Case-Shiller Tiers: Low Tier Hammered in August

Let’s check out the three price tiers for the Seattle area, as measured by Case-Shiller. Remember, Case-Shiller’s “Seattle” data is based on single-family home repeat sales in King, Pierce, and Snohomish counties.

Note that the tiers are determined by sale volume. In other words, 1/3 of all sales fall into each tier. For more details on the tier methodologies, hit the full methodology pdf. Here are the current tier breakpoints:

  • Low Tier: < $263,188 (down 0.5%)
  • Mid Tier: $263,188 – $404,715
  • Hi Tier: > $404,715 (down slightly)

First up is the straight graph of the index from January 2000 through August 2010.

Case-Shiller Tiered Index - Seattle

Here’s a zoom-in, showing just the last year:

Case-Shiller Tiered Index - Seattle

After dropping off just slightly the first month after the expiration of the tax credit, the low tier was absolutely hammered in August. However, this month the home price drops were spread throughout all three tiers. The low tier dropped 2.0% MOM, the middle tier fell 1.4%, and the high tier decreased 0.4%.

Here’s a chart of the year-over-year change in the index from January 2003 through August 2010.

Case-Shiller HPI - YOY Change in Seattle Tiers

All three tiers fell further away from zero YOY change in August. Here’s where the tiers sit YOY as of August – Low: -5.3%, Med: -4.4%, Hi: -0.9%.

Lastly, here’s a decline-from-peak graph like the one posted this morning, but looking only at the Seattle tiers.

Case-Shiller: Decline from Peak - Seattle Tiers

At 25.0% off its peak value, the middle tier already hit a new post-peak low in August, while the low tier has fallen the furthest of the three at 28.8% off its peak value.

(Home Price Indices, Standard & Poor’s, 10.26.2010)

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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.

67 comments:

  1. 1

    Will Future New Home Sales Fill the Gap?

    Article in part:

    “…The Commerce Department says new home sales in September grew 6.6 percent from a month earlier to a seasonally adjusted annual sales pace of 307,000. Even with the increase, the past five months have been the worst for new home sales on records dating back to 1963….”

    http://news.yahoo.com/s/ap/20101027/ap_on_bi_go_ec_fi/us_new_home_sales

    And considering the Seattle population in 1963 was a fraction of today’s, using 1963 as the base year is pathetic and even a 7% month to month sales pace increase is a complete joke.

  2. 2
    Cheap South says:

    RE: softwarengineer @ 1
    It makes sense. Inventory is high; and it’s truly a miracle than in this RE environment, anyone goes out and builds a new home.

    And the comparison to 1963 makes no sense. The area had one major employer and plenty of desirable space to build. Not a valid comparison.

  3. 3
    neverabrogatedcommunity says:

    Not understanding the current data point on the zoom-in graph. Why is the aggregate greater than all 3 tiers?

  4. 4
    ARDELL says:

    Seems a moratorium on new construction would do more for the economy than a tax credit.

  5. 5
    The Tim says:

    RE: neverabrogatedcommunity @ 3 – Good question. Unfortunately, I don’t know the answer. That’s what the data from S&P/Case-Shiller says though.

  6. 6
    patient says:

    By ARDELL @ 4:

    Seems a moratorium on new construction would do more for the economy than a tax credit.

    You need to get over this idea that inflated home prices is good for the economy. It’s not, it is what caused the mess in the first place and continues to drain funds from the rest of the economy. We need much lower home prices so that people can have money left for other things. Sustainable, earned income money and not money from helocs, equity bubbles etc.

  7. 7

    RE: patient @ 6 – Not to mention the fact that less employment does not lead to a better economy.

    I will say I do think we would have been better off if government entities had not gone the route of approving tiny lots in subdivisions. I really fear what those neighborhoods will look like in 10-20 years.

  8. 8
    ARDELL says:

    Tim,

    You asked me (on twitter) for the data as to when the bubble started. Probably easier for me to use your data. Using the first graph “straight graph” I’m eyeballing it from the graph for speed, so these %s are approximate. Using the blue tier line:

    2000 to 2001 – 100 to 106 up 6%
    2001 to 2002 – 106 to 114 up 7.5%
    2002 to 2003 – 114 to 118 up 3.5%
    2003 to 2004 – 118 to 126 up 6.7%

    2004 to 2005 – 126 to 144 up 14.3% (beginning of “bubble”)
    2005 to 2006 – 144 to 172 up 19.4%
    2006 to 2007 – 172 to 195 up 13,4%

    1st half 2007 – 195 to 202 (end at tip of peak – Mayish 2007) (annualized rate 7%)
    peak to end of 2008 – 202 to 192 – (annualized rate 9.9%) aggregate down 2.9%

    2008 to 2009 – 192 to 160 down 16.6%
    2009 to 2010 – 160 to 150 down 6.2%

    Because down happens faster than up, the cycle historically (financial forecast vs Seattle’s reality) is 7 up, 3 down, as to years. The historical data for that is most of the country up 84 to 91, down 91 to 94, flat 94 to 98, up 98 to 2005.

    Because Seattle didn’t go into full upswing as early as 1998, we didn’t peak in 2005 like most of the Country. Parts of CA as example had prices double from 2001 to 2005. We didn’t see that here or 2005 would have been 212 vs 144.

    Back to our twitter conversation…zero down loans did not make it to Seattle until late 2003 and I’ll give you start of bubble as Jan 2004. How’s that for a compromise? I said mid 2005…you said 2000. Can we reach a compromise at Jan 2004 based on your data above? Your data is good enough for me.

  9. 9
    The Tim says:

    RE: ARDELL @ 8 – I see. So if you completely ignore all other economic factors such as rent, incomes, and employment and look only at the rate of increase in home prices, you can argue that the bubble did not start until 2004.

    Obviously I do not agree that it makes sense to analyze home prices in an economic vacuum like this.

  10. 10
    ARDELL says:

    RE: patient @ 6

    You need to get over the idea that buying a cheap brand new house is better for anyone except you. :)

    Oddly, I agree with your conclusion though. People do not want to spend as much of their gross income on a home these days, and I think that deserves a full study. Where once people were more than willing to spend 28% to 33% of gross income on housing payment…that does not seem to be the current desire of Americans. AND it (28% of gross) started when that was 28% of ONE salary…not TWO.

    That is a huge and current shift in the way people think…the same as two incomes needed to buy a house became a huge shift back in the last recession/recovery. People were pushed into needing 28% to 33% of TWO incomes per household to buy a home. I think it’s time for a major correction, not just on home prices, but on that whole line of thinking.

    It’s not as simple as merely prices coming down…it really is a full shift in the social dynamic.

  11. 11
    Cheap South says:

    RE: Kary L. Krismer @ 7

    I am not sure what you mean Kary. Small lots might go against Americana; but they do wonders for mass transit.

  12. 12
    ARDELL says:

    RE: The Tim @ 9

    The first thing I learned (kicking and screaming) at The Wharton School of Business was until you can study isolated economic impacts, as if they thrive in a vacuum, you cannot accurately produce valid economic conclusions. I agreed with you at the time, and wanted to punch that teacher in the eye…but…c’est la vie. There’s a reason he was the teacher and I was the student those many moons ago.

    When you analyze income, as example, you have to do that with LOAN amount…not home price. You also have to allow for the fact that not all homes are bought with zero or minimum down IF they are not. That is why Pierce and Snohomish Counties run more on an income model, than King. You have to isolate the factors to apply them accurately and geographically.

    From your personal perspective I would absolutely expect you to come at it from a zero to minimum down perspective. But an accurate analysis uses real data of real down paymjents, and the average per area. That results in the current reality and differential between Pierce, King and Snohomish Counties. It’s more about loan amount as a % of price than home prices…and is impacting home prices accordingly.

    I’m going to wait until end of October data is fully posted (around 11/10) to go deeper into zip code analysis. But right now…looking at roughly a 7% decline in 3 weeks is a huge indicator for me. It is no time to be looking back at what may have happened in August.

    August is yesterday’s news…in fact September seems to be yesterday’s news from what I am seeing month to date.

  13. 13
    Herman says:

    RE: ARDELL @ 8 – This reminds me of my system of betting the horses.

    If the horse’s name has a “C” in it, it usually wins. Unless the third letter is an “A”.

    I looked at 12 consecutive races that day, and came up with this system based on the results. It’s foolproof.

  14. 14
    LA Relo says:

    Housing should have declined when we had the dot.com recession in 2001-2002.

    But because Greenspan (my personal vote for the cause of the entire financial and housing meltdown) decided to slash interest rates housing became the next bubble spurned on by toxic loans and financial products that only worked in the fairytale world everyone pretended was a the new normal.

  15. 15
    ARDELL says:

    RE: LA Relo @ 14

    I’d agree with you…except…in Manhattan Beach, CA where cash is king (vs mortgage backed purchases) the prices did not go down, even through the stock market went down to the 7,000 range. There was a minor crisis for escrows in play…but no impact on prices generally until 2005. If interest rates were the prop up…that market, and most cash purchase dominant markets, would have gone down at the dot.com bust. But they didn’t.

    Did San Francisco prices drop in 2001? I don’t think so, but I don’t follow that market closely. It seemed to be doing very well a few months ago…better than it should be…

  16. 16
    ARDELL says:

    RE: Herman @ 13

    A formula for Seattle is tough. That formula worked perfectly in most of the Country. In fact back in 2004 appraisers got the heads up of an anticipated 2005 price drop (based on that formula – which is Greenspan’s not mine). It was an “appraiser advisory” that I saw firsthand, but is not “googleable”. Still…Seattle prices defied that big time, though most of the Country did not. The Banks paid no attention to it either, but they were warned as early as summer 2004. They made a business decision to ignore that advisory.

    I really don’t see a good working formula for Seattle…so we just have to stay on our toes. :)

  17. 17
    Scotsman says:

    RE: ARDELL @ 16

    Wine, more than a glass, with lunch today? Am I supposed to be using a decoder ring or something?

  18. 18
    ARDELL says:

    RE: Scotsman @ 17

    Nope, no wine. In fact I rarely drink at all. Maybe I should. To understand Comment 16 you have to have an Open Mind, and have read the previous comments, which are a follow to a discussion Tim and I were having on twitter.

    What part do you not “get”? Or are you just having fun poking at people with no substantive reason, as usual.

  19. 19
    Scotsman says:

    RE: ARDELL @ 18

    My fault, I’m sure. Remind me again which bottom this is that we’re currently experiencing- it gets so confusing trying to keep them all straight.

    Is it still a great time to buy?

    I’m going to start drinking- that should liven this place up, at least until I get banned. . . ;-)

  20. 20
    Fran Tarkenton says:

    RE: ARDELL @ 18 – Maybe he doesn’t get how someone who went to Wharton* thinks that there are 11 months in a year (https://seattlebubble.com/blog/2010/01/11/predictions-looking-into-the-crystal-ball-for-2010/#comment-91841).

    At this point, you’ve made more bottom calls than Steve Tytler has made predictions. If you’re going to combine that with frequent and unapologetic failures at math, you’re going to get razzed a bit.

    *How do you know someone went to any Ivy League school? He tells you.

  21. 21
    ray pepper says:

    RE: Scotsman @ 19

    Is it still a great time to buy?

    Yes, just not here though…Head South down to the markets that have been nailed 80%.

    The 300k homes that are now 60k I found far more enticing then anything I see Fridays at The Trustee sales as of late. Yet, I keep going watching the clowns bid these things up and try to sell them on the NWMLS.

    When the cost to build in 2010 is 3x your purchase price you found a GEM!

  22. 22
    One Eyed Man says:

    RE: ARDELL @ 8

    Before I rain crap on your parade Ardell, I’d like to say that I admire both you intellect and your productivity. But at times I think you are perhaps too impatient about reaching a conclusion. I also admire that you seem to be trying to “tell it like it is” for the benefit of your clients. Whether that was always your practice is irrelevant as I tend to ignore sunk costs and place a higher degree of importance on the principle of marginality (ie, the best use of the next dollar spent without regard to the past).

    In your comment, you said:

    “Because Seattle didn’t go into full upswing as early as 1998, we didn’t peak in 2005 like most of the Country. Parts of CA as example had prices double from 2001 to 2005. We didn’t see that here or 2005 would have been 212 vs 144.
    Back to our twitter conversation…zero down loans did not make it to Seattle until late 2003 and I’ll give you start of bubble as Jan 2004. How’s that for a compromise? I said mid 2005…”

    In January of 1997 the CS Index for Seattle was approx 74. In January of 2004 it was approx 124. Thats a total increase of over 65% and an average (non-compounded) increase of over 9% per year for 7 years. With all due respect, based upon long term historical norms (and also upon your 10 year cycle theory) we probably were above historic trend several years before January of 2004. The credit explosion starting in 2004 was a monumentous tribute to the inginuity of greedy financial capitalists and the stupidity of a market ruled largely by voracious animal spirits and inept public sector architects. It’s hard to believe that the Fed and the banking establishment could do that so soon after the S & L crisis. But as to whether the bubble started in 2001 or 2005, drinking a second bottle of tequila doesn’t mean that you weren’t drunk yet when you finished the first.

  23. 23
    Herman says:

    RE: Scotsman @ 19

    Here’s the way I read it:

    In March 2009 there was a bottom. Now we are at a new bottom. But the trends show that prices will fall through this (current) bottom to a new (future) bottom.

    So I think she’s cautioning against buying now, at this bottom. Because there will be an even lower bottom in six months.

  24. 24
    patient says:

    By Herman @ 23:

    RE: Scotsman @ 19

    Here’s the way I read it:

    In March 2009 there was a bottom. Now we are at a new bottom. But the trends show that prices will fall through this (current) bottom to a new (future) bottom.

    Is this an attempt to explain/defend the bottomless pile of crappy bottom calls? If so, it failed.

  25. 25
    Scotsman says:

    RE: Herman @ 23

    Thank you. Well done- no confusion, and only 5% of the verbiage. Now if we could only get One Eye to tighten it up. ;-)

  26. 26
    Scotsman says:

    RE: ray pepper @ 21

    Maybe, Ray. I personally think you’re early, and may be letting some of your current gems go in a year or two. They are only gems when held in the context of current wages. When those wages fall, when unemployment climbs, it’s a new calculation.

    I know where I can buy a nice 65′ classic yacht that would have brought $250K 3 years ago for $59K. Is that a “gem?” Here’s the deal- it costs $700 a month just to keep it in the water, let alone fuel and insurance. How much longer until the owner is willing to just give it away to escape the holding costs?

    If, as you often proclaim in regard to homes, “they are all coming back,” at what point will people and banks just pretty much give them away to escape the holding costs and move on? Wouldn’t that be the time to scoop up the true gems?

  27. 27
    Herman says:

    RE: One Eyed Man @ 22 – I too admire Ardell for getting herself out there and working, and I think genuinely trying to help her clients.

    Unfortunately I think she’s living proof of Kary’s message that an RE Broker should not also try to be an RE Analyst. It’s easy for an RE Broker to assume that she’d also be a good analyst, I mean, they see a lot of houses and a lot of data. But they are systemically hindered:

    – Skillset. Analysis is a much different skill than agency. Agency is like a combination of law, administration, and tupperware party hosting. Analysis is all about mathematics, economics, and intellectual debate. Totally different.

    – Conflict of Interest. The RE Broker has a vested interest in the conclusions. It is too hard to self-police and eliminate that bias.

    – Scale. The RE Broker is often exposed to the RE at a micro-level, such as how much traffic she got at her last open house. This can bias their view of the broader data and lead to nonsensical statements like “RE is hyper-local”.

    Kary is right. You have to make up your own macro-conclusions as to whether this is a good time to buy, without asking an RE Broker. Once you have, then a Broker can help you find a good house and take you through the negotiation.

    If they had stuck to Kary’s point of view, they would be blameless in the housing bubble. Unfortunately many of them became cheerleaders and influenced their clients with unhealthy predictions.

  28. 28
    One Eyed Man says:

    RE: Herman @ 27

    I agree Herman. But almost every client is going to want to know what their broker thinks of the market at some point in the relationship. And a closing line based upon the risk of lost opportunity is really tough for any hungry commissioned salesperson to give up.

    But they do need to learn the time an place for presentation of persuasive market analysis. Its generally not right to use it to manipulate your own client. But you should have it in your tool chest to use on the other broker and their client. I suspect Kary become a formidable market analyst in that context.

  29. 29
    One Eyed Man says:

    RE: Scotsman @ 25

    Ya, OK. But the fact you brought it up pisses me off even more than spelling!

  30. 30
    S. Marty Pantz says:

    By Kary L. Krismer @ 7:

    RE: patient @ 6
    I will say I do think we would have been better off if government entities had not gone the route of approving tiny lots in subdivisions. I really fear what those neighborhoods will look like in 10-20 years.

    The kids of today and tomorrow may not have the pleasure I did as a kid of playing on front yards and riding a bike down alleys.

  31. 31
    DrShort says:

    By patient @ 24:

    Is this an attempt to explain/defend the bottomless pile of crappy bottom calls? If so, it failed.

    No, I think it was simple marketing. Make some bold claims based on insider, non-public data and get the phone to ring.

  32. 32
    Herman says:

    RE: One Eyed Man @ 22

    I’ll go on record saying that Seattle’s baseline is 2003 (dot-com bust). The right, durable value of Seattle housing is C-S 2003, inflation-adjusted to today. Skim a few more points off due to heightened unemployment and worse post-bubble conditions vs. 2003. But if you’re buying for the long term and think the post-bubble depression will wear off in 5 years, then inflation-adjusted 2003 is a price you can feel good about.

    I think the 1997-2003 increases were due to long-term structural changes in Seattle’s economy that will last for decades.

    I wish there were an area of the blog where I could formally post my opinion for posterity and/or mockery.

  33. 33
    GrizzlyBear says:

    By ray pepper @ 21:

    RE: Scotsman @ 19

    Is it still a great time to buy?

    Yes, just not here though…Head South down to the markets that have been nailed 80%.

    The 300k homes that are now 60k I found far more enticing then anything I see Fridays at The Trustee sales as of late. Yet, I keep going watching the clowns bid these things up and try to sell them on the NWMLS.

    When the cost to build in 2010 is 3x your purchase price you found a GEM!

    One of the biggest mistakes an “investor” can make is to compare today’s purchase price with the bubble peak in order to determine if it’s a “deal.”

    I’ve got news for those going down “south” to snatch up $65k homes in Fernley, NV which were selling for $300k at the peak. Historically speaking, there’s nothing exciting about a $65k house in a backwater farm town with no jobs in the middle of the desert, and 45 miles away from any decent shopping. Even worse, the official unemployment rate is approaching 20%, and the overbuilding was of epidemic proportions. The glut of both houses for sale as well as infestor rentals is mammoth.

    I wouldn’t even want to own a house in Fernley at any price. The “pros” are getting 2% cash on cash on their flips, if they’re lucky, and the rest are getting crucified.

  34. 34
    Scotsman says:

    RE: One Eyed Man @ 29

    Nice! “Pithy.”

  35. 35
    Jillayne says:

    @ardell comment #8 “zero down loans did not make it to Seattle until late 2003”

    Zero down loans were absolutely here in Seattle as early as 2001 and maybe earlier. People had to have a decent credit score and then it was an easy 80/20 loan for a home purchase. Happened every day here in Seattle from 2000 onward.

  36. 36
    David Losh says:

    OK, I went through all the comments, and it is a clear cluster.

    Banking laws changed in 1998, stock market bust 2000, 9/11, and George Junior wanted to energize the economy. That could explain it, but it happened globally.

    Every country has new found wealth in construction of carpy housing units that are financed to the hilt for at least 30% more than any reasonable value. In many cases the price to buy a housing unit tripled since 1995, globally.

    You can continue to talk bottom calls, or decline from peak, but Real Estate has a value. Real Estate never changes. You buy it, pay it off, or move on to the next one when this one cash flows.

    Real Estate is as simple as Monopoly, and the game hasn’t changed in a thousand years. Buy what you can afford to pay off, that’s how it works.

  37. 37
    David Losh says:

    RE: Jillayne @ 35

    I put a down payment on my first house in 1984, never since.

  38. 38
    DrShort says:

    By Jillayne @ 35:

    Zero down loans were absolutely here in Seattle as early as 2001 and maybe earlier. People had to have a decent credit score and then it was an easy 80/20 loan for a home purchase. Happened every day here in Seattle from 2000 onward.

    I did an 80/15/5 in 1999.

  39. 39
    daz says:

    RE: Herman @ 32 – Can you elaborate on “I think the 1997-2003 increases were due to long-term structural changes in Seattle’s economy that will last for decades” ?

  40. 40
    Jillayne says:

    Dr. Short I forgot about the 80/15/5s. Of course!

  41. 41
    Lurker says:

    RE: daz @ 39

    Perhaps he means Microsoft, Amazon & Starbucks (to name a few)

  42. 42
    The Tim says:

    RE: daz @ 39 – I can’t speak for Herman, but if you look at the third chart on my recent home prices and incomes post you can see that per capita income increases could potentially explain a portion of the seemingly unusual increase in home prices from 1997 through 2000. However, beginning in 2001 home price gains even began to outpace per capita income for the area, so I’m not sure why Herman included 2001-2003 in there.

  43. 43
    DrShort says:

    RE: Lurker @ 41

    There’s also the supposedly huge impact of the Growth Management Act of 1990.

    http://seattletimes.nwsource.com/html/businesstechnology/2004181704_eicher14.html

  44. 44
    DrShort says:

    RE: The Tim @ 42

    But if you look at your affordability graph, things didn’t get out of line until 2004.

  45. 45
    The Tim says:

    RE: DrShort @ 43 – “Supposedly” being the key word there. We’ve discussed that topic a few times on here:

    RE: DrShort @ 44 – Yes, the policy of dropping interest rates so aggressively in the wake of the dot-com bust in 2001 kept affordability in check for a while, but that doesn’t mean the bubble wasn’t already forming.

  46. 46
    drshort says:

    RE: The Tim @ 45

    Somewhat off topic, but related….

    King and Snohomish counties have roughly the same median household incomes yet Snohomish has a median house price 30% less than King. And Snohomish prices have been dropping fasting than King despite a much higher “affordability.” Why do you think that is?

  47. 47
    ARDELL says:

    Unfortunately, searching for zero down loans is a tedious process, as I have to open each file detail to see the mortgage amount. I have done this more than once and have not found any zero down loans that early back. I just checked again and do see a few that are close to 100% and I do see an inordinate amount of seller carry seconds, but not to full purchase price value.

    I see no evidence of zero downs done “every day” until late 2003 in the Seattle area. There is no way to do a broad search, as mortgage amount against sale price is not a search field. But I can tell you having looked at file after file, that zero down activity does not appear to be a common scenario until late 2003. Given we didn’t hit double digit price increases until 2004, that seems to be a valid conclusion.

    What I do see are people refinancing well after their 2000 and 2001 purchases to a mortgage amount that is today under water. But those cash out top heavy refinances are fairly recent.

  48. 48
    The Tim says:

    RE: drshort @ 46 – Hmm. Good question. I’ll dig into that and probably turn it into a future post.

  49. 49
    The Tim says:

    By ARDELL @ 47:

    Unfortunately, searching for zero down loans is a tedious process, as I have to open each file detail to see the mortgage amount. I have done this more than once and have not found any zero down loans that early back. I just checked again and do see a few that are close to 100% and I do see an inordinate amount of seller carry seconds, but not to full purchase price value.

    From a random look at the Lynnwood area…

    • 18922 66th Pl W – Sold 1/31/2000 for $160,000 – Loan: $160,000
    • 6909 192nd St SW – Sold 3/31/2000 for $194,172 – Loan: $214,600
    • 6305 Park Way – Sold 4/21/2000 for $125,449 – Loan: $141,620

    Note that those second two are over 100%. This took me all of about five minutes to find and I’m only looking at sales in one little neighborhood in Lynnwood. I’m going with Jillayne on this one for sure.

  50. 50
    Scotsman says:

    RE: drshort @ 46

    Wealth effects.

    My guess would be more Microsoft, Amazon, Starbucks, etc. employees live in King than Snohomish counties, and they add stock option money not counted in income to their purchasing power. There’s obviously a big difference between those living paycheck to paycheck and purchasing homes, and those purchasing in part with either stock money or carrying forward established equity also originally purchased with stock money. My guess is income statistics miss this consideration.

  51. 51
    ray pepper says:

    RE: GrizzlyBear @ 33

    Agreed. I don’t like Fernley either although the AMZN distribution Center upon last check is rockin. But, I will take my chances on 60k in Dayton. My family lives there and once again the cost to build the same home I just bought for my sister is about 180k.

    I’m looking for more but in just one particular development. Scotsman I may be early but all the comparables are going at 95k via shortsale. I say I’m about 25k ahead of the game in 2010. I hope by 2015 I can say the same or better but either way I’m getting 800 a month, providing a house to sis, and after taxes and ins still making a 10%+ rtn on inv.

    I’ll take those #’s everyday.

  52. 52
    Herman says:

    RE: Scotsman @ 50RE: The Tim @ 42RE: Lurker @ 41RE: daz @ 39

    You’re all right, and more. The dot-com wave washed over this city from 1997-2001. During that time tech had a substantial impact on Seattle’s economy. By 2001 tech was here to stay. SBUX is not tech, but was started by a tech guy with tech money.

    Tech brought a lot of that income growth that you see that plateaus in 2001 (start of crash). Scotsman is right, tech pays employees partly in stock options which are a measurable form of wealth that is not included in income.

    By The Tim @ 42:

    However, beginning in 2001 home price gains even began to outpace per capita income for the area, so I’m not sure why Herman included 2001-2003 in there.

    The overshoot was due to the usual trend of housing to lag everything else. It’s sustainable because the capital that was driving up housing prices was coming from hard money and not exclusively coming from income.

    A lot of it was brought up from California. Tech brought a big wave of transplants up here. As a group they sold out of their expensive CA homes and brought a ton of equity, giving them cash to bid up prices that is not accounted for in income.

    Outside investment is not measured as income, but it can drive up prices. More cash flowed into Seattle than just what made it’s way into paychecks, and some of that went into driving up the quality of the residential stock in the form of teardowns, making the underlying asset more valuable without actually increasing supply.

    I would wager that plenty of local paycheck money was being spent on improving the quality of the housing stock here as well. Remodels and additions were happening all over the city, at a greater pace than the usual steady-state maintenance of the housing. New construction had to compete with the better stock, meaning higher construction and replacement costs that justify the values with real fundamentals.

    Some of those trends drove on until 2005. But after 2003 the fundamentals-driven growth tapered off and was replaced by the effects of cheap money and lax lending standards. With slower tech growth the CA migration slowed; and local investments were being financed with local debts.

    I’m pulling this out of my ass with no proof or research, but it’s my story and I’m sticking to it.

  53. 53
    Herman says:

    Duplicate.

  54. 54
    David Losh says:

    Wait a minute, the low tier is at $260K. That’s a lot.

    Interest rates, and easy mortgage money doesn’t change the fact that in 1994, even to 1996, I could comfortably buy a house, if a bank would lend me money. In 2000, and 2001 I could still comfortably buy a house, at a 30% increase in price, and banks were handing out loans like candy. There were some hoops, but ultimately, if you were patient, a loan originator would find you a loan you could live with.

    What no one seems to want to look at is that Microsoft, Starbucks, and Amazon are global corporations. Nintendo, I think, is, or was, a Japanese corporation. When we talk about the velocity of money we should be talking globally.

    Using the same concept of some one coming here from California to buy, people bought into the United States, and still are.

    The money, the equity, the price of housing units, or commercial property has been spent. Securities have been bought sold, and traded, and that money is gone. That cash that was generated by a global banking, securities, and financial market scheme, for lack of a better term, is in reserves, in cash, and in my opinion there is a lot of it.

    Every one who is paying on a mortgage, paying on a credit card, or paying insurance premiums, is just feeding fat cash reserves. What the global market wants now is for the assets to come in line with the value of the Real Estate.

    What will your house rent for, really, I mean seriously, when all properties are on the market? What will a commercial space rent for, given location, and a future economy based on stable manufacturing of sustainable goods? That’s all you have to look at.

  55. 55
    Ahau says:

    RE: drshort @ 46 – I can only speak for myself, but my experience may be indicative of a trend.

    I’ve been a renter since graduating college, working in Bellevue and living in Issaquah. After having a child, we wanted to get out of the apartment complex and buy a home. I was looking around (casually, no agents involved) in Kittitas, Snohomish, and even Skagit County, looking for homes that were affordable. I planned on buying a second car and commuting in to Bellevue. When home prices began declining, I stepped back and waited.

    Early this year, I saw what appeared to be the beginnings of price stability (yes, I am starting to realize that I could have mis-timed the market—but at least I didn’t buy in ’07!), and now townhomes in Issaquah were within my price range, rather than just condos. My wife and I decided that we would rather live in a town home in Issaquah where I could bus in to work than buying a SFR in Mount Vernon.

    I don’t have numbers to back up this statement, but I believe the ratio of jobs to homes is higher in King County than Snohomish. If people can afford to live closer to their work and social lives without compromising the quality of their lifestyle, they will.

  56. 56

    RE: Herman @ 27 – Thank you for all that, but to that I would add that real estate agents are completely unqualified to make predictions and simply don’t have the time it would take to assess and collect data to make even bad predictions (that assumes consistently good predictions are possible, which I don’t think is the case.)

  57. 57

    By One Eyed Man @ 28:

    RE: Herman @ 27
    I agree Herman. But almost every client is going to want to know what their broker thinks of the market at some point in the relationship. . . .

    I suspect Kary become a formidable market analyst in that context.

    I’m not sure what you mean by the last comment, but when I get a question of the first type my response is: “No one knows.”

    As a lawyer, you might be able to appreciate the need to often answer your clients: “I don’t know.” As an attorney you can add: “But I can look into it.” That’s much better than what some attorneys do–making up an answer. Anyway, because of my attorney background I’m very comfortable telling clients I don’t know what I don’t know, rather than pretending I do.

  58. 58

    By drshort @ 46:

    RE: The Tim @ 45

    Somewhat off topic, but related….

    King and Snohomish counties have roughly the same median household incomes yet Snohomish has a median house price 30% less than King. And Snohomish prices have been dropping fasting than King despite a much higher “affordability.” Why do you think that is?

    Well first, it could be because median income has little to do with median price, but I would suspect it’s because there was more room to build in more places in Snohomish County, and thus currently more supply.

  59. 59
    One Eyed Man says:

    RE: Kary L. Krismer @ 57

    The second statement mentioning you in my comment was not an assumption that you hold yourself out to your client as an expert as to market direction. It was my assumption that in the advocacy role in negotiations with the opposing party concerning price you could argue issues of market trend when appropriate. I assume that when statistics and market trend are in your clients favor, you present an argument to the other party’s broker explaining to them why their price position is too high or too low. That advocacy on behalf of your client doesn’t involve any conflict of interest or overstatement of your expertise to your client even though it may include argument based upon market direction.

    The analogy in law would be that in your roll as advisor to your client you tell the client where appropriate that the issue of law is in fact unsettled or subject to interpretation. But when arguing the issue in negotiation with the other attorney or before the court, you assume the roll of expert whose opinion on the issue should be respected and followed.

  60. 60

    RE: One Eyed Man @ 59 – Thank you for that explanation. Very good.

  61. 61
    David Losh says:

    RE: Kary L. Krismer @ 56

    “real estate agents are completely unqualified to make predictions and simply don’t have the time it would take to assess and collect data to make even bad predictions”

    That statement is so untrue that it should be called out. There are Real Estate agents who make a living by knowing the Real Estate market place. The Real Estate market place is set in stone. It has been for a thousand years, and will continue to be a hedge against inflation.

    Just because the Real Estate market place, globally, got over priced for the benefit of banking, and the financial markets, doesn’t change the Real Estate market place. It is the same today as it was twenty, thirty, and forty years ago.

    In that way, and from that perspective, all you have to do is look at inflation. The trick today is sorting out credit, from inflation.

    I’m pretty sure that by now every one can agree that credit has been over used, and will be regulated much more closely. That just leaves inflation.

  62. 62

    By David Losh @ 61:

    RE: Kary L. Krismer @ 56

    “real estate agents are completely unqualified to make predictions and simply donâ��t have the time it would take to assess and collect data to make even bad predictions”

    That statement is so untrue that it should be called out.

    I seldom speak in absolutes. In this case I purposefully left out any modifiers, such as “most real estate agents” because I purposefully meant NO real estate agents are qualified. I continue to believe it should be an ethical violation, if not a licensing violation, for an agent to purport to be able to predict the future.

  63. 63

    By David Losh @ 61:

    The Real Estate market place is set in stone. It has been for a thousand years, and will continue to be a hedge against inflation.

    Speaking of statements that are so untrue they should be called out. ;-)

  64. 64
    David Losh says:

    RE: Kary L. Krismer @ 62RE: Kary L. Krismer @ 63

    The price of a housing unit is tied to the Consumer Price Index, but not a part of that Index for the specific reason that housing is subjective. Aside from a personal intrinsic value to a buyer Real Estate has a core value that is a constant.

  65. 65
    Jonness says:

    By ARDELL @ 12:

    I’m going to wait until end of October data is fully posted (around 11/10) to go deeper into zip code analysis. But right now…looking at roughly a 7% decline in 3 weeks is a huge indicator for me. It is no time to be looking back at what may have happened in August.

    I haven’t ran the recent data as you have, but I’m noticing the same thing on the ground. REO’s are starting to hit as well, which will have an additional negative affect on prices as owners compete with the banks for a sparse buyer pool. Of course, the REO inventory could dry up due to the paperwork problem, but for now it seems to be alive and well in our state. I predict by the time we get back to steady 2003 prices in general, people are going to be downright fearful of buying anything. This will continue to reinforce the Vegas-like “cyclical” downward effect on the market, but I don’t believe Seattle will fall to the lows of Vegas. It will be ugly here though.

    Some extraordinary buying opportunities await out on the horizon, but we are not there yet. When we finally get there, those who waited and saved up cash will be justly rewarded for their patience.

    On the flip side, the bubble believers who thought they would pull their home off the market for a short period in order to sell later at a higher price will continue to get slaughtered.

  66. 66
    BillE says:

    By Jonness @ 65:

    Some extraordinary buying opportunities await out on the horizon, but we are not there yet. When we finally get there, those who waited and saved up cash will be justly rewarded for their patience.

    On the flip side, the bubble believers who thought they would pull their home off the market for a short period in order to sell later at a higher price will continue to get slaughtered.

    Excellent post, as usual. As long as prices are trending down, you can’t go wrong with stacking up cash. Bubble prices mean nothing.

  67. 67
    wreckingbull says:

    RE: BillE @ 66 – I agree. I’d like to add one thing from recent personal experience. Even though you are waiting, be ready. I used to chuckle a bit at Ray with his ‘gem’ talk, but I now see his point. At some point, as you slog though the endless stream of crappy, overpriced listings, you may find yourself stumbling over something rather striking. Maybe it is the property itself, maybe it is the motivation of the seller, maybe it is a combination of many things.

    I’m not like some others who post the ‘ooh look at me’ stories about home purchases, so I am not going to go into much more detail, but from a grumpy bubble sitter who assumed I’d be buying in 2014…just be ready. You may find that some sellers are far more motivated than they appear on paper.

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