relo @ 1:

    My guess is listings are up because the $8000 in hot air the gov’t has been injecting. Sold $/SqFt might creep up a bit as before it runs out, but I expect both to go right back down.

    All the $8000 credit did was raise the price of every home in the country by $8000.

    My guess is no bottom until 2012.

    Oh come on. Distorting the market has worked so well in Japan for the last 20 years.

    (Sorry, I’m feeling sarcastic today for some reason)

  4. 4

    Tim, I wish you would quit being so one-sided. “No Bottom Sighted!” My “golly”! Ardell just made another bottom call! ;-)

  5. 5
    Notorious ART says:

    “Hello, wishful thinking!”
    ….of course, this is Seattle, what else would you expect. After all it’s offically Spring. Foot traffic will translate into sales.

    Too bad the numbers aren’t telling the same story.

  6. 6
    Civil Servant says:

    Why do I even click through to the RCG content? Owww that was painful.

  7. 7
    PhinneyDawg says:

    My next door neighbor’s house sold for listing price in one week back in December. From my perspective, there are still pockets of houses selling around Seattle (like Phinney) but the selling prices themselves seem to be free-falling in the last 3 months.

    No end in sight is a good description. Looks like I’ll be in my house for a long long time to just break even.

  8. 8
    patient says:

    By Kary L. Krismer @ 4:

    Tim, I wish you would quit being so one-sided. “No Bottom Sighted!” My “golly”! Ardell just made another bottom call! ;-)

    That’s hilarious, the government has done more than what is healthy for them and will likely be punished for it in fall and it has not changed the inevitable outcome just delayed it and more of that is what we should base a bottom on? Sorry but I’ll pass.

  9. 9
    David Losh says:

    I’ve made the claim before that the value of Real Estate never changes. There is no top or bottom of the market. The price people are willing to pay changes.

    There is a saying that if you own 5 properties free and clear you can retire. One to live in, one to pay property expenses, one to pay living expenses, One for savings, and one for fun. The money comes from the rental income, and you don’t have to be greedy about it. Rents go up or down, but the value of the property remains tied to inflation.

    No matter what the market conditions there are always properties to purchase if you have the idea of paying them off.

    In my opinion what happened to the Real Estate market place, globally, is that people forgot, or never knew, that there are basic economic principles to building an Estate. That’s what it’s called, an Estate, a Real Estate.

    Any one can build an Estate if you step back and look at the dirt, the Real Estate, for what it is. It’s dirt with, or without, a structure on it. The Estate is based on how much dirt you own, and what you can do with it.

    Anyway, I wanted to make the point again because bottom calling is a sales gimmick. Real Estate is about the financial investment you make for your Estate, your heirs, your family. There’s no sales about it. Dirt is what it is, and has certain uses that give it value.

    You need to find an agent who knows what the difference is. You need advice from some one who is in the business of building an Estate. If you want to succeed in the process you need to be talking to the 2% of Real Estate agents who are involved in the day to day business of equity building.

  10. 10

    RE: Civil Servant @ 6
    Because you’re a glutton for punishment, maybe?

  11. 11
    Scotsman says:

    I love me some Ardell! That girl knows how to sell.

    Hey, every new low is a bottom if your perspective is short term. Claim it with pride!

  12. 12
    sdduuuude says:

    Hi. Just a comment from a San Diego Piggington reader. We had quite a bump last spring in SD after seeing similar increases in listing prices. Closing prices soon followed. See the chart in the lower right-hand corner at Seems Seattle behavior is lagging San Diego and I would expect this to mean a (likely temporary) bump in prices is coming to Seattle soon.

  13. 13
    Lake Hills Renter says:

    Good god, RCG’s layout is absolutely terrible.

  14. 14
    Jonnny says:

    i’d like to see that first radarlogic chart going back to 1960 or so. then we’d have a better picture of what “normal” is.

  15. 15
    One Eyed Man says:

    I’ve tried to keep my BS to a minimum recently, but overcome by cerebral constipation, I’m now having an intellectual Claim Jumper moment. Once again, all I can say is, Sorry.

    So everyone thinks the market will continue to decline, or at best be flat. Big Yawn. Not even the real estate whores have the balls to make a counter argument presumably for fear of being ridiculed as fluff waiving cheer leaders or just blatant market pimps. (Sorry, I acknowledge that most of the brokers I know don’t fit that description and I said it primarily to be inflamatory.) But even history says the market will probably drift down for several years. It took SoCal about 5 year to reach bottom at about 25% down after the CS Index for LA peaked in 1990.

    Although I agree that our market will likely be flat or drift slowly downward, I disagree with the level of certainty in that conclusion (and the conclusion that the market may fall more precipitously) that’s generally expounded here. And I tend to hate it if no one presents a counter argument even if its just to broaden the discussion and play devils advocate.

    So to borrow a line from the Stones: “Please allow me to introduce myself . . .”
    And no yelling “Amen Brother” to this rant. For the rest of this comment, please chant “Oo, Whooooo, Oo, Whoooooo. . .”

    In any event, I think the discussion glosses over a whole bunch of factors that could moderate any decline or potentially even result in an increase in the Radar Logic Price Per Sq Ft. (although the probability of that may be quite limited). These are a few of the factors that might change the predicted future:

    1. A number of leading indicators for increased hiring are up significantly. These include temporary hiring, retail sales numbers for many retailers, and a significant number of other factors. I don’t have the time to locate links right now, but I might later. Furthermore, even though most economists and other experts predict a jobless recovery, I distrust their ability to predict with more than a moderate degree of certainty. when forecasting residential real estate prices, employment is a fundamental that can’t be ignored. But despite the predictions, of a jobless recovery, the consensus of experts have been wrong before and they still might be again.

    2. The tax credit probably caused the number of low end deals to increase and when it’s gone, the volume of these deals should decrease. The tax credit arguably has a more limited effect on the middle and high end deals. The result might be that the sales mix will move higher at the end of the credit, thus causing the median price to increase. The counter argument would be that higher end deals are often dependent on a move up buyer who has to sell a low end home first so higher end deals will suffer a commensurate decline. Clearly, the loss of the tax credit should have a downward influence on both price and volume, but if this decrease is skewed to the lower tier, the median could move up. This argument is largely theoretical and probably not one that can easily be proved or disproved by readily available statistical data, but I haven’t looked to find any either.

    3. B of A has announced that it is going to start doing voluntary principal modifications where the home is more than 20% underwater. This is a sign of the health of the financial system and may result in a decrease in the anticipated volume of distressed properties coming to market if other large financial institutions follow suit.

    4. Most of the commentators I’ve heard seem to think that the end of the Fed’s purchase of 1.6 trillion in Treasuries and GSE’s will only move the 30 year rate up about a half point to a point by year end. This is in part supported by the fact that everyone has known that the program would end and despite that fact, the 10 yr Treasury rate is still about 3.7%. Being as the average 30 yr rate over the last 3 or 4 decades was over 7.5%, a 30 yr fixed rate of about 6% is still a “fundamentally” low rate. This helps support an argument that rising rates won’t drive down prices significantly thru the end of 2010.

    5. If the health care bill gets put behind congress in a week or two, congress can move on to other matters which have been causing uncertainty and therefore probably causing employers to hold back on hiring they may otherwise want to do. IMO the Picken’s Plan would be positive for employment and the economy. A version of it could pass this year if congress can move off of health care and Finreg. Although I know global warming is a “hot” issue, its possible that Cap and Trade will die and hiring will receive a boost when businesses have a higher degree of certainty as to their future. The decrease in uncertainty may also cause some health care related companies to move forward with hiring if the current bill gets put in effect.

    6. Although many would dispute whether the stock market is a good indicator of future economic activity, certian stocks that are significant to many people in the local work force have done well. As those stocks do well, many employees see their financial condition improve when their 401k’s, VIP accounts, option accounts, etc., improve in valuation. Boeing, F5, Microsoft and others are examples. Local people who have put off purchasing due to insecurity as to their own economic future may be more willing to purchase in the not too distant future as their net worth looks better and their situation looks more secure.

    7. Even though everyone is concerned about increased foreclosures to be caused by impending rate adjustments, the banks have gotten much better at moving short sales and foreclosures thru the system. Due in part to the lack of mark to market and their improving balance sheets, large banks can sit on at least some REO inventory if they want to. The balance sheets of the large financial institutions can probably handle the volume they anticipate. And in most markets (outside of places like LV, FL, LA, etc) they don’t seem to face any real pressure to push foreclosures thru the system at a pace that might swamp the market (at least not any more than it already has).

    8. The commercial real estate market has moved up in the last few months despite the prognostications for doom. Clearly this could be just a short term phenomenon, but that remains to be seen.

    9. The predictions by some of continuing deflation in the general economy have not yet come true. The Fed and Treasury are probably still more concerned about potential deflation than inflation and will most likely move quickly to stop any sign of renewed deflation.

    Etc, etc, etc . . .

    Again, I’m not saying that the market’s hit bottom, but everyone should be aware that there are factors out there that could make that conclusion incorrect. Forcasting is at best a game of probability analysis. Even though the probability might be that the market will be flat to down, sometimes shit happens. And to paraphrase Firesign Theater, it might be “really good shit,” so to speak.

    And speaking of shit, semantics and market psychology aren’t entirely irrelevant either. And if you don’t think market psychology is important, you haven’t been doing your assigned reading for Dr Shiller’s class (I confess, I only read the Cliff Notes). For example, from a practical standpoint, a flat market is essentially a bottom if in the end the market eventually moves up. So one might conclude that all the gutless pussy’s who say the market will be flat are actually calling a bottom and hiding behind the use of the word “flat.” And at some point there might even be a stampeed of bottom hunters who push up volume and prices based on psychology rather than fundamentals if enough of them start to think the distress sales are about to end. Almost like a short squeeze in the stock market.

    Ok, So your still not buying, well then,

    . . . “Pleased to meet you, hope you guess my name.”

    PS, on a different subject and as per The Tim’s comment a couple weeks ago: AMS, hope all is well and you just have other things to do these days.

  16. 16
  17. 17
    hp says:

    RE: One Eyed Man @ 15 – yawn.. so what were you saying again? Few words more substance plz.. this is not a forum to boast how fast you can type.

  18. 18
    Scotsman says:

    RE: One Eyed Man @ 15

    I couldn’t let this pass with all the other “BS” as you call it:

    ” B of A has announced that it is going to start doing voluntary principal modifications where the home is more than 20% underwater. This is a sign of the health of the financial system. . .”

    No, it’s not a sign of health, it’s a sign of desperation. First, it only involves just under 4% of their portfolio, so it’s not like they’re going for a Hail Mary pass and clearing the desk of all the accumulated crap. Second, when you get into the terms it’s clear that BOA is counting on home values to go back up before they ever have to write anything down. Five years of deferral on up to 20% of any negative equity that still remains when the trigger is pulled is very different from just taking it off the top now. The main thrust here is clearly to slow the number of folks who are walking away, to give them some (false) hope that if they keep paying now in five years they may be close to even. It’s all about cash flow now for BOA and the deferral of additional write offs. The crap is still there on all of these balance sheets- why do you think B.B. is floating the idea of zero reserve requirements? Get a grip, these banks aren’t healthy by any normal measure, they’re on the very edge of insolvency and only alive because of the current fascination with “Alice In Wonderland” alternate accounting realities.

  19. 19
    One Eyed Man says:

    Now now, careful with the sarcasm. As I recall you promised your daughter that you’d be more optimistic.;-)

  20. 20
    Scotsman says:

    RE: One Eyed Man @ 19

    Bears: print out the fllowing chart as shown. Get yourself a strong drink.

    Bulls and Realtors: flip chart upside down in Photoshop before printing. Enjoy!

  21. 21
    FirstTimeBuyer says:

    After years of following this board religiously, my wife and I have finally decided to buy. I am still feeling pretty nervous about the whole thing since the bottom certainly isn’t here yet. This board helped us get through the last few years without making a dumb buying mistake. I can’t tell you how helpful it is to know there are other rational people out there in the world! :)

    We’ve decided to buy a well-built rambler on Mercer Island. It is close to some great schools, we were able to put 20% down and we feel good about the price. Fair price, not necessarily a “killer deal” or anything. It will definitely meet our needs for the next 10 years.

    Again, thanks for all the great debate, information, and support of one another. Tim, my wife and I will throw some donations your way! You helped save us hundreds of thousands of dollars. :)

    All the Best,

  22. 22
    One Eyed Man says:

    RE: hp @ 17

    Sorry to bore you hp, but when even Ardell is saying the market’s going further down there’s no controversy to move the discussion forward. I got carried away making up arguments because I tried to make up for my lack of conviction in playing devil’s advocate with volume.

    But without some one on the other side of the issue there’s no diversity of opinion to elicit quality comments like what Scotsman had to say in #18.

  23. 23
    ray pepper says:

    RE: FirstTimeBuyer @ 21

    Congrats! You will be very very happy on Mercer Island.

  24. 24
    ray pepper says:

    “Get a grip, these banks aren’t healthy by any normal measure, they’re on the very edge of insolvency ”

    Scotsman….you know what this means to me….STAY LONG BAC ! When everyone says they are going to 0 its time to add positions!

  25. 25
    Jonness says:

    By One Eyed Man @ 15:

    8. The commercial real estate market has moved up in the last few months despite the prognostications for doom

    Yeah, things are looking great. Buy commercial RE now or be priced out forever.

    “The owner of the Northwest’s tallest building, the 76-story Columbia Center, missed a mortgage payment this month, providing fresh evidence of the troubles facing downtown Seattle office landlords.”

    Ok, So your still not buying, well then,

    . . . “Pleased to meet you, hope you guess my name.”

    John L. Scott?

  26. 26
    Scotsman says:

    RE: Jonness @ 25

    “John L. Scott?”

    SPEW!! OK, you win, I quit! Now are you going to help me clean up this mess?

  27. 27
    One Eyed Man says:

    RE: Scotsman @ 26RE: Jonness @ 25

    What? No sympathy for the devil?

  28. 28
    Mikal says:

    #2 is spot on.

  29. 29
    BillE says:

    By Jonness @ 25:

    Ok, So your still not buying, well then,

    . . . “Pleased to meet you, hope you guess my name.”

    John L. Scott?

    LOL. Too funny.

  30. 30
    BillE says:

    Price per square foot is nice, but how about something a bit more solid? We need a graph of open house traffic.

  31. 31
    MacroInvestor says:

    RE: Scotsman @ 18

    Good points about the B of A principal write downs. I would add, the bank knows they will have to write down a foreclosure much more — probably 30-50% (or more). If they can keep their debt slaves from walking away and only spend 20%, that’s a win for them.

    Principal write downs ARE the end game in this recession. But the level will have to be determined by foreclosure auctions, not some bank’s games. Anybody here old enough to remember the savings and loan crisis and how the RTC quickly reset the market?

  32. 32
    MacroInvestor says:

    RE: BillE @ 30

    Funniest comment in a long while.

  33. 33
    Daniel says:

    RE: Scotsman @ 18 – I gotta agree with all you say here. I want this to be on record so that no one says I can only disagree. Sorry, but I worked with to many Russian scientists and am fully prepared to win any shouting war they might start =) That does not mean I dislike you or anyone here.

  34. 34
    LA Relo says:

    Maybe wishful thinking will drive the market back up.

  35. 35
    Scotsman says:

    Green shoots!! This is for Pfft and One Eye, positive proof that the worst is over and the recovery is under way. Bank loans and credit outstanding have stopped falling, and as everyone knows, flat is the new up. Now, while I can personally find about a dozen reasons to disagree with this, I wanted to make sure all (both) of my bull friends saw the good news! Drinks are on. . . you.

    And don’t let this little bit bother you- “As the chart below from the Bank of Japan shows, non-performing loans are running hot in both America and Europe. Reaching 4% in both regions. This is not an environment that’s going to coax out a lot of new lending.” As soon as we get rid of those pesky reserve requirements no one will miss that 4% anyway.

  36. 36
    Choc Donut says:

    According to new census data, 18k more people moved into this area last year, and another 25k 2007-2008. Everything over 400k keeps coming down, but everything under 300k that isnt garbage, and some that is, keeps selling. People coming in from other states may find our prices reasonable even though to natives they are historically high. So considering finding homes for 200k was the norm before 2000-2004, Seattle will never go back to where it was, even though, as far as I’m concerned, Vancouver BC is a much more fun place to be. We’ll see if global warming gives us consistently less rainy summers or not. That’s also a factor, but I have to agree that this area may not suffer the same doom of much of the rest of the USA.
    Then again, an earthquake could change all of that.

  37. 37
    Jonness says:

    By One Eyed Man @ 27:

    What? No sympathy for the devil?

    LOL. Yeah, I know you’re just being the devil’s advocate. Someone has to do it.

    I’ve been waiting a long time for the Fed to stop buying MBS. In truth, nobody knows what the outcome will be. Shockingly, the tax credit is set to expire a month later. I’m guessing more stimulus is on the way. It’s kind of like bragging to all your friends about how tough you are. Then you stick your toe into the water and realize, “yep, the water is freezing alright. I better put on the neoprene boots.”

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