Case-Shiller Tiers: Only Low Tier Still Below Previous Peak

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

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

  • Low Tier: < $314,170 (up 1.6%)
  • Mid Tier: $314,170 – $503,190
  • Hi Tier: > $503,190 (up 1.9%)

First up is the straight graph of the index from January 2000 through April 2016.

Case-Shiller Tiered Index - Seattle

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

Case-Shiller Tiered Index - Seattle

All three tiers increased once again in April.

Between March and April, the low tier increased 1.9 percent, the middle tier rose 2.2 percent, and the high tier was up 2.0 percent.

Here’s a chart of the year-over-year change in the index from January 2003 through April 2016.

Case-Shiller HPI - YOY Change in Seattle Tiers

Year-over-year price growth in April was larger than it was in March for the high tier, but dropped slightly for the low and middle tiers. All three tiers are still seeing double-digit year-over-year price increases. Here’s where the tiers sit YOY as of April – Low: +10.6 percent, Med: +11.3 percent, Hi: +10.3 percent.

Lastly, here’s a decline-from-peak graph like the one posted yesterday for the various Case-Shiller markets, but looking only at the Seattle tiers.

Case-Shiller: Decline from Peak - Seattle Tiers

Current standing is 7.1 percent off peak for the low tier, at peak for the middle tier, and 6.2 percent above the 2007 peak for the high tier.

(Home Price Indices, Standard & Poor’s, 2016-06-28)

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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.

65 comments:

  1. 1
    Baughman says:

    Looking at that chart makes me really regret having recently bought a home for the first time. I knew the timing was awful but I got a new job and have a huge family and renting is not viable for me. Oh well. The indirect consequences of having a huge family.

  2. 2
    GoHawks says:

    RE: Baughman @ 1 – why regret buying a home if it’s a good fit for your “huge” family. Don’t just focus on timing.

  3. 3
    Scotsman says:

    Not a bubble, and nothing to suggest this is close to over. Affordability measures, income growth, population growth, limited supply, foreign investment, continued low interest rates, all support current pricing and suggest continued price increases. For the Seattle area at least the only risk factors are global and/or catastrophic in scale. This isn’t a bubble any more than San Francisco/San Jose, Boston, or DC are a bubble. It’s where the jobs and the money are. With limited supply and little to change that on the horizon off we go, higher and higher. I’m still looking to global economic crisis, war, or significant natural disaster as the only factors to bring price increases to a halt. And that halt is more likely to be stability and inflation rate growth than a collapse. No funny zero down loans, no hair dressers and exotic dancers buying homes to flip, no throwing caution to the wind and going all in. Everybody is just a bit nervous, appropriately cautious, watching the numbers, thinking it through. That’s not a bubble mentality.

  4. 4
    Sam Hunter says:

    RE: Scotsman @ 3

    Agree 100% Scotsman.

    Also the contrarian indicator of all these experts who think we are in a bubble and will pop in a year.

  5. 5
    S-Crow says:

    RE: Scotsman @ 3, RE: Sam Hunter @ 4

    1) I’m not as enthusiastic as you that this existing run up has a lot more to go. The larger it inflates the more we will overshoot on the downside. Debt loads are increasing. Debt loads are again being shifted onto property increasing CLTV’s. The housing ATM machine is alive and in 5th gear being used to finance flipping. FHA and VA loans are your 100% or near 100% financed loans…..lots of them with low FICO’s and with enormous funding fees that get lost as a closing costs “cuz it’s not out of pocket expenses!”. As I said before, if this market just so much as get’s a hickup because people (those smart and highly “educated” people that work in various medical, engineering, tech and services sectors) become bright all of a sudden and say, “golly” it might not be so smart to pay $70,000 over list because it is nothing more than “emotionally driven artificial appreciation” , then those first timers, next to nothing or nothing down buyers and serial refinancers are in a world of hurt and those in the upper tiers will see the quicker price drops.

    Continued next reply…….

  6. 6
    S-Crow says:

    2) However, this is from the trenches based on real transactions and therefore “just anectdotal.” On the other hand, we have thousands of market participants who have now learned that walking away is blessed by the real estate industry. So, really, you can’t lose because you can just rent out the home for years before “my” short sale takes place or the bank decides to actually foreclose and then those escrow people will cut me a $10,000 check out of HAFA (ie, US taxpayers) funds to be disbursed at closing for “hardship and moving” expenses. Before you all call “baloney” on me, it’s all happening today, in this market.

    A Managing broker and even a broker I spoke with this afternoon face to face are quite concerned—maybe the mud on the face as industry players actually humbled some.

    S-Crow

  7. 7
    S-Crow says:

    3) One more thing….before people say…ya, ok S-Crow but you only work out in the sticks and close deals there… sorry, we close everywhere and I signed clients this past week in Mercer Island, Kirkland, Bellevue, Redmond, Ravenna, Capitol Hill, Kirkland again, Federal Way, Shoreline and up north.

  8. 8
    ess says:

    By Scotsman @ 3:

    Not a bubble, and nothing to suggest this is close to over. Affordability measures, income growth, population growth, limited supply, foreign investment, continued low interest rates, all support current pricing and suggest continued price increases. For the Seattle area at least the only risk factors are global and/or catastrophic in scale. This isn’t a bubble any more than San Francisco/San Jose, Boston, or DC are a bubble. It’s where the jobs and the money are. With limited supply and little to change that on the horizon off we go, higher and higher. I’m still looking to global economic crisis, war, or significant natural disaster as the only factors to bring price increases to a halt. And that halt is more likely to be stability and inflation rate growth than a collapse. No funny zero down loans, no hair dressers and exotic dancers buying homes to flip, no throwing caution to the wind and going all in. Everybody is just a bit nervous, appropriately cautious, watching the numbers, thinking it through. That’s not a bubble mentality.

    To paraphrase an old saying – from your writing to my bank account.

    Real estate values generally increase in value over time in a step like fashion. Property may go up 30%, and then drop 10%, and then go up another 15% and then drop 5%. Sort of like direction the stock market goes in over time. Only problem is that there is no way to totally accurately forecast the amount of any increase and decrease from year to year. One can make intelligent guesses as to what is transpiring, but there are no guarantees. Like stocks, the longer one holds on to real estate, the greater the chance that it will not be a losing proposition.

    I do agree with your assessment that this is an area with not that much area to build and expand because of natural and artificial boundaries. And the Puget Sound is not some backwater, but one of the 15 or so largest metropolitan areas in the country and the population here is growing rapidly.

    So we shall see what will happen in the future. Either prices will continue their climb, or buyers and renters will get a break in the future. I am betting on the first scenario as you are, although not at the breathtaking increases we have recently had. It can even cool off for a while. After all, real estate prices for houses in this area have increased 54% in the last four years, and that is a pretty hefty increase, even if most of that increase just gets us back to the prices before the great recession.

  9. 9
    pfft says:

    NATE SILVER: Hillary Clinton has a near 80% chance of winning the election
    http://www.businessinsider.com/nate-silver-hillary-clinton-donald-trump-2016-6

  10. 10
    Blurtman says:

    RE: pfft @ 9 – Silly troll.

    Nate Silver pegged Clinton’s chances of winning the Michigan primary at 99%. She lost to Sanders.

    Silver predicted Remain would win in the UK. Leave won.

    Silver predicted Trump would not be the Republican Nominee. He was wrong, yet again.

    Silly troll.

  11. 11
    Deerhawke says:

    I just sold two really sweet spec houses in the last month. My impression is that this is a market driven by scarcity. There is little inventory and what is available is not all that good.

    This does not seem to be a market driven by financial shenanigans. The buyers were putting down 20% and were qualified to get the loans. I did not see people with funny money or weird finial products. The appraisers did their jobs.

    Prices were much higher than I had in my original pro forms. Both of the buyers were willing to pay a premium because they had been beaten out in multiple offer situations.

    My issue is finding reasonably priced lots for my next development. Prices for a teardown have gone up $150-250K in the last year. When you put that through the new construction multiplier, you realize that prices in the central core of Seattle where I build are going up,

  12. 12

    RE: Blurtman @ 10 – Besides all that–assuming it’s correct–what would happen today might be totally different than what might happen in November, depending on what happens between now and then. There are several things which could hurt either candidate, but on the Hillary side the obvious ones are: (1) An indictment; (2) Multiple (or one major) terrorist attacks in the US; (3) War in the middle-east; and (4) The country having another pre-election economic shock.

    On the Trump side the obvious things are: (1) Stupid things he says; (2) Moronic things he says; and (3) Brain dead things he says.

  13. 13
    ess says:

    By Deerhawke @ 11:

    I just sold two really sweet spec houses in the last month. My impression is that this is a market driven by scarcity. There is little inventory and what is available is not all that good.

    This does not seem to be a market driven by financial shenanigans. The buyers were putting down 20% and were qualified to get the loans. I did not see people with funny money or weird finial products. The appraisers did their jobs.

    Prices were much higher than I had in my original pro forms. Both of the buyers were willing to pay a premium because they had been beaten out in multiple offer situations.

    My issue is finding reasonably priced lots for my next development. Prices for a teardown have gone up $150-250K in the last year. When you put that through the new construction multiplier, you realize that prices in the central core of Seattle where I build are going up,

    If I can ask – are lots easier to locate outside of the central core of Seattle? Heading both north and south, where do both prices and competition for lots ease up, if they do at all? In Seattle, are “good” houses getting torn down because of the need for buildable lots?

  14. 14
  15. 15

    RE: S-Crow @ 5
    Yes, Spot on Escrow

    You blogged what I was gonna say…

  16. 16

    RE: ess @ 13
    The Seattle Land Shortage

    Has been horrifying since the 1970s and it isn’t getting any better. Welcome to postage stamp sized lots with no trees…

  17. 17

    RE: softwarengineer @ 16 – Some people like that! Not my cup of tea, but some people do prefer small lots and no trees, etc.

  18. 18
    Don Graham says:

    RE: ess @ 8 – Has the legal definition reverted to “the highest price” rather than “the most probable price”?

    Is the relationship between family income and price being ignored again? I’ve not heard of incomes rising at a similar rate as prices, have you?

  19. 19
    pfft says:

    By Blurtman @ 10:

    RE: pfft @ 9 – Silly troll.

    Nate Silver pegged Clinton’s chances of winning the Michigan primary at 99%. She lost to Sanders.

    Silver predicted Remain would win in the UK. Leave won.

    Silver predicted Drumpf would not be the Republican Nominee. He was wrong, yet again.

    Silly troll.

    u mad bro? you a trumpeter who hasn’t figured out he is going to lose yet?

    Everyone looks bad when you post their mistakes. Do you understand what a % prediction is? 99% means there is a 1% chance of winning. What about how Silver called 49 of 50 states right in 2012 when people were unskewing polls and thinking Romney would win. What about his 2008 election calls?

    how can I be a troll is I’ve been here since 08 or 09? silly human.

  20. 20
    pfft says:

    By Kary L. Krismer @ 12:

    RE: Blurtman @ 10 – Besides all that–assuming it’s correct–what would happen today might be totally different than what might happen in November, depending on what happens between now and then.

    hence the 20% part of the prediction.

  21. 21
    ess says:

    By Kary L. Krismer @ 17:

    RE: softwarengineer @ 16 – Some people like that! Not my cup of tea, but some people do prefer small lots and no trees, etc.

    As a person who regularly cleans out the gutters of his houses – I love houses with no trees!!

  22. 22
    ess says:

    By Don Graham @ 18:

    RE: ess @ 8 – Has the legal definition reverted to “the highest price” rather than “the most probable price”?

    Is the relationship between family income and price being ignored again? I’ve not heard of incomes rising at a similar rate as prices, have you?

    Someone is buying all these houses, and many are either all cash deals, or a good percentage down with proper income verification. And those houses are getting snapped up rather quickly. Furthermore, as has been said here before, those factors may not matter as much for the more expensive, exclusive areas of Seattle and the eastside. What is important that there are more buyers in the top tier who have the money and qualify for those expensive houses than there are houses for sale. I may worry about income and price, and I may never buy one of those expensive houses, but apparently there is a large group of Puget Sound residents that don’t have that concern, and have lots of spare cash.

  23. 23
    Anonymous Coward says:

    RE: softwarengineer @ 16 – It’s not like small lots are a new thing; 5000 sq ft lots are common in Seattle. And we love our 5000 sq ft lot. We’d much rather have a well landscaped and well maintained 5000sq ft lot than 2 brown, weedy, spotty, blackberry infested acres.

  24. 24

    By Anonymous Coward @ 21:

    RE: softwarengineer @ 16 – It’s not like small lots are a new thing; 5000 sq ft lots are common in Seattle. And we love our 5000 sq ft lot.

    Our old house in Seattle sat on 5,000 square feet, but it was all but the north 10 feet of one lot and all of a second lot. Since the lots were 100′ deep that would mean each lot was 3,000 square. And these were platted before 1955.

    Researching the records for that property, someone back in the 60s or 70s tried to find out if they could break the lots into two! ;-)

    Anyway, it was adequate, but it was also benefited by a non-vacated alleyway.

  25. 25
    Screenname345 says:

    There are quite a few buyers in the upper tier that are using their parents money or an inheritance to buy. You know, the old fashioned way. They also use the same means to send their kids to all the fancy private schools here.

  26. 26
    Don Graham says:

    I can understand the attraction of living in the Puget Sound. After a great deal of exploring the world, this part of our planet made the most sense to me; ergo, we moved here 29 years ago. That was consistent with my education, and with “Limits To Growth” & its 12 scenarios/consequences in 1970.

    Prior to Fukushima, their research was updated.

    “Overshoot and Collapse” would begin no later than 2024.

    Reports from around the world have added to my angst for remaining. To leave, or not to leave, THAT was my question.

    PHUQIT says I, and here we be.

  27. 27
    Justme says:

    RE: ess @ 8

    Every thread you can count on Ess to start over again with some propaganda falsehood.

    >>Real estate values generally increase in value over time in a step like fashion. Property may go up 30%, and then drop 10%, and then go up another 15% and then drop 5%. Sort of like direction the stock market goes in over time.

    What a laugh. Real estate just does this, all the time, all by itself, does it? And it is some sort of law of nature? Hell no. Just look at the Case-Shiller 1890-2012 historical house price index, adjusted for inflation:

    https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index

    What do you see? Well, serial bubbles since 1987, for one. And it is not a law of nature. It is a law of 30 years of Greenspan/Bernanke/Yellen of the FRB reducing interest rates whenever a bubble popped. There is NOTHING natural or inevitable about FRB-induced asset inflation. We have now reached the end of the road with ZIRP and stagnant wages.

  28. 28
    Cap''n says:

    RE: Don Graham @ 24

    I’ve had four beers today. I am not confident that is the reason I don’t understand your post.

  29. 29
    Mike says:

    Too bad CS doesn’t do a tiered index for Seattle. $503K is low tier.

    By Anonymous Coward @ 21:

    RE: softwarengineer @ 16 – It’s not like small lots are a new thing; 5000 sq ft lots are common in Seattle. And we love our 5000 sq ft lot. We’d much rather have a well landscaped and well maintained 5000sq ft lot than 2 brown, weedy, spotty, blackberry infested acres.

    Current city council plans to get rid of you and anyone else with SF5000 or higher zoning before the end of the year.

  30. 30
    Deerhawke says:

    Re: Ess @13

    If you get up north of 85th, there is somewhat more availability of lots, but also prices that are equal to Seattle core prices )12-15 months ago. More again in Shoreline, but no bargains there either.

    Are people tearing down good houses to build new construction projects? It does happen, especially if that good house is in a multifamily zone suitable for apartments. But most of what I tear down, the neighbors are glad to see gone. I took down a hoarder house in Ballard last year that was full to the rafters but had been occupied since … 1997. The other house I took down last year was 2×4 construction set 24″ on center. It had single pane aluminum windows and zero insulation. The last time it was painted was during the Carter administration when they re-sided with T-111.

  31. 31

    By Don Graham @ 24:

    I can understand the attraction of living in the Puget Sound.

    By Cap”n @ 26:

    RE: Don Graham @ 24

    I’ve had four beers today. I am not confident that is the reason I don’t understand your post.

    He likes to swim.

  32. 32

    By Justme @ 25:

    What a laugh. Real estate just does this, all the time, all by itself, does it? And it is some sort of law of nature? Hell no. Just look at the Case-Shiller 1890-2012 historical house price index, adjusted for inflation:

    https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index

    That is largely Case-Shiller promoting their agenda. A study coming to the result that the authors wanted.

    Given the location of the houses that existed at the beginning of the 20th Century, do you really believe they only kept pace with inflation? They would have mainly been near what are downtown cores, and be highly valuable today.

    The main reason that real estate tends to increase in value is because population tends to increase. It’s not something magical, it’s just that demand is always going up.

  33. 33
    ess says:

    By Deerhawke @ 28:

    Re: Ess @13

    If you get up north of 85th, there is somewhat more availability of lots, but also prices that are equal to Seattle core prices )12-15 months ago. More again in Shoreline, but no bargains there either.

    Are people tearing down good houses to build new construction projects? It does happen, especially if that good house is in a multifamily zone suitable for apartments. But most of what I tear down, the neighbors are glad to see gone. I took down a hoarder house in Ballard last year that was full to the rafters but had been occupied since … 1997. The other house I took down last year was 2×4 construction set 24″ on center. It had single pane aluminum windows and zero insulation. The last time it was painted was during the Carter administration when they re-sided with T-111.

    ————————————————————————————————————————–

    Thanks for your reply – most illuminating.

    I ask about “good” houses because I have a friend east of UW who took me for a walking tour of his neighborhood. I was stunned at the number of houses that were recently torn down in his area and replaced with very big single family houses. It appeared that on almost every block, a home had been replaced, or was the process of being replaced. Occasionally two houses were built where there had been one house, but in many cases it was one house replacing another house. Of course casual observations don’t reveal condition details, but I imagine quite a few of the house that were knocked down were in somewhat decent shape. Of course it is all how the process “pencils out” – in a very hot area there is the ability to tear down non distressed houses and build new ones and make a profit.

    Further north, I have a rental house that has been the target of developers. Not because it is a dump, quite the contrary – but because the house is so small on a very nice lot. But why sell? There are all sorts of negative tax consequences if we sell, continued positive tax benefits if we continue to hold, the house is essentially paid for for as well as the improvements, and rents are escalating to levels I never imagined would be possible five years ago. Each time a tenant moves out and I consult Craigslist rentals to determine what we are going to rent the place for – I am blown away at how high rents are. And demand? Each time the house becomes available – lots of excited people show up hoping to rent it because they are essentially renting a house for the price of an apartment, and for many, a single family house is the most desirable residence. So that lot is tied up and not available to developers as a result of a combination of amazing rental returns, the negative tax consequences we will encounter if we sell (unless we buy another rental property or develop the property myself which I have no interest), and my inability to match those returns with anything in the stock or bond market. I would imagine we are not the only rental property owners unwilling to part with their property that in other cases would be available for redevelopment. And if capital gains go up as I think they will in the next administration, there will be even less incentive to sell on the part of property owners in my position.

  34. 34

    RE: ess @ 31 – I haven’t looked at this for years, or even looked at what would be a statistically valid sample in total, but I have seen properties where the county assessor will value a $2,000,000 property at being worth $1,950,000 for the land and $50,000 for the house, where the house is actually quite large and quite nice–by 1960 standards. They figure it’s functionally obsolete in this market.

  35. 35
    ess says:

    By Kary L. Krismer @ 30:

    By Justme @ 25:

    What a laugh. Real estate just does this, all the time, all by itself, does it? And it is some sort of law of nature? Hell no. Just look at the Case-Shiller 1890-2012 historical house price index, adjusted for inflation:

    https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index

    That is largely Case-Shiller promoting their agenda. A study coming to the result that the authors wanted.

    Given the location of the houses that existed at the beginning of the 20th Century, do you really believe they only kept pace with inflation? They would have mainly been near what are downtown cores, and be highly valuable today.

    The main reason that real estate tends to increase in value is because population tends to increase. It’s not something magical, it’s just that demand is always going up.

    ————————————————————————————————————————

    Not only that, Kary, but there are other factors to be considered with the ones you provide above.

    Take an example of a buyer who has purchased a house in a “normal” housing market, where they can place 20% down and not have to compete with all cash offers.

    Look at those advantages.

    That buyer has purchased a house with the primary expense (the mortgage) remaining constant during the time that person remains in the house. Rents usually go up over time which is a tremendous risk to tenants.

    Even with modest inflation, the primary expense will be the same, thus the dollars used to pay the mortgage in later years are inflated and not worth as much. And if inflation takes off as it occasionally has happened in the past, and will undoubtedly happen in the future – those dollars applied to the mortgage are worth even less. Even with inflation at a modest 2% a year – money after 20 years has less much less purchasing power than what it was twenty years ago. But yet the mortgage payment has remained the same.

    Leveraging ones purchase for a home is an accepted practice. With 20% down, one controls an investment worth five times the value of the initial investment minus closing expenses. Thus any increase in the value of the home as compared to the down payment is magnified due to the leveraged nature of the investment. Of course there is risk, but not as much because even with this leverage, the expenses of owning are somewhat corelated to the price of similar rental homes in the area.

    With almost all mortgages, the principle payment increases over time, thus equity increases over time. While that amount may be offset by inflation, it is at least something.

    Interest rates are at an all time low. It doesn’t matter why – the important thing is that the cost of borrowing money has been significantly reduced as juxtaposed to historical standards.

    Tax laws favor the home buyer. That person may be able to take the interest on their mortgage as well real estate taxes off their income taxes if they itemize. They can also pay other debt through the use of a home equity loan which is also tax deductible, while their other debt may not be. Tenants accrue no such tax benefits, although they pay the landlord’s mortgage and taxes indirectly through their rents.

    Furthermore, that owner is often paying less for the house than a tenant in a similar rental because rents tend to increase over time. But it is argued that a property owner must pay for expenses and upkeep for their houses, while for tenants it is the financial problem of the landlord and thus they are not responsible for those expenses. It may be problem for the landlord to physically take care or arrange others to take care of those matters, but most if not all of those expenses are covered by rent. Again, a nice tax write off for the landlord while the tenant whose rent has paid those expenses obtains no tax benefit. Thus one has a choice – pay for repairs and upkeep as a homeowner and obtain not only the tax write offs, but increased value of the property due to improvements, or have one’s rent applied to the same costs with no tax benefits.

    And the government gives homeowners a wonderful tax break not available to renters. When the homeowner sells their property, most if not all of the sales proceeds, including any increase, is often not taxed so long as IRS requirements are met. I don’t know of too many sales of assets or other investments where there is such a great deal.

    In a nation of non savers – a home is usually the largest asset. Paying the mortgage over time is almost akin to a forced savings system. But some will argue that as a result of inflation, the property increase is only a result of inflation. That may or may not be true depending on the situation. One must factor in the leverage advantage of owning a home that has increased in value if less than full amount was paid. But a tenant has nothing at all to show at all for his/her long term rental except a friendly wave from a grateful landlord, while spending a great deal of money for rent over the years.

    Of course there is risk in buying a house. There is risk in getting out of bed in the morning, and that is only the start of the risks that one accepts every day as part of life. In my humble opinion as a homeowner and rental property investor for more years than I would like to admit, one should only purchase a residence or rental property if it makes financial and emotional sense. Are the prices that people are purchasing for housing in the Puget Sound make sense? Beats me – if housing prices go up – yes – if they drop and one is a short term buyer -no. But for a vast majority of homeowners that stay in their property over time and had payments that were comparable to similar rental properties, the results have been much more positive than negative, especially with all the incentives thrown in.

  36. 36
    kenmorem says:

    By ess @ 31:

    By Deerhawke @ 28:

    Re: Ess @13
    And if capital gains go up as I think they will in the next administration, there will be even less incentive to sell on the part of property owners in my position.

    care to elaborate on this opinion re: cap gains tax increasing?

  37. 37
    Blurtman says:

    RE: Deerhawke @ 28 – It is happening on the Eastside. Several homes on 214 Ave NE were torn down to make way for the elegant Barrington Estates, although I suppose the cost of purchase and demo was drop in the bucket.

    And several homes on SE 4th near 228th Ave SE were torn down to make way for the Towne Centre “let’s Redmondize Sammamish” initiative.

  38. 38
    ess says:

    By kenmorem @ 34:

    By ess @ 31:

    By Deerhawke @ 28:

    Re: Ess @13
    And if capital gains go up as I think they will in the next administration, there will be even less incentive to sell on the part of property owners in my position.

    care to elaborate on this opinion re: cap gains tax increasing?

    Certainly

    While my crystal ball may not be as clear as I would wish all the time, this is my thinking:

    Donald Trump is a disaster for the Republican party. I believe that he will not only go down to a flaming defeat, but insure that the Dems take over the senate. Political pundits state that the house will be safely in Republican hands, but political pundits, like stock market experts, are wrong more times than anyone wants to admit. We have observed reverses in both houses in the past, and Trump is such a horrible candidate, a walking talking disaster for the Republican party than anything is possible, including a Democratic majority in both the House and the Senate

    Thus with the executive and legislative branches of government controlled by Democrats, it is not inconceivable that the long term capital gains rates can be increased. Why? With government spending out of control, the expanding the role of government in our lives that will only be accelerated by the Dems, capital gains are an easy target to demagogue. After all, those who get the preferential benefits of capital gains are the evil one percent of wage earners, and all they do is clip coupons or rake in stock dividends at the expense of the other 99%. An easy target for politicians.

    Furthermore, I believe there has been talk on the Washington State level that a state capital gains tax should be instituted. That proposal didn’t go anywhere, because we have a divided legislature, but with the national political dynamics, we could have a majority Democratic legislature with a Democratic governor.

    You notice that I said I THOUGHT capital gains might go up in the next administration. I am not certain about that at all – but it could happen. Actually the only thing I am certain about these days is that nothing is certain.

  39. 39
    Blurtman says:

    RE: ess @ 36 – The WA state gubernatorial elections have historically been too close to call. Inslee’s telling Bernie supporters to screw off hopefully will come back to bite him when he is up for election.

  40. 40
    Green-Horn Investor says:

    RE: Justme @ 25

    Perhaps Case and Shiller are correct for the national market. Even if we may invest in stocks in a perfectly diversified index fund, I don’t know anybody who can invest in a home that is as reflects the diversified nationwide stock of real estate. So if we can’t by a fund of America-wide residential real estate, we choose between homes in places like Seattle, Bellevue and Aberdeen in Washington and San Francisco and Stockton, CA, Dallas, TX or Youngstown, OH and Detroit, MI.

    ESS is correct in his observations of step-like ascent in real estate in booming economies with strictly limited room for expansion and development. Investing in the Seattle Bubble may make sense. (I certainly hope it does) I put my money where my mouth is and I’m closing on a third house on North Beacon Hill this week. I’ll cross my fingers that my 3 Bedroom piggy banks are a good store of value. My apologies to the Chinese national cash buyers whom I might have out bid.

  41. 41
    Justme says:

    RE: Green-Horn Investor @ 38

    Wow, Green-Horn. Are you a cash buyer, or a cash-out refi serial buyer? Having 2 and soon 3 houses on North Beacon Hill is no small bet, given the prices up there.

  42. 42
    Justme says:

    RE: ess @ 33

    That was quite a long-winded non-response there, ESS. My thesis is that the more long-winded and non-specific the response, the more it shows how uncertain the writer is about the truth of the matter at hand.

  43. 43
    Justme says:

    RE: Kary L. Krismer @ 30

    >>That is largely Case-Shiller promoting their agenda. A study coming to the result that the authors wanted.

    It is well known that the Case-Shiller methodology of estimating value based on same-house resale is the best methodology out there. Enough said.

    >>Given the location of the houses that existed at the beginning of the 20th Century, do you really believe they only kept pace with inflation? They would have mainly been near what are downtown cores, and be highly valuable today.

    You think that must mean the C-S methodology has to be wrong? Don’t forget it is corrected for inflation. Who is coming to a result similar to what they wanted now?

    >>The main reason that real estate tends to increase in value is because population tends to increase. It’s not something magical, it’s just that demand is always going up.

    No, the main reason is inflation (until 1987) and asset hyperinflation (1987-2016).

  44. 44
    Mike says:

    RE: Deerhawke @ 30 – What do you make of this? Sale price is $200K higher than any tear down on the same block and it’s north of 85th. Not sure if this is subdividable, but at $727K it’s an awful lot of money for a 7650 sq ft lot in SF5000 zoning.

    https://www.redfin.com/WA/Seattle/2141-NW-96th-St-98117/home/289048

  45. 45

    By Justme @ 43:

    RE: Kary L. Krismer @ 30

    >>That is largely Case-Shiller promoting their agenda. A study coming to the result that the authors wanted.

    It is well known that the Case-Shiller methodology of estimating value based on same-house resale is the best methodology out there. Enough said.

    Ahh, no it’s not. But if you want to think that go ahead. It’s basically proven itself to be little different than tracking the median price over the past peak to peak period.

    Just because someone on the Internet tells you something is good, that does not mean it actually is good.

  46. 46

    By Justme @ 43:

    >>Given the location of the houses that existed at the beginning of the 20th Century, do you really believe they only kept pace with inflation? They would have mainly been near what are downtown cores, and be highly valuable today.

    You think that must mean the C-S methodology has to be wrong? Don’t forget it is corrected for inflation. Who is coming to a result similar to what they wanted now?

    >>The main reason that real estate tends to increase in value is because population tends to increase. It’s not something magical, it’s just that demand is always going up.

    No, the main reason is inflation (until 1987) and asset hyperinflation (1987-2016).

    Wow. There’s a glaring inconsistency between your two thoughts there, but when I say value I don’t mean nominal value. You apparently didn’t catch that since you said “don’t forget it’s adjusted for inflation?” My point is, adjusted for inflation it’s complete and unadulterated BS because the properties that existed back then have gone up far faster than inflation due to their location. I don’t know how much clearer I can make that.

  47. 47
    Mike says:

    By Kary L. Krismer @ 46:

    By Justme @ 43:

    >>Given the location of the houses that existed at the beginning of the 20th Century, do you really believe they only kept pace with inflation? They would have mainly been near what are downtown cores, and be highly valuable today.

    You think that must mean the C-S methodology has to be wrong? Don’t forget it is corrected for inflation. Who is coming to a result similar to what they wanted now?

    >>The main reason that real estate tends to increase in value is because population tends to increase. It’s not something magical, it’s just that demand is always going up.

    No, the main reason is inflation (until 1987) and asset hyperinflation (1987-2016).

    Wow. There’s a glaring inconsistency between your two thoughts there, but when I say value I don’t mean nominal value. You apparently didn’t catch that since you said “don’t forget it’s adjusted for inflation?” My point is, adjusted for inflation it’s complete and unadulterated BS because the properties that existed back then have gone up far faster than inflation due to their location. I don’t know how much clearer I can make that.

    Probably worth mentioning in addition to properties in city cores being over represented, properties that are permanently abandoned aren’t included in a repeat sales index. Detroit I’m sure looks a lot better than it would if you included every house that burned and reverted back to the county.

  48. 48

    By Mike @ 47:

    Probably worth mentioning in addition to properties in city cores being over represented, properties that are permanently abandoned aren’t included in a repeat sales index. Detroit I’m sure looks a lot better than it would if you included every house that burned and reverted back to the county.

    C-S is probably good at excluding those, but the fact that they couldn’t even deal with distressed properties during a significant but still relatively minor downturn, as the events occurred, really calls into question their ability to go back 100 years and have half a clue what was going on.

  49. 49
    Justme says:

    RE: Kary L. Krismer @ 46

    >>My point is, adjusted for inflation it’s complete and unadulterated BS because the properties that existed back then have gone up far faster than inflation due to their location.

    If the house still exists, C-S tracks its resale activity and value. If the house has been demolished and replaced, C-S tracks the resale price development of the new house. Your argument seems to be that you do not believe C-S because some house in 1900 “must have” gone up a lot, and you think therefore it must somehow have gotten excluded from the index. There is no evidence that this is the case. We are talking abut RESALE prices here.

    Part of the problem here is that you are (implicitly if not explicitly) talking about property LAND value in some very select locations, and C-S and I are talking about resale value of property=house+land, no demolition, no rezoning, no subdividing of lots, no such activity. Look, if a person thinks he can live for a 100 more years, by all means buy half-a-block worth of houses+land near downtown at a price that is artificially high for its present use, then wait 100 years, become a developer, and build a skyscraper. Supposing that you guessed right on location, and that everything else goes well in the meanwhile, you may very well do better than C-S index. We are after all taking LONG timespans here. The profit may eventually be quite significant (or none at all), but that does not justify paying nosebleed FRB/ZIRP-induced prices for a SFH on 5-6-7000ft2 of land in some random location in the same city or suburb. Some very few people may hit a jackpot, become a developer and redefine the land use at great profit, if they can wait long enough.

    Look, C-S index measures what happened to people who bought existing houses and sold them again. Some very few people may hit a jackpot, become a developer, and completely redefine the land use. But I do not think that is a sound basis for paying nosebleed prices for the average SFH. And C-S still shows that until 1987, house resale prices tracked consumer inflation. From 1987-2016 we have had asset hyperinflation caused by BS-IRP (Bubble-Sustaining Interest Rate Policy, just made up a new name :)). And hence C-S index has gone haywire and increased . This is a very reliable indicator that properties (house+land) are severely overvalued.

    Heh. BS-IRP. I’m slightly proud of that one. BS Interest Rate Policy.

  50. 50
    Justme says:

    RE: Mike @ 47

    Mike, thanks. Noted. As you can see I was busy typing up an explanation of what C-S index measures, and what it does NOT measure, and why what it doesn’t measure does not matter to almost anyone.

  51. 51

    By Justme @ 49:

    RE: Kary L. Krismer @ 46

    >>My point is, adjusted for inflation it’s complete and unadulterated BS because the properties that existed back then have gone up far faster than inflation due to their location.

    If the house still exists, C-S tracks its resale activity and value. If the house has been demolished and replaced, C-S tracks the resale price development of the new house. Your argument seems to be that you do not believe C-S because some house in 1900 “must have” gone up a lot, and you think therefore it must somehow have gotten excluded from the index. .

    No, my argument is that because houses in those areas have gone up a lot, C-S is wrong. It has nothing to do with assuming they’ve excluded anything.

    And my argument is because C-S couldn’t even get the past 9-10 years right, or at least no better than just looking at median prices, what makes anyone think they got the last 100 years right.

  52. 52
    Green-Horn Investor says:

    RE: Mike @ 44

    At least they’ll be getting a relatively nice neighborhood and a view.

    This one I don’t understand.

    https://www.redfin.com/WA/Seattle/1535-23rd-Ave-S-98144/home/170719

    Listed for more than the other one + super close to freeway.
    One shouldn’t have to spend so much to satisfy one’s fetish for motorway noise and fumes.

  53. 53
    Mike says:

    By Green-Horn Investor @ 52:

    RE: Mike @ 44

    At least they’ll be getting a relatively nice neighborhood and a view.

    This one I don’t understand.

    https://www.redfin.com/WA/Seattle/1535-23rd-Ave-S-98144/home/170719

    Listed for more than the other one + super close to freeway.
    One shouldn’t have to spend so much to satisfy one’s fetish for motorway noise and fumes.

    It’s zoned LR1, so they can split that lot up into 3-5 parcels. The one I posted might be able to be subdivided into 2 at most. It’s already smaller than the last lot that was successfully subdivided on that block.

    When you look at it that way, the Judkins house could produce 5 lots valued around $150K/each, and the North Beach house could maybe produce 2 lots valued around $450K/each. Total resale value for the finished homes would be around $3M for either parcel, maybe a bit higher for 5 row houses. Without subdivision, the NB house would probably sell for under $2M as a new build. That area just isn’t chi-chi-enough to go above that. In the latter case the Judkins house is better deal, even if the location isn’t as nice.

  54. 54
    Green-Horn Investor says:

    RE: Mike @ 53

    Thanks for doing the math.

    Yeah I already realize the Judkins property is a development play but good for you to share the work with us.

    I just wonder why I don’t see more neighbors getting together to sell their properties already in a consolidated deal to developer. Squeezing 4 – 6 townhomes on a single parcel seems pretty wasteful. Couldn’t they get more per parcel if they were to aggregate 2 – 3 lots? A deal like that might be great for the property owners and developers…

    Doesn’t everybody love math when 2 + 2 = 8?

  55. 55
    Green-Horn Investor says:

    RE: Kary L. Krismer @ 51

    I’m not sure I completely understand what you mean. I also have my doubts about using the statistics. When I look at homes that sold in certain neighborhoods around Seattle 2 – 3 years ago, it’s obvious that if those same houses that were listed in 2013 – 2014 were listed today, they’d easily fetch more than double their sale price from 2 or so years ago. The official statistics citing “median price increases” of 10 – 12% do not make a 2 – 3 year doubling period.

    I appreciate all the great minds here trying to make sense of the market and statistics, but there are just too few cases of identical unrenovated homes that resell 2 – 3 years later to show a clean undistorted view of the trend. Maybe our friendly Seattle Bubbly brokers with MLS data access can keep shareing with us these anecdotes when they do come across them. Always illuminating.

  56. 56

    By Green-Horn Investor @ 55:

    RE: Kary L. Krismer @ 51

    I’m not sure I completely understand what you mean. I also have my doubts about using the statistics. When I look at homes that sold in certain neighborhoods around Seattle 2 – 3 years ago, it’s obvious that if those same houses that were listed in 2013 – 2014 were listed today, they’d easily fetch more than double their sale price from 2 or so years ago. The official statistics citing “median price increases” of 10 – 12% do not make a 2 – 3 year doubling period.

    That’s part of what I mean, that C-S stats (or the median for that matter) don’t accurately reflect what’s going on in specific neighborhoods, or even over short periods of time. But what I’m also getting at is the median as a statistic is highly criticized for being flawed, while C-S is credited as being God’s gift to man (despite the fact that it’s just a Wall Street financial product).

    But if you look locally, both C-S and the median peaked in July 2007 and on the way down both their indicated drops from peak were typically within one or two percent of each other. Meaning if one indicated it was .70 of the peak the other would typically be .68-72 off the peak. And we all know now that the median was hugely impacted by distressed properties, and thus not reflective of the value of a typical house, so the C-S stat apparently also was, despite all their black box magic in coming up with those numbers.

    So basically C-S couldn’t do a decent job dealing with what was a known problem over the past 9 years (distressed properties), but we’re to assume they did a good job dealing with all the unknowns over the past 100 years?

    I don’t think anyone would suggest looking at median prices over a 100 year period, because the median house has changed so much over that period. I’m saying the same thing about C-S. Just because they created the numbers going back 100 years, it doesn’t mean you should consider them in any way useful.

    What might be useful would be maybe finding a relatively unremodeled house on Capitol Hill, finding a sale in 1900-1910 and then finding a sale in the past 10 years and seeing the difference in nominal values and inflation adjusted values.

  57. 57

    RE: Kary L. Krismer @ 56 – BTW, I should have specified that in comparing the King County SFR median to C-S I was using a three month moving average, since that’s effectively what C-S does.

  58. 58
    Justme says:

    RE: Kary L. Krismer @ 56

    >>What might be useful would be maybe finding a relatively un-remodeled house on Capitol Hill, finding a sale in 1900-1910 and then finding a sale in the past 10 years and seeing the difference in nominal values and inflation adjusted values.

    Please do that, and make sure to include any improvement costs, all maintenance, taxes, HOA costs and the like, and also inflate these costs to net present value using historical indexing of 3 cases over the same 100-year period: bank deposits, bonds and stocks. That is the fair comparison to do.

  59. 59
    whatsmyname says:

    By Justme @ 58:

    Please do that, and make sure to include any improvement costs, all maintenance, taxes, HOA costs and the like, and also inflate these costs to net present value using historical indexing of 3 cases over the same 100-year period: bank deposits, bonds and stocks. That is the fair comparison to do.

    If you are looking at this as a pure financial play, also do not forget to add in the NPV for the same 100 years of fair rental value and income tax benefits.

  60. 60
    redmondjp says:

    By Green-Horn Investor @ 54:

    RE: Mike @ 53I just wonder why I don’t see more neighbors getting together to sell their properties already in a consolidated deal to developer. Squeezing 4 – 6 townhomes on a single parcel seems pretty wasteful. Couldn’t they get more per parcel if they were to aggregate 2 – 3 lots? A deal like that might be great for the property owners and developers…

    Why would you expect to see this? I totally understand what you are saying, because I live in a 6-house cul-de-sac close to Microsoft that was (not well-) built in 1977. The land our houses are sitting on is worth a fortune to a developer, as he can built several $1M+ homes on it (but our existing homes represent a negative as he will have to pay demo and dump costs).

    But where do us displaced homeowners go? So let’s say that I get $450K for my lot if we all got together and sold our cul-de-sac to a developer – where can I buy a move-in ready 3BR house in a close-in neighborhood on the Eastside for that? I would have to move out to Monroe or Snohomish if not even farther out. Or compete with hundreds of other potential buyers every weekend, playing the weekly housing auction game, while I lived in a $2500/month rental that costs twice what my existing mortgage does.

    Now if you had a group of owners all retirement-ready and all looking to move out of the area, then that could possibly work out for all parties involved.

  61. 61

    By Justme @ 58:

    Please do that, and make sure to include any improvement costs, all maintenance, taxes, HOA costs and the like, and also inflate these costs to net present value using historical indexing of 3 cases over the same 100-year period: bank deposits, bonds and stocks. That is the fair comparison to do.

    It might be, particularly if you were talking about investment property as opposed to property you have to live in anyway.

    But that’s not what C-S purports to measure in their 100 year graph.

  62. 62
    Anonymous Coward says:

    RE: Justme @ 58 – HOA costs for a SFH built between 1900 and 1910? You’re funny! That said, I don’t think you can do a valid comparison of a few individual homes over 100 years compared to aggregate bond, stock and bank funds, because you could get whatever results you’d like depending on which individual homes you pick. Think about what would happen if you tried to determine overall returns for 3 stocks, 3 bonds (ok, use a ladder), and 3 savings accounts. Hint: the return on the bank savings account would probably be 0 as chances are the bank you picked in 1905 was wiped out prior to the creation of deposit insurance.

    I think the better way to do the proposed analysis would be to simply use a subset of the C-S data restricted to homes with at least one sale between 1900 and 1910. But I doubt C-S is going to give you that raw data.

  63. 63
    Anonymous Coward says:

    RE: redmondjp @ 60 – It’s been done. Here’s the fist example I could find, but there are lots more out there. https://www.washingtonpost.com/archive/realestate/1984/10/20/homeowners-sell-land-as-a-group/39a988ad-6218-4719-94fc-53b15c8e92a5/

  64. 64
    Green-Horn Investor says:

    RE: Justme @ 58RE: Anonymous Coward @ 62

    “historical indexing of 3 cases over the same 100-year period: bank deposits, bonds and stocks. That is the fair comparison to do.”

    Just for fun, compare the composition of the Dow Jones Industrials over the years. Companies go obsolete, bankrupt and disappear. Creative destruction and all that. Over that 100 year period, there weren’t convenient instruments like diversified mutual or index funds to capture the market as a whole. It’s unfair to compare a single static parcel of real estate to a moving target of a collection of constantly recomposed and rebalanced companies. If you look at this list, https://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average, you’ll notice that only one company has survived from 1916 – 2016. The others have vanished from memory in the constant renewal and structural transformation of the economy.

    Most importantly, the 100 year time horizon is irrelevant. A ten – twenty year time horizon is probably all we can consider. Even though the global average returns to stocks over history are very good, there are no guarantees that your prime working and savings years will be any good. Just look at the period of flat returns from 1968 – 1982. Bonds or cash would have been an even worse store of value, having catastrophically eaten by inflation during this period. And once again from 2000 – 2013 there was no net upwards progress for the stock market.

    I’m not suggesting that the stock market is a bad place to invest. I like it very much. However I do believe that the previous 8% annual returns that previous generations enjoyed are just that… history. Thanks to a savings glut and secular stagnation, investment returns will likely be compressed. http://www.bloomberg.com/news/articles/2016-04-27/be-afraid-be-very-afraid-if-you-re-investing-for-the-long-run

    On the other hand scarce real estate in great locations might continue to do better than inflation. Renters are in for some rude surprises as their housing gets more expensive. Real estate investors (and homeowners) can capitalize on this inflation of housing costs. That’s why I’ve decided to integrate some properties into my portfolio, diversifying what had been previously exclusively stocks. In contrast to stocks, there is very little value I believe I can add. Most experts and managers can’t consistently beat the market. How could I? With real estate, if I pick a house that gives 5 – 6 % net operating income, how can I really lose over the long term? Add to that a few years of 10 – 15% appreciation before the regional economy chokes or stagnates, I’ll really be off to a running start. What’s more, because of the scarcity of buildable land and reluctance of the authorities (and the public) to enable a pro-growth and pro-development policies, there is a limit to competition that will only fuel appreciation and profits for existing property owners. Honestly I’d rather housing stayed affordable so the next generation had a chance to prosper, flourish and raise families of their own. However if the establishment is dead-set to create opportunities for rentiers, I’d be foolish not to grasp some for me and mine.

    In so far as that there are no guarantees except that our days are numbered, I’ll agree with Justme. It’s a matter of picking a winning horse. If we place bets on one winner we could win big. If we diversify and place bets on all asset classes, we probably can’t lose. But if we put our heads to it, and learn how to ride, we can enter the race ourselves and tip the odds in our favor.

  65. 65

    By Green-Horn Investor @ 64:

    If you look at this list, https://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average, you’ll notice that only one company has survived from 1916 – 2016. The others have vanished from memory in the constant renewal and structural transformation of the economy.

    Clearly in 1916 your best bet as a startup would be naming your corporation “American” this or that! Note they dropped GM in 1916. That doesn’t seem right–that GM would have been on that early.

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