Treading Water Between Fear and Desperation

It’s been quite a while since we had a look at the “Cycle of Market Emotions.”

The Cycle of Market Emotions
Cycle of Market Emotions

Last time, in late 2007 as prices just began to decline here in the Seattle area, I pegged our location on the curve at somewhere between anxiety and denial. Today I’d guess that we’re holding fairly steady between fear and desperation.

Here’s a quick highlight of where the market is at today:

While there may be signs of a bounce-back off the bottom for the economy as a whole, I have a hard time believing that the Seattle-area housing market has really “hit bottom” yet, either in terms of home prices or with respect to the cycle of market emotions.

What do you think? Have we hit capitulation or despondency yet, or are we still treading water somewhere between fear and desperation?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

54 comments:

  1. 1
    The Tim says:

    P.S. – I have a semi-decent excuse for posting so late today. It’s my big fat 30th b-day and I slept in. Woo, three decades on Earth. Go me.

  2. 2
    rational says:

    Capitulation? No way! The last six months of buying, supported by two back-to-back programs from the govt, has given hope to sellers and they are listing at higher prices. Capitulation is when sellers worry that they will get even lower prices next month if they don’t sell today. Instead we have sellers starting at a high price hoping for a sucker to come along. They are reducing prices only after they are sure there are no more suckers left to relieve them of their mortgage obligation.

  3. 3
    Tim says:

    All I can say is that prices are clearly falling up here in Bellingham and homes coming on the market are coming on at significantly lower prices than they would have even 6 months ago. I’ve seen a few 50,000 price drops on 300,000 dollar original asking prices and they aren’t selling. My wife’s friends keep asking why we haven’t bought a home and she is getting antsy but I’m standing firm. I’ll buy when I see a house I like at a price I can afford. There is absolutely no reason to be in a hurry.

  4. 4

    I don’t see the pessimism among sellers that you do. In the Leavenworth area, I do see some sellers who have been trying for awhile slowly starting to reduce their list prices, however new sellers who are just listing this spring seem to be optimistic as ever, despite an ever increasing supply. ( http://iciclecreekrealestate.com/2010/05/11/leavenworth-supply-of-homes-continues-to-grow/ )

    Zillow’s recent polling seems to indicate that homeowners in the west are overly pessimistic, which I find interesting. Thoughts on this?

    http://www.zillow.com/blog/homeowner-confidence-up-down-and-all-over-the-board-regionally/2010/05/19/

  5. 5
    Dave0 says:

    On a national scale, I’d say we hit panic stage in late 2008 and are sitting somewhere between panic & capitulation right now. Stock markets crashing, the creation of TARP funds, cash for clunkers, home buyer tax credits, etc all are signs of the panic. I think the end of the home buyer tax credit may mark the end of the panic stage and the start of the capitulation stage.

    Locally, we haven’t seen much panic, so maybe Tim’s right at the local level: somewhere between fear and desperation.

  6. 6
    Scott Weitz says:

    We’ve used all our bullets…now the govt will need to roll another another ‘stimulus package’, which would essentially lead to political upheaval since they’ve lied that the previous one was working.

  7. 7
    Gerald says:

    I would guess between denial and fear. I know of three owners within the ten homes along my street who are going to rent their homes this summer rather than sell. They each loathe the thought of “giving their homes away” and plan to ride out the next two years and sell into the upswing.

  8. 8
    drshort says:

    What are the objective measures for the Seattle area?

    Sales are way up.
    Inventory flat/down.
    Months of supply is down.
    Prices have mostly stabilized (and even up 4% in Seattle YOY).
    Foreclosures are flat (so as a % of market volume, they’re down).

    I think you’d have to say that we’re in the “hope” to “relief” area. But that doesn’t mean it couldn’t quickly turn again. There’s no guarantee that the “cycle” has to last any length of time. But, there’s no denying the “mood” is much more optimistic today than it was 12 – 18 months ago.

  9. 9
    rational says:

    By Gerald @ 7:

    I would guess between denial and fear. I know of three owners within the ten homes along my street who are going to rent their homes this summer rather than sell. They each loathe the thought of “giving their homes away” and plan to ride out the next two years and sell into the upswing.

    It’s wonderful if they can do that, but many sellers aren’t in a position to have their assets tied up in a second home they intend to eventually sell.

    Ironically, this keeps a lid on home price rise because of the constant supply that comes on the market over time. Also, renting isn’t exactly for everyone. It comes with its own pain points.

  10. 10
    Sottocapo says:

    I think prices still have a long way to go down and panic is coming in waves. I knew people panicking two years ago because they couldn’t sell. They still can’t sell and now they are resigned, while others are still just worried and confused. As a nation the US is still on shaky ground economically in so many ways and people feel insecure – whatever the newspapers say.

    I noticed on Redfin that Clyde Hill has tons of homes for sale above $2mil. Yet if you look at sales for that area for the past 3 months 1 or 2 homes have sold in that range, the rest of the sales are under $1mil, many far under a million. Who are all these people that think there is a huge market for $2 million dollar homes? It may be a ritzy area but Laurelhurst is similar and homes are dramatically lower in price there. What is the deal? This may be way high-end but why are they so unrealistic? This is why homes have to go lower, reality is not biting enough yet.

  11. 11
    Tsuru says:

    RE: rational @ 9

    Not to mention the fact that these wannabe landlords think that:

    a) renters will HAVE to pay enough to cover their mortgage payments regardless of what the market is doing because, well, if they want to rent MY house they will pay for it, and,
    b) being a landlord is easy and requires no work other than collecting a check from your renter each month

  12. 12
    jason shutt says:

    I know of one Kitsap County new listing that sold for $275K in late 2008. Using the Case-Shiller YOY data as well as your Pricing Calculator for Today’s Market puts it in the $220’s.

    Yet it’s on the market again for $359K.

    I’m not sure what to call that emotion. That’s way beyond euphoria.

  13. 13
    CalEngineer says:

    RE: jason shutt @ 11

    I would call it Bliss. As in Ignorance is…

  14. 14
    pmseatac says:

    I categorize myself as a joe six-pack. My income was just over $90,000 last year, I have no debt, and I have substantial savings. There is not a single habitable house in King County (where I rent and work) that I can even come close to affording to buy. There are a few uninhabitable ones I could buy (just barely) if I wanted to ruin myself financially for life. Since I am a fairly average person, I have to conclude that even the most substandard housing in King County,and most of western Washington, is far beyond the means of anyone who is less than a near-millionaire, which means almost everyone. I think the housing market has a lot farther to fall, since the pool of eligible buyers is so small.

  15. 15
    anon says:

    @pmseatac

    Amen, brother, you’re not alone. I am in a somewhat different boat – I could buy most of the houses that interest me outright and without financing. However, looking at the houses on the market (a) I’d pay more in property taxes than I am paying in rent per year for not that much more comfort (b) There’s plenty of properties that sold for less than half what they’re advertised for within the last 10 years. I am not bullish on house prices and I am not going to help someone else realize their 100% appreciation and eat crow for the next six years.

  16. 16
    wreckingbull says:

    The fun begins in earnest now.

    As Scott noted above, the bullets are spent. The housing market will now need to stand on its own spindly little chicken legs. When the weight of foreclosures, high unemployment, and inevitable rising mortgage rates becomes too much, those legs will make a nice crispy snap as they give way.

  17. 17
    drshort says:

    By pmseatac @ 14:

    I categorize myself as a joe six-pack. My income was just over $90,000 last year, I have no debt, and I have substantial savings. There is not a single habitable house in King County (where I rent and work) that I can even come close to affording to buy.

    Really? Not a single one?

    Something like this for $330K seems pretty habitable:

    http://www.redfin.com/WA/Kent/12206-SE-259th-Pl-98030/home/399087

    That’d run you about $1700 a month for PITI. That’d be about 22% of your income which is well below the generate guidelines of affordability.

  18. 18
    wreckingbull says:

    RE: drshort @ 17 – I’m don’t totally disagree with your point, but that place, really? It appears to be across the street from some sort of an industrial facility. I’d say that place is headed for the mid 200’s.

  19. 19
    Jonness says:

    By anon @ 15:

    There’s plenty of properties that sold for less than half what they’re advertised for within the last 10 years. I am not bullish on house prices and I am not going to help someone else realize their 100% appreciation and eat crow for the next six years.

    That pretty much says it all. Houses are double the prices they were 10 years ago, and inflation adjusted wages are lower. To top it all off, stocks are lower than they were 10 years ago, so it’s not like people’s investment returns are driving the housing market to new euphoric highs. To really put icing on the cake, despite wages being lower, everything costs more. Whose got the money to buy all of these overpriced PacNW homes? The answer of course is, the banks will lend people a government guaranteed loan that they can pay back by becoming a debt slave for the next 30 years. I say no thanks to that ludicrous offer and will continue to save my pennies until I can not have to sale my soul for a crappy shack next to Costco.

    It’s great to see that someone who actually does have the money is smart enough not to play the game. But I’m guessing that could be part of how you acquired the money in the first place. :)

    Life involves a series of decisions. Each decision leads to a new branch in the path you travel. The key is, to make as many good decisions as possible, so the path you travel returns gratitude for your efforts. My advice is to limit emotions when making important decisions, especially when these decisions involve large amounts of money. Impulsivity is the destroyer of gratuitous return on human investment.

  20. 20
    Jonness says:

    RE: drshort @ 17 – Is that a house or an apartment? It’s so close to the one next to it it’s hard to tell.

  21. 21
    HappyRenter says:

    By Jonness @ 20:

    RE: drshort @ 17 – Is that a house or an apartment? It’s so close to the one next to it it’s hard to tell.

    Is the camper included?

    Interesting that the price dropped of 15,000$ within 10 days.

  22. 22
    Gilly says:

    Happy birthday The Tim!

  23. 23
    ray pepper says:

    RE: Scott Weitz @ 6

    agree 100% but I cannot help but feel we are going to see a BIG BIG BIG plan for homeowners to remain in their upside down homes. This will be backed by the Fed and will prove to be effective in curbing all the millions of strategic defaults and personal bankruptcies that will occur if we simply do nothing.

    I don’t like to bet against the Fed and every time I have, I have gotten my head handed to me.

    For now save like you never have before BubbleHeads. The real opportunities in real estate lie ahead and being liquid will be essential.

    Oh and Happy BDay Tim. If I had a 500 Sweatshirt/Cap available I would send it to you. Its the thought that counts!

  24. 24
    pmseatac says:

    RE: drshort @ 17
    Affordable by whose guidelines ? Not mine. 1700+ would be close to 1/3 of what I actually take home. I currently rent a small but pleasant house for considerably less. Even if a bank allowed it, there is no way I would deliberately place myself under such a crushing debt burden.

  25. 25
    DavidB says:

    I think some sellers are still in the denial stage. Too many prices are at 2007 levels and they haven’t lowered their prices. Some homes on Magnolia have been on the market for almost 2 years with few price adjustments.

  26. 26
    DrShort says:

    By pmseatac @ 24:

    RE: drshort @ 17
    Affordable by whose guidelines ? Not mine. 1700+ would be close to 1/3 of what I actually take home. I currently rent a small but pleasant house for considerably less. Even if a bank allowed it, there is no way I would deliberately place myself under such a crushing debt burden.

    You’re statement was that you make 90K and there isn’t a single habitable house in King County that you could even come close to affording. I was just pointing out there are plenty of habitable homes that you could afford.

    The conservative housing debt limit is 28% of gross income. That’d be about $2100 a month for you. But since you have no debt. Lots of lenders would gladly go up to 36% or $2700 a month.

    If you don’t feel comfortable with those amounts, I don’t blame you. Each person has their own confort level with debt payments. But, the rest of the market appears to be much more accepting of higher debt/income amounts. And those are the people you are competiting with in the marketplace.

  27. 27
    Cara says:

    RE: DrShort @ 26

    (re: pmseatac@17)

    And it’s not that hard to compete with them. Most at the $300k mark aren’t putting down more than 5%. So, if you’re not comfortable with the debt load of $1700/month, simple, save up the money ahead of time and reduce the debt burden. Yes, it sucks putting that much of one’s net worth into a home, but that’s kind of what being financially conservative means, using funds you’ve already saved, rather than commiting yourself to future payments.

  28. 28
    SomeRiskIsOK says:

    RE: pmseatac @ 24 – No risk, no reward. No one says buying a house is completely safe. But people still do it, and to call 1700 on a 90k salary “crushing” is rather conservative. Not saying you are wrong. Maybe you aren’t interested in that particular reward. But many people get by just fine with such a payment. Do you have kids? I’m guessing not. Someone does actually live in and pay for all those houses, after all.

    Well, most of them! lol

  29. 29
    patient says:

    Imo most sellers enters the market firmly in denial and many leave the market still in denial ( rent and wait for a illusionary recovery ). Some are forced to go down the path until the home sells but the entry point remains delusional for the majority imo.

  30. 30
    HappyRenter says:

    RE: Cara @ 27

    What mostly scares me is job stability. What if I accept the debt burden and then I lose my job?

  31. 31
    patient says:

    RE: DrShort @ 26
    “But, the rest of the market appears to be much more accepting of higher debt/income amounts. And those are the people you are competiting with in the marketplace.”

    For now. Debt is currently wrecking havoc with individuals,companies and countries around the western world. It can become the weapon that put an end to the era of western world domination. Sooner or later debt will be regarded as the the poison it can be and people will become much more conservative in drinking it and you wil no longer have to compete with reckless and ignorant buyers. Be patient and stay liquid, it will pay off imo.

  32. 32
    DrShort says:

    By patient @ 30

    Debt is currently wrecking havoc with individuals,companies and countries around the western world. It can become the weapon that put an end to the era of western world domination.

    The debt itself isn’t the big problem. The problem is when the debt isn’t being used to create anything of value. Debt used for investment (as in education, infrastructure, etc.) is good. Debt used to prolong unsustainable budgets (personal, corporate, or government) is bad.

  33. 33
    patient says:

    RE: DrShort @ 31 – To say that debt is not the problem is a stretch even for you DrShort :-)

  34. 34
    wreckingbull says:

    RE: Jonness @ 19 – Words of true wisdom. How many people do you know that always must have a new car every three years, in the highest trim level, even if it drains their last penny of monthly income? For fun, do the math on continuous car payments over 20 years. Then compare that to the guy that pays cash for 4-year old cars and drives them until they die.

    It is not a far stretch that the new-car-owner is destitute after 20 years and the used-car-owner has a nice chunk of savings. In the end, did it really matter that used-car-guy was driving an older car? Did it really affect his quality of life to a measurable degree?

  35. 35
    Mel Torme says:

    I’d put a few more fixes on your line graph (curve), Tim, but that’s just me.

    Somewhere between Desparation and Capitulation, I would put (not necessarily in this exact order): Aggravation (about the Situation) followed by Stimulation, followed immediately by Fornication (but not before Graduation), followed by mass-Fragmentation (of the market), followed by Asphxiation, self-Immolation and Constipation. Only then will it be time to panic, Gentlemen.

    (hat-tip to U-2, fade ending of “Bad”)

  36. 36
    DrShort says:

    RE: patient @ 32

    There’s a big difference between someone who’s $40K in debt because they went to grad school to get their PhD in Engineering versus someone who ran up their credit cards on clothes and dinners. In the first example, the debt will lead to a lifetime of higher earnings. In the second, it’ll be a burden to future opportunities.

    There are similar examples of good/bad debt usage in business and government.

  37. 37
    DrShort says:

    By Cara @ 27:

    but that’s kind of what being financially conservative means, using funds you’ve already saved, rather than commiting yourself to future payments.

    If you think there’s a good chance of price declines, I’d say the conservative thing to do is put down as little as possible and keep your savings someplace else. That way, you’re only risking your credit score, not your savings.

  38. 38
    DrShort says:

    By patient @ 32:

    a stretch even for you DrShort :-)

    Somebody here has to be the voice of reason. ;)

  39. 39

    RE: The Tim @ 1

    Happy Birthday Tim

    And may your pragmatic wisdom keep you in the best financial situation possible.

  40. 40

    RE: The Tim @ 1

    To Quote You Tim

    “….While there may be signs of a bounce-back off the bottom for the economy as a whole…”

    May 20, 2010 article from Dr. Roubini in part:

    “…Stocks are likely to continue their aggressive decline and shed another 20 percent in value as the world economy weakens, noted economist Nouriel Roubini told CNBC…”

    http://m.cnbc.com/us_news/37259541

    If this is a bottom with trillions of dollars of federal/global debt safety nets in place, imagine the economy as the bailouts are removed from here on end.

  41. 41
    patient says:

    RE: DrShort @ 38 – Are you working in the lending industry by any chance ;-)

  42. 42
    patient says:

    By DrShort @ 37:

    By Cara @ 27:

    but that’s kind of what being financially conservative means, using funds you’ve already saved, rather than commiting yourself to future payments.

    If you think there’s a good chance of price declines, I’d say the conservative thing to do is put down as little as possible and keep your savings someplace else. That way, you’re only risking your credit score, not your savings.

    Ouch, S-Crow is not going to be happy with you for that one. Planning to foreclose and stick the lender with the bill if prices decline already at the time of buying…pretty controversial stuff.

  43. 43
    LA Relo says:

    I don’t know about you guys but personally I’m optimistic!

  44. 44
    TheHulk says:

    Hey Tim,

    Happy Bday man! Here is a nice little bday gift – http://www.luxlotus.com/photos/ya_lyublu_i_love_russian_/russianvogue_pinkpony.html

  45. 45
    matsayswhat says:

    By The Tim @ 1:

    P.S. – I have a semi-decent excuse for posting so late today. It’s my big fat 30th b-day and I slept in. Woo, three decades on Earth. Go me.

    Happy Birthday Tim! Have some drinks to celebrate!

    My 30th is Monday, no joke!

  46. 46
    rational says:

    By patient @ 31:

    RE: DrShort @ 26
    Sooner or later debt will be regarded as the the poison it can be and people will become much more conservative in drinking it and you wil no longer have to compete with reckless and ignorant buyers. Be patient and stay liquid, it will pay off imo.

    I want you to be right, but I am afraid one has to wait way too long for that scenario to unfold. In fact, we already had a golden opportunity in Fall 2008 for debt to be understood to be the poison it is. If the markets were left to their own devices, people and institutions with high debt would have had to shed a big part of it and let things deflate to their true price levels. Alas, the whole system went into ghigh gear to prevent that and ensured that debt holders don’t suffer so much. On top of that, savers were severely screwed to help ease the burden on the borrow-and-be-merry folks. If a near collapse of the financial system hasn’t convinced the world that debt should be used in a limited way, what else should happen to convince them? How long is that going to take? And if that does happen in the near future, what are the chances that your savings will be protected or worth much? Think about it. It is nice to think “I’ll be liquid and take advantage of opportunities when all hell breaks loose” but I bet many who thought that way, unless they were professional, experienced investors who have been through that before, were unable to pull the trigger because their own situation turned a little uncertain (job security or security of their assets or worry about hyperinfation etc).

    It is good to be thrifty and be responsible, but we are in a system which actively works to discourage thrift and responsibility and encourages frivolous, irresponsible spending. We just blew away a once in a century opportunity to reform the system, but we only dug ourselves deeper. We only have one life and waiting for the system to change so you can relax and breathe easy is a wait too long. Years roll by and you get old.

  47. 47
    patient says:

    RE: rational @ 46 – I’m absolutely confident that being finacially responsible brings you the best quality of life in short, medium and long term. It always have for me. Don’t be fooled by the system especially not when it crumbles on it’s own strategies.

  48. 48
    Rojo says:

    awwwwwwwwww

    You guys still at it? Same 10 people. Same story, same stuff same discussions, over and over and over.

    Old story man.

  49. 49
    rational says:

    By patient @ 47:

    RE: rational @ 46 – I’m absolutely confident that being finacially responsible brings you the best quality of life in short, medium and long term. It always have for me. Don’t be fooled by the system especially not when it crumbles on it’s own strategies.

    I agree, but I’m pissed off that the irresponsible folks are having more fun than me, the responsible saving type. And when they get into trouble they are getting bailed out one way or the other. For example, people put everything they have into mortgage servicing and when it is time to send kids to college, they manage to get need based financial aid. Those of us who saved for the kids education get screwed because we have to pay from our pocket, but the spending types have nothing in the bank and qualify for financial aid. And the system is setup to encourage that kind of irresponsibility.

  50. 50
    anon says:

    Jonness@19, wreckingbull@34.

    ROTFL – I am the original poster, and, oddly enough, I drive a ten year old car that was acquired used and is on it’s way out. Now I feel stereotyped ;)

  51. 51
    mike says:

    By Geordie Romer | Leavenworth WA @ 4:

    Zillow’s recent polling seems to indicate that homeowners in the west are overly pessimistic, which I find interesting. Thoughts on this?

    http://www.zillow.com/blog/homeowner-confidence-up-down-and-all-over-the-board-regionally/2010/05/19/

    “Homeowners in the West are overly cynical, believing their home’s value is doing much worse than reality. ”

    They believe their home price is much lower than it should be.

    In other words, they think their home is worth much more than it really is.

  52. 52
    johnnybigspenda says:

    Thought of the day:

    Here’s why I’m more optimistic about the lower priced house cities. Places like Phoenix have more room for prices to go upwards (from an affordability perspective) than Seattle does. So in good times, I would expect their price appreciation to be higher than Seattle’s…. AND the people in Seattle are allocating more money towards housing (and receiving a lower rate of appreciation). They have less opportunity to diversify because the higher cost of housing forces them to allocate more $ towards that asset.

    Its a double hit. In Seattle, if you want to own, you are forced to allocate more towards housing, AND housing will likely not appreciate as quickly as in cities where prices came down by 50% plus…infact they may even slowly slide back towards affordability over a long period of time.
    Over 30 years, my prediction is, Seattlites will be underperforming the rest of the country when viewing their entire finance portfolio due to the boat anchor of high home prices in Seattle.

  53. 53

    RE: rational @ 49 – our Government is looking out for who they feel is the weakest and who needs protection…. those who made bad decisions with buying a home when they shouldn’t have (even though Congress was pounding their chest on offering more loan programs to people who could not qualify based on the “old standards”)… we all pay. Instead of rewarding the people who have been conservative and/or who have made smart decisions, folks who did not are bailed out. Some of these folks are victim to circumstance–maybe they’ve lost their job and they’ve ran out of their “emergency savings” … but I know many folks who bought homes, far more than they could afford, because they had little to no self control. Because of this, the Government will now decide and/or impact what loan programs a borrower can have.

  54. 54
    Ross says:

    Almost a year later, and there’s still a lot of denial in the air. Some fear and some desperation, but I think the various government interventions have caused us to tread water on making any progress towards overcorrection and actual financial opportunity.

    I know that you’re going to revisit this soon, but thought a comment in this older thread was interesting just for the look back that 11 months brings.

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