July Reporting Roundup: Slowdown / No Slowdown Edition

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).

I waited an extra day because there were only four articles out there about this month’s numbers, but nothing new showed up all day yesterday, so this is all we get.

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

Pent-up demand continues to fuel home sales around Western Washington with millennials, military families and relocating workers vying for limited inventory. Brokers from Northwest Multiple Listing Service say they’re not seeing a typical summer slowdown.

Commenting on a new report from Northwest Multiple Listing Services summarizing July activity, J. Lennox Scott, chairman and CEO of John L. Scott, Inc. said, “The Puget Sound housing market is sizzling hot, with the best July on record.” He expects inventory shortages will continue into the summer of 2016.

Commenting on the possibility of a “bubble market,” MLS director Darin Stenvers believes it is unlikely. “With broader government controls and enforcement of new banking/loan programs, the underlying instability is now gone.” Buyers are feeling confident that “home ownership is still the best investment they can make right now, and homes are still within reach for most segments of the market,” added Stenvers, the office managing broker at John L. Scott in Bellingham.

This month’s press release seems like it’s a lot longer than the typical ones put out by the NWMLS, and that “not a bubble” bit was stuffed in right near the end.

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

Seattle Times

Sanjay Bhatt: King County median home prices slip as market cools a bit

The median price of King County single-family homes sold in July slipped 3 percent over the month to $485,000, a surprising reversal for a month that brought peak prices in each of the past two years.

The drop comes after King County’s median home price hit a post-recession peak of $500,000 in June.

July’s median price, reported Wednesday by the Northwest Multiple Listing Service, represented a 3.6 percent gain over the past 12 months, the weakest annual gain so far this year.

The numbers suggest a cooling in an overheated market. From April through June, prices had jumped 9 percent to 12 percent from their year-earlier level, a pace far above the market’s historical average of about 4 percent.

I agree with Sanjay that the market may be cooling just a bit, but I disagree that the one-month price fluctuation is anything other than a change in the mix of homes that were sold. Oddly, this means I actually agree with Lennox Scott about something:

Lennox Scott, CEO of John L. Scott Real Estate, said the lower price in July also could be due to the mix of homes that sold.

Of course, Lennox only offers up that explanation when the price falls, not when it shoots up.

KING 5

Travis Pittman: No summer slowdown in home sales in Western Washington

It remained a seller’s market in Western Washington in July, something realtors say is due to more people moving to the region and not enough available homes to go around.

The Northwest Multiple Listing Service (NWMLS), a real estate industry-owned system which tracks home sales in 23 Washington counties, says realtors are not seeing the typical summer slowdown in home sales.

KING 5 took the opposite position of the Seattle Times, claiming that there is no slowdown. Of course, they pulled that claim straight from the NWMLS press release, so take that for what it’s worth.

Puget Sound Business Journal

Marc Stiles: Home prices fall in July, but that doesn’t mean market’s cooling down

Median home sale prices actually declined from June to July in some parts of the metro Puget Sound region, but other indicators show that unlike the weather, the housing market isn’t cooling off.

New numbers out Wednesday from the Northwest Multiple Listing Service (NWMLS) show the median July sales price of single-family homes had a month-over-month decrease of 3 percent in King County and 4 percent in Pierce County. Yet based on the total number of properties that sold, it was still “the best July on record,” said J. Lennox Scott, chairman and CEO of John L. Scott Inc.

Everything is great. There are never any storm clouds on the horizon. Continue buying and do not fear.

Tacoma News Tribune / The Olympian

Rolf Boone: No slowdown in South Sound housing market

The South Sound housing market remained as hot as the weather in July, as sales continued an upward march last month, rising more than 20 percent in Pierce and Thurston counties, according to new single-family residential data released Wednesday by the Northwest Multiple Listing Service.

But the hotter real estate market likely has been stoked by a key factor: There still isn’t much in the way of inventory for buyers.

All about that inventory.

(Sanjay Bhatt, Seattle Times, 2015-08-05)
(Travis Pittman, KING 5, 2015-08-06)
(Marc Stiles, Puget Sound Business Journal, 2015-08-05)
(Rolf Boone, Tacoma News Tribune, 2015-08-05)

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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.

29 comments:

  1. 1
    ess says:

    What I want to know what percentage of buyers are discouraged by the high market prices in cities such as Seattle or Bellevue and are buying north or south only because they could not afford their first location choice, vs buyers who simply want more house and land, a more suburban experience, or simply don’t want to tie up a large down payment and large monthly payments? For example, based upon some of the prices for large homes either on acreage or views, those folks could easily purchase in the most toniest of Seattle neighborhoods, but apparently chose not to. Anyone have that information?

  2. 2

    RE: ess @ 1

    Location, Location, Location

    Is the price rule whether it be Kansas City or Seattle….the closer you are to the city center, the more you’re gonna pay. City center HOA fees can be omitted if you buy the SFH….but Magnolia, Queen Anne Hill, etc aren’t cheap….condo or no condo.

  3. 3
    wreckingbull says:

    RE: ess @ 1 – While I could afford to live in Seattle, I choose not to, as the stifling gridlock is a non-starter for me. There are other cities in the Puget Sound area that have all the good qualities of Seattle without the cattle-like existence.

  4. 4
    Erik says:

    RE: wreckingbull @ 3
    Good, stay out. We don’t want your kind.

  5. 5
    ess says:

    By wreckingbull @ 3:

    RE: ess @ 1 – While I could afford to live in Seattle, I choose not to, as the stifling gridlock is a non-starter for me. There are other cities in the Puget Sound area that have all the good qualities of Seattle without the cattle-like existence.

    Agreed Wrecking Bull – same deal here. We decided to continue to reside outside of Seattle although I could have bought out my partners in a Seattle house investment. There are some great towns that surround Seattle. Travel is easier, and access to both the beach and other parts of the Puget Sound area are easier if one doesn’t have to go through Seattle. And I get to enjoy Seattle amenities without having to pay the real estate taxes for them. Do I miss living in Seattle? Sometimes, but not when I hear my friends complain about their real estate taxes.

  6. 6
    Lake Hills Renter says:

    I am thoroughly enjoying my house in the exurbs. I’ve worked on the eastside for over a decade, so no need to go anywhere near Seattle itself, and I am perfectly fine with that. I can’t even remember the last time I went into the city, it’s been at least several years. I prefer trees and quiet to buildings and traffic, but then I’ve always been a country boy at heart. To each his/her own, but the city just isn’t for me.

    It made for decently lower housing prices as well, back when I bought a few years ago. Still very happy with the deal I got.

    (I’m keeping the old LHR name for continuity)

  7. 7

    By ess @ 5:

    Do I miss living in Seattle? Sometimes, but not when I hear my friends complain about their real estate taxes.

    At this point in my life I can’t see moving back to Seattle, but maybe when I’m even older I would. Seattle just doesn’t offer the same type of neighborhood choices, but I can certainly see why some people like it (particularly people younger than me).

    But on the tax front, it’s not real estate taxes, it’s the other taxes. Seattle voters have never met a tax they didn’t like. The worst was the Monorail tax, but fortunately at the time I owned older vehicles. Choosing to own something like a motorhome back then was a very expensive decision to make for those living in Seattle.

  8. 8
    ess says:

    By Kary L. Krismer @ 7:

    By ess @ 5:

    Do I miss living in Seattle? Sometimes, but not when I hear my friends complain about their real estate taxes.

    At this point in my life I can’t see moving back to Seattle, but maybe when I’m even older I would. Seattle just doesn’t offer the same type of neighborhood choices, but I can certainly see why some people like it (particularly people younger than me).

    But on the tax front, it’s not real estate taxes, it’s the other taxes. Seattle voters have never met a tax they didn’t like. The worst was the Monorail tax, but fortunately at the time I owned older vehicles. Choosing to own something like a motorhome back then was a very expensive decision to make for those living in Seattle.

    But there was one tax that Seattle voters didn’t like and rejected. That was the tax on coffee that was overwhelmingly rejected by Seattle voters some years ago. That was a direct tax on people, and they, including renters didn’t want to pay the extra few dollars a month it would cost for regular coffee drinkers.

    At the same time, voters love initiatives that will tax property owners. Who cares if the landlord gets stuck with a larger tax bill when it is for some perceived good that the tenant doesn’t have to pay for. What many don’t consider is that especially in tight rental markets, those taxes are not only passed on to tenants by the owner in the form of higher rents, but the owner, not the tenant gets the tax benefit. And based upon the current valuations of houses and apartments in Seattle, those taxes that tenants are paying indirectly to their landlords are literally hundreds of dollars a month.

  9. 9
    jon says:

    A few years ago, Washington state nearly enacted a 10% tax on software development, that somehow would not have applied to the biggies like Microsoft, so they didn’t care. In the end the legislature instead created a sales tax on soda and candy. But then there was a referendum and publicity that made people think it was a sales tax on all food, and it was repealed.

  10. 10
    PhilW says:

    Prices are insane in the hip places to live – those places where the new residents wouldn’t be seen in after dark 10 years ago. Still, there are patches of more affordable condos around if you look. They might not be brand spanking new, or next to some trendy bar or restaurant; but near enough.
    Where are they? Just search on the MLS (ok, I’ll say it – Redfin) and look for condos under $300,000

  11. 11
    wreckingbull says:

    By PhilW @ 10:

    Prices are insane in the hip places to live – those places where the new residents wouldn’t be seen in after dark 10 years ago.

    Sometimes things get worse after gentrification.

    http://spdblotter.seattle.gov/2015/08/08/police-investigating-early-morning-robbery-gunfire-in-ballard/

  12. 12
    Blurtman says:

    Interesting story on gentrification, in spite of the author confusing area of origin, i.e., Latin American, with race.

    Gentrification, Integration or Displacement?: The Seattle Story

    In 2006 former Seattle mayor Norm Rice, the city’s only African American to hold that position, summarized his frustration over the paradox of gentrification at a community forum in Seattle’s Central District. “I’m concerned and I am frustrated because I don’t know what the alternatives [to gentrification] are. [This process] clearly isn’t racist, it’s economic. The real question you have to ask yourself is: Is this good or bad?”

    http://www.blackpast.org/perspectives/gentrification-integration-or-displacement-seattle-story

  13. 13
    ess says:

    Actually the prices in high demand areas are very rationale. So long as the sellers/landlords are getting the prices they are asking for, those prices make sense

  14. 14
    nathan118 says:

    By ess @ 13:

    Actually the prices in high demand areas are very rationale. So long as the sellers/landlords are getting the prices they are asking for, those prices make sense

    The prices are only rational if the people buying are rational. If you’re leveraging up to the max, and are one layoff away from bankruptcy, but you’re afraid you’ll be priced out forever…that’s not rational. Yes, it might be selling, but that doesn’t mean it is rational.

  15. 15
    whatsmyname says:

    By nathan118 @ 14:

    The prices are only rational if the people buying are rational. If you’re leveraging up to the max, and are one layoff away from bankruptcy, but you’re afraid you’ll be priced out forever…that’s not rational. Yes, it might be selling, but that doesn’t mean it is rational.

    True enough as a general statement. But with record numbers in 1)all-cash deals, 2)high paid techie immigration, and 3)limited inventory; is it rational to use the construct you’ve built as a credible presumption for irrational buyers driving this market?

  16. 16
    Blurtman says:

    The boomers were rocking to The Steve Miller Band at the Chateau St. Michelle winery last night. it is good to see that the ’70’s stoners are alive and kicking. The air was filled with he smell of WA state’s 5th top cash crop. I think it was two years ago that I almost literally bumped into former governor Gregoire at a Jackson Browne concert there. Party on!

  17. 17
    ess says:

    To the seller or landlord – it doesn’t matter what is driving the market – only that the check doesn’t bounce.

    There have been many past markets that some have considered irrational in the past. But as real estate prices tend to trend upwards, what one may consider irrational in the past now looks like a good deal. In the first real estate deal I participated as a young neophyte 22 year old investor partner, we were not even sure if the rents from the duplex we were buying in the U District would cover the mortgage, taxes, insurance and repairs. That was certainly a “irrational” investment at the time. By the way, we paid twenty eight thousand dollars for that “irrational” investment, and sold it years later. I am not crying in my beer, instead I bought a few houses that we later turned into rental properties in South Snohomish County with those proceeds , so we more or less kept up with the Seattle market over the years.

    And back then – there was no Urban Growth Management Act to limit the supply of land to build single family houses on. Review the cost of housing lots 20 -30 years ago as compared to the cost of the house, and compare now. Back then the house was the primary cost, now it is the land. No thanks to the Urban Growth Management Act which limited the growth of housing and where it could be built.

    WhatsMyName makes a very good point. This isn’t some huge unending real estate market populated by buyers with a faint pulse, no employment prospects and no assets getting half million dollar mortgages from unscrupulous lenders. This is a market that is not only limited, but is highly sought after by people who have real money, with lenders that are doing all they can do to insure that they don’t become home owners. The all cash buyer isn’t going to walk away from his or her house once the market inevitably cools off. But as with the stock market, housing prices up and down, but trends generally higher over time, if nothing else to offset the unrelenting march of inflation.

    And remember – Seattle and area housing prices are still reasonable by west coast standards. Similar housing in other west coast cities cost 2-4 times as much. For many of those people coming to the Seattle market from those markets, this market makes total sense, and they are happily buying. Along with our new foreign friends, this market may be here to stay. Any guarantees of that? No, of course not, but the numbers are sure better than they were at the beginning of the last real estate meltdown.

  18. 18
    Shoeguy says:

    Selling that house you bought at 4% interest with 1.3 months of supply when we’re back up to 7% interest rates and 6.2 months of supply is going to be very interesting to watch.

  19. 19
    nathan118 says:

    By whatsmyname @ 15:

    By nathan118 @ 14:

    The prices are only rational if the people buying are rational. If you’re leveraging up to the max, and are one layoff away from bankruptcy, but you’re afraid you’ll be priced out forever…that’s not rational. Yes, it might be selling, but that doesn’t mean it is rational.

    True enough as a general statement. But with record numbers in 1)all-cash deals, 2)high paid techie immigration, and 3)limited inventory; is it rational to use the construct you’ve built as a credible presumption for irrational buyers driving this market?

    You’ve left out the tech bubble and the historically low interest rates that are about to end. Are those rational?

  20. 20

    RE: nathan118 @ 14

    I Don’t Know Who That Columbia Bank Commercial

    Represents? You know the one with the turquoise couch and the apparently airheaded lady sitting in front of the plane. She represents Seattle’s savvy investors in real estate? LOL

  21. 21
    whatsmyname says:

    By nathan118 @ 19:

    You’ve left out the tech bubble

    Perhaps you mean the rumored tech bubble of 2015? From what I read, it’s the private money Unicorns with a problem, and not expected to over-impact the publicly traded companies. Or do you mean the tech wreck of 2000? Tim carries that period in his monthly NWMLS numbers postings within the charts section. Take a look; not a bad time for houses.

    and the historically low interest rates that are about to end. Are those rational?

    I’ve been promised a disastrous “great reset” on interest rates since I started reading here in 2007. Eventually we will see interest rates rise. Two things to remember in that case:
    1. The fluctuation in real interest rates (after inflation), hasn’t been that dramatic.
    2. There is no compelling correlation with rising rates and falling house prices. For example, if we look at the period between 1972 and 1982, rates rose from 7.4% to as high as 17.6%. I haven’t got Seattle house prices for that period, but Uncle Sam keeps numbers on the national median: rising from $24,700 to $71,700. Ouch.

    http://www.freddiemac.com/pmms/pmms30.htm
    http://www.census.gov/const/uspricemon.pdf

    Nobody knows the future, but so far you are not supporting a case for irrational demand.

  22. 22
    boater says:

    Didnt Shiller publish an article about interest rates and housing prices? I seem to recall they tended to not correlate in part because interest rates rise when inflation is rising and commodity prices rise. So while it becomes more expensive to borrow and that should drop prices the wages to buy and commodity prices to build a house go up countering the downward pressue on prices.

  23. 23

    RE: boater @ 22 – I think that is generally true, and in fact many people buy real estate as a hedge against inflation.

    The counter-argument though would be that rates are artificially low.

    The counter-argument to that is that the difference in rates due to government activity probably isn’t that significant. Clearly it’s not 5%, and it might not even be 1%.

  24. 24
    Blurtman says:

    RE: whatsmyname @ 21 – You have to look at other variables as well. That $24,700 in 1972 was equivalent to $57,000 in 1982. Inflation was rampant during that 10 year period. Also look at median incomes during that period and other trends such as the two wage earner family becoming more common.

    “Workin’ 9 to 5, what a way to make a livin’
    Barely gettin’ by, it’s all takin’ and no givin’
    They just use your mind and they never give you credit
    It’s enough to drive you crazy if you let it”

  25. 25

    RE: boater @ 22

    I don’t necessarily disagree with the commodity relationship, however the main impact of interest rates is on demand. Even small changes in rate, especially “under and over” numbers like 4%, impact people’s buying decisions. That is why the median hit $500,000 peaking recently at a time when conforming rates and high balance conforming rates jumped to 4.25% briefly while jumbo rates declined to 3.75% (more so if you used a bank vs a mortgage broker).

    More jumbo loan purchases at 3.75% and fewer conforming loan purchases at 4.25% or so briefly pushed the median toward the high end due to the temporary disparity in rates. They are currently back in alignment for about 10 days now, but were significantly different for 40 days or more before that.

    It’s hard to track that over the last decade+ for more statistical proof because the tax credit years skewed demand more so than small changes in interest rate. These micro influences are due to temporary rate changes that are sure to correct in the near term such as the 4.25% conforming rate which is now back down to under 4%. Most people don’t see these unless they are in daily contact with a mortgage broker advising them to wait until the blip up in rates settles and corrects. The jumbo loan people had no such recommendation, given you could still get 3.75% from a bank through July.

    Rising rates will alter demand before prices and not impact prices until and unless the impact on demand greatly increases inventory absorportion rate to above 3 months+. On short swings it will only change parts of the market to 1.2 months to 1.6 months and only in the price points altered by the rate changes, which recently has not been uniform.

    If the rate increases with the caveat “but they will correct soon”, demand will decrease the same as your waiting to buy that pricey new tech toy if you are pretty sure that if you wait just a short time the price will be much lower. Once the higher rate is not expected to correct the pent up demand will kick in at the same time, pushing out the impact due to equal push and pull on demand. Consequently it takes a longish period of higher rates to influence price, and why people seeing the change in rate as a causal effect to price change is limited due to the time lag.

  26. 26

    RE: Ardell DellaLoggia @ 25 – I don’t think you were here back then, but back in the late 70s skyrocketing interest rates barely affected the median price in this area.

  27. 27

    RE: Kary L. Krismer @ 26

    Kary: “I don’t think you were here back then, but back in the late 70s skyrocketing interest rates barely affected the median price in this area.”

    I was in high school in 1970, Kary, so “being here” not necessarily of import. I have studied the market in this area back through the 60’s.

    Just as the tax credit overpowered the interest rate changes during the last decade, a major influence in pricing in the areas where I work (both sides of the 520 bridge basically) was the opening of the 520 Bridge in 1963. This spread demand over a broader area with all of the new construction in the 60’s and 70’s and beyond “close in” to The Eastside of the bridge. All of that new construction in Bellevue-Redmond in the 60’s 70’s and 80’s overshadowed most any impact by interest rates on prices even though the rate swings were dramatic, and during the latter portion of that time came Microsoft.

    I have a friend who bought one of the first houses built in an 80’s development across the street from Microsoft on the 148th Street side for about $145,000 new. Today it would sell for $850,000 to $900,000 though part of that is a current “bubble” caused by high demand and low supply in that pocket, so let’s call it $775,000 by 2 years from now. Suffice it to say that there are so many forces at play in Seattle Area real estate over the last 5 decades that cloud the issue of interest rate impact, unlike many other major cities.

    As an aside, I recently helped someone buy a house on Green Lake that had not been sold EVER in the 4 generations (now 5th) since those lots were formed and subdivided in the late 1800’s. Not necessarily a story that follows an interest rate discussion except to say that Seattle has gone through a lot of changes that impact housing, with some of the very first houses built here after “the fire” actually still selling now for the first time ever. Other major cities have a longer history of more gradual changes. Seattle’s changes in employment and transportation have had a greater and more sustained impact on home prices in the last 50 years or so that make it more difficult to track interest rate impact. Too many forces pushing demand outside of rate changes.

    BUT going out 50 years from now that is less likely to be the case. Not particularly rational or relevant to expect the same interest rate impact on home prices from the 70’s and 80’s here, looking forward 10 to 20 years from today. There is not as much available land today as there was in the 60’s through the 80’s. Being more fully “built out” will cause rate changes to cause price changes more so now and into the future than back when land was more readily available for new construction to absorb the demand changes caused by rate changes.

    Hindsight is great…but judging rate impact by looking at the 70’s in Seattle is like comparing a new car’s features to the horse and buggy. :)

  28. 28
    whatsmyname says:

    By Blurtman @ 24:

    RE: whatsmyname @ 21 – You have to look at other variables as well. That $24,700 in 1972 was equivalent to $57,000 in 1982. Inflation was rampant during that 10 year period. Also look at median incomes during that period and other trends such as the two wage earner family becoming more common.

    Absolutely. That is why point # 1 was “The fluctuation in real interest rates (after inflation), hasn’t been that dramatic.”.

    You are not going to see 17% interest, or even 7% interest without a big pickup in inflation. Higher rates will come, but inflation will be part of that picture. That affects wages too. Two income families were indeed growing. I’m not saying the future will be that dramatic. I am saying that interest rates don’t exist in a vacuum. Death to house prices? The record doesn’t show that.

    Also, – If you bought a house in ’72 at $27,700, and that was equivalent to $57,000 in ’82; you would still be glad that your mortgage was based on the lower number. If the house price was $71,700, you’d be even gladder.

  29. 29
    David B. says:

    RE: wreckingbull @ 3 – Same here; I left Seattle for reasons other than housing affordability.

    You already touched on the transportation issue. *Every* form of transport available in Seattle basically sucks.

    Transit sucks, in part because Seattle has been so laggardly in starting to build rail (last major West Coast city to do so, behind even San Diego and Sacramento). The buses tend to get stuck in the same traffic and they follow an outdated, inefficient routing pattern that means for less service frequency than in most cities of comparable size (and the traffic makes their service patterns erratic and unreliable). Parking also sucks, which makes driving a car a double headache. And Seattle is spread out enough, hilly enough, and the streets are badly-maintained enough that riding a bicycle isn’t very easy or pleasant either.

    Seattle never saw fit to set aside a large area of parkland immediately adjacent to the city, like Portland’s Forest Park, Tacoma’s Point Defiance, or the East Bay Regional Parks in the Oakland/Berkeley hills. So accessing nature means fighting with the transport headaches.

    Housing choices in Seattle are restricted. It’s either more house than I want on a far larger lot than I want on a quiet street, or the condo/townhouse I’d prefer but in far noisier surroundings I want.

    Maybe in 20 years when I’m older and less into taking 5-15 mile day hikes, there’s a better supply of DADU’s to rent (or buy, and rent out the “main” house), Sound Transit rail is more of a mature system, and Metro has finally rationalized its routes, Seattle proper will make sense for my interests and priorities. But not now.

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