Mid-Week Open Thread (2011-01-19)

Here is your open thread for the mid-week on January 19th, 2011. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

Be sure to also check out the forums, and get your word in the user-driven discussions there!

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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.

35 comments:

  1. 1
  2. 2
    jimmythev says:

    Question for the board… does anyone know what the average construction cost/sqf is in King County? I’ve found a house in FinHill that is new, very nice high end finishes for $187/sqf. I think another builder bought the development from the bank after the first builder went under. At $187/sqf, it’s much cheaper than older houses selling in the same area… any thoughts on this? Tim, do you have any stats on price/sqf in different areas of King/Snohomish/Kitsap counties?

  3. 3
  4. 4

    RE: Chris @ 1

    Typical RE Analysis IMO

    Lots of mainstream assumptions loaded in:

    Medium Household Income= Top 5% TOTALLY skewing bottom 95%.
    U3 unemployment only half the problem.
    No chart on current loan qualification tightening, especially if government motors Fannie/Freddie get butcher axed this year from subsidies.

    IMO, the biggest hole in the typical mainstream RE analysis is that a bottoming out will occur soon….how many years in a row have we heard Peter cry wolf on that wild allegation lately?

  5. 5

    RE: jimmythev @ 2

    New Homes Are Built on a 70% Learning Curve

    This means that everytime we double the new units built [i.e., Unit Group A and Unit Group B], the Unit Group B costs 70% per SF less than Unit Group A. That’s why new home builders keep building, even during Great Recessions, on follow-on like cookie cutter groups.

    Another way to lower costs per SF drastically is become your own contractor, your costs will decrease at least 50%. There’s risk here, but plenty of risk hiring legal [????] contractors with workers that can’t speak English too…LOL

  6. 6
    D. in Ballard says:

    I read the MyBallard forums. This guy has started a few topics trying to sell his Sunset Hill home. I can’t tell you if it’s a good price or if it will sell, but let’s put it this way: I wouldn’t buy it. What’s really interesting is all the neighbors that come to defend a price when they are not even interested in buying a house period. This is a weird phenomenon, no? Why do people so uninvolved care about a propped up housing market?

    http://www.myballard.com/forum/topic.php?id=9002

  7. 7
    WestSideBilly says:

    RE: D. in Ballard @ 6 – $450k for a small starter home on a tiny lot with minimal views? Ugh…

    Not sure why the neighbors are defending the price other than to rationalize what they paid for their similar property.

  8. 8
    Snigliastic says:

    This was discussed earlier this week, but I was hoping for more information:

    Currently, the supply of housing on the market is really bad. Crap design, next to semi-major roads, bad maintenance. I would like to buy in the next six months, but the quality of available housing sucks.

    This is typical of January? If so, when should I expect to see better houses come on the market? Looking in Snohomish County.

  9. 9

    RE: Snigliastic @ 8

    It’s a Conundrum IMO

    We need equity increases for ATM cash from housing units to upkeep them IMO, as I see personal savings [especially the owners with high mortgage payments] to fix up the homes lately as a complete joke.

    Don’t look for a quick turn-around on existing housing quality either, IMO, its gonna get FAR worse with time.

  10. 10
    Betsy says:

    RE: D. in Ballard @ 6 – Oh myballard forum, how you annoy me. I especially like comments like this that dig into renters:

    “Of course a house is an investment, and a tax break, and a good place to channel money that you’d be spending otherwise on rent! I grew up in a place where housing costs about twice what it does in Seattle, and you know what happened to all the “just roof over your head” and “not at these prices” sour-grapers? They got poorer.”

    I certainly haven’t become poorer but probably best to hold my tongue with this crowd.

  11. 11
    The Tim says:

    RE: Betsy @ 10 – Hah! That is some seriously amusing stuff. Poor, poor, renters. HOW DOES IT FEEL TO GET POORER EVERY DAY?!?

  12. 12

    RE: The Tim @ 11

    LOL Tim

    Even as the Titanic was sinking and everyone was going down with the ship; I’m sure the ones that bought upper tier rooms were somehow spared…LOL

  13. 13
    redmondjp says:

    RE: Snigliastic @ 8 – Just wait a few months and you’ll see the inventory go up as the spring selling season starts – you don’t see many snow shovels or ice scrapers on the shelves in July either, you just have to wait a few months.

  14. 14
    EconE says:

    RE: D. in Ballard @ 6

    I’m seeing the same bulls#it that I saw in 2006.

    “They’re not making anymore land”

    “Start with a condo and build equity”

    I think that the reason that so many owners get so hot and bothered is that they all have their heads in the HELOC guillotine. Wasn’t it something like 60% of every dollars worth of bubble “appreciation” that was borrowed?

  15. 15

    On King5 News tonight they tried to explain how jobs could be created in Washington and the unemployment rate go up. They didn’t get the explanation right.

  16. 16
    TheHulk says:

    RE: Kary L. Krismer @ 15

    Wait, in what universe would that be actually possible? I am not taking into account the horrible govt statistics. They certainly arent the best out there, but it is the best we have. Ugh.

  17. 17
    Scotsman says:

    “The Eight States Running Out Of Home Buyers” Interesting analysis. Oregon is number 7 on the list.

    http://247wallst.com/2011/01/17/the-eight-states-running-out-of-homebuyers/

  18. 18
    Cheap South says:

    By TheHulk @ 16:

    RE: Kary L. Krismer @ 15

    Wait, in what universe would that be actually possible? I am not taking into account the horrible govt statistics. They certainly arent the best out there, but it is the best we have. Ugh.

    You have to take into account gov statistics for the phenomenon to happen. As the economy adds jobs (as it has been happening), more people that had disappeared from the official stats (under “stopped looking”) will pop up again (statistically) as they start their search again, keeping the official unemployment at roughly the same levels (or potentially higher).

    Now, the unofficial unemployment (16-17%) that counts everyone, will have to go down if indeed the economy is adding jobs.

  19. 19

    RE: Cheap South @ 18 – Right, but that wasn’t their explanation. Their explanation was that the numbers are determined independently (almost certainly true) and that each as a margin of error (again, almost certainly true.). But your explanation is much better than theirs.

  20. 20
    Mel J. says:

    What drives your property tax assessments? What do you think of this?

    I was just informed by my local assessor’s office that “following state guidelines” they do not factor in properties sold by Bargain and Sale Deed when determining the assessed value of properties in your neighborhood or the county.

    Even though properties sold in this manner are driving down sale prices in the currrent market and even though a great number of sales are currently in Bargain and Sale Deed form, assessors have elected “following state guidelines” to ignore this substantial factor, even though it has the effect of misrepresenting and overstating local property values.

    They are aware it results in false, overstated values! And, they are aware that in areas with higher numbers of properties sold by Bargain and Sale Deeds, it results in higher property taxes being paid versus property taxes being paid in less depressed real estate areas.

    It distorts the true picture of relative property valuations. It results in taxes being assessed that are not supported by actual market sales.

  21. 21
    Mel J. says:

    Tim, a question…

    When I tried to use the local Assessor’s database of sales to find comp sales in my area, none of the properties sold by Bargain and Sale Deed pulled up.

    So my question is this: When we get average sale prices in an area from you (or from our local realtor), do those prices reflect and incorporate sales made by Bargain and Sale Deed? If not, why not? If these sales exist and are driving the market, shouldn’t they be factored in before making an informed offer on a piece of real estate?

    If comp sales do not include Bargain and Sale Deed sales, doesn’t that have the effect of overstating property values?

    So, do your graphs of sale price include these sales? If they do, great. If not, could you supply graphs and figures that incorporate this significant factor? Thanks.

  22. 22

    RE: Mel J. @ 20 – Well first, it doesn’t matter because the assessment just determines your share with respect to your neighbors, not the total tax paid. So if everyone is assessed in the same manner, it doesn’t affect the percentage share that you pay. (This ignores special items that might be assessed on a $0.XX per $1,000 basis, like fire districts).

    Second, those “bargain and sale” properties are not in the same condition and don’t come with the same warranties as other sales. For the most part the assessor doesn’t really take condition into account, but they can assume that if you were going to sell your place you would try to put it in marketable condition and that you would offer the normal warranties.

    Third, they really need some way of determining whether a transaction is an arm’s length transaction, and excluding things like bargain and sale and quit claim deeds is probably an easy way to do that.

  23. 23

    RE: Mel J. @ 21 – Now this is a totally different question. I don’t know what you mean by getting an average from Tim, but when you get sales data from an agent it’s most likely data from the NWMLS. That means it could include REOs and short sales, but that it would exclude some warranty deed sales and probably most quit claim deed sales. The agent may or may not have included short sales and REOs in their data. Whether or not they did so could depend on whether or not your in the market for a REO or short sale. If you’re not, then those prices don’t really matter because the sellers of non-REO and short sale properties do not have to accept such prices unless the market in their area is totally dominated by such sales. When I did my piece on how much have prices really declined, only one of the four types picked had a significant number of short sales/REOs, and that was because of the age of the house restriction (built after 2006).

    Edit: Here’s the link to that piece: http://blog.seattlepi.com/realestate/archives/228347.asp

  24. 24

    RE: Mel J. @ 21 – One more thing. When you’re trying to value a property you don’t value it based on any type of “average value for an area,” or even the average value of a specific house type in a specific neighborhood. You find comps and then adjust from there. In finding the comps you need to determine whether or not to include the short sales and REOs.

  25. 25
    Mel J. says:

    Mel, I must disagree with part of your conclusion.

    1. Yes, within a neighborhood with high population density, it might have minimal impact. However, in some of the assessor’s “neighborhood” designations where population density is significantly lower than in highly concentrated city neighborhoods, it could have a very large localized effect on the property taxes one pays. My assessment, in an immediate area of a significant number of lower sales prices (Bargain and Sales Deeds) should reflect those lower sales prices or the assessed value of my property will result in a higher assessment and higher property taxes than within the assessor’s “neighborhood” designation 4 miles away.

    Also, when comparing one neighborhood to another, it could unfairly and dramatically skew relative property taxes assessed and paid. Why should your neighborhood visa vie another neighborhood pay more just because the assessor failed to include “all’ sales.

    2. What you’ve said implies lack of marketability associated with Bargain and Sale Deeds. Yet, the more important determinant is the coverage of one’s title insurance policy provided at sale. With very few exceptions, properties sold in Washington with Bargain and Sale Deeds are every bit as marketable as with Warranty deeds as long as adequate title insurance has been purchased.

    3. Are you really putting bargain and Sale Deeds in the same class as Quit Claim Deeds? There is a world of difference. And, are you really implying that any significant number of Bargain and Sale Deed sales aren’t arms length transactions? In most cases the buyers and sellers in these transactions have no connection whatsoever and negotiate the sales back and forth like any other sale transaction. We end up with willing buyer and willing seller completing arms length negotiated sales.

  26. 26

    RE: Mel J. @ 25 – As to the first point, what I’m getting at is real estate taxes are relative. If everyone’s assessment was halved, that wouldn’t result in 50% lower taxes for everyone (again, excluding things like assessments for fire districts). If you do happen to live in a neighborhood which is dominated by short sales and REOs, then the prices of other sales in that area should follow down, so you would get the benefit. If the sales in the area are not so dominated, then those other lower priced sales don’t matter because you should still be able to sell at the higher non-REO/Short sale price.

    As to the types of deeds what I’m assuming is that bargain and sale deeds are REOs (or other atypical sales), and quit claims other non-listed sales, perhaps between family member. Short sales would tend to be warranty deed transactions. Thus, I’m not really attributing any real value to the warranties in the warranty deed, but instead making an assumption that transactions using those other type of deeds are not your typical transaction.

  27. 27

    There Was Fear Today That China Would Increase Interest Rates

    Welllllllll……10 year federal bonds rose 0.1% today to 3.5% and guess what, 30 year mortgage rates rose .03% to 4.74%…..trends are just today’s, but even the $600B QEC2 treasury buy-offs can’t stop the bleeding.

    I also hear Brazil upped their interest rates to 11.5%.

    Just keep the cash printing presses rolling and we’ll see more of the same, IMO.

  28. 28
    bob says:

    So Business Insider is doing one of the lists based on some Zillow work. It says that Price-Income ratio is 117% over norm for Seattle. Does this pass the sniff test? Look at other cities on the list

    http://www.businessinsider.com/worst-cities-to-buy-a-home-2011-1?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+businessinsider+(Business+Insider)#5-seattle-washington-9

  29. 29
    pfft says:

    By softwarengineer @ 27:

    There Was Fear Today That China Would Increase Interest Rates

    Welllllllll……10 year federal bonds rose 0.1% today to 3.5% and guess what, 30 year mortgage rates rose .03% to 4.74%…..trends are just today’s, but even the $600B QEC2 treasury buy-offs can’t stop the bleeding.

    I also hear Brazil upped their interest rates to 11.5%.

    Just keep the cash printing presses rolling and we’ll see more of the same, IMO.

    bonds are going up because people are buying risk assets because the economy is recovering. economy tanks and yields go lower. economy recovers and yields go up. next.

  30. 30
    Cheap South says:

    RE: pfft @ 29

    I would like to add that we are due for a correction (normal after the run we had).

  31. 31
    Cheap South says:

    RE: bob @ 28

    I generally hate these lists. Of course, I love this one. But that 117% number looks awfully high. It would put the median priced Seattle home at about $170K. I am sure Tim knows when was the last time homes hit that median.

  32. 32
    pfft says:

    By Cheap South @ 30:

    RE: pfft @ 29

    I would like to add that we are due for a correction (normal after the run we had).

    I think commodities might be in for a big correction. food inflation is all over the news. never heard so much about grains since 2008.

  33. 33
    Pegasus says:

    RE: pfft @ 32 – But you said it was all real demand….did you lie again?

  34. 34
    pfft says:

    By Pegasus @ 33:

    RE: pfft @ 32 – But you said it was all real demand….did you lie again?

    lie again huh?

    there is real demand but prices can always get ahead or fall too low. I think I read some 40% of futures is just pure hedging. commodities and specifically grains has gotten too much press lately.

  35. 35
    Cheap South says:

    RE: pfft @ 32

    Australian floods have messed coal production; but I have not heard anything about their crops.

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