Will the new tax laws slow Seattle’s housing market? (Part 2: New deduction limits)

Let’s finish off our discussion of how the Seattle-area real estate market may be affected next year by the changes to the tax code. In yesterday’s post we discussed the doubling of the standard deduction, and concluded that it is likely to have very little effect. Today let’s look at the other two big changes: The reduction of the mortgage interest deduction cap from $1M to $750k and the capping of local sales, income, and property tax deductions at $10k.

The limit on the maximum amount of mortgage interest that can be deducted has been reduced from a loan amount of $1M down to $750k. A home buyer would have a loan of around $750,000 if they purchased a home priced about $950,000 with a 20 percent down payment.

To get an idea of how many home buyers is the new limit is likely to affect in the Seattle area next year, I pulled down some sales stats for the last six months from Redfin. Here are the total sales of single-family, condos, and townhomes over the last six months, and the sales over $950k.

Region Total Sales Sales $950k+ Percent
Seattle 7,449 1,205 16.2%
King County 23,555 3,595 15.3%
Snohomish County 8,700 209 2.4%
Pierce County 10,900 110 1.0%

As you can see, the new limits are not likely to have much effect at all in Sonohomish and Pierce counties. Even in King County and Seattle, the vast majority of sales come in under the limit.

In order to afford a $950,000 home, your income would need to be around $180,000 at a minimum, which puts you well within the 24 percent tax bracket. The interest paid in the first year of a $750,000 30-year mortgage with a 3.9% interest rate comes to around $29,000. Any amount over that is not deductible, so the maximum tax benefit from the mortgage interest deduction is around $6,960.

Prior to this change, the limit was already $1 million. The interest paid in a year on a $1 million home comes to around $38,682, which would be a tax savings of $9,284. So the biggest difference here is a loss of up to $2,324 in tax savings for people probably earning $200,000 or more.

In other words, we’re talking about around fifteen percent of home buyers in King County paying around one percent of their income in additional taxes. Will this have some effect on the housing market? Sure, probably. But given the fact that over 90 percent of Puget Sound home buyers will be completely unaffected, I doubt the difference will be very noticeable.


Finally, let’s look at how the $10,000 limit on state income tax, sales tax, and property tax will affect us.

According to an article in today’s Seattle Times, the average taxpayer who itemized their taxes in Washington state deducts about $2,650 in sales taxes. Since we have no state income tax, that leaves $7,350 in property taxes that can be deducted before hitting the cap. With the average effective property tax rate in King County at around 1 percent, that means that anyone with a home worth more than about $735,000 will start to hit the limit. Around 28 percent of homes sold in King County in the last year (4,488 out of 15,840) sold for $750,000 or more, so it’s probably safe to assume that about a quarter of home owners in King County will bit hit by this limit.

Here’s a look at how a buyer making around $180,000 and in the 24 percent tax bracket (previously in the 28 percent bracket) would be affected by the combination of the lower mortgage interest deduction limit and the $10,000 local tax deduction limit. The table below looks at the tax savings in 2017 and 2018 from deducting mortgage interest and state sales+property taxes.

With just the standard deduction (which doubles in 2018) and personal exemptions (which go away in 2018), a married couple earning $180,000 a year would pay around $31,500 in 2017 and around $26,250 in 2018. So before we even look at the changes in the deduction limits, it’s important to keep in mind that the new tax brackets and standard deduction changes are saving them $5,250 right up front.

Home Price 2017 MID 2017 Sales+Prop. 2017 Total 2018 MID 2018 Sales+Prop. 2018 Total Difference
$750,000 $6,500 $2,800 $9,300 $5,550 $2,400 $7,950 -$1,350
$1,000,000 $8,500 $3,500 $12,000 $6,960 $2,400 $9,360 -$2,640
$1,250,000 $10,750 $4,200 $14,950 $6,960 $2,400 $9,360 -$5,590
$1,500,000 $10,750 $5,000 $15,750 $6,960 $2,400 $9,360 -$6,390
$2,000,000 $10,750 $6,250 $17,000 $6,960 $2,400 $9,360 -$7,640

It’s not until a home price of around $1.25 million that the difference starts to exceed the baseline savings from the new brackets. So if our hypothetical couple buys a $2 million home, the net effect of the tax changes in 2018 will be a bump up of about $2,390 in their taxes. Again, about one percent of their income.

In short, I doubt that the changes will have much effect on Seattle-area home buyers at all. Yes, a few wealthy home buyers will see slightly higher tax bills next year, but for the vast majority of home buyers and existing home owners, the changes will have zero effect.

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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.

95 comments:

  1. 1

    The Seattle Time’s average figure for sale tax seemed high to me. To get that number in the IRS calculator you’d need an income of about $200,000. Maybe that is the average income for people who itemize. But even if not, If you bought a new car I believe both the sales tax on that purchase and the part of the car tabs based on value can be added to your deductions, unlimited in 2017 (subject to AMT?). https://apps.irs.gov/app/stdc/popup/specified-items-popup.html So that sort of thing would lead to a higher average deduction.

    The point is though that this is not going to be a static analysis unless you buy a car each year or lease. The years you have such special items the SALT limitation is going to hit you earlier and it will hit more people than just those with $7,000+ in real estate taxes. A new car could easily push that number down to people with $4,000+ in real estate taxes.

    Also not mentioned, this will tend to hit people with second homes and vacation property (e.g snowbirds).

  2. 2
    Kmac says:

    RE: Kary L. Krismer @ 1
    I was thinking the same thing Kary.
    But you know how averages work.
    Some are paying way less and others a heck of a lot more.

    This was, by far, not a step toward simplifying the tax system, which is what is needed.

  3. 3
    S-Crow says:

    Merry Christmas all. As we close out the year I thought I’d chime in with some in the trenches commentary just before my dog takes me out for a walk:

    National Assn of Realtors: lobbied hard against the reduction in MID and forecasted a 10% drop in prices due to reducing MID.

    S-Crow: No meaningful impact on the market at all. Why? Not one buyer(s) in front of me signing closing docs at escrow EVER remarked they are buying due to the mortgage interest decuction. None. Nada. No one. EVER. However, many have enthusiastically mentioned they are buying DUE to equity and price appreciation. In fact, in my opinion that sentiment today is as strong as 06-07.’ Likewise, recent at the closing table commentary has also centered on fear. Fear of not making money and or being priced out.

    Similarly, as The Tim points out, higher end buyers are not going to be impacted by a couple grand increase in taxes that would superceed that of the allure of buying the McMansion (unless said spouse is a PhD Math/Finance/Accounting/Tax wizard and shutters at the extra tax because it doesn’t pencil out …until other said spouse will have none of that and flashes the glitter laden eye lashes at him at the closing table at which point his math goes out the window and they buy the house. Come on you all know that happens!)

    National Assn of Realtors via 2006-07: No bubble

    S-Crow: Bubble

    National Assn of Realtors: recently argued reducing MID eliminated the INCENTIVE to buy.

    S-Crow: No. Mortgage interest deduction is not THE incentive. THE incentive is building roots in a community with a roof over your head and making money via building equity. In that order.
    ————————————
    In other news: For SnoCounty peeps…..if you have not read the latest Herald Business Journal, the President of Coastal Community Bank has a featured article along with Tom Hoban of Coast Real Estate Services and discusses the housing and economic outlook. Good stuff. The thesis essentially was “you better have a plan” (my own quote for emphasis) and did people learn anything? A refreshing No B**S**t commentary. My kind of guy. Disclosure: I don’t bank there.

    http://www.heraldnet.com/news/pain-lingers-decade-after-recession/
    http://www.heraldnet.com/business/be-prepared-for-the-downturn-to-come/

    See you at Crystal or Stevens. Snow gods willing.

  4. 4
    Rupert D says:

    Very good analysis from The Tim – thank you. Hopefully it will put some speculation to rest on how badly it could impact Seattle RE. Since I now longer live in Seattle but remain a RE owner I can only wait until the state legislature is able to finally implement a state income tax. At first it will be a small % but then the politicians will use every excuse in the book to jack up the rates. Once you reach Oregon levels – about 7% state income tax on almost everyone then you will have something to complain about. Seattle residents are living in a bubble – politically (~70% democrat), economically (no state income tax) with virtually no ethnic diversity (7th whitest major American city). The good news so far – no RE bubble.

  5. 5
    ess says:

    By Rupert D @ 4:

    Very good analysis from The Tim – thank you. Hopefully it will put some speculation to rest on how badly it could impact Seattle RE. Since I now longer live in Seattle but remain a RE owner I can only wait until the state legislature is able to finally implement a state income tax. At first it will be a small % but then the politicians will use every excuse in the book to jack up the rates. Once you reach Oregon levels – about 7% state income tax on almost everyone then you will have something to complain about. Seattle residents are living in a bubble – politically (~70% democrat), economically (no state income tax) with virtually no ethnic diversity (7th whitest major American city). The good news so far – no RE bubble.

    Perhaps a byproduct of the change in the federal tax code is that it will be harder to enact a state income tax in Washington State. It is has been my experience that everyone wants “fairness” in everything – so long as that fairness doesn’t directly impact them in any meaningful way. As a result of the newly enacted federal tax law, it appears that any resident in a state that has a state income tax will have an additional tax burden, that may or may not be reduced by other sections of the newly enacted tax code. That may give enough voters pause that Washington State doesn’t rush into a state income tax. Taxes are the opposite of the law of gravity – always go up but never down no matter what politicians and do gooders say. Residents that have migrated from California and back east need to speak up that when a state income tax is enacted on the promise of lowering other taxes, those promises are usually illusionary.

  6. 6

    RE: ess @ 5 – Which is why my proposal on a state income tax would be a constitutional amendment allowing income taxes, and making sales taxes illegal, with transition provisions so there would be both only for one year at most.

  7. 7
    Dave Dunn says:

    One impact is that the sales tax on new construction is no longer deductible. So all new homes just increased in price by 3% (30% marginal on 10% sales tax).

    Sorry for repeat. My prior comment got lost in moderation.

    On topic of income tax, I like the idea of doing a transition from sales to income. My preference would be a state income tax equal to your federal special tax break on that type of income. Capital gains rate lower than w2, pay the delta to WA. Passthru rate lower than w2, pay the delta to WA. Etc. The all income is equal state.

  8. 8
    Kmac says:

    By ess @ 5:

    It is has been my experience that everyone wants “fairness” in everything – so long as that fairness doesn’t directly impact them in any meaningful way .

    Yep. Just look at the tolling of 405. Let’s make them pay……oops….I didn’t realize that it would be me paying….I don’t like this…… ;-)

    Residents that have migrated from California and back east need to speak up that when a state income tax is enacted on the promise of lowering other taxes, those promises are usually illusionary.

    Absolutely correct!

  9. 9
    ARDELL DellaLoggia says:

    RE: Dave Dunn @ 7

    I’m not aware of there being a sales tax on new construction. I just had a new construction closing in Shoreline. No sales tax. Is this a proposed, future tax?

  10. 10
    The Tim says:

    By Kary L. Krismer @ 1:

    The Seattle Time’s average figure for sale tax seemed high to me. To get that number in the IRS calculator you’d need an income of about $200,000. Maybe that is the average income for people who itemize.

    Yeah, I thought it seemed pretty high, too. I don’t think I’ve ever been able to itemize that much in sales tax. Perhaps the average is being brought up by a small number of wealthy taxpayers itemizing $10,000+ or something.

    If the typical taxpayer is itemizing less sales tax than that, then the effect of the $10k limit will be even smaller than I assumed for the post.

  11. 11
    Kmac says:

    RE: ARDELL DellaLoggia @ 9

    When you build a new house in Washington- no matter if it is yours or for spec purposes- sales tax is [supposed to be] charged on all labor and materials to build it.

    A lot of builders I know think that if it is a spec house that it qualifies for resale treatment / $0 sales tax- That is wrong!

    This sales tax usually amounts to a very large sum.
    $20,000 + in sales tax, depending on what you are building and where you are doing so, is not an unusual figure.

    Also, sales tax in Wa is destination based.
    If a store selling items to be DELIVERED is located in Bellevue (w/ a 10% sales tax) but they deliver to a jobsite in rural non RTA/non PTBA Snohomish county (7.7%), the materials are to be taxed at the 7.7% rate.

    These costs would not make it to the closing table, but paid for by the individual/entity that is constructing the property.

  12. 12

    RE: Kmac @ 11RE: ARDELL DellaLoggia @ 9RE: Dave Dunn @ 7 – I believe Kmac is largely correct. Since the contractor would be paying that as a business expense I don’t think there would be a difference in result.

  13. 13
    ARDELL DellaLoggia says:

    RE: Kmac @ 11

    But wouldn’t those taxes on material still be deductible by the builder? Referring back to comment #7. Not as tax but as included in total cost of materials used? How is the math in comment 7 accurate?

  14. 14
    Dave Dunn says:

    RE: ARDELL DellaLoggia @ 13

    Maybe I need to incorporate myself. But it is accurate for custom construction. Home owner pays sales tax. And it’s more than $20k.

  15. 15
    Kmac says:

    By Kary L. Krismer @ 12: I believe Kmac is largely correct.

    Kary, I’m not largely correct, I am correct. ;-)

    By ARDELL DellaLoggia @ 13:
    But wouldn’t those taxes on material still be deductible by the builder?

    I know nothing about comment 7.

    I always treat sales tax on L&M as an extension of the cost of the product being purchased. This cost is tracked in an earmarked Cost of Sales (COS) account.

    The property is held as an earmarked asset along with cash accounts, equipment etc.
    When I sell the spec home – “the asset” – the gain or loss is then accounted for in the Gain/Loss on Sale of Asset expense account.

    We are not talking about deductibility here. These costs apply directly against gross revenue.
    After COS and expenses are subtracted from gross revenue, then the net revenue (profit/loss) is what goes on to the appropriate fed tax form.
    This would be different forms and protocols depending if we were a s-corp or a “regular” corp (or sole proprietor).
    This is a non inclusive description and I am sure there are many other ways to allocate the sales tax.
    But nonetheless, it would reduce revenue/income subject to tax. Not treated as a deduction.

    Maybe an accountant will explain it better….

  16. 16
    Kmac says:

    RE: Dave Dunn @ 14
    Actually, a 200k structure – yes there is such a thing- would be less than 20k in taxes. Depends on what and where…. Don’t make the mistake of thinking everything is just like yours.

    And even as an unincorporated business entity, the process is very similar. There really is not that large of a difference between corps and sole proprietorships in this department.
    For all the hype of incorporating your business, I have found it really does little other than increase your costs.
    Insurance goes up. You must hire an attorney if you go to court. Extra tax returns. Have to treat yourself as an employee and all the related withholding and w/2 hassles. You aren’t really protected from being sued personally because there is a good chance you will also be named personally. This translate to an extra attorney bill.

    After re-reading your comment, you sound like you may be a sole proprietor using schedule C.
    Custom constr. for a homeowner may be a little different,. Perhaps you should talk w/ a competent accountant and put together a process that makes sense.

  17. 17

    By Kmac @ 16:

    For all the hype of incorporating your business, I have found it really does little other than increase your costs.
    Insurance goes up. You must hire an attorney if you go to court. Extra tax returns. Have to treat yourself as an employee and all the related withholding and w/2 hassles. You aren’t really protected from being sued personally because there is a good chance you will also be named personally. This translate to an extra attorney bill.

    You’re on a roll! I can’t find it now, but there was an article I saw today that suggested people might want to incorporate to take advantage of the corporate tax rate. Not really a good idea, IMHO, for many of the reasons you mention. About the only thing it does is offer a strategy of avoiding estimated taxes, if you pay out all of the income of the corporation each year. But it leads to all the complications you mention, including needing to do withholding on your own earnings. Paying estimated taxes is much much easier administratively, although annoying.

    And largely the only people it would work for would be people who will already be able to take advantage of the new pass-through deduction reducing income by 20%. It’s not like a school teacher with the Seattle School District is going to be able to incorporate and tell his employer that they should now pay his corporation.

    But beyond all that, I don’t think it would work! For the money to get to the individual it has to be income in some form, salary, wages or dividend, and that will again be taxed at the individual rates. And even ignoring that, I’m not even sure the corporate tax at that level of earnings would be less–21% is the maximum rate, but they may start getting taxed on the six-hundred and first dollar or some such thing, probably not the twenty-four thousand and first dollar.

  18. 18

    By Dave Dunn @ 14:

    RE: ARDELL DellaLoggia @ 13

    Maybe I need to incorporate myself. But it is accurate for custom construction. Home owner pays sales tax. And it’s more than $20k.

    Not something I’ve ever looked at, but I could see that if the customer owns the land and hires a contractor, then yes they probably do have to pay sales tax. I’m virtually certain that when an owner of property brings in a plumber or a roofer that they pay sales tax. Why would it be any different if the owner of land hires a general contractor to build an entire house on their lot?

    But I don’t believe that is the case if the contractor builds a house on a lot the contractor owns and then sells the completed project to a buyer. The project would be real property at that point, and not subject to sales tax. I believe in those cases the builder is supposed to pay sales tax to their suppliers, but again, not really my area. Also, in those completed project situations, there might be some personalty involved in the sale that could be taxed, as can be the case in the resale of a house.

    As to the idea of incorporating to save on taxes, I’m not sure that’s going to accomplish anything, but the following is merely a stream of thought and guesses, not necessarily a well thought out analysis. If the owner of the lot created a corporation and then put the lot into the corporation I don’t see where the savings would come from, because the corporation wouldn’t have any income tax to reduce. Let’s say the house cost $500,000 to build, plus $50,000 of sales tax. Presumably, the money to pay for that would be a corporate contribution from the shareholder-owner, and not income, so at that point it would just own a house with a $550,000 basis (plus whatever the cost of the land was for the shareholder-owner). No taxed saved, and the shareholder-owner is still out $550,000 and still owes whatever tax they would have owed before. Even if they structured the transaction as a sale to the shareholder, it would be $550,000 of income and $550,000 of expense to the corporation. Still no tax savings to the corporation because it would have not net income. I just don’t see a scenario where it leads to a tax savings, unless maybe the corporation had other income that could be reduced by the sales tax paid.

  19. 19

    By Kary L. Krismer @ 17:

    You’re on a roll! I can’t find it now, but there was an article I saw today that suggested people might want to incorporate to take advantage of the corporate tax rate. Not really a good idea, IMHO, for many of the reasons you mention. About the only thing it does is offer a strategy of avoiding estimated taxes, if you pay out all of the income of the corporation each year. But it leads to all the complications you mention, including needing to do withholding on your own earnings. Paying estimated taxes is much much easier administratively, although annoying.

    I should have mentioned that doing this in 2018 would probably result in the loss of the pass-through reduction in income. So you’d need to really hate paying estimated taxes to want to do that!

  20. 20
    Kmac says:

    RE: Kary L. Krismer @ 17

    I know…. Zerohedge…. This talks about what you just described:
    http://www.zerohedge.com/news/2017-12-22/how-wealthy-americans-are-already-trying-game-trumps-tax-bill

    And the goal of a small “c” or standard corporation may be to pay out as much money as payroll thereby avoiding the double taxation on dividends scenario.

    Quite often the goal of the s-corp is to pay out as little payroll thereby retaining the larger sum as retained earnings or dividend and saving payroll costs. These retained earnings/dividends pass through to the usually lower tax rate of the personal tax return, avoiding the dreaded double taxation and payroll taxes.
    The problem is that the IRS caught on to the abuse of many of these s-corp schemes and have been cracking down on the avoidance of taking a “paycheck” in lieu of taking the lower taxed retained earning. It is now a smart idea to take a “reasonable ” salary for the services provided or risk raising a red flag with IRS.

    From what I can gather, the new corp. tax rate reduction originally only applied to “c” corps but to even the playing field they gave s-corps shareholders a 20% deduction of their share of the profits shown on the K-1 form.

    So there may be a small reason to incorporate -vs- sole proprietor/ schedule C, but it is a lot more work and expense. Not really sure it would be worth it unless it really cements your plans together or if you have multiple partners and dealings.

    And s-corporations don’t pay estimated taxes. The individual, all people, must pay estimated taxes. Even employees who under withhold on their paychecks are required to pay estimated taxes if they have paid in less than 90% of actual taxes due. If they have paid in an amount equal to last years tax amount, they are not subject to the late payment penalties under the safe harbor rule.
    I’m not sure if a “c” corp is subject to estimated taxes.

  21. 21

    RE: Kmac @ 20 – I was assuming a c-corp in all of my discussions. I believe they do pay estimated taxes.

    As to Zerohedge, to be charitable I’ll assume they are discussing what people are thinking, and not necessarily what is correct. Whether income paid to someone is W-2 income or 1099 income is dependent on whether or not the person is doing work as an employee, not how the parties decide to report it. Whether someone is an employee has well-established factors which don’t always lead to clear results. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee But merely doing the items discussed in the ZH article are not likely to work to take advantage of the pass-through deduction, and I think there are other reasons the “employee” would not want to do that. But undoubtedly some people will probably try.

  22. 22
    Kmac says:

    By Kary L. Krismer @ 18:

    Not something I’ve ever looked at, but I could see that if the customer owns the land and hires a contractor, then yes they probably do have to pay sales tax. I’m virtually certain that when an owner of property brings in a plumber or a roofer that they pay sales tax. Why would it be any different if the owner of land hires a general contractor to build an entire house on their lot?

    Yes, you are correct.

    But I don’t believe that is the case if the contractor builds a house on a lot the contractor owns and then sells the completed project to a buyer. The project would be real property at that point, and not subject to sales tax. I believe in those cases the builder is supposed to pay sales tax to their suppliers, but again, not really my area.

    Builder, whether for personal use or business use or spec for sale use must pay sales tax on the materials and labor used as a component in the structure. No sales tax is charged at the sale of the property aside from normal costs of sales at closing. The key words are “components of the project.”

    There is too much confusion on deductions -vs- regular business expenses and I think too many people attribute to corporations as having an unfair advantage.
    Really little different than a sole proprietor/schedule c filer with a sharp accountant and a sharp pencil can accomplish. Gotta be smart out there.

  23. 23

    There may be an exception to the $10,000 limit on SALT. The applicable language is:

    (B)the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return).

    This is one of the few cases where they don’t specify a different amount for single people. Often unmarried couples will buy property as tenants in common. They seemingly could deduct up to $10,000 each, assuming they each paid half the taxes and owned half the property. Admittedly there may be other adjustments to their tax if and when they do get married that would override this benefit, but it does seem to be one exception that would apply to higher priced properties. Consult your tax adviser before acting!

    Source material: https://www.govtrack.us/congress/bills/115/hr1/text

  24. 24

    The new tax bill has been stayed by a District Court in San Francisco. The ACLU sued, claiming that the tax bill violated the doctrine of separation of Church and State because Trump said it would be “the biggest Christmas present ever”

    https://www.lawfareblog.com/document-district-court-memorandum-opinion-aclu-v-mattis

    Merry Christmas everyone! :-D (Glad you’re all not thinking about real estate and tax issues.)

  25. 25

    You Need a Deduction to Afford a Seattle High Cost Life Style and Even Worse a Charity Deduction?

    The rich elite are simply greedy, charities driven by deductions aren’t charities then, its usually done to announce how good a person you are because you gave. How about giving to charities and telling no one?

    BTW, the open border progressives are the worst charity givers in America….they donate 1% and call it a lot…the poor old women from the Bible who gave her last penny is the real Mother Teresa.

    Same logic can apply to real estate too…make sure the poor get paid good too and then maybe they can afford the Seattle rents some day. Win/Win. The poor are God’s REAL star generals IMO, not us…..center on them and Seattle will certainly prosper.

    Merry Christmas and God Bless
    SWE

  26. 26

    RE: softwarengineer @ 25
    SWE’s Christmas Eve

    I was at a disabled adult home Christmas Eve with a load of presents and the autistic one [my son] loves a wonderful ride in my shiny red Dodge Charger [Santa’s sleigh? LOL]….I gave him candy and gifts and better yet: attention and love…something these lonely souls so thirst for, but hardly ever get…my reward is happiness for doing it. I love Kansas City and Seattle is not what it used to be in the 60s and 70s, before overpopulation; but my disabled son had a smile [he can’t talk, but he signed “I like” to me] on his face [and Seattle does treat him well BTW] when he saw me and this will bring tears to anyone’s eyes.

    My sister wanted me in Olympia for Christmas tomorrow and of course I attend candle light services at my local Lutheran Church on Christmas Eve and then the snows hit Kent yesterday….a miraculous “WHITE CHRISTMAS” from God. I cancelled evening church after the Emergency Management 800 number called me and the Kent citizens last night warning them to simply “stay off the roads”, its too icy and dangerous. I will do a post Christmas with my sister next January on a sunny day on 10AM-1PM on the weekdays using south I-5…..I did Thanksgiving after the freeway jam-ups too…

    Be REAL CAREFUL if you are on the roads today….lets create great Christmas memories for 2017, not horrifying ones….God bless us all and protect us!

  27. 27
    redmondjp says:

    Woo-hoo! Through pure dumb luck 20 years ago, I now live in the hottest real estate market in the entire country! Oh if I could only convince my wife to move somewhere else – we could pay cash for a house and still have a few hundred grand left over to put in the bank. Oh well, in the meanwhile I’ll try to remember to sit down and pour myself a stiff drink before opening my property tax bills.

    https://www.geekwire.com/2017/redfin-ranks-competitive-u-s-neighborhoods-homebuyers-seattle-area-19-top-25/

    And you know what’s really funny about all of this? I regularly mow about 1.25 acres of yet-undeveloped real estate (former animal pastures) in Grasslawn for two of my neighbors. So now I know why my feet get so warm when I walk out there!

    You might also be wondering why anybody in their right mind would leave such valuable land just sitting there, and I can give you the answer (in one case): because the longtime owner (since 1960) grew up in the Snoqualmie Valley on a farm and likes to look out on this open space (as do I).

  28. 28

    By redmondjp @ 27:

    You might also be wondering why anybody in their right mind would leave such valuable land just sitting there, and I can give you the answer (in one case): because the longtime owner (since 1960) grew up in the Snoqualmie Valley on a farm and likes to look out on this open space (as do I).

    That’s better than the more common explanation–that they constantly think the property is worth 25% more than it really is. I can actually understand your explanation.

  29. 29
    Ess says:

    RE: redmondjp @ 27

    Woo-hoo! Through pure dumb luck 20 years ago, I now live in the hottest real estate market in the entire country! Oh if I could only convince my wife to move somewhere else – we could pay cash for a house and still have a few hundred grand left over to put in the bank. Oh well, in the meanwhile I’ll try to remember to sit down and pour myself a stiff drink before opening my property tax bills.
    ———————————————————————————————————————————

    Hmm Redmondjp……

    convince wife to move…….. sell and buy elsewhere with a few hundred grand in the bank………property tax bills that can only be viewed with a stiff drink…………

    Sounds very familiar indeed. We have been looking in other parts of the country to mirror the scenario you just outlined. Flew down to Arizona last year and looked at some open houses. We had considered Florida in some of the less populated areas – just too humid.

    I would really miss this area, including Seattle for what it once was. A beautiful good sized city that once had a human scale to it even in the downtown that one could once get around in. The scope and direction of development make it much less difficult to voluntarily leave a place that was once loved. At present there is unrelenting traffic because of the war against private vehicles regardless of the time one travels, and downtown The core of Seattle has been transformed into a city of uninteresting high rise buildings, an expensive crowded mess with no indication that any of its problems are going to be resolved anytime soon. At least Vancouver BC has buildings that are interesting to view. Even the outer neighborhoods are being destroyed in the name of density. Popular parks, such as Greenlake and Volunteer Park are so crowded due to all the growth without the corresponding addition of additional recreation facilities that it makes it increasingly unpleasant to even walk in those areas as individuals are on top of each other.

  30. 30

    By Ess @ 29:

    We have been looking in other parts of the country to mirror the scenario you just outlined. Flew down to Arizona last year and looked at some open houses.

    We did that too when we were early to meet some friends. Just one open house, so a small sample, but I was amazed at the questions the agent could not answer. I sort of liked the area (Green Valley south of Tucson), but it did sort of leave me worrying about how to get good advice on the issues that affect houses structurally down there if I were to move down there.

    (BTW, I believe it’s called Green Valley due to copper deposits, and that raises arsenic concerns.)

  31. 31
    ess says:

    By Kary L. Krismer @ 30:

    By Ess @ 29:

    We have been looking in other parts of the country to mirror the scenario you just outlined. Flew down to Arizona last year and looked at some open houses.

    We did that too when we were early to meet some friends. Just one open house, so a small sample, but I was amazed at the questions the agent could not answer. I sort of liked the area (Green Valley south of Tucson), but it did sort of leave me worrying about how to get good advice on the issues that affect houses structurally down there if I were to move down there.

    (BTW, I believe it’s called Green Valley due to copper deposits, and that raises arsenic concerns.)

    That is the area we checked out. Looking at a map of the area- one can observe some major mines in the area. It is a retirement community – so at least one doesn’t have as much time to worry about the long term effects such as arsenic poisoning. My wife is more concerned about scorpions!

  32. 32
    Minnie says:

    RE: ess @ 31

    What a coincidence, recently a friend of mine bought a condo in Green Valley…she’s not retiring yet but she’s close. I have quite a while before retirement but I always keep my eyes peeled for somewhere I’d like to live. I checked out Green Valley because she raved about it! Called it a well-kept secret (guess not so well kept anymore!). My main concerns when looking for a future place to retire:
    1 – Food/water/Utility/Energy
    I was a little concerned about Green Valley because it seems like they might run out of water? Or if the population increases they will need to upgrade their infrastructure which will cost $$$ in the form of taxes.

    2 – Proximity to Hospital
    I think the nearest hospital is quite far away, in Tucson. That’s what I recall.

    I think I will try and win the lottery and move to Whistler :-)

  33. 33

    By Minnie @ 32:

    Called it a well-kept secret (guess not so well kept anymore!).

    I think there are a lot of involuntary sellers, so plenty of supply. Maybe they die because the hospital is so far away. ;-)

    Apparently, a lot of the houses are sold furnished.

  34. 34

    RE: redmondjp @ 27

    Running my year end stats and you might as well call Redmond 98052 “CLOSED” at pretty much no inventory whatsoever in the Single Family Home market. 632 sold on a 365 day rolling basis. (used 15-390).

    There re only 21 homes for sale of which 11 aren’t even built yet. That leaves only 10 houses. 8 sellers are asking over $1.6M with only 4 sold over $1.6M, so a Two Year Supply. Seriously…nothing for sale. Only two for sale built before 2000 and the median price sold for built since 2,000 is $1.2M.

    Basically the “I’ll pay over $850,000 if the house knocks my socks off” crowd are SOL. Still running numbers for where they can go. For 2018 not likely Kirkland, Bellevue, Redmond, Issaquah or Sammamish. Bothell, Renton or attached housing most likely in the forecast for 2018 OR start out thinking you are going to pay way too much for an old house that doesn’t knock your socks off.

    And…worth mentioning, THIS is why people buy FLIPS! They feel kinda “new” and can still be had for under a Million.

  35. 35

    RE: redmondjp @ 27

    Running my year end stats and you might as well call Redmond 98052 “CLOSED” at pretty much no inventory whatsoever in the Single Family Home market. 632 sold on a 365 day rolling basis. (used 15-390).

    There are only 21 homes for sale of which 11 aren’t even built yet. That leaves only 10 houses. 8 sellers are asking over $1.6M with only 4 sold over $1.6M, so a Two Year Supply. Seriously…nothing for sale. Only two for sale built before 2000 and the median price sold for built since 2,000 is $1.2M.

    Basically the “I’ll pay over $850,000 if the house knocks my socks off” crowd are SOL. Still running numbers for where they can go. For 2018 not likely Kirkland, Bellevue, Redmond, Issaquah or Sammamish. Bothell, Renton or attached housing most likely in the forecast for 2018 OR start out thinking you are going to pay way too much for an old house that doesn’t knock your socks off.

    And…worth mentioning, THIS is why people buy FLIPS! They feel kinda “new” and can still be had for under a Million.

    Required Disclosure: Stats in this post are hand calculated by Ardell in Real Time and are not calculated, verified or published by The Northwest Multiple Listing Service.

  36. 36
    Bubble Trouble says:

    It will have no effect. In Seattle or anywhere else. It was all pure scaremongering by the left.

  37. 37
    Bubble Trouble says:

    It’s also lovely how Democrats are worried that people who buy $1M homes might have to pay an extra $3K in taxes. But someone making $100K who now pays $10K more in health insurance thanks to Ocare….pfft.

    So spare me lefties with your sad tales.

  38. 38
    ess says:

    By Minnie @ 32:

    RE: ess @ 31

    What a coincidence, recently a friend of mine bought a condo in Green Valley…she’s not retiring yet but she’s close. I have quite a while before retirement but I always keep my eyes peeled for somewhere I’d like to live. I checked out Green Valley because she raved about it! Called it a well-kept secret (guess not so well kept anymore!). My main concerns when looking for a future place to retire:
    1 – Food/water/Utility/Energy
    I was a little concerned about Green Valley because it seems like they might run out of water? Or if the population increases they will need to upgrade their infrastructure which will cost $$$ in the form of taxes.

    2 – Proximity to Hospital
    I think the nearest hospital is quite far away, in Tucson. That’s what I recall.

    I think I will try and win the lottery and move to Whistler :-)

    Minnie

    A number of individuals and couples that we know have inherited Green Valley property, and rather than selling the property through the estate. We heard some nice reports about the area, so we decided to have a look/see for ourselves. As to your concerns

    There is a community hospital in the area, thus they are attuned to an older crowd.

    The hospitals in Tucson are about 20 -25 miles away, but as we all know in this traffic mess, it is not only the distance, but the time to travel to the facility. I would guess that it is easier and faster to get to specialists in Tucson from Green Valley than it is to get to the Seattle area medical centers from many areas around here.

    Water? Lots of jurisdictions in the west have water issues – more of a problem of distribution than supply. But happily, water desalination plants are getting larger and less expensive and are coming on line in California, and I think Green Valley will survive.

    The biggest issue for us at this time is facing the logistics of actually moving down there, and the summers which tend to be on the warm side. But hot summers – cold rainy winters – both climates result in a fair amount of inside activity.

    Move to Whistler? Good luck with that. I lived in Canada for two years on a special work permit, and I found many Canadians most hostile to Americans that were residing up there, both on a personal level and in general. I will never forget when an American was up for tenure at UBC, and it was the headline story in the largest paper in Vancouver as a result that he was an American. Of course Canadians have a new bogey man to focus on – Chinese that are buying up Vancouver and jacking up real estate prices.

    Of course not all Canadians are hostile to Americans. I did return home with the best souvenir of Canada a young fella could get – a wife – and we just celebrated our 35th wedding anniversary. Interestingly, there is still residual hostility from even some of her family about her residential choice, especially when she became an American citizen.

    Kary @ 33

    The number of housing residences for sale in Green Valley, a series of unincorporated home owners associations, number in the hundreds for an area that has a population of a bit over 20K. Observe the number of houses in a city near Seattle with a similar population – there are approximately 50 houses for sale. In addition, there aren’t as many restrictive land use policies, and raw land for sale in that area is a fraction of the cost up here. So there is really quite a selection down there at all price points.

  39. 39
    ess says:

    RE: <a href='#comment-266955' rel="nofollow – ess
    That's cold winter days up here – down there it is akin to being in heaven during the winter

  40. 40

    By Bubble Trouble @ 36:

    It will have no effect. In Seattle or anywhere else. It was all pure scaremongering by the left.

    And short-sighted scaremongering by the NAR. If you’re an entity that is trying to influence public opinion, it might be a good idea to consider whether spouting the BS might come back to haunt you. I can’t believe I have to pay dues to an entity that tried to scare people with a bunch of BS that they knew was complete BS.

    ByBubble Trouble @ 37:

    It’s also lovely how Democrats are worried that people who buy $1M homes might have to pay an extra $3K in taxes. But someone making $100K who now pays $10K more in health insurance thanks to Ocare….pfft.

    Or more to the point, that this tax bill helps the rich when they no longer will be able to deduct $50,000+ real estate tax bills. In almost every income group except maybe the 1%, there were people helped by the bill and people hurt.

  41. 41
    Justme says:

    And now for something completely different: red-hot Seattle has first back-to-back price declines since 2014, as per the Case-Shiller index. It turns out that in year 2017, prices peaked in August and then had sequential declines in September and October. The Case-Shiller data released today is based on Aug-Sep-Oct sales.

    No data yet contradicts my grand prediction from June 14: The housing price peak in Seattle (as per Case-Shiller) will happen in 2017, unless FRB changes its policies again.

    QUOTE: “The Case-Shiller home price index for the Seattle metro declined again by a tad on a month-to-month basis — first back-to-back declines since the end of 2014! However, the index is not seasonally adjusted, and a slight downturn this time of the year was not unusual before 2015.”

    Hopefully Tim will have his lovely Case-Shiller graphs soon, and then I will repost there.

    Reference:
    https://wolfstreet.com/2017/12/26/the-us-cities-with-the-biggest-housing-bubbles-5

  42. 42
    jon says:

    RE: Justme @ 41 – The slow down is not going to last. See the latest http://www.northwestmls.com/index.cfm?/News–Information. Really the only thing that is going to slow down Seattle is Amazon HQ2, and that is a ways off still.

  43. 43
    Justme says:

    RE: jon @ 42

    >>The slow down is not going to last

    If you want to argue with me, stick to Case-Shiller price data. I said nothing about sales volume, or whatever metric your term “slowdown” is supposed to refer to.

  44. 44
    Cap"n says:

    RE: Justme @ 41

    Uh. No. CS says three month moving average up 12% plus YOY. So for your theory of price peak in 2017 as opposed to spring 2018 to be correct, sh*t would have to hit the fan in a dramatic fashion. And that would probably be the only reason for the Fed to dramatically change policies. So your prediction for why you might be wrong (Fed changes), is actually the only signal you were right. But you’re not.

  45. 45

    RE: Justme @ 43 – By Justme @ 41:

    No data yet contradicts my grand prediction from June 14: The housing price peak in Seattle (as per Case-Shiller) will happen in 2017, unless FRB changes its policies again.

    Well, no data unless you want to ignore the Case-Shiller seasonally adjusted numbers for 2017 to date.

    212.86
    216.65
    219.04
    221.03
    223.20
    225.09
    226.76
    228.12
    229.36
    230.76

    Still upward.

    http://us.spindices.com/indices/real-estate/sp-corelogic-case-shiller-us-national-home-price-nsa-index (Click on additional data and select seasonally adjusted to download their Excel file.)

  46. 46
    Doug says:

    RE: Justme @ 43 – You’re setting yourself up for a big fall reminding people of your prediction. You should have just let it die and hope they forgot.

    SFH inventory in King County is down 25% Y-o-Y. Explain to me how prices can fall when supply has shifted so dramatically to the left? Do you think demand has also shifted the same amount? Or maybe you think this is finally the spring that every homeowner lists their house?

    There’s just not an argument to be made for stagnant or lower prices this spring. It will be another +10% year.

  47. 47
    Home Equity Loan User says:

    Hi Tim,

    Thanks for a great series and blog!

    One thing I’ve been wondering about is the elimination of the home equity loan deduction, and will that impact cash sales, and thus the market? Until the new bill, you could deduct a home equity loan. So if you wanted to buy for cash (say because you’re not a US resident and have no credit score), you could scrape together the cash from friends and family, get a home equity loan for 80%, and pay it off like a mortgage after using the loan to pay back your friends and family.

    Would love to hear your thoughts on if this matters.

  48. 48
    Blake says:

    By ess @ 31:

    By Kary L. Krismer @ 30:

    By Ess @ 29:

    We have been looking in other parts of the country to mirror the scenario you just outlined. Flew down to Arizona last year and looked at some open houses.

    We did that too when we were early to meet some friends. Just one open house, so a small sample, but I was amazed at the questions the agent could not answer. I sort of liked the area (Green Valley south of Tucson), but it did sort of leave me worrying about how to get good advice on the issues that affect houses structurally down there if I were to move down there.

    (BTW, I believe it’s called Green Valley due to copper deposits, and that raises arsenic concerns.)

    That is the area we checked out. Looking at a map of the area- one can observe some major mines in the area. It is a retirement community – so at least one doesn’t have as much time to worry about the long term effects such as arsenic poisoning. My wife is more concerned about scorpions!

    We own a little place in Bisbee, AZ about 90 miles SE of Tucson. It is especially nice since it is up in the mountains, so it is not as hot and has nice breezes and views. It’s not a retirement community either, so a bit more diverse. Check it out sometime when you are down there. It’s pretty funky and has a great copper mine museum and the tour of the old copper mine is amazing. You go in rail cars 1500 feet down into the old mine and an old timer(who joined the mine when he got out of high school in ’46 against his mother’s wishes!) provides excruciating details about the hard rock mining.

    We go down there as often as we can. (The golf is cheap too!)

  49. 49
    Justme says:

    RE: Kary L. Krismer @ 44

    My prediction is for C-S actual prices, not “seasonally adjusted data”, not “inflation adjusted data,” nor any other data.

    RE: Doug @ 45

    I doubt any of the bubble-mongers on this blog would forget about my prediction. They would forget only if and when it turned out to be correct.

  50. 50

    By Justme @ 47:

    RE: Kary L. Krismer @ 44

    My prediction is for C-S actual prices, not “seasonally adjusted data”, not “inflation adjusted data,” nor any other data. .

    Well first, Case Shiller itself is inflation adjusted. Second, you said there is no data which contradicts your prediction, but the fact that a seasonally adjusted number is going up suggests strongly that the non-seasonally adjusted number will also head up again to even higher levels. So that data does contradict your prediction.
    In actual fact, the numbers you are looking at, the non-adjusted numbers going down, those don’t support your prediction except for as to those particular months, and those going down is somewhat predictable (which is why they have seasonally adjusted data).

    Don’t get me wrong–you may end up right. There’s just little data that would suggest that at this point in time.

  51. 51
    ess says:

    RE: Blake @ 46

    Thanks for the heads up Blake. When we took almost two years off from life to travel throughout the US and abroad (thank you real estate investments), we explored the Bisbee area. It is a very nice area indeed. But with a new perspective of actually looking for a possible area to retire to, we may check it out again. Only concern – Bisbee may be too far away from the types of goods and services seniors may require that can be obtained from a larger town such as Tucson.

  52. 52
    ess says:

    https://www.wsj.com/articles/investors-pile-into-suburban-rental-housing-1514289600

    For those of you who subscribe or otherwise have access to the Wall Street Journal, an interesting story about the latest real estate trends for the big boys. In the print edition, there was a photo of a rental complex in Renton that had recently changed hands for a nice profit. Good news for suburban mom and pop real estate investors, the big players tend to get top dollar for their investments, and all boats rise when the tide comes in.

  53. 53
    Justme says:

    RE: Kary L. Krismer @ 48

    >>Well first, Case Shiller itself is inflation adjusted.

    The Case Shiller index itself most definitely is NOT inflation adjusted. I dunno Kary, sometimes you seem so eager to disagree or defend your position that you get a bit careless.

    REFERENCE:
    http://us.spindices.com/documents/methodologies/methodology-sp-cs-home-price-indices.pdf

    >>but the fact that a seasonally adjusted number is going up suggests strongly that the non-seasonally adjusted number will also head up again to even higher levels. So that data does contradict your prediction.

    That paragraph is complete balderdash. The essence of Kary’s claim is that seasonally-adjusted data can predict (“suggest strongly”) one or more future values of non-seasonally-adjusted data. Read that again, dear reader.

    I’ll give you a counter-example to Kary’s “strong suggestion” right now: Go back to the seasonally adjusted data up to August 2017 (post 44) . According to Kary’s logic, that data “strongly suggests”that the non-adjusted values would increase also in Sep and Oct. BUT Sep AND Oct DID NOT INCREASE, THEY WENT DOWN. So Kary, your “strong suggestion” failed to materialize and failed the most obvious statistical back-testing there was. Just give it up, will you?

  54. 54

    Does anyone know how you find the Redfin Refund these days? Used to be more obvious. Example. Am I just not seeing it?

    https://www.redfin.com/WA/Sammamish/23533-SE-45th-Ct-98075/unit-18/home/144154452

  55. 55
    uwp says:

    Celebrating that you called Summer the year’s peak price is a bit silly at this point in the season.

  56. 56

    By Justme @ 51:

    RE: Kary L. Krismer @ 48

    >>Well first, Case Shiller itself is inflation adjusted.

    The Case Shiller index itself most definitely is NOT inflation adjusted. I dunno Kary, sometimes you seem so eager to disagree or defend your position that you get a bit careless.

    REFERENCE:
    http://us.spindices.com/documents/methodologies/methodology-sp-cs-home-price-indices.pdf

    You know, you really should look at things you link as references before you post them. The word inflation does not appear once in that pdf.

    In contrast: http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

    “Historic prices are inflation adjusted November 2017 dollars.”

  57. 57
    Kmac says:

    RE: Ardell DellaLoggia @ 52
    After checking out your example, yes you are correct- I am see no refund notice.
    Then clicking on other new construction homes= no notice.

    Most of the existing homes have a “$xxxx commission refund” just to the left of the Redfin agent’s name (right above ask question button)

  58. 58
    uwp says:

    RE: Ardell DellaLoggia @ 52 – “Get a commission refund when you buy this home with a Redfin Agent. Refund amounts vary and are subject to minimum commission requirements.”
    Weird it doesn’t say the amount anymore.

    I just looked at a non-new construction listing, and it doesn’t mention a refund at all.

    After some clicking around they have a refund “estimator” that returns $2,455 on a $600,000 home… ~half a percent.

    I wouldn’t be surprised if they are tinkering with the numbers depending on markets, time of year, demand/supply sort of like Uber does. Just check out the fine print: “Estimated Redfin Refund amount not guaranteed. Redfin Refund amount may vary according to purchase price, prevailing market conditions, and other factors.”

  59. 59

    By Justme @ 51:

    but the fact that a seasonally adjusted number is going up suggests strongly that the non-seasonally adjusted number will also head up again to even higher levels. So that data does contradict your prediction.

    That paragraph is complete balderdash. The essence of Kary’s claim is that seasonally-adjusted data can predict (“suggest strongly”) one or more future values of non-seasonally-adjusted data. Read that again, dear reader.

    Just because you don’t understand it doesn’t mean it’s balderdash. It means you don’t understand.

    The seasonally adjusted numbers indicate that values are higher today (October?) than your peak (July?) “Strongly suggests” is not a prediction but instead merely pointing out the fact that values are higher and if values even stay the same then the non-seasonally adjusted values will increase to new highs. That that is why it is evidence against your position.

    I’ll give you a counter-example to Kary’s “strong suggestion” right now: Go back to the seasonally adjusted data up to August 2017 (post 44) . According to Kary’s logic, that data “strongly suggests”that the non-adjusted values would increase also in Sep and Oct. BUT Sep AND Oct DID NOT INCREASE, THEY WENT DOWN. So Kary, your “strong suggestion” failed to materialize and failed the most obvious statistical back-testing there was. Just give it up, will you?

    Wow, you really don’t have a clue about seasonally adjusted numbers. Now that is balderdash!

  60. 60

    By uwp @ 58:

    I wouldn’t be surprised if they are tinkering with the numbers depending on markets, time of year, demand/supply sort of like Uber does. Just check out the fine print: “Estimated Redfin Refund amount not guaranteed. Redfin Refund amount may vary according to purchase price, prevailing market conditions, and other factors.”

    I think they are more into discounting listings in this market. King County and Snohomish would be tough markets to be offering any significant buyer rebates due to the buyer competition making getting to mutual acceptance less likely. I’m sure they have to show and write far more offers on average than even two years ago. I doubt the rising prices have come anywhere close to offsetting that.

  61. 61
    uwp says:

    RE: Kary L. Krismer @ 60 – Well sure. I bet every Seattle Realtor would rather be listing a house than buying one right now.

  62. 62
    jon says:

    RE: Kary L. Krismer @ 59 – “The seasonally adjusted numbers indicate that values are higher today”

    The value is what someone is willing to pay for it, which for a house in Seattle, is less now than it was last summer. The seasonal adjustment is based on a prediction that the values will go up in the next summer just as they have in previous summers.

  63. 63
    Kmac says:

    RE: uwp @ 58

    Maybe they are doing what Amazon does: serving up different info to different users because I am seeing the discount dollar amount, but not on new construction.

  64. 64
    whatsmyname says:

    By Justme @ 41:

    And now for something completely different: red-hot Seattle has first back-to-back price declines since 2014, as per the Case-Shiller index. It turns out that in year 2017, prices peaked in August and then had sequential declines in September and October. The Case-Shiller data released today is based on Aug-Sep-Oct sales.

    No data yet contradicts my grand prediction from June 14: The housing price peak in Seattle (as per Case-Shiller) will happen in 2017, unless FRB changes its policies again.

    OK. Not sure there is anything here to support your grand prediction either.

    First back to back declines since 2014. Does that mean we are back to 2014 conditions? Should we expect the next two years to act like 2015-2016? Looks like we also had back-to-back declines in 2012. Will next year act like 2013? You know CS 2013 got a little toppy in Q4. Maybe 2017 was 2013 again; and 2018 will move like 2014. We just won’t know for 4-6 quarters. What do you think?

  65. 65

    By jon @ 62:

    RE: Kary L. Krismer @ 59 – “The seasonally adjusted numbers indicate that values are higher today”

    The value is what someone is willing to pay for it, which for a house in Seattle, is less now than it was last summer. The seasonal adjustment is based on a prediction that the values will go up in the next summer just as they have in previous summers.

    Well first let me say that I’m always skeptical of seasonal adjustments. But the issue was whether there was any data suggesting that the prediction wasn’t accurate, and the C-S seasonally adjusted data is that. Ordinarily I don’t pay much attention to seasonal numbers, with the exception of some employment data around the holidays. I’d rather just see the data and compare it to what was occurring is prior years.

    As to your response, I would remove the word prediction in your response and replace it maybe with the word tendency, or some such thing. Those seasonal tendencies don’t always hold true though, which is why I’m skeptical of seasonal adjustments. If you look at the NWMLS median data, it too usually drops in the fall/winter, but December 2015 was the high point for that particular year. But that was due to the strength of the market at that time, with 2016 following being a rather strong year. And the C-S seasonal numbers were showing greater increases at that point in time than the unadjusted numbers. That is sort of what you would expect with seasonally adjusted numbers that time of year.

    BTW, I don’t know how they base their adjustments, but going back 3-4 years it appears October is a relatively neutral month, not getting bumped up or down a great deal.

  66. 66

    By uwp @ 61:

    RE: Kary L. Krismer @ 60 – Well sure. I bet every Seattle Realtor would rather be listing a house than buying one right now.

    Yep, and that is one area where Redfin has a slight disadvantage. It can be a bit harder for them to change their focus as markets change, but at the currently we’ve been in a market where listings have been favored for quite some time. So they are fully adjusted at this point.

    But to offset the fact that Redfin is fully adjusted, most individual agents now get a 20% tax cut (on top of the other tax bill rate cuts) so that we can better “compete” against corporate brokerages which had more significant tax rate cuts. ;-)

    Oh, and in other tax news, the IRS has issued guidance on paying RE taxes early. They currently seem to be requiring that the tax have been assessed in 2017 to be deductible on 2017 returns. That seemingly leaves Washington clearly out. (Consult your tax adviser). https://www.irs.gov/newsroom/irs-advisory-prepaid-real-property-taxes-may-be-deductible-in-2017-if-assessed-and-paid-in-2017

  67. 67
    N says:

    Interesting tidbit:

    “Several lenders offer interest-only mortgages, and even loans with limited income documentation. These mortgages are dubbed “non-QM” because they don’t meet Fannie Mae’s and Freddie Mac’s plain-vanilla “qualified mortgage” rules. One prominent non-QM lender, Impac Mortgage Holdings, plans to begin securitizing these loans early in 2018.”

    https://www.marketwatch.com/story/what-to-expect-from-the-real-estate-market-in-2018-2017-12-28

  68. 68
    Justme says:

    RE: Kary L. Krismer @ 56

    >>You know, you really should look at things you link as references before you post them. The word inflation does not appear once in that pdf.

    EXACTLY. That would seem to indicate that you agree with me. But then you refer to

    >>In contrast: http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

    That specific webpage does not publish any component of the Case-Shiller index. Let me repeat: That graph is NOT the Case Shiller index of anything. Anyone can calculate some derivative work of some data that originated from a Shiller book. But the derived work is NOT the Case-Shiller index. Why don’t you just acknowledge that the Case-Shiller index is NOT inflation adjusted. It would be so much easier.

  69. 69
    Kmac says:

    By Home Equity Loan User @ 47:

    Hi Tim,

    Thanks for a great series and blog!

    One thing I’ve been wondering about is the elimination of the home equity loan deduction, and will that impact cash sales, and thus the market? Until the new bill, you could deduct a home equity loan. So if you wanted to buy for cash (say because you’re not a US resident and have no credit score), you could scrape together the cash from friends and family, get a home equity loan for 80%, and pay it off like a mortgage after using the loan to pay back your friends and family.

    Would love to hear your thoughts on if this matters.

    I don’t know what the new bill will do, but currently home equity debt that wasn’t used to BUY, BUILD or IMPROVE the home only have deductible interest up to $100,000 of debt.

    I wouldn’t think a non US resident without a credit score would: 1) qualify for a loan of any amount and 2) would need to worry about deductions on a US federal tax return.
    Maybe I’m wrong on both counts….?

  70. 70

    RE: Justme @ 68 – Wow, you don’t give up do you.

    Tell me this. If the C-S numbers are not adjusted for inflation, how could the index be 100 in 2000, about 230 today and the King County median about 222k then and about 630k now, and the mean about 280 then and about 745 now? If they just went up the same amount as C-S they would be about 511k and 644k respectively. There isn’t that much of a change in the mix or difference between the counties.

    But also tell me this. If C-S wanted to take the dollar out of it, by making an index, why would they still leave dollar inflation part of it?

  71. 71
    Kmac says:

    By Kary L. Krismer @ 70: – Wow, you don’t give up do you.

    the pot calling the kettle black?

    Not that I mind, but …

  72. 72
    Jon says:

    RE: Kary L. Krismer @ 70 – I didn’t see any mention of inflation adjustment in the CS methodology. They would have at least mentioned the price index they are using. But to your point about comparing median price to CS index, they take special care to exclude tear downs or even remodels which by itself is a major part of the value of an older house. New houses also tend to be larger than old ones. Offsetting that is smaller lots or more remote locations.

  73. 73

    RE: Jon @ 72 – It is odd that they don’t mention it, so maybe I’m wrong. But every source I’ve found indicates that they do adjust. What I did find in their methodology is that they discount transactions where the prior is very old, but they say they do that due to the more likely change in condition (presumably both good and bad).

    If they don’t do it, I don’t understand why. Compared to everything else they do for these paired sales that would be easy–just adjust the price of the older sale before doing the comparison. And it would seemingly make the data a lot more useful long-term, particularly if we get into a period of high inflation.

    The other thing odd is why Justme raised it as an issue. If it is inflation adjusted his prediction would be more likely to be right!

  74. 74

    The second graph here would indicate it isn’t inflation adjusted.

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

  75. 75
    Jon says:

    Because CS adjusts for changes in condition, it is essentially a price index for houses, and so adjusting it with some other price index would introduce more confusion into the result. Should they use different a different regional CPI for the different cities? By releasing the unadjusted data they make it easier for the user of the data to adjust it as they see fit.

  76. 76
    Blake says:

    Kary… any apology for ripping into JustMe like you did? Eat a little crow perhaps?

  77. 77

    RE: Blake @ 76 – Eat a little crow, maybe, but if he had actually come up with something proving his point then this would have been easier. Also, that was just a side issue of the main issue of the prediction, and again one where if he was right it would have worked against him. The main issue remains whether the seasonally adjusted data is evidence against.

    I’m still not sure that that second Wikipedia graph is right, but since I found that I did want to post something I found contrary to what I thought. If it doesn’t adjust for inflation it would amaze me. If it’s not dollars, why would you not adjust? In a period of high inflation you would expect the mean and median to go up, but you would think that Case-Shiller data would try to show a true increase or decrease in value without doing difficult calculations.

  78. 78

    By Jon @ 75:

    Because CS adjusts for changes in condition, it is essentially a price index for houses, and so adjusting it with some other price index would introduce more confusion into the result. Should they use different a different regional CPI for the different cities? By releasing the unadjusted data they make it easier for the user of the data to adjust it as they see fit.

    I don’t think it would be that hard to use regional CPI numbers–assuming they match up to the cities tracked. If they don’t, then they’d probably just have to use the national figure.

    I don’t see why though you think it would result in more confusion. I think it would be less confusion.
    The mean/median data over time is more confusing because by dealing in nominal dollars you’re really dealing with different units of measure and the results are exaggerated. For the past many years it really hasn’t mattered all that much over shorter periods of time because we haven’t had much inflation. But if we do end up with high inflation again it would be nice to have one set of data which gave you a better idea of what was going on without making adjustments. Also, keep in mind that since it’s not in dollars Case-Shiller really only gives you an idea of whether the values are going up or down. If not inflation adjusted it doesn’t even do that, which would be yet another thing that calls into question why it even exists (beyond allowing the sale of future contracts).

  79. 79

    RE: Ess @ 29
    Good Blog

    I never go to Lake Meridian Park….its across the street from me, because unemployed/underemployed youth took all the parking spaces lately [the last several years]….I spend $30 for a state park pass with my $300 tabs payment and the state park [Flaming Geyser] is down the road about 10 miles, virtually empty because of the $10/day fees…in this case I like the fees….LOL

  80. 80

    Seattle’s PEMCO Insurance Hates Manufactured Homes?

    They no longer insure ’em….their reason makes no sense either, they say there aren’t very many of them in the Seattle area….yeah, little or no cost impact then. So why did they stop insuring them?

    State Farm has the most competitive landlord insurance…..bundle your car and its lower yet, this city has gone psycho. Fire all the incompetent management? They insure manufactured homes and they don’t raise their rates every year either like PEMCO.

  81. 81
    jon says:

    RE: Kary L. Krismer @ 78 – The confusion I meant is the basket of goods that is used to measure inflation. For apparently political reasons in the US that does not include housing cost. But even so, the basket of goods that is relevant to one person is not relevant to another. In fact I like that they are separate, because while my house has a mortgage I am interested in how well my house value is doing in comparison to the fixed interest and principal of my mortgage. Once my mortgage is paid off, I will no longer be interested in housing costs, but will be more interested in other costs. At no time am I interested in the cost of housing adjusted for the inflation of other products. YMMV.

  82. 82
    ess says:

    By softwarengineer @ 79:

    RE: Ess @ 29
    Good Blog

    I never go to Lake Meridian Park….its across the street from me, because unemployed/underemployed youth took all the parking spaces lately [the last several years]….I spend $30 for a state park pass with my $300 tabs payment and the state park [Flaming Geyser] is down the road about 10 miles, virtually empty because of the $10/day fees…in this case I like the fees….LOL

    I used to go to Greenlake as a kid – it was quite pleasant. Now the path is jammed with walkers, baby carriages, bikes, roller skaters. joggers, people walking three and four abreast etc etc, and we have found that we spend more time dodging people, than enjoying the walk and the view. So Greenlake is limited to short walks when we take people on tour. And no more reason to go to Greenlake to see some of the best free to the public limited hydroplane racing – that fun event was killed off by complainers that the noise was disturbing the zoo animals. So not only are there less recreational areas for more and more people, but politically incorrect activities such as limited hydroplane racing has been eliminated.

    We also have the state park pass. We enjoy a few trips to the parks in Snohomish and King county that are less frenetic than the Seattle parks. The pass does tend to limit the riff raff -although we noticed parking right outside the park for those who visit on the cheap.

    What is Flaming Geyser like – having never made it there. With Seattle traffic – may never get to go there! We once went to Dash Point State Park – but traffic is so bad we now just stay north of Seattle for park entertainment unless we head east. Another casualty of this area – limited opportunities to do things because of traffic.

  83. 83
    wreckingbull says:

    By softwarengineer @ 80:

    Seattle’s PEMCO Insurance Hates Manufactured Homes?

    They no longer insure ’em….their reason makes no sense either, they say there aren’t very many of them in the Seattle area….yeah, little or no cost impact then. So why did they stop insuring them?

    I don’t blame them. Why would they want to insure disposable assets. Manufactured homes are a stain on the west. They exist for one reason only – to screw over the working poor with crap construction and predatory financing. The ‘philanthropist’ Warren Buffet sees no problem with this.

    https://www.seattletimes.com/business/real-estate/the-mobile-home-trap-how-a-warren-buffett-empire-preys-on-the-poor/

    If there was an industry ripe for disruption – this is it. Building a quality prefab home which is energy efficient and long-lasting would provide a lower total cost of ownership. A few companies have tried, but not much success yet.

  84. 84

    By ess @ 82:

    What is Flaming Geyser like – having never made it there. With Seattle traffic – may never get to go there! We once went to Dash Point State Park – but traffic is so bad we now just stay north of Seattle for park entertainment unless we head east. Another casualty of this area – limited opportunities to do things because of traffic.

    It’s okay, but nothing special. The “flaming geyser” itself is interesting, but not terribly large or spectacular. Still worth seeing, but it’s not a repeat destination for me.

    I’m not sure I have the right park, but nearby Nolte State Park might be more to your liking. If it’s the one I’m thinking of (the pictures on Google don’t look quite right) it’s on a lake with a trail around it. When I went there it wasn’t crowded at all, but I probably wasn’t there on a weekend.

  85. 85

    By jon @ 81:

    RE: Kary L. Krismer @ 78 – The confusion I meant is the basket of goods that is used to measure inflation. For apparently political reasons in the US that does not include housing cost. But even so, the basket of goods that is relevant to one person is not relevant to another. In fact I like that they are separate, because while my house has a mortgage I am interested in how well my house value is doing in comparison to the fixed interest and principal of my mortgage. Once my mortgage is paid off, I will no longer be interested in housing costs, but will be more interested in other costs. At no time am I interested in the cost of housing adjusted for the inflation of other products. YMMV.

    Thank you. This has been driving me nuts because I’ve gone from thinking “Of course they adjust for inflation, why wouldn’t they?” to “If they don’t adjust for inflation, why not?” Your thoughts match up a bit with one of mine below (#3).

    I’ve grouped the possible reasons into the ones that are acceptable and ones that are not. First the unacceptable ones.

    1. They want more volatility to make their futures products more attractive.
    2. They want higher numbers to better support the claim that housing prices are unsustainable.

    And the acceptable ones:

    1. Whatever inflation number they used might disappear entirely. By not adjusting for inflation they don’t risk having all their historical data become obsolete. This doesn’t though explain not having an alternative index, like they have the seasonally adjusted index.
    2. CPI and other inflation data can change methodology over time, leading to inconsistent statistics. This is similar to Tim’s problem with the NWMLS changing the definition of active and pending listings. Seemingly that could be dealt with by disclosure, the same as what Tim has done.
    3. CPI does have a housing element to it (https://www.bls.gov/cpi/questions-and-answers.htm#Question_7 ) and so there might be some feedback. In an extreme case all the CPI increase might be related to housing, which technically wouldn’t be inflation, so you’d have prices rising but no change in C-S numbers. That would be incredibly misleading. This is probably the most significant problem.

    All in all, if they don’t adjust for inflation I really question their decision to not offer an alternative index which does. Over a period of a few years it doesn’t really matter, but with even moderate inflation of say 4% values would double over approximately 20 years. That should be factored out. Unadjusted numbers could encourage people to invest in housing based on a false understanding, sort of like how a few people might invest in a house not fully understanding tax deductions.

    Finally, I would note that if they don’t adjust, I don’t believe adjusting the C-S numbers by CPI numbers would be the same thing. If you want to do it right you would adjust the earlier sale of each paired sale. The C-S numbers as they are (assuming unadjusted) are just a mixture of earlier sales which occurred at different points in time, with different real dollar values. Unfortunately, that probably means that if they haven’t been adjusting they probably can’t do so now all that easily unless 17 years of their paired sale data remains readily available in some database.

  86. 86
    Erik says:

    RE: Justme @ 43
    Listen to Jon.

  87. 87
    Jon says:

    RE: wreckingbull @ 83 – That’s a very disturbing article that shows how important it is to be an informed buyer. But if there is a group that is going to be particularly uninformed, mobile home buyers are one notch above them. How do you compete with the economies of scale in an industry dominated by an unscrupulous vendor like Buffet? Educating buyers is an expensive proposition better suited for upscale markets.

  88. 88
    wreckingbull says:

    RE: Jon @ 87 – I’d say the right approach aligns with what you suggest. Introduce quality, prefab, passive solar homes to the more informed and affluent buyers, allow that to work its way down.

    I have no doubt that with near zero energy costs and availability of traditional mortgages, the monthly nut of a quality prefab home can be lower. Then add to that a home owner can actually have a home that appreciates instead of depreciating and it becomes a no-brainer.

    This can’t be done by a home builder alone. It needs banks and local planning departments to be on board too.

  89. 89
    Kmac says:

    By wreckingbull @ 83
    If there was an industry ripe for disruption – this is it. Building a quality prefab home which is energy efficient and long-lasting would provide a lower total cost of ownership. A few companies have tried, but not much success yet.

    There are a few Canadian manufacturers of “modular” homes that seem to be better quality than the run of the mill mobile homes found here in the states.

    As someone who has previously tried to fill the need of cheap entry level housing that everyone wants to suggest is needed, I built several smaller (1200sq ft) economy oriented stick built houses and they still met with “it’s too expensive” or “it’s too small”.
    The same people were also complaining that it didn’t have slab granite counters, that it had vinyl floors instead of tile and none of the other nicer finishes that society seems to suggest everyone is now entitled to.
    I learned that people will complain no matter what you do to appease them.

    I think people get sucked into mobiles because of low initial price and niche easy financing, but by the time they get the site built out, utilities in place and everything else, they have actually saved very little money over a comparable site built house.

  90. 90
    wreckingbull says:

    RE: Kmac @ 89 – Thanks for that. Yes, I don’t think site-built homes are going to be the answer. And yes, maybe there is no answer. It is frustrating how so many have difficulty with cost analysis. For example, a certain infamous SB commenter who could not understand why someone would buy an inverter-driven heat pump when a squirrel-cage in-wall heater only costs $100.

  91. 91

    By wreckingbull @ 90:

    For example, a certain infamous SB commenter who could not understand why someone would buy an inverter-driven heat pump when a squirrel-cage in-wall heater only costs $100.

    I hope you’re not referring to me! A couple of years ago I did question the split units relative to a central system, because the costs really start to add up as you add more units for more rooms. Since then I did invest in a two head split system, primarily for air conditioning in the summer, but we’re also using it for heat during more moderate temperatures (e.g. the last two days). In our case the decision was driven largely by the lack of return vents upstairs, but I must say I really like the system and the ability to control individual areas.

  92. 92
    wreckingbull says:

    RE: Kary L. Krismer @ 91 – Nope. Your comment about moderate temps is interesting. Mine does not really begin to work that hard until temps reach about 20 F. My resisitive heating has not been turned on in 5 years, which reminds me, I should probably vacuum out all the unused wall units and baseboards for fire prevention purposes.

  93. 93

    By wreckingbull @ 92:

    RE: Kary L. Krismer @ 91 – Nope. Your comment about moderate temps is interesting. Mine does not really begin to work that hard until temps reach about 20 F. My resisitive heating has not been turned on in 5 years, which reminds me, I should probably vacuum out all the unused wall units and baseboards for fire prevention purposes.

    My more limited use is more due to the size of the unit, and also the fact that a 1969 house doesn’t have the same wall insulation as a modern house (although the attic and crawlspace are upgraded). It’s fine for cooling in the summer even on the hottest days, which is what we bought it for, but for heat in the winter it really should be a larger unit, and probably three heads to better disburse the heat.

    Also, my alternative heat source is gas, not resistive. If it was resistive I’d probably try it at lower temperatures or have certain rooms use resistive to supplement.

  94. 94
    Jon says:

    RE: Kmac @ 89 – Any plan that depends on the government being on your side is going to run into trouble when competing with Buffet. It reminds me of when Buffet advocates for higher estate taxes when by an amazing coincidence he also sells insurance plans for avoiding estate taxes.

  95. 95
    Justme says:

    RE: Cap"n @ 44

    For the record, my prediction about Seattle CS index was about a peak, and **not** about YOY going negative in 2017. Those words about YOY are your words Cap’n’, not mine.

    Overall in this thread, I am happy that everyone now seem to acknowledge that CS index is NOT inflation adjusted. Whew!

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