That’s a good tip about special assessment though. I’ll definitely look into it.

Two questions. What is the square footage of what you are renting and where is it? Just trying to keep apples to apples.

Some of the better condos in that price range are really small. Comparing the $860 in rent you would have to pay to stay where you are, I would need to know if you would be trading down in square footage of living space, if you purchased. And if so, by how much.

Paying almost double to purchase is one thing. Paying almost double for half the living space, would affect my response.

The highest appreciation in downtown condos have been the older ones that are being remodeled by the owners. Also, ones where there has been a special assesment to upgrade the old lobby and common areas. Best buy is one where the improvements have not yet been made, but the seller is paying the special assessment on the way out.

That way you get the benefit of the lower price of the “ugly” condo and lobby and the seller pays for the upgraded lobby and you can make some improvements to the condo before you sell.

But this only works if it is one of the buildings where people will soon be making improvemnts. So look for the ones that say “Special Assessment: YES” and then check to see that the special assessment is being used for upgrades and not just repairs. Then make sure your contract calls for the seller to pay the special assessment at closing.

Here are a couple things I’ve been considering, most of which have already been mentioned in previous comments, but I’d like to hear what other people have to say about the way

There is a significant gap between the costs of renting vs. buying. Buying and living in a $200,000 1 br condo costs around $1600/month (mortgage, association fee, insurance, maintenance, tax) whereas the same condo would rent for $800-$1000.

This means that people are paying more to buy, because they are expecting the property to appreciate a lot. Or maybe rents are just taking a while to catch up to the increase in cost to buy. The lease in my apartment just ended, and my rent was raised from $765 to $860, which is the most I’ve ever seen my 7 years in Seattle. Also in looking for a new apartment, it’s obvious that rents are going up. It doesn’t surprise me that the rental market may be slow to change, as rental prices can not change until people reach the end of their leases (usually 12 months). In addition, the landlord tenant laws prevent rents from increasing to fast.

I’m still not clear on how wages/salaries play into all this. I seems to me that it would take even longer for the increase in housing prices we are experiencing to result in salaries increasing. What is the incentive for companies to increase wages? Do companies only raise wages when people start moving away because of the high cost of living? If people keep moving to Seattle, why should we expect wages to increase?

Another thing I’m considering is that there is quite a bit of development around the area, both new construction and apartments being converted to condos. This makes me think it would be a good time to buy soon, as with an increase in supply there is a decrease in demand and thus lower prices. However, no-one is building anything that is in my price range except for tiny studios. So how would this new construction affect the market for low end 1 bedrooms?

The market may be going up so much that single family homes become unaffordable in Seattle, but wouldn’t that increase the demand for cheaper properties as people are force into buying less then they wanted because that’s all they could afford?

Personally I’m still trying to decide if it makes sense to buy something soon (6 months or so), or wait a year or more and see where the market goes.

The problem in tracking any increase in short sales is the method by which the data is collected. Not all short sales are in preforeclosure. Not all preforeclosures are short sales.

You can once again ask your favorite customer service rep at your favorite title company (previous post suggested asking your title rep. He/she would probably refer you to customer service) to run this Metroscan report:

Geographic parameter
Like, say, King County or City of Seattle

Sale Date
Do a month range.
So, order the months of Jan, Feb, March, etc. through September, as single reports, so that the customer service rep only gives you the end number for each month.

Deed Type
Ask for a trustee’s deed search

So you’ll get
City of Seattle
Jan
Trustee’s Sale Deeds

City of Seattle
Feb
Trustee’s Sale Deeds

and so forth, and then you will be able to see any trends in preforeclosure/foreclosure stats in your chosen area. Rarely is there a trustee’s sale when the homeowner had massive equity. More often the homeowner has little or zero equity and might have tried to sell short before going all the way down the road to losing the American dream.

There’s another statistic we could measure. The top two reasons why people default on their mortgage are……what are your guesses?

No fair googling for the answer.

Solds could be interesting in-and-of themselves, but not nearly as helpful as a long-term snapshot of local listings. Without a long-term understanding of the listing number, I have a hard time putting the 28% year-over-year increase (I think that is the number I read on the Seattle Bubble blog) into perspective.

I know how to use the NWMLS backend to get solds, but I’m definitely more interested in some type of listing information… (Even if it was only the number of listings at the beginning or end of each quarter!).

All of a sudden, I’m reminded of the back-and-forth analysis that Tom Dozier and I were doing almost a year ago in trying to figure out seasonal variation of real estate trends because that was the last time I dug into the data. I only wish I could get into similar analytical discussion with a solid , but the majority of the current crop of bubble advocates are such “believers” that they shy away from any arguments that can’t be taken on faith.

Total and complete aside: Does anyone (besides Joe) remember back when Tom Dozier was writing the Seattle Property News blog? Tom did such a great job describing local market conditions and I think set the standard for an analytical real estate blog. I wish he hadn’t quit blogging and if he is out there reading RCG, he’d be welcome as a contributor to RCG at any time!

“This time we are experiencing a decline of housing prices without job loss or recession. Very strange times indeed.”
Yes, it is interesting. Many buyers are concerned about interest rates. There concerns are complicated with the inverted yield curve that has been popping up. IYC is when short term interest rates are higher than long term interest rates. The Fed has influence over short term interest rates. The long term interest rates are influenced by investor perceptions of future inflation and their trading in the bond market. While The Fed has been raising short term interest rates to keep inflation in check (and cut down on the real estate froth), but bond investors were not forecasting inflation. Some potential sellers have decided to stay put and remodel or add additions to their homes. The work is being financed with a second fixed rate mortgage, fixed rate refinance, or converting adjustable rate HELOCs into fixed rate mortgages.

“Since the depression, this country has not seen a decrease in the national median home price.”
This is very easy to verify from many sources such as the OFHEO at the Bureau of Labor and Statistics for the Federal Government and many non government academic research studies such as the one conducted by Liang and McLemore.

REITs are a different animal. The Fed’s definition of a “bubble” is single family home based. Generally, REITs are institutional investment with 40%-50% debt leverage for multifamily and commercial property invested on a national scale. I have not read a study correlating a local real estate economy of single family homes to REIT performance. If a REIT was only locally invested I would imagine there would be a distinct correlation to single family homes as jobs are a large driver of the local single family home market and secondarily commercial property.

“”A fool and his money are soon parted” and anyone who believes the liar who says “Real Estate Can ONLY GO UP!”…is a fool.” I would agree. Real estate is just another asset class. The same investment rules apply and the same finance theory applies. Fortunately, the Puget Sound tends to experience capital asset growth followed by flattening and then a repeat of the cycle. It is rare the Puget Sound experiences a decline Yes, this can be verified easily with any of the local real estate economists in Seattle and the Guvment.

I can certainly appreciate the personal experiences that were posted, but that doesn’t indicate a bubble or anything but your personal experience. Research is based on broad general what ifs, analysis, interpretation, probability. Financial forecasting is broad what ifs. Economic forecasting is broad what ifs. Yes, some tragic personal experiences contradicting the forecasts are certainly going to happen, but that doesn’t indicate a change in the market indicators or economy. All the research I have cited could miss the mark completely. It is not a singular analysis of one component such as MLS data. It is an analysis and interpretation of the historical performance of many drivers and the current state of those drivers. Take the PMI study I cited. PMI has been doing their thing for a long long time. Have they been wrong? Or course they have been wrong. They have been right many many more times than they have been wrong. PMI reports Seattle has a 15.3% chance of a capital asset decline. That leaves a 74% chance of stagnation or continued capital asset growth. If we do experience a decline does that mean we experienced a bubble? I would say no unless we turn out to be another San Diego in economic terms.

“And there is a troubling similarity between the house-price boom and the dotcom bubble: investors have been buying houses even though rents will not cover their interest payments, purely in the expectation of large capital gains – just as investors bought shares in profitless firms in the late 1990s, simply because prices were rising.”
The Economist is a very a good news organization. I have read a few research reports indicate that Seattle had a lot less speculative investment than the hot MSAs like San Diego which is one reason we are not seeing a market flooded with supply putting downward pressures on prices. I believe the reports came from The Fed, MBA and PMI. Investors have to understand that asset yield is comprised of many components and capital asset growth is only part of the yield. Betting on capital asset growth three years from now is inherently more risky than receiving rent next month. Yes, I can post a formula for discounted cash flow analysis.

Cheers,
Michael P. Lindekugel MBA
Financial Analyst
RE/MAX Commercial
Team Reba – RE/MAX Metro Realty, Inc

What is the long-term supply of housing on the market?

I read the other day that there was a year-over-year increase in listings in the Seattle area, but I’m wondering about the longer trend… Is the number of listings akin to foreclosure rates in San Diego, where things are rising at rapid rates (300+ increases) and yet still less than 2/3 the average rate over the past 14 years? (see comment #66). I’m definitely interested in learning that the supply issue is more indicative of a long-term housing bubble, but I’d like some data to back it up!

If someone could provide a table or chart of average number of listings in the Seattle area (preferably normalized to account for new housing stock!), I think it would add some value to the conversation and give me a new avenue to uncovering evidence of a bursting bubble as it begins to happen.

The only problem I see is that if we focus too much on the aggregate listings, then we might overlook the fact that there has been a substantial growth in market activity and that trend is not likely to change. In other words, over the past few decades, my impression is that the number of times that the average home owner has moved has increased substantially.

Some numbers are clearly needed to explain my logic… Let’s assume that the average home owner moved every 21 years in the 1950s and that today, the average homeowner moved every 7 years. I would expect that when normalized for the housing stock, the number of listings would be three times greater today. Taken over the past 10 or 15 years, even if that time between moves dropped 25% (from something like 10 years between moves to 7.5 years between moves), then I would expect to see a 25% corresponding increase in listings, everything else being equal.

Even with that caveat, I’m still interested in the long-term numbers because I think they could help shed light on the health of the local market. Can this total listings at any given time (going back at least 15 years!) be pulled from Discover?

I can’t think of any reason anyone would use the term “short sale” (in quotes) unless they meant an actual “short sale”. It’s not a new hot term for “reduced”.

It has a specific meaning… I search for “short sale” in wikipedia only returns one result.

Some mls rules require that the agent remarks note the “possible short sale”. Often in a short sale there really is no money to pay the 3% Buyer Agent Fee they are offering in the mls. Consequently the commission being offered is “subject to approval by the lender in the short sale”. In markets where there are a lot of short sales, and the lender reduces the agent commission as part of the agreement to close at less than full loan payoff, a warning is required on the listing in the agent remarks section.

Also, since the seller doesn’t have the authority to sell the property without lender approval during escrow, the buyer should be warned that the sale could fail or be delayed. It could be a matter of disclosure if the sale price is less than the total liens on the property.