{"id":16197,"date":"2011-07-01T14:54:09","date_gmt":"2011-07-01T21:54:09","guid":{"rendered":"http:\/\/seattlebubble.com\/blog\/?p=16197"},"modified":"2011-07-01T14:54:09","modified_gmt":"2011-07-01T21:54:09","slug":"friday-flashback-homeowners-will-just-stay-put","status":"publish","type":"post","link":"https:\/\/seattlebubble.com\/blog\/2011\/07\/01\/friday-flashback-homeowners-will-just-stay-put\/","title":{"rendered":"Friday Flashback: Homeowners Will Just Stay Put"},"content":{"rendered":"<p>Here&#8217;s a flashback to Summer of 2006, when I was engaged in a <a href=\"http:\/\/blog.seattlepi.com\/realestate\/2006\/07\/03\/bubble-bubble-toil-and-trouble-whats-the-deal-with-seattle-real-estate\/\" title=\"Bubble, Bubble, Toil and Trouble: What\u2019s the Deal with Seattle Real Esta\">very wordy<\/a> <a href=\"http:\/\/seattlebubble.com\/blog\/2006\/07\/11\/re-there-is-no-bubble-in-seattle\/\" title=\"RE: There Is No Bubble In Seattle\">blog<\/a> \/ <a href=\"http:\/\/blog.seattlepi.com\/realestate\/2006\/07\/12\/the-seattle-real-estate-outlook-a-mixed-bag-but-the-world-is-not-coming-to-an-end-\/\" title=\"The Seattle Real Estate Outlook: A mixed bag, but the world is not coming to an end.\">counter-blog<\/a> <a href=\"http:\/\/seattlebubble.com\/blog\/2006\/07\/13\/whartons-conclusion-soft-landing\/\" title=\"Wharton\u2019s Conclusion: Soft Landing\">debate<\/a> with local real estate professional <a href=\"http:\/\/www.linkedin.com\/in\/gregorywharton\" title=\"LinkedIn: Gregory Wharton\">Gregory Wharton<\/a>.<\/p>\n<p>Here are a few excerpts from his posts.<\/p>\n<p><a href=\"http:\/\/blog.seattlepi.com\/realestate\/2006\/07\/03\/bubble-bubble-toil-and-trouble-whats-the-deal-with-seattle-real-estate\/\" title=\"Bubble, Bubble, Toil and Trouble: What\u2019s the Deal with Seattle Real Esta\">July 3rd, 2006<\/a>:<\/p>\n<blockquote><p><img decoding=\"async\" src=\"http:\/\/seattlebubble.com\/blog\/wp-content\/uploads\/2011\/07\/Gregory-Wharton.jpg\" style=\"float:right; margin:0 0 0 10px; border:1px solid #000000;\" \/>Looking at the factors discussed in the previous four chapters, we can see that not only was there a fundamental economic reason for money to start pouring into real estate (capital flight to safety), three additional factors have been sustaining and accelerating upward price movement. &#8230; In all four cases, fundamental economic value has underpinned large increases in prices.<br \/>\n&#8230;<br \/>\nSo, even though prices have been increasing, sometimes at breathtaking rates, in Seattle there have been <span style=\"font-style:italic;\">solid economic reasons for them to have done so<\/span>. That doesn\u2019t necessarily mean that prices will continue to rise at their recent rates (an issue I will address in the final chapter to come), but it also means that a bubble-deflating crash to fundamentals isn\u2019t impending. For those who have been priced out of the market, now facing still-stagnant wages and rising interest rates, that will likely be unwelcome news.<\/p>\n<p>&#8230;claims of a bubble are grossly exaggerated. &#8230; <strong>there is no bubble in Seattle real estate<\/strong>.<\/p><\/blockquote>\n<p><a href=\"http:\/\/blog.seattlepi.com\/realestate\/2006\/07\/12\/the-seattle-real-estate-outlook-a-mixed-bag-but-the-world-is-not-coming-to-an-end-\/\" title=\"The Seattle Real Estate Outlook: A mixed bag, but the world is not coming to an end.\">July 12th, 2006<\/a>:<\/p>\n<blockquote><p>I briefly mentioned in an earlier chapter than when real estate markets soften, it is usually not prices that fall but liquidity. Unless forced to sell for some reason, homeowners can continue to live in their homes if they cannot find buyers at their offering price. This effect has been observed in many different housing markets all around the world, even in very depressed markets. In the U.S., where mortgage finance plays a large part in home purchase decisions, homeowners will typically only sell at reduced prices if they can afford the implied loss of equity (which most can\u2019t). If a sale price would fall below the outstanding principal amount on their mortgage, homeowners will usually stay put and continue making the payments rather than take such a loss. They may not like it, but they do it anyway.<\/p>\n<p>That\u2019s why it\u2019s important to remember that real estate is not like the stock market. Even in a full-scale bear market, prices in real estate typically do not \u201ccrash\u201d for systemic reasons.<br \/>\n&#8230;<br \/>\nSeattle has experienced other periods of price appreciation similar to what we\u2019ve seen in the last five years. They\u2019ve all been followed by decade-long plateaus before the next cycle gets going.<\/p><\/blockquote>\n<p>Oops.  Apparently there were <em>a few<\/em> faulty assumptions in Mr. Wharton&#8217;s thesis after all.<\/p>\n<p>Did Seattle-area home prices skyrocket for &#8220;solid economic reasons&#8221;?  Nope.  Are homeowners choosing to just &#8220;stay put and continue making the payments&#8221; on underwater homes?  Nope.  Was this boom anything like the booms of the past that just resulted in &#8220;plateaus&#8221;?  Nope.<\/p>\n<p>Lesson: If you base a lengthy argument on a bunch of faulty assumptions all you will end up with in the end is thousands of words that lead to a grossly incorrect conclusion.<\/p>\n<div style=\"font-size:85%; border-top:1px solid #CCCCCC;\">The purpose of our <a href=\"http:\/\/seattlebubble.com\/blog\/tag\/friday-flashback\/\" title=\"Friday Flashback on Seattle Bubble\">Friday Flashback series<\/a> is to remind people why it&#8217;s never a good idea to base your home purchase decisions on the word of someone with a vested financial interest in selling as many homes as possible for as much as possible, no matter what.  If you&#8217;ve got a good example of local home salespeople or other industry shills on record making fools of themselves in the years before the bubble burst, <a href=\"http:\/\/seattlebubble.com\/blog\/contact\/\">shoot me an email<\/a>.<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Here&#8217;s a flashback to Summer of 2006, when I was engaged in a very wordy blog \/ counter-blog debate with local real estate professional Gregory Wharton. Here are a few excerpts from his posts. July 3rd, 2006: Looking at the factors discussed in the previous four chapters, we can see that not only was there&#8230;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[206],"tags":[639,638,537],"coauthors":[],"class_list":["post-16197","post","type-post","status-publish","format-standard","hentry","category-features","tag-639","tag-friday-flashback","tag-wharton"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Friday Flashback: Homeowners Will Just Stay Put \u2022 Seattle Bubble<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/seattlebubble.com\/blog\/2011\/07\/01\/friday-flashback-homeowners-will-just-stay-put\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Friday Flashback: Homeowners Will Just Stay Put \u2022 Seattle Bubble\" \/>\n<meta name=\"twitter:description\" content=\"Here&#8217;s a flashback to Summer of 2006, when I was engaged in a very wordy blog \/ counter-blog debate with local real estate professional Gregory Wharton. 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