Leafy bubble by Martin Thomas, on Flickr

April Reporting Roundup: “You Should Buy Now” Edition

Leafy bubble by Martin Thomas, on Flickr

It’s time once again for the monthly reporting roundup, where you can read my wry commentary about the news instead of subjecting yourself to boring rehashes of the NWMLS press release (or in addition to, if that’s what floats your boat).

To kick things off, here’s an excerpt from the NWMLS press release:

Northwest Multiple Listing Service members notched a record high level of pending sales during April, surpassing the year-ago volume by nearly 1,800 transactions. Both closed sales and prices also surged last month as the spring market kicked into high gear.

Within the four county region, Pierce County experienced a jump of nearly 38 percent in closed sales compared to a year ago, followed by Snohomish County with a 35 percent increase, prompting one MLS director to comment, “That is super amazing.”

[Principal managing broker at RE/MAX Professionals in Tacoma and MLS director Dick] Beeson cautioned buyers against “playing games” with sellers. “The new normal for buyers is that the quest for the perfect home may have to wait,” suggested Beeson. “You should buy now, get in the mix, buy a home and build equity for a future decision,” he advised. “Don’t wait to pay more for the same home next year.”

Brokers do not appear to be worried about a housing bubble.

“Some are talking about the potential for another housing bubble given the lack of homes for sale and the bullishness of buyers in bidding up properties,” acknowledged [Windermere Real Estate president OB] Jacobi. “For now,” he said, “I believe there are sufficient safeguards in place to keep this from happening.”

Classic Beeson. He’s got such a great track record for predictions. I definitely think it is a good idea to take his advice that you should buy now, don’t wait! P.S. – That was extremely sarcastic.

I’d also love to know what “safeguards” OB Jacobi believes are in place to keep another bubble from happening. You know, other than wishes on stars.

Read on for my take on this month’s local news reports.

Seattle Times

Sanjay Bhatt: King County home prices surge, just shy of 2007 peak

Buyers have hit the gas, fearing higher interest rates and offering premium prices in the face of a record low inventory of homes for sale.

“This is a historic moment in time,” said J. Lennox Scott, CEO of John L. Scott brokerage. “Housing is in a pressure cooker in the metro area. We’re going to be here for a while.”

One extreme example of that pressure is a 1,120-square-foot north Ballard home that sold last month for $158,000 above its asking price. While Windermere broker Phil Greely said he’s delighted with the price he got for his seller, “for buyers it’s a slightly depressing story.”

The three-bedroom, one-bath house drew 13 offers, most with so-called escalator clauses that ratchet up to compete with higher bids. The top offers waived every consumer safeguard in the contract, known as “contingencies,” effectively giving up their earnest money. The winner put up roughly $100,000 in earnest money, Greely said, and released half of it immediately to the seller once the offer was accepted.

The selling price, 28 percent above the list price, was $717,000 — an eye-popping $640 a square foot.

I think we can officially declare that whether or not this market is a “bubble,” it’s definitely become completely absurd. If I was dead-set on owning a home, I would rather move away from the Seattle area entirely than pay over $700,000 for a 1,100 square foot shack in Ballard. Ridiculous.

Everett Herald

Herald Business Journal Staff: Snohomish County sees 35-percent increase in home sales

They should just put up the ‘For Sale’ signs with the ‘Sold’ placards already attached.
Or that’s what it feels like.

Snohomish County saw a 35-percent increase in closed sales year over year for the month of April, according to numbers released on Tuesday by the Northwest Multiple Listing Service.

Unfortunately this month’s Herald piece is little more than a regurgitation of the NWMLS press release. It’s slightly better than having no story at all though, I suppose.

Puget Sound Business Journal

Emily Parkhurst: Seattle-area home sales reach a fever pitch as rising rents drive millennials to buy

You may have heard that millennials don’t buy houses. The Great Recession and housing bubble scared them away.

For some, myself included, that’s true.

But for millennials who are watching their rents go up and up and up, buying a home is looking like a more attractive option.

Combine that with low interest rates and a flood of new people to the area, and you’ll see what’s currently playing out in Seattle.

Buying a home may look attractive if your rent just went up, but in this extreme seller’s market the appeal will evaporate pretty quickly once you actually realize how much time and money it will take to buy a home.

Tacoma News Tribune / The Olympian

Rolf Boone: Lack of inventory a problem as South Sound housing market remains hot

The South Sound housing market remained hot in April as closed sales of single-family residences jumped by more than 20 percent in Pierce and Thurston counties, according to housing data released Tuesday by the Northwest Multiple Listing Service.

But can all potential buyers or sellers actually find a single-family residence or move-up property to buy?

That’s increasingly becoming the challenge for both markets as the number of single-family residences for sale fell 16 percent in Pierce County from the period a year ago, and fell 4 percent in Thurston County.

And that means the inventory of single-family residences on the market continues to drift lower, the data show.

Nice piece, if rather short, from The Olympian this month.

Bonus: You can listen to a short segment from yesterday’s “Seattle’s Morning News” with Dave Ross in which I talk a little bit about the local real estate market (my segment starts around the 13 minute mark).

(Sanjay Bhatt, Seattle Times, 05.05.2015)
(Herald Business Journal Staff, Everett Herald, 05.05.2015)
(Emily Parkhurst, Puget Sound Business Journal, 03.06.2015)
(Rolf Boone, The Olympian, 05.05.2015)
(Dave Ross, Seattle’s Morning News, 97.3 KIRO, 05.06.2015)

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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.

38 comments:

  1. 1
    Blurtman says:

    You shouldn’t sell now, stay out of the mix, wait to sell your home and build equity for a future decision,” he advised. “Wait to get more for the same home next year.”

  2. 2
    Angelo says:

    I’m surprised that the NWMLS would include such an irresponsible quote advising buyers to stop looking for their perfect home and buy whatever now in this sellers’ market to build equity?. Jeez, then people wonder how bubbles happen. It’s just a matter of time when people start regretting their purchases.

  3. 3
    redmondjp says:

    RE: Blurtman @ – Great advice, IF you can find somewhere else to live in the mean time.

    But OTOH, you can’t fight the Fed, whose next chairman will be Buzz Lightyear: “QE to Infinity, and beyond!”

  4. 4
    Angelo says:

    RE: redmondjp @

    Same Fed that yesterday said there is a tech and biotech bubble and general overvaluation of stock markets.

    http://www.washingtonpost.com/blogs/wonkblog/wp/2015/05/06/is-janet-yellen-right-that-stocks-are-quite-high/

  5. 5
    Mike says:

    I think we can officially declare that whether or not this market is a “bubble,” it’s definitely become completely absurd. If I was dead-set on owning a home, I would rather move away from the Seattle area entirely than pay over $700,000 for a 1,100 square foot shack in Ballard. Ridiculous.

    I passed by that house on my afternoon run earlier this week. It’s actually a fairly attractive home, sitting on a good part of the hill with abundant light across the street from a neighborhood park that doesn’t appear to have bums living in it. (That alone adds to the uniqueness). Trucks were parked out front and someone was moving in – presumably the new owners. I sort of feel sorry for them given the notoriety their purchase has created.

  6. 6
    Deerhawke says:

    I miss the PI’s coverage. They generally gave a bit more fine grained information on the Seattle market than the Times. Would any of the real estate agents out there know how to get the following :

    Inventory for Seattle zip codes and change YOY and/or MOM
    Number of Pendings and change YOY and/or MOM
    Months of Inventory
    List vs. Sold percentage

  7. 7
    Rebecca says:

    RE: Mike @ – I agree with you, I too feel very bad for the spot light being put on this house even if I understand the sensational nature of the sale, especially since it seems it was sold to some one who actually intends to live there. I haven’t seen it, but calling it a “shack” when its destined to be some persons/family home seems puerile at best. Whatever the reasons for their decision to buy, they deserve to feel good about their home. They may have even gotten a comparative bargain if they were coming into the market from a more insane one some where say, in California. I hope they enjoy their new home.

  8. 8
    Kyle says:

    We recently sold our house in Ballard because it want right for us long term and prices were too good to ignore any longer. We’re moving into an apartment and i suppose hoping inventory returns to more historically normal levels. Problem is how long this takes. I’m hoping an interest hike scares out some inventory but it’s just hope. Anyone care to venture a guess?

  9. 9
    ESS says:

    A recent couple moved to the Bay area for employment. They bought a house south of SF – 1.5 million dollars for a 2200 sq foot house on a regular lot. So things are even worse in other major cities on the West Coast.

  10. 10
    Erik says:

    RE: Kyle @
    My guess is that when your home is worth double what you sold it for inventory will be at normal levels. Bad time to sell pal.

  11. 11
    Erik says:

    RE: Kyle @
    You should have asked the Seattle Bubble troll that question before you sold. I could have saved you hundreds of thousands of dollars.

  12. 12

    By Kyle @ :

    We recently sold our house in Ballard because it want right for us long term and prices were too good to ignore any longer. We’re moving into an apartment and i suppose hoping inventory returns to more historically normal levels. Problem is how long this takes. I’m hoping an interest hike scares out some inventory but it’s just hope. Anyone care to venture a guess?

    Sure, I’ll venture a guess. Inventory can’t stay this low. I’m not sure a rise in interest rates is alone going to cause that, but maybe in concert with a stock market decline, which also has to happen one of these days.
    My guess? Inventory will rise slightly, but remain low for a couple of years. In 2017 we will see higher inventory and dropping prices.
    But I’ve been wrong before.

  13. 13
    Rudolfo says:

    RE: Ira Sacharoff @
    I agree with this statement, except I think prices will not drop just stagnate as higher interest rates gobble up any potential increases. [barring macroeconomic hardship]

  14. 14
    Erik says:

    RE: Ira Sacharoff @
    Wrong. It will take software companies leaving to see a price decline.

  15. 15
    Deerhawke says:

    Kyle, I respect the fact that you are acting on your own economic forecast. However for once I agree with Erik. I think you sold at the wrong time, especially if you had a house in Ballard.

    Given 1) the number of high-paying tech jobs jobs being created in SLU and the Magnolia waterfront (Expedia) and 2) our increasingly traffic sclerosis making people want to live as close as possible to work, you should have kept whatever you had in Ballard. Sorry, but you may be in that apartment for a long time.

  16. 16
    Angelo says:

    RE: Deerhawke @

    Yeah, because interest rates and general market perception doesn’t have any immediate impact.

    People here that are 100% of how the market will behave are delusional. A lot of those “factors” that you are mentioning are already being priced in the current frenzy. That’s why you see the double digit price growth now.

  17. 17
    whatsmyname says:

    RE: Angelo @
    If, indeed, interest rates and market perception have an “immediate impact”, then those may best be measured by facts (or frenzy as you collectively call them) currently showing the 11.5% YOY increase in all of King County.

    Most price drivers like local jobs, new jobs compensation, population changes and their relationship to housing supply changes are demonstrably positive. You haven’t made even the weakest case that these are about to change.

    Mortgage rates have risen slightly, and as we agree, are impacted in current prices. (oops, see paragraph 1) When rates do eventually go up more, you will have to consider context of how much; how that compares with then current inflation, and what locational factors are in play, among other things. If we can believe the local media, real estate is also less mortgage driven (impacted) than at anytime in the last 50 years. Also, if you are going to go all in on interest rates, you should be aware that the extraordinarily different CSI pricing profiles of Miami, San Diego, Seattle, and Detroit all occurred under the same interest rate regimes. I am not 100% sure what the market will do. That is why I do not dismiss 90% of the observable evidence.

  18. 18
    Angelo says:

    There is a term for when inflated markets keep appreciating at unsustainable levels and general optimism or “good feeling” about those same markets or other economic conditions justify it.

    It’s called “irrational exuberance”. We are partiying like is 1999!

  19. 19
    Erik says:

    RE: Angelo @
    Don’t kill my buzz man. This party is going to last years. Who wants to do a keg stand?

  20. 20
    Deerhawke says:

    It is not just that single family housing prices are going up in isolation.

    Part of the reason that rent control is such a popular topic is that rents are going through the roof. I have a 4 bed 2 bath rental house in Greenlake. In 2008, it was renting for $2100. In 2009 (after 4 months vacant) it fell to $1600 and that is where it stayed through 2011. In 2012, back to $2100. In 2014, $2600. When it renews in September, the market rate is looking like $3000.

    So, from the perspective of most people who did not see (or care about) that nasty drop during the recession, this is an increase from $1600 to $3000 in 4 years.

    And why will this seem like a bargain? Because all the nice new (or newish) 750 sf 2 bedroom apartments in the area are renting for almost the same price. No kidding. $2625 plus $100 per parking space and $50 per month for each pet.

    There has been a tremendous amount of apartment building during the past 5 years. But everything they are bringing on the market is at $3 – $3.50 per square foot. And so far they have had no lack of takers.

  21. 21
    Kyle says:

    RE: Ira Sacharoff @

    2017 sounds about right at the current rate. From my perspective it seemed that houses are coming up for sale more frequently in Ballard. They still get snatched up at immediately by the pent up demand so no real impact to inventory. I think we’re beginning to work through some of the pent up demand.

    Erik, Deerhawk – It’s not difficult to replicate expected returns on my house through other investments. My equity is not sitting in cash and I can add to it at a much faster rate with a lease payment that’s roughly half what my mortgage was (with the vast majority going towards interest). Property taxes and maintenance on these 100 year old houses eat away at the price appreciation real quick. Not to mention the amount of time I dedicated to upkeep. I’m looking forward to getting my weekends back

  22. 22
    Mike says:

    Population is increasing and the number of single family homes is basically fixed (townhomes are the only (bad) hybrid being added, and some SFR are being bulldozed down). Other than a large exodus of people from the City leaving for the suburbs or out of the region, it’s not clear what folks think is going to magically fix the inventory problem? People “moving up” or “scaling down” within the City will just be shuffling the deck chairs around and won’t really fix the inventory situation. Adding new condos and apartments provides housing, which could help check rent increases and slow demand growth, but it doesn’t provide a directly comparable product on the inventory side. Maybe in 2025 there will be a few Sound Transit lines that will open up a bit of Shoreline/Lynwood as an easier commute, but that is a long way off still.

    So basically if you want inventory to go up the only hope is for demand to go down. And whether you want that to happen largely depends on if you fall into one of two camps that either believe demand is being driven by (1) population growth and new higher wage jobs (aka the “tech overlords” camp) or (2) the Fed and QE (aka the “Forget tech, lets go back to the ’30s gold standard” camp). And nothing on here is going to change those beliefs.

  23. 23
    The Tim says:

    By Rebecca @ :

    RE: I haven’t seen it, but calling it a “shack” when its destined to be some persons/family home seems puerile at best. Whatever the reasons for their decision to buy, they deserve to feel good about their home.

    I was just stating my personal preferences and thoughts of what I would do in a given situation. I would hope that a stranger’s opinion would not somehow prevent a buyer from feeling good about their home.

  24. 24
    ESS says:

    People only focus on the times when rents go up, not down. They don’t remember, don’t care, or want to know about vacancies, or ongoing operational expenses even when vacant.

    Rent control has proven to be a vehicle to increase the cost of housing for virtually everyone else except for those few people who are able to score a rent control apartment. Witness the cities where rent control has been instituted. The cost of buying property in those cities has escalated dramatically, as well as rents for virtually everyone else who is not under rent control. It has been well documented that rent control doesn’t solve the housing problem for the poor, but is a subsidy for those who can navigate the system regardless of their income.

    In rent contolled cities, apartments are converted to condomiums as investors can’t get a decent rate of return on their rental apartments. That in turn reduces the available rental supply. Housing stock often deteriorates as landlords can’t afford to maintain their property.

    People refuse to move out of their apartments as they can’t find anything as cheap. Thus in rent controlled areas, there are often single widows whose spouses have died and the children have moved away residing in three bedroom apartments, refusing to move as they can’t get a more reasonably priced one or two bedroom apartment. This at the same time young families with children can’t find a suitable apartment for their needs.

    Some landlords just walk away – NYC for years has been the largest landlord in the city. There are thousands of vacant apartments in NYC where there are astronomical rents and housing shortages.

    As an owner of two rental properties near but not in Seattle, I am in favor of rent control for Seattle as it will only benefit our rental properties as rents and housing prices inexorably increase due to government meddling. I would suggest one important caveat with my support. As rent control is nothing more than an indirect subsidy from landlords to tenants, I suggest that in all years that vacancies rise above the historical norms in Seattle, a tax on tenants in rent control apartments be automatically implemented and those funds be distributed to all landlords in some agreed proportional distribution system, such as assessed value of rental property. Thus landlords can be subsidized by tenants in the bad years, as tenants are subsidized by landlords in the good years.

  25. 25
    Blue-Eyed Green-Horn says:

    a 1,120-square-foot north Ballard home for 700K?

    Nuts.

    I’d rather get a villa in Spain for 200K and live of the modest interest from the remaining 500K!

  26. 26
    Ryan says:

    @ESS amen! Many of my friends, some of whom are feeling like they will soon be priced out of the city scream for rent control, but I have to tell them what they really want are zoning changes, density, and enough supply to meet demand.

  27. 27
    Blake says:

    RE: Angelo @
    Amen brother…. We’re almost 7 years into a crappy, pseudo”recovery” that has been limping along despite zero interest rates (the Fed has no policy… Just kicking the can down the road). Not sure why anyone thinks this can continue forever. A correction will come and Seattle will be hit as hard as anywhere. Anyone who doesn’t realize this is delusional…

  28. 28
    Deerhawke says:

    Kyle, I couldn’t agree more about house maintenance being an expensive drag.

    But if you can get the kinds of returns people have gotten on leveraged Seattle real estate since 2012 through other investments, you should start a hedge fund.

  29. 29
    Kyle says:

    RE: Deerhawke @

    Poor Deerhawke…

  30. 30
    Mike says:

    By Blake @ :

    RE: Angelo @
    Amen brother…. We’re almost 7 years into a crappy, pseudo”recovery” that has been limping along despite zero interest rates (the Fed has no policy… Just kicking the can down the road). Not sure why anyone thinks this can continue forever. A correction will come and Seattle will be hit as hard as anywhere. Anyone who doesn’t realize this is delusional…

    7 years? Try 15 years. The only reason it looked like the economy ‘recovered’ after the dot com crash/911 was because of the housing bubble. The major shift away from domestic manufacturing that lead to slow job growth actually occurred in the late 1990’s when production shifted to China en mass. Much of that labor overcapacity was channeled into home building in the early-middle part of the last decade temporarily hiding the problem. That shift is still the major contributing factor to today’s economic weakness. Now we have a divided economy with large number of white collar jobs, people providing services to those people, and much of the old blue collar middle class scrambling around for the service jobs. The correction that happened in 07/08 was not what kicked off the recovery. If anything, the misplaced investment in housing and the devastating financial collapse merely took attention and resources away from fixing the deeper structural problems occurring after 1999.

  31. 31
    redmondjp says:

    RE: Mike @ – Bingo, Mike!

    And there are significant, permanent changes in our structural employment situation coming – in the next decade, we are going to see significant job loss due to ever-increasing automation. Heck, I just read an article about China building new factories with robots instead of workers. The effect of this upon our global economy cannot be understated. What is everybody else going to do, sit around playing video games all day while they eat their government cheeze?

    Take Kokomo, IN where I used to work at Delco Electronics. Thirty years ago there used to be close to 20K highly-paid workers, just at that one employer, in a city of 50K people. Now there are less than 2000. When a company opens a new factory there nowadays, the number of workers is in the low hundreds, not thousands. This is typical all over our country.

    We’re going to have fully-automated Starbucks very soon, especially in areas which have mandatory high minimum-wage laws.

  32. 32
    whatsmyname says:

    RE: redmondjp @
    Ah, the libertarian dream: replacing the road to serfdom with non-stop jet service there.

  33. 33
    Erik says:

    RE: Kyle @
    I hate old houses and I hate north Everett. I wasted a large part of my life on an old house in dirty north everett that I will never get back.

    If you own a house in Ballard, I imagine you have enough money to pay someone to do the repairs? If you were having a cash flow problem, I understand.

    If your home is worth a million dollars, your return would be calculated as the principle. F=p*(1+I)^n. If you extract your equity, your p is lower. If you owned the house it would make sense.

  34. 34
    Kyle says:

    RE: Erik @

    Thanks sport. You can use that to calculate my terminal value. Now go google the equation to calculate my IRR.

    Quick I’ll time you

  35. 35
    Mike says:

    By Erik @ :

    RE: Kyle @
    I hate old houses and I hate north Everett. I wasted a large part of my life on an old house in dirty north everett that I will never get back.

    If you own a house in Ballard, I imagine you have enough money to pay someone to do the repairs?

    Judging from my afternoon runs around Ballard most of the homeowners either don’t have the money to do repairs or they choose not to. The typical Ballard house needs a LOT of repairs… not the nickle and dime stuff you do on your condos. The houses are old and spent a lot of time owned by older, blue collar folks that did the bare minimum for decades before it became a hip, trendy neighborhood flowing with tech money.

  36. 36
    igoy says:

    RE: Ryan @ – bingo. And everyone thinks that building 1000s more townhomes can’t affect SFH but with enough townhome supply their prices can be moderated. Granted new build is over 400/sqft but when their $/sqft is under SFH that will start to pull over prospective SFH bidders and with fewer bids you get less escalation. Is that still a year it two away? Who knows.

  37. 37
    Mike says:

    By igoy @ :

    RE: Ryan @ – bingo. And everyone thinks that building 1000s more townhomes can’t affect SFH but with enough townhome supply their prices can be moderated. Granted new build is over 400/sqft but when their $/sqft is under SFH that will start to pull over prospective SFH bidders and with fewer bids you get less escalation. Is that still a year it two away? Who knows.

    Even if the PPSF is well above that of the average SFH, new town homes will continue to pull in buyers, as they do now. The cost of bringing up the condition of an average SFH in Seattle to that of a new home is extremely high. A lot of buyers do not want to invest that kind of back breaking effort or $100K+ needed to pull off a project like that. These buyers are willing to compromise on climbing a few (or many) more stairs and having a smaller lot in exchange for lower maintenance costs.

  38. 38
    Erik says:

    RE: Kyle @
    They didn’t teach those equations in my engineering degrees so I don’t know them. Just giving you my oversimplified view. I’ll google those other things, but it doesn’t seem complex. If you can borrow a bunch of money and get good returns on that money you should. You are welcome for the free advice. Come back next week for more advice from the troll.

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