Home Price to Rent Ratio Still Below Bubble Territory

It’s been a while since we took a look at how rents are comparing to home prices in the Seattle area.

Both home prices and rents have been climbing quite a bit in the Seattle area lately. We would expect this with a booming local economy, but if home price gains been significantly outpacing rent gains like we saw during the last bubble, that would be a strong sign that home prices are headed for another correction.

First up, let’s look at home prices compared to rents. For this post I use Case-Shiller’s Home Price Index for the Seattle area (which rolls together King, Snohomish, and Pierce counties) and Bureau of Labor Statistics data on rent.

Here’s a look at the home price to rent ratio over the last 24 years:

Seattle-Area Home Price to Rent Ratio

As of May data, this ratio is up 20 percent from the recent low that it hit in early 2012. However, we’re still quite a ways from where the ratio was during the height of the last housing bubble. The current level is comparable to late 2003, well before home prices really got out of control.

Here’s another way of looking at the same data by just plotting each index next to each other:

Seattle-Area Home Prices and Rents

As of May, the Seattle area’s Case-Shiller home price index is 11.9 percent above the BLS rent index. This is the largest difference since early 2009, shortly after home prices began falling dramatically.

When I started Seattle Bubble in August 2005 the home price index was a whopping 41.2 percent above the rent index. The difference peaked at 57.5 percent in September 2006.

Here’s one more chart. This one adds two measures of local incomes to the mix.

Seattle-Area Home Prices, Rents, and Incomes

It’s interesting to me that over the long term, home prices track closer to per capita incomes while rent tracks closer to median household income. However, in the last couple years, the differences between each has grown. We don’t seem to be in dramatic housing bubble territory yet, but I’ll definitely be keeping an eye on this data.

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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.

47 comments:

  1. 1
    nathan118 says:

    Is the first graph a little misleading because rents never really crashed? In 2008 when housing crashed, rents basically flat lined…and then proceeded to skyrocket the last 4 years. The home price to rent ratio isn’t going to be as dramatic as at the height of the bubble…because rents have gotten even less affordable.

    The last graph is interesting. The green line seems to split into two for some reason…but per capita income seems to be flat lining or slowly rising, but home prices have shot up in the last two years. Rents are also shooting up at a faster pace than median income.

  2. 2
    The Tim says:

    By nathan118 @ 1:

    The green line seems to split into two for some reason…

    Income data is only available up to 2014 so I’m just showing two possibilities – flat-line and increasing at the same rate as the last few years.

  3. 3
    sleepless says:

    High housing prices drive rents higher, as fewer people can afford to buy and more people opt out to renting. What causes the housing prices to go up? The monetary policies of the FED. The same policies that caused the housing to shoot up in 2000s when Greenspan lowered the interest rates and people flooded the housing market. Look, majority of the investors keep their money in bonds as bonds is considered to be safer investment. The FED with the easy money policies has destroyed the bond market as the bonds are at all time high. The way it works is simple. if you issues a $1000 10 year bond at 5% interest a year, you would sell for $1000. Now, say, tomorrow the interest rates go down and you start issuing same $1000 10 year bond at 2% interest a year. The $1000 bond that yields 5% goes up in price, since there is no more bonds available that yields 5%, all bonds now yield just 2%. SAME HAPPENS TO THE HOUSING, AS THE HOUSING IS A DEBT ON A 30 year BOND . When bonds become too expensive, the investors move to other assets aka stocks and housing. This is why we have all that “inflation” in housing and stocks. The investors move out of the bond markets as it yields too little. The bonds are considered better investments then housings because they are much more liquid. Now, what happens when the FED closes the liquidity tap (no more QE, higher interest rates)? The bond market becomes more attractive to the investors. They leave the housing market and the stock market and move back to the bonds. Especially, that the bonds that were issued on 2%, if the rates go back to 5%, now cost much less. The investors can buy those 60-70 cents on a dollar now. This is why you should watch the bond and stock market, it will tell you where the housing market will be heading. Another thing is all those techies that don’t make any money, aka twitters, zillows, snapchats, etc, valued at billions of $$$$$. What happens then the liquidity evaporates? The investors will disappear. Easy money policies promote lots of malinvestment. This is why we have another .com biotech boom. But we remember what happens to the one in 2000, don’t we? History tend to repeat itself and people never learn.

  4. 4
    ess says:

    There are a few differences

    Those who buy are more credit worthy than those who bought before the last crash. No more half million dollar loans based upon a less than worthy credit report, or an obvious inability to pay.
    Furthermore, taxes, especially for those in the upper incomes have increased, thus the tax benefits of owning a home have increased for the wealthy
    Add in the factor of the Urban Growth Management Act, and the dirt below the property becomes way more valuable than the structure itself
    Foreigners have entered the picture in numbers that have not been evident in the past. They have money to spend, and are creating a new dynamic in the housing market. Witness Vancouver BC – income to rents to house prices is all out of whack – because of the foreign money that is pouring in. This is happening in Seattle and area.
    The percentage of those who are actual home owners has declined dramatically over the past number of years. Statistics indicate that home ownership is way down. So someone is buying all those homes – small and large investors.
    There has been more and more sharing of homes and apartments by people of all ages, which provides a method for those with less income to reside in places such as Seattle. Sharing is now the norm for more and more people – in the “old days” by the time one was an adult, one was expected to reside in their own digs
    Companies in locations where housing is even more expensive than Seattle have decided that this is a good place to expand their businesses. Furthermore, more start ups are moving to this area as a result of lower priced homes, an educated workforce and a great place to live.

    So there is reason to be optimistic that not only will income, rents and house prices remain below bubble territory, but that all three will increase in the future without entering said bubble land

  5. 5
    sleepless says:

    By ess @ 4:

    Foreigners have entered the picture in numbers that have not been evident in the past. They have money to spend, and are creating a new dynamic in the housing market.

    With China going into recession and the Chinese stock market collapse, we will have fewer foreigners in future.

    Those who buy are more credit worthy than those who bought before the last crash. No more half million dollar loans based upon a less than worthy credit report, or an obvious inability to pay.

    Not entirely true. The reason the housing collapsed in 2008 was not because people couldn’t pay, you could always sell your house if you cannot pay, but because the interest rates went up and people could not afford those overpriced houses no more. This is why people stopped buying and the ones who couldn’t pay, couldn’t sell their houses and had to walk away. The same would be true in the current market. if the rates were to go up significantly, regular joes won’t be able to buy, the same will be true for the institutional buyer, they would switch to the bond market – aka less demand. Now, the ones who cannot pay can no longer sell their houses and will walk away. People walked away not because they were not credit worthy, but because they couldn’t pay and their homes were worth less than what they owed. Delinquency rate in 2008-2010 crash was equal among good and bad borrowers. The good ones failed on their mortgages just as often as the bad ones. Also consider the fact, if the properties were to lose value, the institutional investors will try to unload their inventories as soon as possible. Look back at the foreclosure in 2008-2010. Te bank were “robo signing” until the grubberment stepped in. The reason is because most of the bank were running for exit and the grubberment “had” to step in to do something, after it did, now, in most case, foreclosures take years in some cases. The cause of 2008 crisis was not “deregulation” or whatever the other BS media propaganda wants you to believe, but malinvestment in housing (tulip mania, the home prices always goes up) because of the historically low interest rates. Thank you Greenspan for the the housing bubble of 2008, also thank Benanake and yellan for the bubble of 2016 or what ever the year of the burst is… BTW, the current bubble is the echo of 2008 bubble that never deflated in the first place with the grubberment bailouts and the FED QE money printing and ZIPR, which, in turn whats the echo of the 2000 .com crash. So, effectively, we are still in the 2000 bubble that has never burst in the first place.

  6. 6
    sleepless says:

    … and today’s biotech bubble is the yesterdays shale boom bubble. So, it is 2000 all over again…

  7. 7
    ess says:

    . So, effectively, we are still in the 2000 bubble that has never burst in the first place.

    Well, I guess we will have to see. Me? I am not worried – I have had my two rental houses for almost 25 years, have been through it all. As a matter of fact – a vast majority of home owners and those who owned rental properties were able to weather not only the last, but numerous ups and downs in the market. Even during the worse of the recession, only those who bought at the very height of the market were in serious trouble. And even during the good times there is going to be some who are going to get foreclosed.

    As to the China recession, I am reminded of the movie The Wizard of Oz where Dorothy says to Oz that he is very mighty and she very meek and small. . While there may be slowdown of the Chinese economy, it only take a relative few of over one billion to drive the relatively small and meek Seattle market. Probably a few thousand all cash foreigner buyers can have a major impact on a small market such as Seattle., and there should be enough foreign buyers that will continue to do so.

    Furthermore, most people either rent or buy. If they perceive the market as overpriced, or unable to get financing – they rent. If they think it is a good deal and can get financing, they purchase. So either way, most of the homes and apartments in Seattle are going to be occupied. And as everyone has acknowledged, there is an acute shortage of housing in the Puget Sound area for both renters and buyers. If that loosens up, it may mean a softening of prices for both homes and rentals – not a catastrophic foreclosure of houses, To reiterate, a vast majority of people did just fine during the great recession.

    For those who insist that the market is overpriced, if they wrong, I hope they pay their increase rents with good cheer and not complain about their landlord taking advantage of them. They had their chance. If they are right – they should get a 10-20% reduction in their rent over time, and good for them.

  8. 8
    Mike says:

    RE: sleepless @ 5 – Rates actually went down. Way down. The issue was people did not have enough equity (and/or income) to refinance.

  9. 9
    Anonymous Coward says:

    “Now, the ones who cannot pay can no longer sell their houses and will walk away. ” Rent prices have to collapse before people will walk away . In 2008, rents were far too low to cover the monthly nut of resetting ARM. Current rents will more than cover the PITI for a property purchased with 20% down. Rents for places similar to the one we bought last summer are about 120% of our monthly nut. What would be forcing owners to sell this time? In 2008 they couldn’t afford the house, couldn’t come close to covering expenses if the rented it, and were way upside down (nothing to lose). I don’t see any of those things being true this time (except the usual tragedies of “can’t afford the house due to job loss/divorce/etc”).

  10. 10
    sleepless says:

    By Mike @ 8:

    RE: sleepless @ 5 – Rates actually went down. Way down. The issue was people did not have enough equity (and/or income) to refinance.

    The rates went down after they went up to almost 6% and inflicted the recession. They did go down after that, but it was too late, as the wrecking ball arrived already…

  11. 11
    sleepless says:

    By Anonymous Coward @ 9:

    …and were way upside down (nothing to lose)….

    …because?…. with the higher interest rates they could no longer sell to the higher bidder. Why do you care if you cannot pay, you just sell your house – problem solved. But, it wasn’t, since the interest rates when up and people could not afford to pay those prices and the greater fools suddenly disappeared. We have plenty of institutions now borrowing at 0% and grabbing all those homes as well as plenty of people still buying with FHA on 3.5% down. The only difference between then and now, is then we had one bubble, now we have multi-bubbles everywhere. And again, then the FED interest rates were at 6% at the peak of 2007 when the bubble started to burst. Now we have 6 years of recoverless “recovery” with more $4Trill “freshly printed $$$$” in form of QE, $10Tril more in the government debt, the record number of people of out of labor force (you need jobs to buy homes, you know), on welfare and disabilities , and … 6+ years of ZIRP. Now we have stock market bubble where 90% of 500 S&P companies spend 90% of their profits on shares buy backs, reinflated stock market bubble, the bond market bubble, the sdudent debt bubble, the sub-prime loan bubble, etc… If one bubble bursts, it will drag all the other bubbles along. You are looking at the hosing as something separated from the rest of the economy, which is not. Also, when all those bubbles burst, all those hot money that has been pouring into bitech will evaporate. So, the Seattle will potentially become the silicon valley unemployed city.

    It has been a year since the FED stopped the QE program and the US economy is already falling back into recession and we are still at 0% interest rates, gigantic bubbles everywhere, historically high unemployment and gigantic debt. Now tell me, how is it different this time again? Yes, it is different, it is much much worse!

  12. 12
    Azucar says:

    The difference in the price to rent ratio between now and during the last bubble is the biggest factor that I can see that suggests we are not yet into dangerous territory (there may be a bubble forming, but it’s not as ready to pop as the last one was when it reached a price to rent ratio of 45).

    The price to rent ratio is one of many factors that determine if we are in a housing bubble… the ratio of the price (or rent) to incomes is another.

    As both prices and rent are increasing faster than incomes, and prices are increasing faster than rent (that ratio has increased from a low of around 27 in 2012 up to 32.5 now), in my mind a bubble is definitely starting to inflate. The question remains, though… will it pop, or will it deflate slowly (maybe even by attrition, with prices flattening out a bit and wages catching up)? Also, will an increase in available rental units (seems that there is a lot of construction of new apartments going on) in the coming years cause the rental rates to go down (and either bring down the purchase prices of housing or cause the ratio to increase)?

  13. 13
    Blurtman says:

    China’s devaluation of the yuan may make the Fed’s proposed very modest rate increase less doable. I don’t think deer-in-the-headlights Yellen wants to make US products even less competitive.

  14. 14

    RE: sleepless @ 3
    Pretend Jobs in Pretend Cubicles

    Just what do Google and Yahoo employees do? Lord only knows. One thing’s for certain, they make nothing.

  15. 15

    RE: Blurtman @ 13
    The $10,000 Question Blurtman

    Why is low interest welfare to upper income real estate buyers more important than livable interest rates to retire on? I’m retiring on pure lottery ticket luck in the stock market, which I recently cashed in at the beginning of the year, before its degradation this year….I’m certainly not a good example of retirees.

  16. 16
    Mike says:

    By sleepless @ 10:

    By Mike @ 8:

    RE: sleepless @ 5 – Rates actually went down. Way down. The issue was people did not have enough equity (and/or income) to refinance.

    The rates went down after they went up to almost 6% and inflicted the recession. They did go down after that, but it was too late, as the wrecking ball arrived already…

    Rates didn’t cause the recession. In fact, if you looked at the rates homeowners were actually were paying about 2/3’s of mortgages were not typical 30 year fixed at 6% – they were some other hybrid loan structure that held the rate or payment significantly below what someone would pay on a 30 year fixed loan. The minority of borrowers that were sticking with traditional 30 year fixed mortgages back then weren’t by and large the ones finding themselves *forced* to refinance or sell.

    Eventually after the market collapsed quite a few people with 30 year fixed loans found themselves in trouble. But that wasn’t due to the high rate so much as loss of equity, income reduction, or the fact that there was no longer a subprime lending market to help rescue people in financial hardship.

  17. 17
    Macro Investor says:

    By softwarengineer @ 14:

    RE: sleepless @ 3
    Pretend Jobs in Pretend Cubicles

    Just what do Google and Yahoo employees do? Lord only knows. One thing’s for certain, they make nothing.

    I don’t get it either. Never in the history of the internet have I clicked on an ad. Never. Who are these people who are making goog rich?

  18. 18
    Macro Investor says:

    By softwarengineer @ 15:

    RE: Blurtman @ 13
    Why is low interest welfare to upper income real estate buyers more important than livable interest rates to retire on?

    The theory is, if the money supply does not keep expanding it collapses. Sort of sounds like a ponzi, doesn’t it?

    If you are interested in learning more, search for “money is debt” — a video presentation.

  19. 19
    Mike says:

    By Macro Investor @ 17:

    By softwarengineer @ 14:

    RE: sleepless @ 3
    Pretend Jobs in Pretend Cubicles

    Just what do Google and Yahoo employees do? Lord only knows. One thing’s for certain, they make nothing.

    I don’t get it either. Never in the history of the internet have I clicked on an ad. Never. Who are these people who are making goog rich?

    Let me guess, you’re also one of those people that thinks Amazon is going to go out of business because you don’t buy books? I mean, seriously, who buys books aside from old ladies and college students?

  20. 20
    boater says:

    By Macro Investor @ 17:

    By softwarengineer @ 14:

    RE: sleepless @ 3
    Pretend Jobs in Pretend Cubicles

    Just what do Google and Yahoo employees do? Lord only knows. One thing’s for certain, they make nothing.

    I don’t get it either. Never in the history of the internet have I clicked on an ad. Never. Who are these people who are making goog rich?

    Are you sure you’ve never clicked on an ad? A fair amount of the time the first two links listed in search results are actually paid for ads. That wasn’t always as clear as it is now. For years the distinction between a high click through rate promoted ad and an organic search result were fairly difficult for a novice to spot.

  21. 21
    Matt the Engineer says:

    Are there any good numbers for employment? And not unemployment, which has goofy definitions and is full of holes, but actual number of people working in Seattle (or the Seattle area)? Because that has to drive housing prices. One thing that I think happened before the “bubble” is that we had really great employment ratios (I think, using vague memory and anecdote as a guide). Yes, we also had the global pool of money and low interest rates that artificially drove house buying, but that’s layered over the general demand for housing from employment. Because each job (or half a job, in the case of dual-income household) represents a household looking for or living in a home.

    Something that’s happening right now is a vast increase in employment. Each of the households this affects are bidding for homes in the area, so you’d expect prices to shoot up until the construction market catches up.

    So I’d expect employment to be a slightly leading indicator of housing prices, and office construction to be a strongly leading indicator.

  22. 22
    Matt the Engineer says:

    Ha. Check out the bottom of page 3 of this PDF. Talk about a strong correlation to housing prices…

    (edit) Here’s the report with this year’s data. I have a feeling housing prices will be going up.

  23. 23
    Blurtman says:

    By Matt the Engineer @ 21:

    Something that’s happening right now is a vast increase in employment. Each of the households this affects are bidding for homes in the area, so you’d expect prices to shoot up until the construction market catches up.

    At least here in Sammamish, the construction market seems to be rapidly catching up. I have lived here since 2004. but this is truly a remarkable pace of new home construction going on in these parts. No open space is safe, and the developers continue to clear cut, until the very character of the community is destroyed, many fear.

  24. 24
    ess says:

    RE: Matt the Engineer @ 22

    Thanks for the link Matt – it was both informative and useful

  25. 25

    RE: Mike @ 19

    Amazon is a Warehouse for Distribution, Albeit Mostly Slave Wages

    Its more like eBay than Yahoo or Google.

  26. 26
    Rafter says:

    Can I be an idiot for a second?
    Re: the ratio graph- Home prices divided by average rent.
    Lets take a house priced at $500k. The 2015 ratio shown on the graph is 32.5. To get to that annual ratio means that the house’s rent is $162,500 or $13.5k /month. I must be missing something because that is way too high for rent.

  27. 27
    The Tim says:

    RE: Rafter @ 26

    $500,000 / 32.5 = annual rent of $15,385
    divide by 12 to get the monthly rent = $1,282

  28. 28
    Mike says:

    By softwarengineer @ 25:

    RE: Mike @ 19

    Amazon is a Warehouse for Distribution, Albeit Mostly Slave Wages

    Its more like eBay than Yahoo or Google.

    I guess if you ignore Amazon’s massive digital and physical distribution network and the logistics involved, the company might look something like Ebay. That’s kind of like comparing Costco to a flea market. They’re both places to buy stuff.

  29. 29
    Dave says:

    Adding insult to injury rents are also increasing due to developers focusing on luxury units (1%) instead of middle income units (99%).

    https://twitter.com/NickTimiraos/status/633243820579155968/photo/1

    http://www.wsj.com/articles/rents-rise-faster-for-midtier-apartments-than-luxury-ones-1439769468

    Another reason why I went ahead and bought in north Seattle a few years back.

  30. 30

    RE: The Tim @ 27

    Let’s See the Mortgage Payment on a $500,000 Loan

    With a small down payment is like $2000/mo, then add property tax, insurance and maintenance…..we may be up to $2500-3000 now….and you’re renting it at a loss for $1200/mo….makes as much sense investing that way as hoarding up phony $3 bills…

  31. 31

    RE: Mike @ 28

    Mike You Believe the Brainwashing?

    I bet the software code and search engines on eBay vs. Amazon are built and unchanged for years; even the S/W developers are twirling their thumbs now…

  32. 32
    Matt the Engineer says:

    By Dave @ 29:

    Adding insult to injury rents are also increasing due to developers focusing on luxury units (1%) instead of middle income units (99%).

    Another reason why I went ahead and bought in north Seattle a few years back.

    First, let’s address the hyperbole. Few units are being built for the 1% in Seattle. Maybe the 10%. And I know “middle income” is tough to define, but you can do a better job than 99%.

    Now, the substance. I don’t buy that long-term it matters what level you build for. Every unit built keeps a household from being displaced – and that household is never the rich. Go ahead and try to build units for the middle class – they’ll just be outbid by those above them.

    Regarding those charts I’d guess it’s more a factor of incomes (demand side) than supply. Though I’m sure supply has something to do with it – if there’s a comparative glut of Class A units coming online at once you’ll see rents drop*. But as they drop* low enough to convince people to move into them vs Class B units, you’ll see the rents drop* there too.

    * I’m intending to use “drop” here as compared to what the rents would have been. “Increase less quickly” would fit this definition. I’m not sure any rents are actually going down in Seattle recently.

  33. 33
    Matt the Engineer says:

    By softwarengineer @ 30:

    RE: The Tim @ 27

    Let’s See the Mortgage Payment on a $500,000 Loan

    With a small down payment is like $2000/mo, then add property tax, insurance and maintenance…..we may be up to $2500-3000 now….and you’re renting it at a loss for $1200/mo….makes as much sense investing that way as hoarding up phony $3 bills…

    Where in Seattle can you rent a $500k house for $1200/month?! Keep in mind these two numbers are measuring different things – the homes for sale are a different group than the units for rent. For example, around 50% of households rent in Seattle and around 50% of our population lives in multifamily housing. Although the two populations aren’t exactly the same (some people rent single family homes, some people own condos), there’s a very large overlap. In other words, when you’re talking about your average (and certainly your mean) rental, you’re talking about an apartment. When you’re talking about your average home sale you’re talking about a SF home.

  34. 34
    sleepless says:

    By The Tim @ 27:

    RE: Rafter @ 26

    $500,000 / 32.5 = annual rent of $15,385
    divide by 12 to get the monthly rent = $1,282

    RE: The Tim @ 27 – I think, we are in both, rental and housing bubble. You cannot really compare the two now as the both are in the bubble… It is like comparing stock and bond market. Which is overvalued, where as the both, stock and the bond markets are in the bubble.

  35. 35
  36. 36
    Mike says:

    RE: Matt the Engineer @ 33 – Absolutely right! And that is something that is going to shift the balance going forward and probably push the cost of owning higher relative to renting over time. Developers can stack the City full of new multi-unit buildings (aka apartments, town homes and the much rarer condo), but the one thing that developers cannot do is build more land for single family homes. Town homes and condos may dilute the pool a bit, but the vast majority of ownership units are still larger single family homes sitting on their own land. Rents may stabilize over the next year or two as new inventory comes on, but the single family homes really are not getting any new inventory, particularly in the hottest sub-markets, and so the price of them will naturally be under greater pressure than rents on apartments that are a dime a dozen. Seattle is adding thousands of people a year, many of whom come from the rest of the country and still want their small slice of yard, and we’re adding no new homes with yards. The results aren’t rocket science.

    Comparing the relative changes in the rent of a 1br apartment and of a 4br home on a 5,000sqft lot is really almost non-nonsensical unless and until you get something that just jumps out as really wacky like the fast spike in 2004-2007.

  37. 37
    Matt the Engineer says:

    RE: Mike @ 36 – I’m not sure I agree. Seattle has an average household size of 2. When taken with that 50% SF home number I gave this implies a whole lot of SF homes are taken up by singles or doubles. Now, they may just all prefer lawns and are willing to pay a large premium for them. But how much of a premium? If there’s a construction boom and condo prices are cut in half will that pass up that deal? I think the only market participants whose preferences aren’t terribly fungible are families. They tend to want yards if they can afford them, and are willing to pay a large premium to get them. But even that isn’t an absolute – there are plenty of families all over the world that live in high-rises.

    In the end not only do I think that these different markets we have for different housing products affect each other, I actually think they’re all the same market. Make housing scarce enough and people will rent warehouses and convert them into homes (see: Manhattan). Make demand low enough and you’ll see mansions converted into low-income housing.

  38. 38
    julie says:

    Interesting that this new Bellevue apt/condo project is funded by EB-5 program with Chinese investors. http://www.seattle-eb5.com/index.php/projects/mirador

  39. 39
    Shoeguy says:

    People can’t afford to buy houses because they’ve shot back into 2006 housing bubble territory, so they are forced to rent. Because of the glut of these renters, rents too have shot into the stratosphere. But we aren’t in a Housing Bubble because the exorbitant rent to bubbly price ratio is within a historic range, even though incomes have been stagnating and are way below the 2006 Housing Bubble era?

    Seems like some pretty shady circular logic on this one.

  40. 40
    Dave says:

    Taking this discussion to a broader national view of shelter cpi. Not a pretty picture.

    http://www.zerohedge.com/news/2015-06-24/mystery-missing-inflation-solved-record-number-us-renters-cant-afford-housing

  41. 41
    ess says:

    Another factor to throw into the mix is the fact that the smaller traditional single family house is becoming a smaller and smaller percentage of both the rental and ownership market. As land has become so expensive, it is impossible for builders to make a profit constructing a smaller house. Thus your new single family housing construction are very large houses with very large prices to go with them.

  42. 42
    redmondjp says:

    By ess @ 41:

    Another factor to throw into the mix is the fact that the smaller traditional single family house is becoming a smaller and smaller percentage of both the rental and ownership market. As land has become so expensive, it is impossible for builders to make a profit constructing a smaller house. Thus your new single family housing construction are very large houses with very large prices to go with them.

    And in the past, these types of houses were quickly converted over to boarding houses/apartments when the neighborhood fell out of favor with the well-to-dos. We’ll see if this holds true in the future, testing the strength of our planning and zoning laws (which also could be revised). On the Eastside, many of these large houses are typically occupied by three generations (H1Bs, their US-born children, and then the grandparents from the old country move in).

  43. 43
    Mike says:

    By ess @ 41:

    Another factor to throw into the mix is the fact that the smaller traditional single family house is becoming a smaller and smaller percentage of both the rental and ownership market. As land has become so expensive, it is impossible for builders to make a profit constructing a smaller house. Thus your new single family housing construction are very large houses with very large prices to go with them.

    I don’t see any evidence of that happening on a wide scale – ie builders in Seattle are by and large building some pretty small homes where they can. Not pre-1950’s tiny, but there are a lot of new homes in the under 2000 sq ft range, and the prices can go into the $800K range. Here’s a less expensive one right off Aurora (1600 sq ft, 1400 sq ft lot for $500K)

    https://www.redfin.com/WA/Seattle/932-N-97th-St-98103/home/98295

    Many of the new homes on more traditional (4000+ sq ft lots) are in the under 3000 sq ft range. You get out in the suburbs like Sammamish and anything new in that price range is generlly well above 3000 sq ft. People in Seattle are paying close to $1M on average for homes in the mid-2000 sq ft range:

    https://www.redfin.com/WA/Seattle/9006-1st-Ave-NW-98117/home/100604

  44. 44
    Mike says:

    By Shoeguy @ 39:

    People can’t afford to buy houses because they’ve shot back into 2006 housing bubble territory, so they are forced to rent. Because of the glut of these renters, rents too have shot into the stratosphere. But we aren’t in a Housing Bubble because the exorbitant rent to bubbly price ratio is within a historic range, even though incomes have been stagnating and are way below the 2006 Housing Bubble era?

    Seems like some pretty shady circular logic on this one.

    The issue wasn’t so much that incomes weren’t supporting prices, it’s that people with those insufficient incomes were able to buy houses in 2006. Now they’re not. So even if the overall income level has dropped, the shift from low income people buying expensive homes to high income people buying expensive homes (or paying high rents) is significant.

  45. 45
    ess says:

    By Mike @ 43:

    By ess @ 41:

    Another factor to throw into the mix is the fact that the smaller traditional single family house is becoming a smaller and smaller percentage of both the rental and ownership market. As land has become so expensive, it is impossible for builders to make a profit constructing a smaller house. Thus your new single family housing construction are very large houses with very large prices to go with them.

    I don’t see any evidence of that happening on a wide scale – ie builders in Seattle are by and large building some pretty small homes where they can. Not pre-1950’s tiny, but there are a lot of new homes in the under 2000 sq ft range, and the prices can go into the $800K range. Here’s a less expensive one right off Aurora (1600 sq ft, 1400 sq ft lot for $500K)

    https://www.redfin.com/WA/Seattle/932-N-97th-St-98103/home/98295

    Many of the new homes on more traditional (4000+ sq ft lots) are in the under 3000 sq ft range. You get out in the suburbs like Sammamish and anything new in that price range is generlly well above 3000 sq ft. People in Seattle are paying close to $1M on average for homes in the mid-2000 sq ft range:

    https://www.redfin.com/WA/Seattle/9006-1st-Ave-NW-98117/home/100604

    In the two examples above, the first house was a townhouse, the second house is a 2700 sq foot house. Neither are what I was referring to.

    As I said, new smaller houses on regular 4000-8000 sq foot lots are impossible to find. When I say small, I mean about 900-1100 sq feet, which was the size of an average single family house after world war two. To my knowledge, those size houses on regular lots are not under construction in this area.

    The smallest new house I have heard about in the Seattle area are new houses to be built in Mountlake Terrace. About 1400 sq feet, price in the high 400s. Most of the other new houses in this area are over 2000 sq, which until recently, has been considered very large.

    For people who want to rent or buy a 900-1200 sq foot starter house for 2-3 people – good luck. That category will be a smaller and smaller percentage of the available housing in the Seattle area. Thus the single family house on a traditional lot will be an experience that less and less people will be able to afford. A shame for those people – but that is the new reality. Those folks better get used to living on top of each other – either in an apartment or a townhouse.

  46. 46
    boater says:

    RE: ess @ 45
    Doesn’t it seem just as likely the post WW2 1000 sq ft home was itself an anomaly?

    I suspect people looking to buy that style house now just rent longer until they can buy the next size up house. They retain the flexibility to move with the job market without the transaction costs associated with buying and selling a home.

  47. 47
    Mike says:

    RE: ess @ 45 – You’re getting hung up on the “traditional lot” – the town home I linked to is detached on it’s own lot. I agree it’s unusual to find anything detached under about 1500 sq ft in Seattle. All we’re seeing here is people are increasingly unwilling to pay for small homes on large lots. Having a big yard is nice, but when 70% or more of the monthly payment is going into the land, you really have to like your yard to make that kind of sacrifice over interior square footage.

    If a builder was putting in $700,000 1 bedroom bungalows on 4000 sq ft lots, who is the target buyer? A single person earning $150K+/yr who wants to spend their weekends doing yard work?

    Those small post ww2 bungalows weren’t chosen because they were superior to a larger home, in most cases they were all a 25 year old fresh out of the service could afford. That isn’t anywhere close to today’s buyer demographic.

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