Is Seattle Bubble Proof?

Best I can tell so far, the answer to that question is a resounding YES, Seattle IS bubble proof, at least in the $300,000 and under market.

I am totally bugeyed, having spent the last 10 hours slicing, dicing and dissecting every single stat in the $300,000 and under market, in $100,000 increments, for 2005 and 2006 year to date on a month by month basis.

While we are seeing a teensy weensy weakness in October vs. August and September prices, the run up from January of 2005 to present has been insane. 72% of families have been squeezed out of the first time buyer market during that time in the $300,000 or under range. So even if we see prices dropping back, we will not soon see the day when the increase will be declared a bubble that is about to burst. In fact a modest correction is well warranted, but I do not see single family homes dropping in price back to where they were in January of 2005 for many, many…if ever…years. So yes, in the single family home market, anything decent in the lowest of price ranges should still be grabbed up. By March of 2007 the opportunity to get any bargains in the entry level single family home markets, will likely be gone for good.

For my neck of the woods, which would be from Green Lake up through Shoreline and beyond, around Lake Washington and into Kirkland and the Eastside, if it’s a single family home priced under $400,000…buy with care…but don’t wait for any of them to ever dip under $300,000 again. I don’t see that happening.

Condo markets in the same price range…entirely different story. I’d stay far away from the one bedroom condo market. the run up there has been as insane as it has been in the single family home market, BUT the one bedrooms are fast converging on the price of a much large two bedroom. So don’t assume you have to buy a one bedroom condo if you are starting out.

So many have overlooked the two bedroom opportunities, that the price growth of the one bedrooms has far exceeded the price growth of the two bedrooms. As fewer people can afford single family homes, more and more are buying condos in the under $300,000 price range. Hold out for the two bedroom units whenever possible, and let the one bedroom condos back off in price a bit. Some one bedroom units are tryng to sell at 79% more than they did 16 months ago! Pass them by. Hold out for a two bedroom, unless the one bedroom is reasonably priced for what and where it is.

I’m too worn out to go further than $300,000 today, but what I’ve written is worth studying. I have every single number broken down by $100,000 increments and split between condo markets and single family markets. I didn’t post them all, but I will keep my sheets of pencil notes for awhile, just in case anyone has any questions.

About ARDELL

ARDELL is the Managing Broker of Sound Realty in Seattle/Kirkland. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has over 22 years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. Follow Ardell on Google+

Comments

  1. Considering a bubble can, by definition, only be identified after it pops you’re jumping the gun a bit. The prices are going to hold on most properties until the next recession.

  2. So, 75% of the “First Time Home Buyer” has been squeezed out!. You seemed to have just brushed over that. How much % of all the buyers are First Time buyer’s? It lands as you stated, which seems pretty huge, but you just glossed over it. Don’t you think its pretty significant, not just in numbers but psychologically? Does it not contibute to a bubble bursting? Don’t you think this will drive prices down?

  3. Ardell, by your apparent definition of “bubble proof,” the NASDAQ was also bubble proof in the late ’90′s, right up until March 2000, when it wasn’t.

  4. Will,

    I can tell by what’s for sale that we are not at the popping stage or anywhere near it in the price range I’ve studied today. When there is not even one condo for sale under $100,000, we can’t be nearing a point where many might sell for less than $100,000. You’d have to see at least one selling near that range to even begin to become fearful of a drop to that level and we’d have to see thousands selling there to get back to the prices of just 18 months ago.

    If we see at least 50 selling there, we can talk. But right now…it’s not in the forseeable future. Same goes for single family homes selling for less than $300,000.

  5. House prices keep going up so it’s not a bubble?
    Ardell, you’re kidding, right? I guess not.
    Looking at momentum at the end stages of a bubble and using that as justification that it’s not a bubble is not something I would expect from any “professional”.
    Ardell, if I plant a tree and watch it grow 1 foot per year to maturity (ie, 10 years), should I proclaim in year 10 that it will keep gorwing like that for the next 10 years just becuase it’s done that up to now? Trees don’t grow to they sky and house prices don’t diverge from fundamentals indefinitely. Just like the genetics determines how large trees become (environmental factors being equal), in real estate the fundamentals dictate where prices will end up. An asset bubble is like a cancer – asset price growth is out of control. But markets have their own form of chemotherapy, and it is powerful. What’s incredible is that you pointed out the very chemotherapy that will pop this bubble – the vast majority of people who live here can’t afford to buy homes. Who’s going to buy them, Ardell, Martians? Remember, as housing prices deflate elsewhere, Seattle looks even MORE expensive on a relative basis. As much as you might deny it, there IS a limit to peoples stupidity. It doesn’t take long for greed to be replaced by fear when phsychology turns, and turn it has. I am seeing and hearing it on a daily basis.

  6. Gary,

    Increased demand for the lowest priced houses does not “contribute to a bubble bursting”. In fact it spurs it even higher.

    That is why I urge people to buy a two bedroom condo or a townhome first, instead of renting until they are ready to buy “a house”. At least they have the appreciation on their first purchase to help defray the cost of the single family home. Better to buy one that needs new carpet and some other interior improvements, so you can build equity even if the market appreciation levels off.

  7. The Tim,

    You can’t compare housing to the stock market. People don’t HAVE to own stock, they do have to have a roof over their head. And for many people, renting is not an option.

    50% of everyone who owns stock can decide tonight that they do not have to own stock anymore. The same thing would not happen in the housing market.

  8. Jerry,

    Every day people sell condos to buy townhomes and townhomes to buy houses and small houses to buy big houses. It’s the people who continued to rent who have a hard time “jumping in” at this point. Not everyone is a first time buyer. Going straight to single family home is not necessarily realistic. Those who bought a condo four years ago, or a townhome two or three years ago, can trade up.

    Seattle is a much better housing market for people to trade up in, than many areas. In L.A. a house like mine costs the same, but nowhere can you find a condo for under $200,000. I have lived in many places, and few have the variety of housing and price ranges that we in the Seattle area have.

    I am more familiar with Eastside than Seattle proper, but clearly the housing in Juanita and Bellevue offers a huge variety of prices and styles, from condos to view homes. There are very few areas in the Country that compare.

  9. Remember, unlike most of the youngin’s posting here, Ardell has probably experienced – first hand, as an adult – previous market corrections (89-90, 79-80). Even though many of you point to reams of data, time and time again, the only previous bubble ‘experience’ referenced is the stock market correction of 2000-01. I think it’s extremely arrogant to discount the sum of Ardell’s experience and the data she’s pulling. You may mock her data analysis skills, but have you ever thought that based on her experience, as goes the behavior of the entry level homes, goes the market?

    The bubble people seem so fixated on their arguments, that they can’t step back and actually consider the merits of her argument.

    Perhaps she’s off the mark, but don’t dismiss her hypothesis out of hand. For being so data driving, Tim, I’m disappointed that you didn’t engage Ardell in a more analytical way. You simply fall back on tired old cliches

  10. Ardell,

    I’m not “comparing housing to the stock market” in the way you are implying that I am. I did not say that housing prices could or would drop off a cliff in the way that the NASDAQ did. Obviously a “bursting bubble” in real estate would look significantly different than a bursting bubble in stocks.

    All I’m saying is that you appear to be claiming that because you have not YET observed any “weakness,” then it’s absolutely impossible that prices will fall in the near future. I reject that assumption.

    Eric,

    You can dismiss my comment as “cliche,” but the fact is, dismissing the possibility of home price declines in the near future based entirely and solely on what’s selling today is foolishness. Home prices are very different from stocks in that they do not fall as fast or as far, but in both markets everything can look rosy right up to the turning point (especially if you limit your data analysis to “how are things selling right now”).

    I have found that it is an utter waste of my time and energy to attempt to seriously engage Ardell, whether in an analytical way or otherwise. She is so entrenched in seeing real estate a certain way, that her opinions of the housing market are immutable. To put it another way, we see things so differently that every time we attempt a discussion, it feels like we’re talking about completely different subjects. It’s an impenetrable paradigm, and as such, this is the last comment I will make on this post.

  11. Tim-

    Step back a moment – can’t you consider that others might view your position just as immutable? You said it yourself, ‘everything can look rosy right up to the turning point’. You may very well be proven correct with your assertions of a bubble burst, but clearly you refuse to consider and discuss alternative viewpoints, clingly tightly to your own views. By dismissing Ardell’s analysis of current data as relevant to any bubble discussion, though which you seem to agree supports her assertations, you show yourself as unable to consider other scenarios besides your singular view of the housing market.

    As per your assertion that it’s foolish to dismiss the possibility of future price declines based solely on what is selling today, I think it’s just as narrow-minded to predict a Seattle bubble solely on the recent experiences of other housing markets. In both cases, only time will tell. And since that’s the case, I don’t know why it’s so offensive (to either side of the issue) to engage in conversation. It’s not like two sides arguing about the sky being blue, with one arguing that it’s red – now that would be an impenetrable paradigm.

    The truth is the people get so stuck in their own beliefs, they are unwilling to consider other beliefs.

  12. Lake Hills Renter says:

    Not everyone has to start at condos/townhomes. It’s about buying power, and equity is not the only way to get it. For someone managing their money wisely, it’s quite possible to rent and have your money do better than normal housing appreciation (anyone who thinks the double-digit housing appreciation of the last couple of years is normal is in for a rude awakening).

    It may not be the norm for renters across the board, but it is certainly not impossible, or possibly even uncommon. I know several people that are in just this situation, including myself. I could afford to buy right now — and I mean a house, not a condo — as a first time buyer, but I refuse to pay the outrageous and unsustainable prices to buy in the current market. It doesn’t make financial sense, since a return to historical mean is an irresistable trend IMO. I’ve seen absolutely no convincing arguments to explain the current run up in prices, including on this blog. I’ll deal with not being able to paint the walls of the nice house I rent, particularly considering how much money I’m saving compared to if I’d bought in the last few years.

  13. The Tim,

    I am not inexperieced in anticipating bubbles. In fact on October 1, 1987 I started rebalancing all of the portfolios of my clients. By Black Monday, October 19th (actually I recall the Friday before being when it started) I was the only Trust Officer getting thank you phone calls. Everyone else around me had screaming clients on the phone.

    Since none of you are old enough to remember Black Monday, here’s a quote “The Dow lost 22.6% of its value or $500 billion dollars on October 19th 1987!”

    Real Estate is quite different in that those who trade up in a down market will gain more than they lose. As an example, let’s take the 19 year old boy who bought the one bedroom condo for $100,000.in the summer of 2005. One similar to his in the same building is now for sale for $179,000.

    Let’s say it sells at $140,000, which is more realistic than the asking price, at 22.6% less than the seller wants. If his trade up housing was asking $400,000 at the same time, and declined by the same 22.6%, he would “lose” $40,000 from peak value, but still gain $40,000 from his original purchase price.

    He would in addition to that $40,000, gain $80,000 on the trade up housing, being able to buy it for $310,000 vs. $400,000. He would have 10% down plus his closing costs from the gain on his intitial investment, the one bedroom condo. So the “bubble bursting” would give him a total net gain of $120,000 and not a loss at all.

    Clearly anyone buying property today has to be a lot more careful than those who purchased twelve to 24 months ago. But people do not lose money if they trade up in the same affected marketplace, as they always gain more than they lose.

  14. Lake Hills Renter,

    My response to The Tim got caught in the Spam filter. When Dustin releases it, it will clearly pont out that “return to an historical mean” is not a given for sure. The last true bubble I was in a position to predict, was when the market rose from 1500 to almost 3000 in a “short” period of time. I don’t think we will see the DOW returning to that historical mean in my lifetime.

    It is nearly impossible for someone to save an amount equivalent to an equity run up, in that what you save is after tax dollars. Gaining equity on a personal residence is not taxed if you live in the property at least two years. That’s a broad representation, and there are some exceptions and limits. But my client who purchased in 2004 and sold this year, walked off with a tax free 70% increase in his pocket. That amount was clearly at least five times more than he could have saved by renting during that same time.

  15. As a first time buyer looking for a 3bd house in Seattle in the $380K range, you people are starting to freak me out. I’m holding on to the belief that we’ll find a decent place whose price was dropped that we can upgrade and hold on to for the long term (10+ years). Hopefully that will protect us from any correction some of you think is coming – myself included actually to some degree, since we’re watching a few houses to see if they go for asking or have to reduce. Granted, I’m totally new to all this (and have a hard time following all this “bubble” talk) but we gotta start somewhere!

  16. Lake Hills Renter says:

    As you said yourself, you can’t compare the housing market to the stock market. When was that, and would be the historical mean now considering inflation and normal apprecation of the market? Your example is rather vague.

    And as I said before, the double-digit appreciation of the last few years is not the norm. Normal appreciation is 4%, andI most certainly can make that even after tax. Trying to sell a similar house now would much harder considering the stalled market. Are you saying you expect the double-digit appreciation to comtinue? Until when?

    And are you actually saying no one can save their way into a house? That you have to buy a condo first and trade up? Because that is what you seem to be implying. Almost everyone I know saved their money and bought. Worked out just fine for them, no condo necessary. I could see how it it would be necessary if your end goal is a $1 million house, but not everyone wants that. I certainly don’t.

  17. Eric,

    I am not offended in the least by Will or Tim or Lake Hill Renter’s comments. It seems you are the one offended by “the opposition” :-)

    I think there are segments of the marketplace that will fit my conclusions and other segments of the marketplace that will fit their connclusions. This is not a a who’s right and who’s wrong discussion. I do think that people buying today stand a much greater chance of losing money than those who bought two years ago.

    Since they cannot go backwards and buy two years ago, their position of caution after a run up in pricing is logical and justified.

    Having been in the stock market for many years prior to being in real estate, I am quite used to being in a room full of bulls and bears. But as they say, the “pigs get slaughtered”.

    I do think investors jumping in right now, thinking they are going to make a killing, would be unwise if they continue to make the same mistakes I have seen them making over the last two years. It is very sad to see people buying the wrong properties and putting the wrong upgrades in them. In many cases if they had done nothing to the properties, they would have gained more than by making the improvements that they did.

    The sad stories in real estate are the same as the sad stories in the stock market. People who buy stock on borrowed funds are most often the losers…same goes for investors due to the excessive carrying charges.

  18. Lake Hills Renter,

    OK, let’s stick to the housing market and the double digit inflation in the eighties. No, they never got back to the historical mean.

    Am I saying no one can “save up” to purchase a house? That is somewhat irrelevant, since anyone can buy almost anything these days, given the loose lending situation. No one needs to save up to buy. Saving to buy is a choice, not a necessity.

    I’m just stating the facts. The difference in payment between buying and renting for my client two years ago was $500 a month. If he saved that $500 a month, he would first have to earn $700 a month ot save $500 after taxes. At the end of two years he would have had $12,000 saved, vs. The $70,000 he acquired when he sold. To have achieved the same return by saving, he would have had to save $35,000 a year. He only made $75,000 a year. So saving as much as he gained was an impossibility.

  19. Lake Hills Renter says:

    Ardell,

    I don’t intend for my comments to come across as antagonistic, and if they do I apologize. But your positions do come across as a bit absolute and all-knowing sometimes, particuarly where renting is concerned, thus why I question them. But your experience and comments are appreciated, even if I may disagree with some of your conclusions. I am indeed a bear on the curret market, after analyzing all the data and trends I’ve been able to get my hands on, but I welcome all data and analysis, whether bear or bull.

    Adrianna, I recommend doing a lot of research on the the housing market before making such a large purchase, and I say this whether I am a bear or a bull on the market. Find out the current state of the market and compare that to your finances. If you think it’s a good time to buy after considering all the factors, then do it. If you decided it isn’t, then don’t. No one can make your decision for you, since you know your situation better than anyone. Education is your best weapon.

  20. Lake Hills Renter says:

    Yes, Ardell, I agree for that one client and his 70% appreciation it made sense for him to buy instead of rent. But 70% in two years is not the norm, and I seriously doubt we will see it again in the near or even medium-term future. I am talking about in normal market conditions, which I believe we are reaching very quickly. As you said, you can’t go back to the past.

    As for loose lending standards, yes anyone can buy almost anything these days — whether they can afford it are not. That is not an excuse not to save, it’s financial Russian roulette. Call me old fashioned (if 4-5 years ago can be old fashioned), but if I can’t afford to save the downpayment, then my I can’t afford it. The fact that I can get a huge mortgage doesn’t mean I should.

  21. Opposition is a bad term. Perhaps bubble believers are better described as extreme protagonists to a disputed future probability.

  22. Lake Hills Renter says:

    Why is believing housing prices will fall any more extreme than believing they won’t?

  23. “Adrianna, I recommend doing a lot of research on the the housing market before making such a large purchase” says Lake Hills Renter. Yes, of course, I agree. The problem is everyone seems to be saying something different.

    In our case, we can’t stay in the duplex we’re renting – much too small for 4 people- and I just can’t stomach moving to another rental. The perfect time to buy? Maybe not. Worth stretching our budget to get a house? We think so, and as I said we’re hoping being in it for the long haul will save us in the event prices drop drastically. If only I had that crystal ball…

  24. “Why is believing housing prices will fall any more extreme than believing they won’t?”

    Because some will rise and some will fall. I’m willing to believe that some will fall from this point. Are you willing to believe that some will rise?

    I think newer construction with premium “luxury” pricing will fall. I think condo conversions will take a big hit. I think entry level single family housing, like older ramblers in North Seattle through Shoreline up to Mill Creek and around through Kenmore and Finn Hill will continue to rise, except for those that were flipped. Flipped properties will decline the same as condo conversions.

    Best value for the money has a lot to do with the square footage, the main footprint and the overall floor plan and style of the home. In a lot of ways there are more condos to buy that will improve in value than there are homes to buy that will improve in value.

    I think it’s a great time to buy a two bedroom condo in close to original condition that was built in the 80s that is just over 1,000 square feet. I think it’s a bad time to buy a townhome built in 2003.

    Any broad brush that says everything will gain equally or fall equally is always incorrect.

  25. “50% of everyone who owns stock can decide tonight that they do not have to own stock anymore. The same thing would not happen in the housing market. ”

    This is a bad comparison for 2 reasons – First, Mutual funds, pension funds and other investment institutions own the majority of stock. They cannot just decide overnight that they want to get out of the market. Ever notice that even during really bad bear markets, these funds tend to hold the majority if their shares?

    The second reason it’s not a valid comparison is because there are other ways to get shelter besides owning a home. Renting, living with relatives, corporate/military housing are all viable alternatives.

  26. Adrianna,

    Good point. You asked me why house X is worth more than house Y, even though they are both asking the same price. What people are asking should not be the guideline for the agent. Agents who tout “negotiating skills” are not as valuable as valuation skills.

    If someone has a house worth $370,000 on the market for $419,000, it is no great feat to “negotiate” it down to $400,000, is it? Getting the one worth more than $400,000 for $380,000 would be a greater accomplishment. Getting the one asking the same price of $415,000 or so for $380,000 is a normal expectation.

    If someone swoops in and buys them both at $410,000 because their agent is “a good negotiator”, simply means one buyer will win and one will lose, doesn’t it? If both agents work the asking price down to $400,000…they did not achieve an equal result, unless both houses are worth the same price, which they are not.

    As to being “freaked out” LOL…sometimes they freak me out :-)

  27. Will W.

    1) I was a fund manager, and yes I could and did decide to dump all of my stock portfolios overnight, one week before black monday in 1987. Why do you think they cannot do that?

    2) No, there are not ways to house 50% of the population who currently own homes, into rental housing. Nor could they or would they ever decide to sell all at once. The average person who owns a home, does not decide to sell it due to market conditions.

  28. Lake Hills Renter says:

    ” I’m willing to believe that some will fall from this point. Are you willing to believe that some will rise?”

    I will absolutely say there is a chance some will rise. Just as there is chance some will fall. I do not hav a crystal ball to say with absolute what will and won’t happen. It’s all about probabilities. My analysis of the data says that the chance of prices coming down in most markets is higher than the chance they will continue to rise, particularly at the levels we’ve seen in the last few years. You mileage may, and apparently does, vary.

    This still doesn’t answer the question of why believing prices will fall is “extreme”, implying that believing they will increase isn’t.

  29. Will,

    Stock portfolios increase their cash positions after a run up. Or move to cash and dollar average back in over a set period of timed re-investment.

    Balanced portfolios “re-balance”. For example a portfolio or mutual fund that starts as 40% stock and 60% bonds will become overweighted in stock as the market rises. Taking gains and rebalancing back to 40% stock is a common “overnight” event for a balanced mutual fund.

    If someone has a stock fund and a bond portfolio (I don’t like bond funds), they can pull the gain from the stock fund in the rebalancing move, overnight, and add to the staggered bond portfolio with the stock gains.

    If you are simply watching a stock mutual fund, you are not getting the full story, as a wise invester will balance their stock funds with a staggered bond portfolio and strip off the stock gains.

    Somewhat like the guy at the blackjack table who strips off a portion of his winnings, and puts them in his “other” pocket :-)

  30. Because one fund decides to dump stock doesn’t change the fact that the total volume vs the number of shares outstanding is small. I don’t see how this anecdote changes the fact that most funds do decide to hold their shares.

    Your “50%” figure is a red herring – nobody beside you even mentioned a change of this magnitude.

  31. Seattleeric-

    Have you sold either of your houses in West Seattle or Mukilteo yet? As of your 10/7/06 posting on your webblog, you had no bites. It’s been almost a month since then–how many lookers have you had at either property over the past month? Do you plan on updating your blog anytime soon?

    If we could turn the clock back exactly one year with everything else being unchanged, do you think that you would be in this same situation as you are right now? What is different now compared to 2005?

    Microsoft has added several thousand jobs in the past year, and Boeing has hired plenty of people at high-paying jobs during the past year as well (many of those jobs being very close to Mukilteo). Shouldn’t this strong local job growth keep the housing market strong as well?

  32. Bubble Def.

    1. An economic cycle characterized by rapid expansion followed by a contraction.

    2. A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.

    3. A theory that security prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts.

    Investopedia Commentary

    Bubbles form in economies, securities, stock markets and business sectors because of a change in the way players conduct business. This can be a real change, as occurred in the bubble economy of Japan in the 1980s when banks were partially deregulated, or a paradigm shift, as happened during the dotcom boom in the late ’90s and early 2000s. During the boom people bought tech stocks at high prices, believing they could sell them at a higher price until confidence was lost and a large market correction, or crash, occurs.
    Bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth. At the end of a bubble, resources are moved again, causing prices to deflate. Thus, there is little long-term return on those assets.

    So explain to me Mr. Will, how is one not able to predict a bubble popping before it pops, based solely on the very definition of a bubble? You are saying that we can’t see a bubble right in front of our eyes until it has popped? It’s not like we are predicting the second coming….

  33. Matthew,

    A little too broad, don’t you think? If it expands by 40% and contracts by 5%…that’s a minor correction, not a bubble bursting…don’t you think? Or it could go down by 5% in October and swing back in the spring up another 15% …the contraction being of no nevermind except to the guy selling in October or November.

  34. Redmond:

    Correct, our houses aren’t moving, and it’s frustrating. If I were to turn back the clock, what would I do differently? Many things!

    1) I would pick properties that are more marketable. The west seattle house has no off street parking, this is definitely affecting the number of intersted buyers.

    2) I would have not listed in the Fall. This is more applicable to West Seattle, since the remodeling work was done in only 45 days.

    3) I would have hired a different contractor for the Seaview house This was actually a good acquisition. What killed us was the massive cost overages in both construction budget and holding costs. If not for the 6 months to finish the project, I could have got it on the market in June…and it would have sold quickly then.

    4) I would stick to homes in the starter price range =

  35. Sorry somehow my post got cut off when I clicked to publish.

    4) I would stick to homes in the starter price range of $300K or less. Faster rehab turnarounds due to less work needed.

    5) I would buy only wholesale houses. These are properties in distress, or where the seller needs to sell quickly. The cost basis on these are low enough to market them at lower than market prices once rehabbed.

    Will we continue to do flips given the problem moving our current two properties? Yes, but only when certain conditions are met – right price, right location, ideal floorplan, etc. In other words, we’ve learned a lot from our mistakes, and won’t make them again. Will my primary RE investing focus be on flips? Nope – too much competition in this market which is transitioning to a balanced, flattening market (in my opinion). My dollars are being funneled to other parts of the country, with a focus on cash flow.

    We are fortunate, however, to have a large liquid asset base to withstand the liquidity crunch that might have befallen others in our situation. That said, at this point, holding out for a price that brings in our target profit is out the door. I want to clear our plate of inventory, and free our cash. We’re also fortunate that we’ll still net a profit from our five flips when all is said and done, given the success of the first three.

  36. Ardell,

    Read parts 2 and 3 of my post again. That parts about massive selloff and freefall.

  37. redmondjp says:

    Thanks for the update, Eric!

    And kudos to you for having the additional liquidity needed to cover your continuing costs until these properties sell–unfortunately, there are many out there who don’t, and a lot of these people will be in trouble soon.

    I think you’re on the right track, as far as investing in RE that generates net positive monthly cash flow (ie multifamily units). My parents owned several duplexes which they rented out as I grew up, and they paid for my college expenses. While in college, I lived in a 6-building 47-unit apt. complex in central Indiana. There was one full-time manager (the 48th unit was the office), one part-time maintenence person, and the owner lived in Florida (year-round, as far as I knew).

    I always thought that was a pretty good setup, once I did the math on it. Sit back, live where you want to live, and get a check in the mail every month. This, of course, hinges upon whether you can find competent people to manage your properties and deal with all of the less-fun aspects of being a landlord (leaky water heaters at 3am, delinquent payers, druggies, etc). I got pretty good at cleaning solidified cooking fat out of kitchen sink traps!

  38. “So explain to me Mr. Will, how is one not able to predict a bubble popping before it pops, based solely on the very definition of a bubble? ”

    All of characteristics of the bubble are there to varying degrees- I don’t deny that RE looks like a bubble – all I’m saying is that bubbles can’t be “proven” to exist until after they pop.

    The housing market may not tank- I think there is quite a bit of risk right now, but there are several scenarios that could happen in which the housing market does not experience a significant price correction – if the Fed decides not to fight inflation, the majority of the debt racked up over the past few years will evaporate and the “correction” will be felt in some area other than house prices.

  39. You stated that a bubble could not be “identified” that is a big difference from saying a bubble cannot be “proven”.

  40. Matthew – there may not be a pop. In that case, it was merely a mania – not a bubble. With Baby Boomers so heavily invested in real estate just before they are about to retire there is a very real incentive for the government to avoid an outright collapse in prices even if it has other undesirable macroeconomic consequences.

  41. Will,

    What type of government bailout are you predicting? I work for the federal government, and I highly doubt there will be anything of the kind. Are you talking the same kind of bailout we offered the city of New Orleans and Biloxi Mississippi after hurricane Katrina? That worked wonders .

    If anything the G has become more stringent on its bankruptcy laws, not more lax. If the Fed decides not to fight inflation, the dollar becomes even more worthless. It was just a few years ago when the Bulls on wall street declared that the EURO would never overtake the dollar… Now look at the value of the green back. No my friend, the Fed’s hands are tied on this one, the air needs to be let out of the bubble and my guess is that it will be long, slow, and painful.

  42. Matthew,

    Sorry, I was in between appointments when I responded to your number 33.

    I do see some condo complexes that rose too much and too fast that could be highly susceptible to a bubble popping. I won’t go near them at these prices. Townhomes as well. For the most part the single family home market past the midpoint is not experiencing the same “air filled” valuations.

    The high end is just pricing too high with no rhyme or reason, so when they reduce to reality, that will not represent a bubble having burst…just greed getting real.

  43. Ardell,

    I argee with you in some degree. I think that the 1 bedroom condo market will be the first to bear a price correction. Probably the next in line for a correction will be houses on the outskirts of King County. But I think that eventually all housing across the area will feel the effects of the bubble eventually. It just may take longer for some.

  44. I only ran the stats, so far, for $300,000 and under. I’ll try to cover more ground this weekend. The first to bear a price correction, in my opinion, will be up at the top in higher price ranges.

    My comment with regard to one bedroom condos being the weakest link, only applies to the $300,000 and under category. The stats I compiled and examined to date.

    My goal for the benefit of those looking to track “the bubble” is to break down the market segments, so we can see who exactly is and is not affected. I have to break King County down geographically to determine who exactly is and is not taking the “hit” and I have to break it down to some type of categories.

    My thought is to use square footage vs. bedrooms, as I think a 450 sf one bedroom condo will react differenly than a 700 sf one bedroom.

    A monumental task, but once I get the categories in place and the 1/1/2005 to present data in place, it will be a great tool to gauge where the market is going from here through the future.

    I may need some help from someone out there to create a graph or chart. I can do the stats and break down the categories and update the stats every month or even weekly. But I will need some help getting the data into a form that is easily read by our readers.

    I know there are plenty of “data people” out there reading this. Not all of you have the ability to post here, but maybe you can email me a postable chart after I come up with the data.

    I’m writing an “agent” post at the moment, but will totally refine the $300,000 and under group when I’m done, before moving up the price chain.

    Yes, we should all track where this market is heading. But scaring people buying in an unaffected area, is just plain old mean. So let’s get our facts straight and scare the right people :-)

  45. Ardell,

    Thanks for the debate.

    Be careful predicting appreciation beyond the rise in incomes

    Also, be careful in extrapolating data from the early 80s through now.

    Both have underlying math that makes the premise of constantly rising prices a very unlikely scenario.

    First off, the history of economics over the past 20+ years is essentially the history of almost a constant, steady drop in interest rates. This serves to enhance property appreciation, even if wages remain constant.

    As interest rates drop, the money supply tends to expand, thus putting more money in peoples’ pockets – bullish for RE.

    This also starts to foment an expectation of real estate appreciation – a phenomenon that feeds on itself until it doesn’t.

    Second, globalization has made purchasing things cheaper, thus freeing more money for buying big, time-oriented purchases. However, we have essentially been burning the furniture to keep the house warm – on a nation-wide basis. Our manufacturing sector is a shell of what it used to be.

    Globalization (free trade with slaves and peasants) puts a cap on most incomes.

    That swerves right into the other math component. Homes can not appreciate more than incomes for very long. Eventually, you run into limits. If housing appreciates 6% faster than wages, it won’t be long before it takes 100% of the median income to buy the median house. Long before this, people will start to balk at higher prices. They still have to pay taxes, medical, utilities, automobile, education, food, viagra, botox, boob-jobs, etc.

    My guess is the folks that have identified the market as a bubble believe that we really have not been here before, therefore historical models are not very useful. I also assume that most of the RE bulls are forecasting the future by looking in the rear view mirror.

    I don’t think it will be long before we know who is right.

    BTW, your prediction of the sub-300K house being a thing of the past is a pretty bold prediction. More bold than my prediction of homes losing 2/3 to 4/5 of their value over the next 4 years.

    Also, I did finish my “Real Estate Agent Rosetta Stone” on my blog.

    http://www.clearcutbainbridge.blogspot.com.

    E

  46. First and foremost Eleua, I want to thank you for “engaging”. You have, more than anyone else I have “interacted” with in the past 10 years, assisted in helping me move to center. Not saying I am totally centered, yet or ever, but it is very hard for an agent to refocus as the market changes and as buyer trends change.

    I still can’t follow your warnings with regard to income. Come with me for a minute. Yes, I agree that incomes affect the FIRST time buyer. But my problem with “the bubble people” is that they can’t seem to come with me to the land of 2nd, 3rd and 4th time buyer, where “median income” does not match “median price range”. That’s where you lose me. So I either have to get to your page or you need to get to mine, or we both have to move close to center. Not sure which yet, so please indulge me in this effort while I go to your blog and read.

    Income of $45,000 equals someone who bought a one bedroom condo for $100,000 in January of 2005 at a monthly payment of $915 a month. I did the math and that’s a reasonable assumption for zero down including taxes and condo fees. So entry level housing must, as you say, be supported by entry level income. at 28% of his gross, he should be able to save $135.00 a month, the difference between his mortgage payment and 28% of his gross income. Conservative numbers here and a real “guy” and condo being used.

    If today, that person’s income grew from $45,000 to $51,500, his housing no longer has to “match” his income. He sells the condo for $148,000 and buys a 2 bedroom condo for $190,000. He takes the $36,160 net gain from the sale of his condo plus the $3,240 he saved at $135 a month, and puts 20% down on the purchase of the $190,000 two bedroom condo. He has no taxes to pay on the $36,160 gain as that is tax free given he lived there for two years.

    His new mortgage payment on the trade up to a two bedroom condo is $1,323.54 (I adjusted the rate up, as rates increased a lot over that timeframe). His new payment is 31% of his gross income. His income went up 7% a year, but his housing went from a one bedroom to a two bedroom and from $100,000 purchase to a $190,000.

    His income only went up by 7% a year, but his ability to purchase, keeping relatively conservative figures, almost doubled without exceeding his affordability as to monthly payment.

    This is reality. Median incomes DO NOT have to keep pace with median housing prices. Median housing prices are supported mostly by the equity from people trading up as in the example, and not from annual income increases. Some people buy median priced homes of $450,000 based on income alone. But most properties being purchased in King County that make up the median home price of $450,000, are being purchased by people who are trading up, and not first time buyers. The median comes from all sales, both lower and higher, and most of those are trade up buyers and not first time buyers.

    Income equals affordability only affects entry level first time buyers, not the bulk of home purchases from which the median home price is derived. So I cannot heed your warning NOT to expand property appreciation beyond the increase in incomes. I will however prove to you that it is NOT necessary by checking the mortgage amounts on the purchases. If in fact there is not a downpayment, from a simultaneous sale from which equity is being derived, toward a downpayment, I will come clean and note that where it applies.

    I am going to use a median home price as $475,000, as last I checked Seattle’s median was $450,000, but Eastside was closer to $500,000. I’ll go halfway in between at $475,000.

  47. “More bold than my prediction of homes losing 2/3 to 4/5 of their value over the next 4 years.” GULP. Seriously? In Seattle? How does that happen?

  48. Adrianna,

    You tell me. House selling for $600,000 loses 2/3rds of it’s value and sells at $200,000. House selling for $500,000 loses 4/5ths of it’s value and now sells for $100,000.

    How does that happen? Has it EVER happened? Even the bombed out shell of a neighborhood I grew up in is worth two times what it once was. How can a property lose 4/5ths of it’s value? It could burn down…oh, no, that wouldn’t do it, because the lot is worth more than 1/5th of its value.

    Relax…predictions like that are attention getters for the gullible.

  49. Thanks, Mom!

  50. Has anyone looked at what happened to real estate back in the 1930s?

    2/3 depreciation would be a gift.

    Seattle isn’t imune to anything. Get that through your head.

  51. Ardell,

    Very nice response. Very nice.

    Regarding the premise for your entire argument – the idea that median income (or incomes for that matter), can be disconnected from home prices because of the equity escalator, is EXHIBIT A of why this is a bubble.

    Your entire theory only works when everyone gets on the equity escalator, and we all inflate our way to suburban Nirvana.

    Back in 1999, I could pay $5 for a Beanie Baby. I could keep trading BBs until I was paying $100, but since I kept buying/selling/moving up, the last Beanie Baby I bought was $5, and I had the Beanie Baby Escrow and Title Company tranfer the $95 from the proceeds of the BB I just sold.

    Ardell, this is exactly what a bubble is. EXACTLY!

    What happens if – GASP – the escalator moves backwards?

    At some point, the price of an asset has to relate to someone’s ability to pay. Yes, as long as a bubble environment exists, you can continue to feed the bubble, but once it goes backwards, the same dynamic is at work, but in reverse.

    Back to you. Mrs. E is getting after me to put the Raindrops to bed.

    E

  52. Ardell,

    Your argument is flawed. You are assuming that once someone buys into the market, they are set for life. However, if the first time buyer is priced out of the market, how is the first time seller going to achieve that 100,000 in equity? Who is he/she going to sell to? NO ONE. So once the first time seller has no first time buyers available, who does the second time seller sell to? Answer, NO ONE because the first time seller can’t sell his house. And then price correction starts.

    You are assuming that first time buyers are just going to have to start smaller and smaller and crappier and crappier. But there comes a time when many first time buyers say to themselves, “GEE, I don’t want to live in a 600 sq ft condo, I think I’ll just save money and wait.” At that point inventory skyrockets (which it currently is) and now the market becomes flooded with houses. Inventory creeps up and up, people wait for better deals to come along. Prices will adjust, because many people HAVE to sell their houses. Companies are moving people all over the place and many people just can’t wait for houses to sit on the market forever. Factor in scared investors who realize its time to dump their extra properties due to plummeting prices, and you can see where this is going. I don’t think its something that will happen overnight, but rather very slowly.

    I don’t understand how you don’t see that pricing first time buyers out of a market is going to be fatal. I’m not saying that first time buyers have to by a McMansion, but rather something livable. Since the median income in Seattle is somewhere in the 50,000 dollar mark, what do you think the starter income is? Somewhat less than that, maybe 40,000? Maybe 35,000? What type of a house can someone making that kind of money afford? Without creative financing, probably not much. The run up of the last 4-5 years on housing has been unlike anything we have ever seen in the history of American house prices but yet everyone in the RE industry wants to act like its perfectly normal. I’m not buying it.

  53. Thanks E! We now know what a bubble IS! It’s what has been happening since 1929. I’m going to start saving for the day when I can make my dream come true. Buy a corner property on the Strand for $70,000. Oh no, at ten cents on a dollar the corner property will be $600,000. Maybe one in the middle of the block at $300,000. Still doesn’t bring me back to the price it was in the 70′s let alone 1929.

    Seriously though E, I hope you are right. I’d love to buy a beacfront condo in Redondo for $60,000 bucks to retire in. I’ll leave this house to the kids. Because no matter what the price falls to, it’s worth a million bucks to us.

  54. Matthew,

    LOL, you guys crack me up. Go ask your parents what they were making when they bought their first homes. My first salary at a good job at the bank was $4,800 a year. And guess what? After my first raise to $5,200 a year, I was making more than my Dad who was raising seven children in a house that we owned. And when I bought my second house, my ex-husband said we had to buy NOW! because interest rates would NEVER be this low AGAIN! They were at 7%.

    You guys need to read some history books.

  55. Ardell,

    Wages have increased since the early 40s, and the economy has expanded. Couple that with falling interest rates, and you have the makings for higher real estate. This is bullish for RE.

    What is not bullish:

    Rising interest rates.
    Inflation in other areas (food, energy, medicine…)
    Speculative premium vanishing.
    Generational selling pressure – 70% of Mouseketeers think they will fund a big chunk of their retirement with the sale of their house.
    Falling equity markets
    Vetting mortgage applicants
    US workers competing against 3rd world slaves and peasants.

    Unfortunately for all of you in the REIC, all these things are positioned to move against us – many at the same time.

    Fear induced panic is stronger than greed induced panic. The more greed on the way up, the more fear on the way down.

    BTW, the reason homes will sell at such a discount is due to a credit crunch and a destruction of equity and capital. That $60K Redondo-condo won’t be very affordable.

    So, if my dad made $6K/yr and bought our first house for $14K, and then bought our $40K house when he was making $18K, and finally bought our $200K house when he was making $80K, how does this baffle you?

    It’s when he buys that $700K house when he is making $80K that has me worried.

    Tell me…where would prices be without all the kinky financing?

    Enjoy,
    E

  56. Add in a recession/depression, a tax hike, and a war or two with a budding nuclear power that’s sitting on a bunch of hydrocarbons, and you have the ingredients for a real disaster.

    We will have to deforest quite a bit of land, just for all the “FOR SALE” signs.

    Helping you find your center is just another free service I provide…

    E

  57. Ardell,

    I have been searching for you for quite some time. I desperately need your help. After looking far and wide, I have come to the conclusion that YOU ARE THE ONE I have been searching for. THE ONE who can help many people. And I know that is just what you want to do. So I’m very glad that I’ve finally found you.

    You’ve written many excellent blog articles. And you’ve explained your positions extremely well. They make so much SENSE when taken in the context of recent history. I understand why you think what you do. I really do. Your views fit with your experience and the experience of others around you. It’s the way it’s always been. Why shouldn’t it always be this way?

    But I want you to know that I feel for you, I really do. Why? Because I sense that deep down inside, you have a vague feeling that something isn’t right, you just can’t put your finger on it. You’ve tried to ignore it, but it keeps creeping back. That’s why you’ve been motivated to blog on how things are just fine, it helps keep you “centered” and for a while reduces that “uneasy” feeling. But then it just returns. Like a bad dream.

    I want you to know I can help you. I can get rid of that nagging uneasy feeling. How? I can help you see the truth. Please be aware that the truth will be very disturbing, even scary. But it is the truth. Once you see and know the truth, it will set you free. The nagging unease will be gone. And then, you will be empowered to deal with reality. For the first time, in a long time, you’ll have a basis to move forward. It’s the only way anyone can hope to survive.

    Ardell, all you hae to do, to see the truth, is take a little red pill in the next room. I do have to warn you that once you take the pill, there will be no going back. You will see the truth and you will not like what you see. But it will be the truth. And you will be free. I know you really want to be free. Think how many poeple you will be able to help once you know the truth.

    Morpheus

  58. Ardell,

    In their recent seminar, the Otteau Appraisal Group, after extensive research, has estimated that for every first time homebuyer purchase, 5 additional resales take place. So, for every 1st timer that holds back, 5 more sales never take place. For a summary of additional interesting statistics from this group, see a summary on this weekends New Jersey Real Estate Blog. Although some of the statistics are related to that market, the trickle up effect of first time home buyers would be expected to occur in any market.

    When entry level homewoners are priced out of the market, the effects on the rest of the market are non-linear. People can only move up when there is someone to buy thier existing home. Also, don’t forget that our market has been bouyed in a significant way by Californians who trade up to here. But as their bubble deflates, they can’t do that if they have trouble selling their homes.

    Finally, Ardell, I’m not sure you’ve considered the significant effect the tightening of credit standards will have on both first time and trade up buyers. As lending standards tighten, which they are already doing, homes will become even less affordable then they are now. Just wait until there’s a credit crisis which is likely as a combination of mortgage fraud and loan defaults squeezes the subprime lenders.

    Think about that in view of what you’ve said above.

  59. Geez, Ardell, guess I won’t be making an offer on that one-bedroom, 780-sq foot condo conversion I looked at last week. Seemed like a good investment to me, location wise. Not that I wouldn’t prefer a two-bedroom in the burbs.
    Frightening time for a first-timer!

  60. Morpheus,

    Something tells me if I take your little red pill it will leave me with two choices. They can either take me away in a straight jacket, or I can stand on a soap box on the street corner with little signs pinned all over my clothes saying “Don’t buy real estate!” Maybe a little recording of “Neither a borrower nor a lender be” and a bullhorn to shout that prices will soon be down to ten cents on the dollar!

    You’ve got one thing right…real estate is indeed a Matrix. But the rules for each array of numbers differs. More like 20 different matrices. Applying the logic of one matrix to another, where the rules are quite different, is where you have taken the wrong pill.

  61. Jerry,

    You are correct. In markets that have fewer condo choices, and only single family home choices, the effects will be devastating. That is why I value the fact that we have so many entry level priced condos in the Seattle area, to move the trickle up. In parts of the country where the ONLY first time buyer choice, is an out of reach single family home, the scenario will play out much differently than it will here in the Seattle area.

  62. Rich,

    I started answering you…but decided to write a separate article on the topic instead. That way I can generically use real condos, as the basis for my advices.

  63. You guys need to read some history books.

    Maybe you need to read one, IE the Japan housing bust that happened not that long ago. People like you were saying the same things in Tokyo. Buy a little condo, build some equity, you are going to be priced out forever, etc. Look what happened there. Same arguments were present in that scenario as are here. “They aren’t building anymore land, housing can only go up, you need to buy now, etc”. And look what happened.

    I could ask my parents how much they paid for their first house, but I remember when I was a kid we sold our house when I moved to Houston TX. We sold it for 75,000 dollars. Same house today is probably worth 300,000. But guess what, my dad is also making 3-4 times as much as he was back then. Housing, when adjusted for inflation, has almost remained flat. In fact, if in 1930 you invested the same amount of money in the market as opposed to housing, you would be better off. The last few years for the housing industry has been abnormal if compared to the last 100 years and adjusted for inflation.

    But what do I know, I’m only 29 so therefore I must not have as much knowledge on the subject as you, because you are older than me therefore I need to read some history books. Well I know enough history to know that the last 5 years of this market are not historically true to form when compared to housing prices of the last 100 years.

  64. Matthew,

    If you need to go to the housing market in Japan to make your point…nuff said.

    As to your being 29, not every 29 year old wants to start at the top or even the middle. Those who started at the bottom aren’t the ones spreading gloom and doom Only the “I don’t wanna” people are spreading gloom and doom, like a 3 year old having a tantrum.

    I don’t wanna…buy something less than a single family home with 4 bedrooms. I don’t wanna buy an old rambler either. I don’t wanna buy something that isn’t new and shiney and big and… Seriously, some of you look like the kid at the grocery store laying on the floor screaming for the candy bar.

    As to investing in the stock market…for investors I don’t really care. But for people who need a roof over their head, it’s a weak and nonsensical argument. You can’t live inside your stock portfolio.

  65. I took a look at every single house I have ever bought. Zillow values the house I bought in 1998 and the house I bought in 2001 at three times the prices I paid for them. They are both in “weaker” markets in CA today, than the Seattle area. If 3 times what I paid is “weak”, I don’t think the sky is falling. If we are looking at a market that has less than doubled over the same period of time as the “weak” markets have tripled…then the comparison is academic.

    Face it. The ones screaming the loudest are the ones who WANT a property today that costs at least $450,000, and don’t want to lower themselves to settle for less. That same property did not cost $175,000 a few years ago. What that segmenat WANTS is out of their reach…but then it always was. It didn’t become out of reach due to appreciation in the last couple of years. They just want what they can’t afford. Nothing new about that, is there?

  66. Who said I want to start at the middle or the top? I’m willing to buy something at the “bottom” as long as its reasonable. I don’t consider a 600 sq ft condo reasonable. Second, I’m not like “every other 29 year old out there”. You can stereotype me all you want, but you know nothing about me. I’ve worked my ass off for everything I’ve that I own. I put myself through college, working 30-40 hours a week while taking 18 credits a semester. I paid off all my student loans in less than 3 years after graduation. When I graduated college in 2001 nobody in Seattle was hiring anyone. I worked as a day laborer for 10 bucks an hour unloading freight from ocean containers and moving it into long haul trucks for over a year. I was lucky enough, that after September 11 2001, many federal agencies started hiring and I was picked up due to a special skills set I possessed. So don’t try and label me as some spoiled kid that is trying to live beyond his means. I have had more responsibility placed on my shoulders than many people your age could even dream of.

    I’m self made. Don’t try and label me as some ungrateful 29 year old that wants to buy a 500,000 dollar house. All I am asking for is something DECENT for around 300,000-350,000 dollars. In a normal market, that is not too much to ask for. I don’t need granite countertops and hard wood floors. I just want something livable. I’ve said this before, i’ll say it a million times. I currently make a good deal more than the median income. I do not expect a median house. But if I can’t afford to buy a starter house, then who can that is my age?? As many 20 somethings get priced out of this market, what are they going to buy? You expect people to raise families in 350,000 dollar crack houses in white center? Young people graduating college right now are making 30-40k a year if they are lucky. They are totally priced out of even the downtown condo market.

    And why is the Japan housing market a bad comparison? It is the only example out there that even remotely resembles the run up in housing we have had the last 5 years in the U.S.

    Time will tell, we will know in the next 2 years or so who is right and who is wrong. But it seems to me that you are being blinded by your job.

  67. Lake Hills Renter says:

    Wow, post #66 has to be te worst case of stereotyping and condescention I’ve read in a long time. Why would I ever use you as a realtor if that’s your attitude?

  68. If a 600 square foot condo is all that you can afford, I might say wait until you can afford a 1000 square foot two bedroom condo. Depends on what you are paying in rent and whether or not a tax write off vs. rent is any advantage to you.

    How do you get from 600 sf condo to starter house? What happened to two bedroom or three bedroom condo or townhouse in between? People getting out of college have ALWAYS been priced out of some things they want, in every timeframe in history. Why do you think it is different today?

    Just out of college income when I bought my first home was $17,000 a year and starter home in that price range was a townhome BEFORE the run up. When did just out of college income equal starter single family home? If you can see that as “I don’t wanna” buy what just out of college income affords in any market in history…I don’t know what to tell you.

    Your income clearly affords more than a 600 sf condo, so why use that in your argument at all, except to polarize an issue just to be argumentative. If the ladder goes 1 bedroom, 2 bedroom, 3 bedroom condo to townhome to starter single family home…why are you comparing 600 sf condo to starter home, trying to jump over 3 rungs of the ladder? There are starter homes up to $400,000 in Shoreline, Lake City, Bothell/Mill Creek in Snohomish, and points South. But seems like you should be somewhere in between starter home and 600 sf condo.

    We don’t have to wait two years to see whether or not you are right. You will either be right or wrong by September of 2007. Neither of us knows that answer today, but my feeling is some who buy today will lose money by September of 2007 and some will gain money by that time. Like the article says…time to make wise choices, as not ALL will trend up.

    If you can save more by doing what you are doing than you can gain by buying…great! Not everyone is in that position. If renting doesn’t affect your qualifty of life…great! Not everyone is in that position.

    I’ve known people to rent for most of their life, nothing wrong with that. Most of the people I have known to do that, don’t have children.

  69. Lake Hills Renter,

    The 19 year old kid who bought the condo for $100,000 wanted a different one that sold for $120,000. I told him not to want that one and explained why. He agreed, and he is very glad today that he did. The one he would have paid $120,000 for then is only worth $140,000 today. The one he bought for $100,000 is worth…well one is on market for $179,000…we’ll see what it’s “worth” when that one sells.

    True, people who don’t want to hear what I have to say would be better off working with someone else. But so far the ones that did choose me are both better off and happier than some (not all) others. I’m OK with that. About 10% of the people who did use my services didn’t listen to me or even want my advice. Those are the ones I worry about, not the ones who didn’t use me at all. I can’t worry about everyone :-)

  70. Ardell,

    To me “afford” means being able to purchase a house using traditional means (20 percent down, fixed rate loan). I say 600 sq ft condo because the majority of the condos in Seattle are downtown, and you can’t buy much for less than 300,000 from what I’ve seen.

    I say 2 years because I believe that all housing markets will be affected by then. I don’t think that the correction will take place over night, I believe it is going to be a slow process. This market is clearly not like any market in history, if you can’t see that, there is no point in continuing this conversation or having a rational debate.

    http://www.rgemonitor.com/blog/roubini/143855

  71. I think we should define Seattle area. E looks at Bainbridge. I look at Greenlake around Lake Washington through Bellevue, going around the lake. Downtown and close to Downtown of any major City is always unaffordable…or almost always. Including points south totally skews the numbers, doen’t it? Then we have the hot “in the Zone” market. Can we really talk about Seattle like it is one big place that moves in simultaneous fashion?

    I’m going to move into the condo segment with several posts, as we are entering the begining of “condo time” and the end of “single family time”. Converse markets to a large extent.

    My guess is that most 20% downs were fixed rate loans, but less than half were 20% down. I would say even 25% of first time purchases being 20% down is unlikely. So not sure that’s a reasonable assumption of “affordable”. My first purchase was basically zero down, my second was 5% down and my thrid was 20% down. First purchase being 20% is a great goal, but not necessarily mainstream thinking.

    Rational debates should not be “personal”. I try to be careful not to say “you” Matthew, when I’m speaking to a broader audience of many who may think as you do, not you personally. I don’t think of you as one who “spreads gloom and doom” and was not referring to you personally in that context nor in my #67 comment. I don’t know you at all, so clearly you should not take it “personally” any more than I take Lake Hills Renter personally when she makes comments about me.

    I enjoy seeing your perspective as it’s not one I would run across in my every day life. I appreciate your taking the time to engage in conversation.

  72. Lake Hills Renter says:

    any more than I take Lake Hills Renter personally when she makes comments about me.

    It’s “he”, actually. =) And to my knowledge, I’ve only commented on the things you’ve said, not on you personally. I don’t know you, obviously, and vice verse.

  73. Lake Hills Renter says:

    Bah, that first sentence should have been in quotes.

  74. Glad to hear you are not taking anything personally. I can fix the comments if you like by putting the quotes on 75 and removing 76.

    I’ve been playing with teeny tiny condo stats waiting to leave for my 6:30 appointment. I found this one interesting.

    Redmond downtown condo of only 385 square feet sold in 82 for $28,000, 91 for $35,000, 05 for $82,000 and 06 for $100,000.

    305 sf sold for $145,000 in Queen Anne

    337 sf sold for $181,000 in Belltown

    366 sf in Wallingford sold for $131,500 in 06, $109,000 in 04

    I was trying to find the smallest condo sold in 2006, but the smaller ones look like errors. The smallest one said it was 189 sf with two stores and three bedrooms…an obvious error. Two others say 299 sf, but tax records don’t confirm.

    So looks like I’ll call the Queen Anne at 305 sf for $145,000 the winner for smallest condo sold in 2006 in King County.

  75. Ardell,

    When my sister and brother in law bought their first house in Renton in the 90′s it was what I consider a decent first home. 3 bedroom, one and a half bath, one story house located in Kennydale. That was their first house out of college. That same house today is no longer a starter house. They sold it for 365,000 dollars. Starter homes are no longer starter homes. That is due to the run-up in RE of the last 5 years. Up until then that house would still have been a good first time house. Now it isn’t. It is my bet that in a few years it will be once again.

  76. Matthew,

    Back in 96 my ex wanted to move to San Jose, it was way out of reach for us. In 98 I agreed to go to Granite Bay outside of Sacramento where I could get a house for $300,000. That house is now almost $900,000!

    I worry about my kids. Seattle has a lot more to offer them than CA, that’s for sure. I think that’s why it looks so good to me. Not because I’m an agent. I’ve been an agent in five states. I think its great because I have some really fabulous clients that I adore and there are more opportunities here for my girls than where they are in L.A. Two are there, one is here. They could never buy a house there by age 25 or 30.

    Yes, I would absolutely recommend that they get a two bedroom condo in Juanita…I’m mostly Eastside and the opportunities here are still very good. Downtown…yes, another story, I agree.

  77. Ardell said: “You can’t live inside your stock portfolio.”

    Yes, but you can rent a mighty fine apartment with your appreciation. There simply is no truth to the argument that one must purchase a home.

    My grandparents retired at age 40 and sold their home on la salle street before age 50 – both high school teachers near Chicago. They rented from age 50 to 88 and left their children a large inheritance. They didn’t buy into this society of conspicuous consumption – they saved and invested (energy stocks like commonwealth edison).

    I guess that’s what living though a depression will do for you. Possibly something that we as Americas may face in this decade.

  78. Ardell,

    I’m very sorry you decided not to take the pill so you could see the truth. I guess I was wrong, you are not THE ONE.

    I suppose your reaction is to be expected since while one is living inside the Matrix it can seem very comfortable. It’s almost a magical place. Where else can people buy $500K to $1M houses with no money down interest only loans, get cash back at closing, and make more money every day coming home from work than going to work?

    But the ugly truth is that it’s all a mirage. It’s not real. Everyone can’t get rich buying much more than they can afford by borrowing to the hilt. But in the Matrix it seems not just possible, not just probable, but almost guaranteed! This is the intoxicating nature of the Matrix. It’s what keeps everyone in the game.

    The last Matrix involved the stock market in 1999. It was a very good Matrix. Lots of people participated and everyone felt great. No one wanted to leave the Matrix. I tried to help many, offering them the same red pill I offered you. I tried to save them vast fortunes. But I didn’t have a single taker.

    So what happened? Well, as you know, the Matrix re-booted.
    I personally have many close friends who lost fortunes. Such was the power of the Matrix. It is intoxicating but a very dangerous place to be.

    Once the Matrix re-booted, it was a new and improved Matrix. Such is the power of the Matrix, ever changing, ever adapting, to pull in as many participants as possible. The Matrix NEEDS willing participants to exist. And exist it does. So now we find ourselves in the new and improved Matrix, the Credit Bubble Mortgage Fraud Overleveredged Consumer Real Estate Bubble Matrix. This is the BEST Matrix eveer. It has sucked nearly EVERYONE IN.

    But an interesting thing is happening. A small group of crusaders, people like myself, who were lucky enough to never enter the Matrix, have been giving little red pills to people all over the country (and the world). We started in the formerly hottest markets like FL, CA, NY. And we found that people started to take the red pills. They began to wake up to reality and see the Matrix for what it really is. Unfortunately we were not able to save everyone. Many people didn’t take the pill, but it was too late. The Matrix started to collapse around them. Yes, our virus had entered the Matrix and and the Matrix was failing. These poor souls awoke from the Matrix and they were ruined. They didn’t take the red pill soon enough to escape the aftermath of the Matrix.

    So now the Matrix is re-booting. It takes some time for this to happen. But re-booting it is. The first part of a re-boot is a system wide shut down. During this phase bad things happen. People wake up, WHETHER THEY WANT TO OR NOT, and see the Truth. And they are left to deal with the Truth. You see, unlike the Matrix, which is imaginary, Debt doesn’t go away. Debt is REAL. DEBT IS THE TRUTH. And people, when they wake up have to deal with the Truth. It just WONT” GO AWAY.

    It would be my dream that people wouldn’t suffer. But they will suffer. Such is the nature of the Matrix. I would hope that this will never happen again. But it will. And it will be different next time just as it was different this time. But if we are really lucky, people will pull themselves up from the misery, for a time control their recklessness and greed, and learn something from the recent experience. It’s a lot to ask, I know, but I hope that it is a long time before the next Matrix.

    So Ardell, one more time, I’m trying to help you here, I implore you, please take the pill. It won’t be easy but you will thank me. I know you will.

    Morpheus

  79. The Union Tribune reports from California. “Nationally and locally, home prices are trending downward for the first time in years, as buyers drive tougher bargains and some sellers, desperate to move, accept a cutback in their hoped-for windfall profits”. ˜I think it’s safe to say that prices are not going up anymore” said Charlie Ahern, president of the Coronado Association of Realtors.

    DataQuick’s price reports back to January 2004 show that all except three ZIP codes in San Diego County have backed off their all-time high median prices. Among neighborhoods with at least 10 resale-home transactions, Coronado is off the most, down by 63.4 percent from a high of $3.2 million in February to the most current figure, $1.17 million in September.

    —–

    Prices off 63.4%, IN 7 MONTHS, holy crap, things can change FAST.

    Everyone told me that could never happen. They must be lying.

    Ardell, please tell me again it’s different here, that this will NEVER HAPPEN HERE. I need to hear it one more time.

    But it’s OK, I don’t live in San Diego. I live in Seattle, and it’s different here.

    I mean, really, everyone knows that Coronodo and San Diego are WAY LESS DESIREABLE than the Seattle area. It must be that they DON”T HAVE ANY CONDOS in Coronodo or San Diego. Fortunately, we have plenty here. That alone will save us. As long as first time buyers have something to buy, no matter HOW CRAPPY or OVERPRICED, Prices WILL NEVER GO DOWN HERE.

    I feel much better now. Everything will be fine. I’ll just keep telling myself that. I’ll feel much better. Really I will.

  80. Sorry guys,

    I can’t tell you that prices will never be lower or never be higher. Taking the blue or red pill won’t change that.

    Today I’m just hoping the market is slow enough on this rainy November day, so that the offer I am faxing is not met by a higher competing offer at the other end.

    So put your voodoo hexes on the market today for me, will ya? I need the market to be less competitive for my buyer client today.

    Thanks.

  81. “Nationally and locally, home prices are trending downward for the first time in years, as buyers drive tougher bargains and some sellers, desperate to move, accept a cutback in their hoped-for windfall profits.” See comment 83. Just for today, I too hope that’s the case…

    Otherwise, for those of us in Seattle, an ark is starting to look like a pretty wise investment…

  82. I wonder how this weather makes people feel that visited Seattle in July-Aug and thought how lovely it would be because its so green and clear…. “Honey, its so beautiful here, lets move, it hasn’t rained all week”

    Fast forward 3 months. “Where did the sun go??”

    Fast foward another 3 months “Sun, why have you forsaken me?”

  83. redmondjp says:

    Bingo, Matthew–not only do you find out how well you can cope w/o seeing the sun for weeks at a time, but you also get to see how well your property drains (very hard to do during the summer months) when it rains several inches in a week. Any water in that unfinished basement? Does your crawl space resemble an olympic-sized swimming pool (open the door and take a peek)?

    Last night I was up on my roof at midnight (LED headlamps are the best) cleaning out the gutters and downspout drains–’twas a good thing, found one plugged downspout, and then on the ground, 2-3 disconnected pipe sections (tend to come apart during a heavy rain which flushes wet clumps of leaves down the pipe which slam into the elbow at the bottom and pop it loose). Shouldn’t have taken that nap yesterday afternoon :)

    Back to dealing with the lack of sun, one way of coping with Seasonal Affectiveness Disorder (SAD) is to use light therapy–make your own light box at home using some 4 ft. fluorescent fixtures and full-spectrum or ‘sunlight’ tubes (look for a color-rendering index, or CRI, of 90 or better on the package). These tubes cost more than the el-cheapo cool white ones, but produce a full-spectrum light which simulates sunlight. Way cheaper than buying this very same thing for several hundred $ more from a catalog or health store.

  84. I am so sick of watching the values of real-estate continue to go up around here. Maybe the bulls are right and I have truly missed the equity train. Damn this makes me so mad. Those guys at rain city are friggen right.

    Why oh why did I sell in 2003 – dooooh.

    All I can do now is hope it all comes crashing down and cry sour grapes….

    Does anyone know of any gay friendly apartments for rent?

    Also, I just posted a message on Mish’s blog so now i can consider myself a bona fide economist. If i copy what he says and post it, does that make me an economist too?

  85. Sorry, that’s obviously not me — see kaleetan (troll on http://www.seattlebubble.com).

    Please delete that post. Thanks -

  86. On the blog seminars I give, I often tell agents that they have no credibility in talking about the bubble. I think this post proves that talking about the bubble is a waste because the topic attracts people who have no interest in having a reasonable dialog but assume that you need to have faith in their belief system (i.e. swallow a pill of belief!!!).

    Personally, I hate faith-based arguments. I completely given up trying to engage people like Morpheus and CoolAid many months ago. Trying to engage “believers” (people who have already swallowed their pill) is not only unproductive, but ruins the conversation for the majority of Rain City Guide readers who expect a reasonable dialog.

  87. Lake Hills Renter says:

    I’ve seen faith-based beliefs on both sides of the bubble discussion, but I’ve also seen very good points made by reasonable people on both sides as well. This pretty much mirrors any topic I’ve seen discussed on the Internet, be it Mac vs PC, Baseball vs Football, Ginger vs Maryanne, or what have you. There’s varying signal-to-noise ratio sometimes, but there’s good info to be had if you block out the trolls and reactionaries on both sides.

  88. Belief systems do go both ways – it all depends how resistant your belief system is to the acquisition of new information.

    I personally think that it will be a great time to buy a house in the Northwest – 18 to 24 months from now.

  89. If you’re going to make a post titled “is seattle bubble proof”, of course you’re going to get a reaction.

    The idea that Seattle could possibly be the only bubble city in the US to not be part of the nationwide downturn is simple preposterous.

    I think it’s good that you are willing to discuss this issue. I think a reasonable person would conclude that it might be best to wait before purchasing a home in King County at this time after reading this post.

    Of course, buying a home for many is a purely emotional process and this has been plainly evident looking at prices over the last 4 years.

  90. Goldeneye says:

    You claimed “By March of 2007 the opportunity to get any bargains in the entry level single family home markets, will likely be gone for good.” Its October 2007 and opportunities abound in Seattle. I see “price reduced” signs all over the place. Prices here seem to have levelled off and are dropping in certain regions.

    So I think I am correct in assuming that this article of yours was just another real estate publicity stunt by a realtor who believes “it always a good time to buy or sell” :). I remember reading an article in Jan 06 from the CEO of some realtor company (probably Coldwell Bankers) that claimed that Seattle would go up 40% (yes, forty percent) in 2006. I really feel sorry for people who bought after reading all such realtor-powered blogs which claim that real estate in Seattle can only go up, when in fact, any realtor who has been in the business for a long time would know that this is not the case.

  91. Goldeneye,

    Prices dropping as in price reduced often is the case this time of year. In fact we have seen it pretty much every year in the last quarter, even in the hottest of markets. Financing is the big issue, and we are seeing more FHA offers already, which should straighten things out somewhat by early 2008 in the lowest of price ranges on the Eastside and in North Seattle, which is what this post was about.

    I said:

    “For my neck of the woods, which would be from Green Lake up through Shoreline and beyond, around Lake Washington and into Kirkland and the Eastside, if it’s a single family home priced under $400,000…buy with care…but don’t wait for any of them to ever dip under $300,000 again. I don’t see that happening.” and “In fact a modest correction is well warranted, but I do not see single family homes dropping in price back to where they were in January of 2005 for many, many…if ever…years.”

    When we see houses that sold for $400,000 in 2007 and late 2006 dropping to “where they were in January of 2005″ you can come over and say what you are trying to say now. Until then, I stand by what I said. Don’t see that happening.

    You need better stats than seeing price reduced signs. Most are simply people who asked too much during high season, and now are dropping into a reality check. Same as all years in the last quarter.

  92. Goldeneye,Ive been sayin this winter will see carnage in all markets.The for sale/rent signs here in Florida gulf coast are reaching mushroom proportions. Next to nothing is moving.The flippers are jammed,cant even rent em for anywhere near next arm adjust payments.Sellers are stunned,your house is only worth what someone will give ,so all these 500k houses will be worth ??soon.

  93. Goldeneye977 says:

    Hi Ardell,
    Tell me, what can save the Seattle market? The most common answers to this question that I hear from realtors are:
    a) “This is a highly desirable place”
    But other places are desirable too. I have lived in Florida for 2 years, have made many trips to California and have been living in Seattle for 6 years. Of all the places, I like California the best, then Florida and then Seattle. The incessant rain coupled with cold gets on my nerves almost daily.

    b) “Strong job growth”
    This argument has some merit. But note that the housing has stalled *while* the job market was booming. Normally, its the other way around i.e. first a recession occurs, which causes job losses, which then affects housing and all other stuff. Here, we have housing stalling, which is causing recessionary fears. Surely, if a recession occurs, housing can only get worse, unless you have another round of subprime/Alt-A loans/0% down loans to fuel demand. But these exotic loans are getting harder and harder to get which reduces the pool of buyers. I hope we don’t get into recession – I sincerely do, but the chances of an outright recession are mounting day by day.
    The companies that are hiring now are not obligated to hire, and should a recession strike, I am sure many of them will put their hiring plans on hold.

    c) “They don’t make any more land”
    True, but so is the case with other areas too. In Japan, where land is far far less than here, house prices declined 16 straight years from 1990 to 2006.

    The thing is, the bigger the bubble, the more painful is the aftermath. The earlier the bubble burts, the better – for all of us. Realtors don’t want the bubble to burst, but the fact is, a healthy correction is warranted and is needed for a healthy market which in turn is good for all -the buyers/sellers and in turn the realtors. It is much better to have a steadily appreciating market than one that zooms up and then crashes down.

    I am sure you realtors also realize that things have gone too far in housing, but are afraid to say that in the open, lest buyers get smart and stop buying, which in turn means no commissions for you. A housing price inflation of 10% does not make sense when inflation is around 3% – otherwise people like you and me do not need to work. All we need to do is buy several houses, wait for them to appreciate, sell them off, lather, rinse and repeat and we are done for life.

    The sooner the sellers figure out that they must lower their prices, the better for you folks too – lowering of prices will cause the rising inventory to move faster which will generate lower but more number of commissions for you folks and eventually at the end of the year, you would have earned more. After all, selling two houses worth $400K will generate more commissions for you than selling one house at $500K.

  94. Hi Goldeneye,

    My experience recently does not reflect a market that needs to be “saved”.

    Your comment raises many questions that are difficult to respond to as a comment, given the comment is longer than some posts.

    What I am seeing is that sellers need to have a whole lot more patience than in recent history. You can’t start panicking if you don’t have an offer in the first week or two.

    Your comments regarding appreciation are interesting as I have worked in markets where home prices kept pace with inflation (more on the East Coast) and others where owners actually did live off their equity primarily with cash out refinance loans (California). Seattle does not seem to follow national trends except for the recent mortgage industry based bumps, based on my historical research of the area. Particularly from 1998 through 2003.

    To a larger extent it is a better time to sell than to buy, so we are seeing more sellers than buyers. Seems pretty logical to me. My experience recently is that there simply are fewer buyers than sellers and that lowering prices doesn’t change that mix. Clearly that happens every October through December, so we can’t know until after the first of the year what the buyer vs. seller ratio will be in 2008.

    I’m at 7 out of 10 will sell in 2008. I started in a market where only 3 of 10 would sell, so we’re not looking for A Savior yet. Though sales of St. Joseph statues are likely on the rise.

  95. Hi Ardell,
    I would like all realtors, specially the buyer’s agents, to read the following:
    http://knowledge.wharton.upenn.edu/article.cfm?articleid=1824

    Probably some soul-searching is required in the real estate industry. To all the buyer’s agents out there: next time you help a buyer with a house purchase, imagine that you are the buyer and probably you will feel pangs of guilt at what you are doing to the poor buyers.

  96. Actually Goldeneye I just helped a nice woman sell her home in Edmonds Bowl, and helped her and her new husband with a purchase of a short sale property near Microsoft.

    They are very happy and also made a wise choice by selling high and buying low. They sold at 97% of asking price with no price reduction needed from original asking price. They bought at 95% of the 1/07 value. They bought a basic house that needs work, so there is not much chance the property can lose value after the improvements they have planned for it and will do before they move in.

    They plan to stay at least ten years. Their commute time to work was cut by 80%. They are well qualified and putting a substantial down payment, 50%, from the proceeds from the sale in Edmonds.

    No guilt pangs here Goldeneye. My clients are very happy and made wise decisions and they saved 45% on commissions.

    Now I’ll go read that Wharton link to see why I should feel guilty.

  97. I read the link. It says that “not many argue that Agents are the best target for reform”. I am one of the “not many” and HAVE argued right here on RCG that the agent is THE best target for reform. So again, no feelings of guilt.

    I don’t recall Wharton Professors being so opinionated when I was there.

  98. I encourage everyone to read the comments at the end of the article. It may say it’s from Wharton, but it’s written by someone with a poor understanding of agency law and its various forms from one state to another. Saying that 90% of the agents represent the seller only is misleading and ananchronistic. It’s been 10 years since that was true here in WA.

  99. Hi Geordie,

    On paper, the buyer agent represents the buyer. In spirit, it is still the seller that is being represented. There is an inherent conflict of interest between a buyer and his agent. I have had 2 buyers agent so far and I fired both because I felt my interests were not being represented. One of them was outrageous and aggressive. She would send me links to houses $80-100K above my budget although I had repeatedly told her not to look for houses in that range. All the while she persisted in trying to convince me that I would be able to afford the higher priced houses (in not now then in a few years from now). I finally fired her when she started getting on my nerves. After that I have been hunting for houses solo.

    Years ago in 2003, before this market became a bubble, I tagged along a friend who was buying a house. There I found a really unscruplous selling agent who was giving my friend clear hints that he would be more than happy to be a dual agent. My friend sensed his greed loud and clear and toed the line. The poor seller was at that time going through a personal crisis in his life (I think either a divorce or a job loss). The result? The house was listed at $390K. My friend got it for $340K and also got back $3K from the dual agent. I am sure the seller agent wasted no time in convincing the seller to reduce the price.

    For a buyer, the only person working for him is a seller agent who is also a dual agent. Everyone else is against the buyer.

    To be fair, there are real good seller’s agents too, who will not betray their sellers for a couple of thousand dollars. But I have yet to find a buyer agent that will help a buyer negotiate a good deal. Nope, they don’t exist.

  100. Geordie,

    Often “the poor understanding of agency law” is on the part of the agents and not the consumers.

    Goldeneye,

    While it is not always possible for a buyer agent to help a buyer negotiate a good deal, they can and should help them walk away from a bad one. We have no super powers that help us to make a seller or seller’s agent do what they are not inclined to do. But we can say, the seller is being unreasonable here, let’s find a different house.

  101. Goldeneye says:

    Hi Geordie,
    Here’s a morality quiz. Let’s assume that you are a “been there, done that” buyer agent who has been in the real estate industry for a long time and knows about the ups and downs in the industry. You meet a first time buyer who has been brainwashed by reading books peddled by David Lereah, speeches given by Lawrence Yun, and articles related to real estate in the local media (which incidentally seem more like real estate ads rather than news) about unending house price appreciation. The FTB does not have his finances in order but is anxious to buy a home “before its too late” so that he can raise a family.

    What would you do? Would you:
    a) Firmly tell the FTB to get his finances in order first and then buy a house he can afford?
    b) Agree with his anxieties and “help” him find a house in a overpriced market?
    c) Agree with his anxieties, “help” him find a home and also get an exotic mortgage from a “friendly” broker that will give the FTB an illusion that he made a smart decision before all hell breaks loose?

  102. smamoussy says:

    Hello!
    How are you?

  103. Goldeneye says:

    Hey guys,
    Take a look at
    http://seattletimes.nws
    urce.com/html/businesstechnology/2003980636_newhome29.html.
    Some small incentives are being offered to the buyers. Not much, but I hope this is the beginning of a larger trend. After all, the poor buyers in this region really need them. The poor buyer’s hard-pressed wallet has to withstand the seller’s, selling agent’s and the buying agent’s greed.

    Note that the article talks about the “mortgage turmoil”. But as per Ardell, the slowdown in the Seattle market is just seasonal, isn’t it Ardell? The mortgage meltdown has nothing to do with golden Seattle, right? Well let’s see what Spring 2008 has in store for us.

  104. Goldeneye,

    You crack me up. I couldn’t open that Seattle Times link, but I’m guessing it may be something you agree with…for a change. Funny how Seattle Times is always full of crap until…it isn’t.

    Of course it’s seasonal. “Just” seasonal? Time will tell. I’m seeing a huge demand from Canadians north of here. Something to do with the favorable exchange rate. Anyone have any info on that?

  105. Goldeneye-
    I don’t work with many first time buyers. I mostly sell vacation and second homes to buyers who are bringing large down payments or are paying cash.

    The few clients of mine who have been first time buyers have been good friends from church or sports. None have gotten exotic mortgages or bought beyond their means.

    The discussion we have is not about how to creatively finance their home purchase in a quick moving market. (North Central WA has been #1 in appreciation this year nationally.) The discussion is about being realistic with house choices and neighborhoods. The discussion is about buying a house that works for their needs.

    If someone wants to be a renter for the rest of their lives, that really is ok with me. I don’t push product. I help people buy and sell homes.

    As for buyers agents not representing their clients – I am sorry to hear you have had such bad experiences. I guess that you and I would agree that their are some poor agents out there. My clients will tell you, many of them quite proudly, that I am a constant advocate for them and a skilled negotiator. My buyers usually get a large savings off of list price and get valuable fixes through the inspection process. Some of them even choose not to buy the house they inspected (with my blessing and encouragement.)

  106. Hi Ardell,
    The cracking up is mutual – you crack me up too :). I mean, if I had studied at Wharton, I wouldn’t be a realtor, but then that’s just me.

    Anyway, I have a question. When you have a low inflationary environment like today’s (3%), can house prices increase 10% every year on an average?

  107. You’ll like this one then Goldeneye. I was a Trust and Investment Officer at a bank back when I went to Wharton. That industry did not disappear, but was disintermediated to a great extent when investment houses were permitted to use mutual funds. Glass Stiegel act change in the late 80s. So if banks are permitted to get into real estate, that will be twice in my career changes in the same Act causes disintermediation.

    When I was a trust officer, only banks had mutual funds “diversified trust funds”. Now banks are trying to get into real estate, I think under the same Act as the previous change that created a disintermediation for the bank trust departments. Though they profited from the change in other ways.

    Going back to when I started working in 1972, and following housing prices and inflationary envirionments, I think the shift to two income families created the swell in affordability after double digit raises disappeared.

    I was really quite surprised that I was expected to continue working after having my babies, and switched to real estate when I had a 4 year old, a 2 year old and a six month old. That was in 1990 when trusts became less the norm for family planning purposes, and real estate gave me more flexibility in my schedule for a Mom of three little ones. Hence the “Why a Realtor?” answer.

    I think you can have house price increases that exceed inflation rates, as we have seen. But it must be fueled by something, such as two wage earners instead of one did back in the eighties through 89 to 91.

    Best I can tell, loose lending standards can be traced back all the way to the beginning of the next rise in home prices back in 1998 to present. Conventional loans lowering their standards and downpayment requirements, first to 5% down, then 3% down then 100% financing. So to answer your question, if lending standards tighten significantly, then appreciation will be in turn curtailed.

    Perhaps a ban on granite counterops would help :)

  108. Hi Ardell,
    Thanks for the answer. Now regarding your statement “if lending standards tighten significantly, then appreciation will be in turn curtailed”.

    Can it so happen that if lending standards are tightened enough so that there is no scope for speculation, the appreciation can go in reverse because of higher inventory and lower number of buyers.

  109. Hi Ardell,
    Thanks for the answer. Now regarding your statement “if lending standards tighten significantly, then appreciation will be in turn curtailed

  110. Goldeneye,

    Whether prices will go in reverse or not has more to do with what buyers and sellers will do. I saw some statistics the other day that said single family home inventory was not up significantly and the higher inventory levels were mostly attributed to condos. I think it was a Seattle Times article, but didn’t check those stats myself.

    If people buy before they sell or are forced to sell for other reasons, in large numbers, the prices will go in reverse. If people just take their homes off market and stay, or rent them out, prices will not be affected as much by the lower number of sales. Clearly if many more people NEED to sell than need to plus want to buy, prices will ultimately go in reverse.

    I can’t open that link, but here’s a thought. The trend to have more and pay more for education may have an impact in that later period. Could the higher incomes also come with education debt load? Not sure where the break even point is for a young couple with hefty student loans. Anyone know how many years a person has to work at a the higher income level before the student loans are paid?

    Many people whose homes increased in value to a great extent, did not have their incomes increase by the same percentage. I remember a garbage man being able to sell his house in the Bay Area for so much more than he paid for it (back in 1999 or so) that he moved further north, bought a $350,000 home free and clear and became a day trader with what was left over.

    As to “who is wrong”, I’d say neither. They just lump 1990 to 2006 all together and use both reasons as the rationale. Seems to me housing prices did not jump as dramatically from 1990 to 1998 as they did from 1998 to 2006.

    Also the growth in home values from 1998 to 2002 or so in most of the rest of the country, coupled with lower interest rates, helped fuel the later increases. People used the equity from the early years in the upswing to buy up, more than increased income. In that regard, Seattle did not follow the trend of many other areas in the Country.

    Someone buys a home for $200,000 sells it for $500,000 and buys a replacement home for $800,000. Say interest rates also dropped two or three basis points during the same period as the value upswing. They really didn’t need the same increase in income to trade up to a higher priced home, did they? Housing price for that family is up 4x from $200,000 to $800,000, but their monthly payment only jumped from $1175 to $2,500 in that exchange. So 4X housing price equalled 2X income needed to support the payment of the new home.

    The problem with all the talk about matching income increases to home price increases is it doesn’t account for the use of the rising equity during the upswing. Not everyone fueling the rise in home prices is a first time buyer.

  111. Goldeneye says:

    Hi Ardell,
    I agree with you that low interest rates fuelled this growth in house prices – NOT strong economic or job growth or wage rise as many people associated with the RE industry would like to believe. Also when the Feds realized this, they tried to jack up the interest rates in rapid succession (because they realized they had kept the rates low for too long). However, the interest rate increase did not seem to affect prices. The prices actually increased 10% in the last quarter of 2004, just when the Fed has started tightening. They kept on increasing in 2005 even when the Fed kept on tightening – therein is the anamoly. You are right that when interest rate drops, you can afford more house. But when rates rise, and wages have not increased proportiionately, you will be able to afford less. However, the subprime mortgage industry kicked in full gear in 2005-2006 wihch

    Now, regarding your statement:
    ‘Someone buys a home for $200,000 sells it for $500,000 and buys a replacement home for $800,000. Say interest rates also dropped two or three basis points during the same period as the value upswing. They really didn’t need the same increase in income to trade up to a higher priced home, did they? Housing price for that family is up 4x from $200,000 to $800,000, but their monthly payment only jumped from $1175 to $2,500 in that exchange. So 4X housing price equalled 2X income needed to support the payment of the new home.”

    Sure, that’s true. But now imagine that the person involved took a 5/1 ARM at an initial rate of 3.35% to get that $800K house. He would not see any change in his mortgage. But when the ARM resets, and his wages don’t rise, he has a problem, isn’t it?

    I think housing has come full circle. People who buy now will be hit with a double whammy. They will buy at inflated prices and won’t see any appreciable gain for years to come.

  112. If they took the $300,000 appreciation plus the $40,000 down from the first purchase, they shouldn’t need an ARM to buy the $800,000 house. I’m assuming they had some savings during that time to pay for the closing costs on both ends. What they would need is to have doubled their income during the time their home value went from $200,000 to $500,000. and their first purchase of $200,000 turned to a purchase of $800,000, not an ARM.

    Since you agree that income may have doubled during that time, I think we are somewhat in agreement.

    I think you are correct as to your last two sentences. The key is to buy something you can improve, and not something that will simply depreciate as to interior finishes. New construction is the more obvious target for the double whammy you describe. Condo conversions even moreso.

  113. Where did I say that income doubled during the time? What I am saying is that if house price rises are not supported by an equivalent amount of inflation (and hence wage rises), we have a problem. Historically house prices in the US have remained in tandem with inflation – except for the last 8-9 years. The last 3 years were egregious.

  114. I think if people spend so much time worrying about this then there is not too much time to enjoy a home itself. It is reality and something we have to face but somehow people always find a way to get through it. After all, you can claim bankruptcy with not a penny to your name and move on with your next life debt free. Not a positive thing to say but it happens all the time. At least we still live in the best country in the world. You can hang out on a corner and find food and money. You can’t do this in many poverty stricken countries where people are dying every day from hunger, disease, etc.

    Everyone wants and expects their home to rise in value over the years but this should not be the reason why we buy homes. People buy homes because it’s where they spend a great deal of their time whether building a family or just living alone. Pride of ownership, privacy, whatever. I think the people who have been sitting back for the past couple of years or longer, and who continue to sit back and think that they’re going to get a home for way less than it cost a few years ago are only fooling themselves. Sure, one may be successful in doing this in the mid-west or other parts of the region that are still cheap but not in the greater Seattle area. Of course prices could level off and even decline some but let’s be honest here. The job market continues to be fairly strong and stable here. More importantly, there are and always have been a great number of people who just want to live here, whether it’s the climate or for all that the northwest has to offer. I like what one person said about new construction prices declining. I totally agree. I don’t believe one can ever go wrong when buying a home in an older established community, especially if it’s in a desirable location that has been well-maintained. There are endless neighborhoods like this. Many of these have some very attractive lots and just an overall good feeling of a traditional home. I’m referring to the person who spoke of Shoreline to Mill Creek and the Juanita/Kirkland area. Let’s not forget Bothell, probably one of the fastest growing cities for a few years now. It’s not too far north and not as expensive as Bellevue, Kirkland or Juanita. Of course many find the schools very attractive since Northshore has always been rated among the best in the state. It allows for great access for those who work in Seattle or anywhere on the east side. Okay, enough on that, you want to hear about the bubble. Go and enjoy your homes and life in Seattle. Whatever is going to happen will happen. Buy a home in a nice cul-de-sac with a decent size lot and you can hardly stand to lose if you live there for at least 5 or more years. I am not overlooking the problem with the sub prime and interest only mortgages. They seem to be more harmful than helpful. What most people need is good guidance and learn to make logical decisions when buying a home versus making emotional decisions. I deal with the market every day. It’s what I do. If someone knows that the interest rates only allows them to be comfortable with a $400K home, then start out by finding something in this price range or even a bit lower in a nice established community. Sure, you want 2800 square feet but you know that 2100 square ft. will suffice for the time being until you can afford that bigger home. We all should realize that many big families grew up in homes that were even much smaller yet somehow seemed to survive just fine.
    Seek professional advice from someone who cares and has your best interest when buying a home, don’t just go out there and make an emotional decision. The bubble may come, burst, or whatever terminology you prefer to use. But if you’re still sitting back on the sidelines in the Seattle area hoping to buy that home for $250K that someone else paid the same price for 7 or 8 years ago, you may be waiting a very long time. As far as renting vs. owning, who really cares? Each person should do what’s best for them. If they want to pay rent and invest more on stocks, so be it. Some want to have a place they can call their own while others could care less. Let’s not judge each other in that aspect. Speaking of Seattle, I’m sure most if not all who are reading this have known at least one or even several people who have moved to Arizona, California or Nevada to enjoy the supposedly nicer climate. Funny how many of these same people end up coming back when they find out the grass is not greener. It’s always green in Washington : )
    I think everyone should take a break from the bubble worries and go help someone in need. If we help others out when we can, our own problems seem to somehow go away. May all of you enjoy your homes and have a wonderful Thanksgiving!

  115. Amen, Gman! We bought a 900 SF older home in North Seattle in April of this year – our first place. Lots of room for improvement, which we are doing, giving us a little cushion against the 9 out of 10 for sale signs we’re seeing from here to Green Lake with “Price Reduced” on them. Sure, MAYBE if we waited we could save a few bucks, but we’d STILL be dealing with living in limbo, looking at places and watching the interest rate/financing debacle unfold. Instead, we’re cramming 14 people in our 900 SF of freshly painted, de-wallpapered, new-windowed home for Thanksgiving. And you can’t beat that.

  116. Did anyone see “The Tim” on TV last night? Interesting for him to reveal that his primary purpose in posting negatively is to get prices down so that he can buy one.

    I didn’t see the beginning. Kim called me over to the TV while it was running.

  117. ARDELL–Darn… I would have loved to have seen it. He’s all ready blogging about it: http://seattlebubble.com/blog/2007/11/07/welcome-king-5-viewers/

  118. The Tim will be on KOMO AM at 10:45 this morning…just reading through his comments after watching the video on his blog.

  119. I like Gman’s attitude, reminds me of myself back in high school.

    Now back to mature thinking…

  120. I don’t like Tim…my critique of his ultra-conservative take on housing, and his attempt of sounding like us…

  121. Ubersalad,

    Tim Ellis or Tim Kane or anyone named Tim involved in r.e.?
    :)

  122. ” Interesting for him to reveal that his primary purpose in posting negatively is to get prices down so that he can buy one.”

    Huh? All they said was that he admits that if prices did go down he would benefit. That’s a lot different different than saying he’s trying to bring prices down by blogging.

    It’s curious that they never state that realtors have something to gain by pumping housing when they are interviewed.

  123. if it’s a single family home priced under $400,000…buy with care…but don’t wait for any of them to ever dip under $300,000 again. I don’t see that happening.

    MLS#: 27152327
    Kirkland
    $290k
    http://redfin.com/stingray/do/printable-listing?listing-id=1062628

    Yes, I realize this is scraping the bottom of the barrel.

  124. Goldeneye says:

    Hey GMan,
    Look at the graph at http://en.wikipedia.org/wiki/Image:EconomistHomePrices20050615.jpg. It compares average prices of US+UK+Australia (from 1995-2005) to Japan (1980-1989). Japan as you know has a severe shortage of land – so much that they had to build an airport on land reclaimed from the sea by using a techinque called “dredging”. The Japanese stock and RE markets were at their peak in 1989 and then the crash happened and RE lost 69-90% of its value- it has not recovered even today after 16 long painful years. Let’s hope the same does not happen here.

    The October NWLS numbers for Seattle are out. Median prices *declined* in Seattle by 5.7%. SFH in Seattle showed no gain or loss. SFH prices in *Eastside* were down 4.1%. CNN/Fortune lists Seattle as one of the 25 real estate markets “poised to fall

  125. “Residential mortgages were more difficult to get over the past three months than at any time in the 17-year history of the Federal Reserve’s survey of banks. Standards for other types of loans tightened too, while demand fell”.

    http://realestate.msn.com/Buying/Article_mw.aspx?cp-documentid=5697915&GT1=10632

  126. “Economist: U.S. facing $2 trillion lending shock
    http://www.msnbc.msn.com/id/21834052/?ref=patrick.net

  127. “A Time for Bold Thinking on Housing”
    ======================
    http://www.nytimes.com/2007/11/25/business/25view.html

    Excerpts:
    =====
    “WE have to consider the possibility that the housing price downturn will eventually be as big as that of the last truly big decline, from 1925 to 1933, when prices fell by a total of 30 percent.”

    “The real estate appraisal industry needs to rethink its methods. How did it happen that appraisers acquiesced in valuations that were more and more discordant with economic fundamentals? Basic concepts and procedures need change.”

    =====================================
    I don’t know about the 30% decline but what I do know is that yes the real estate industry must have a sweeping change to prevent perpetuation of fraud that was rampant in the last 3 years. Fraud such as appraisers inflating house prices purposefully, lenders fooling around with buyers etc.

  128. “Citigroup hacks home builders”
    =====================
    http://www.theglobeandmail.com/servlet/story/LAC.20071127.RHOUSING27/TPStory/Business

    Excerpts:
    =====
    Citigroup has thrown in the towel on U.S. home-building stocks, saying that despite already depressed prices, it can no longer see the bottom for the beleaguered market segment.

  129. Goldeneye,

    I’ve seen prices increase 150% from 85 to 89, then decline from the high of 1989 (in South Jersey) back 30% or more by 91 and then increase by 100% again to now. A house that cost $100,000 in 85 was $250,000 by 89 and $175,000 by 91 and is now at $350,000 and dipping under again.

    You don’t have to go back to the Great Depression to find 30% price drops. Those who bought in 89 and sold in 91 lost money, but on the whole the cycle of growth with its ebb and flow affected most home owners positively.

    About ten years ago I assisted a family member in putting 60% of their insurance payoff from an injury into a house for shelter and growth and 40% in bonds for income. The house is now worth more than double and the bonds are producing the income to sustain it. The bonds are down but will be held to maturity and so there is only gain, income and no losses. The house was purchased for $142,000. It may go down from $350,000 to $300,000, but still not a loss given the cost basis of $142,000.

    No one here is saying prices never go down. If someone is saying prices never go down the fool is the one who believes it, not the one who says it. We’re saying they go up more than they go down, historically.

    In 2004 I assisted people in buying property with the objective of holding short term and sold their properties at a substancial gain. Last year I assisted people in buying with longer term objectives and recommended to those with 2 year objectives that they continue renting, unless they were prepared to rent out the property or sustain a loss at time of sale.

    Is the point that prices can go down? Does that really need to be said so often and so repeatedly? Isn’t that a given in any short term hold scenario be it houses, stocks, gold…whatever?

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  131. Well I just watch the evening news. Looks like Real Estate has dropped 11.2% since it peak. 2.3% in just December. Looks like your bullet proof vest has a couple of holes in it.

  132. GoldenEye says:

    >If someone is saying prices never go down the fool is the one who believes it, not the one who says it

    Hmm, so you are saying that realtors who fool naive buyers are not at fault? I guess its the buyers fault when their all-knowing lenders/agents convince them to overpay by saying that they are building equity. I also guess that when a naive buyer, desperate to get a home for his family, falls for the crap dished out by NAR and its cronies, it is his fault. “Let the buyer beware”, is it?

    So what you are saying is, if a doctor, who gives a cure-all-ills pill to a patient, knowing fully well that the pill can be harmful, and if the patient develops some horrible side-effects, its the patient’s fault ‘coz he trusted his doctor. Nice.

  133. Goldeneye,

    How does one build equity by overpaying? I haven’t heard that before.

  134. Goldeneye says:

    >>How does one build equity by overpaying? I haven’t heard that before.

    Why Ardell? Don’t you know? That’s because prices always go up and its always a good time to buy. So it does not matter what you pay today coz tommorow some bigger fool than you will pay much more and you are covered.

  135. Goldeneye,

    You say that, as do others like you, and I do not. So does that make you responsible for people who read and believe that, who do not realize that you are poking fun at no one in particular?

  136. GoldenEye says:

    What I said above was sarcastic – the RE industry says the same with a straight and earnest face though.

    Used-home sales dropped to a record low in Febraury (http://biz.yahoo.com/rb/080408/usa_economy_housing.html), still Lawrence Yun wants people to believe that the market will improve in the later part of the year. I have lost count of how many times have the RE industry called a bottom only to see things deteriorate further. I feel the RE industry in general is *extremely* irresponsible.

    What the RE industry needs to realise is that a home is the biggest investment that an average American makes. If he is misled in this investment, it could take a lifetime to repair the financial damage. But, it seems all the RE agents care about is the 6%.

  137. GoldenEye says:

    Hi Ardell,
    You may find this link interesting..

    http://bp0.blogger.com/_SfxDExxUukY/R-he5fB56aI/AAAAAAAAASk/JiIYUiK914o/s1600-h/nar_rid6.JPG

    This tracks what the RE cheerleaders (Yun and Lereah) “predicted” and what actually happened.

  138. But GoldenEye, why do you come here where there are many honest and responsible posts every day, that do not do as you say, to beat up on “the industry”?

  139. Goldeneye says:

    No I am not beating up on the industry – I am just stating facts. This housing boom was built on a house of cards – literally. Whatever I stated above are actual facts that I have experienced here in Seattle.
    The RE industry needs to be overhauled to avoid such a downturn again. This is similar to the acconting frauds that happened in the dot-com boom.

    Here’s another interesting link…
    http://www.lvrj.com/business/17590869.html
    =============================
    It seems some buyers are now realizing that the members of the RE fraternity were not always working for their best interests and are suing them – especially the mortgage lenders who pedelled huge amounts of money to unsuspecting buyers.

  140. I don’t care if you beat up on the industry, Goldeneye…just stop beating up on us. You don’t appear to be speaking to us personally, and that is disrespectful of the site. Are you talking about me and Rhonda? Me an agent Rhonda a lender? Are you talking TO us or AT us?

    I don’t talk AT you…please don’t talk AT us. If we are having a conversation, it’s hard to tell. Looks more like you are beating a drum against someone not in this room.

    We deserve better. We do try our very best. If you just run around the internet to make a splashy comment, do it somewhere else. We are not who you are speaking to or about…or so it appears. This is not a forum! If you aren’t talking TO us, then go away.

  141. My first exposure to the NAR stats was a presentation by my prior broker showing how inaccurate they were. It shouldn’t come as a surprise to people that I wasn’t shocked. I would have been shocked (and skeptical) if they had been accurate.

  142. Looks like prices are now coming down quite a bit in Seattle:
    http://www.geldpress.com/2008/07/seattle-condo-pain/

  143. Arno, you don’t judge an area’s prices by looking at list prices, you compare solds. Given the location of that building (discussed later), even the adjusted prices seem high to me (but I haven’t seen the project).

    But more to the point of your link, you don’t look at one building to judge an area. I remember looking at one building in Seattle proper where when I walked through I thought “what a mess.” This was about 2 years ago, when things were still very hot, and that particular building did end up having problems selling. So two years ago looking at that one building you’d have concluded Seattle’s condo market was bad at the time.

    Also, that unit is barely in King County, and the Snohomish County condo market which it is very close to is clearly having problems. It’s also apparently rather close to the freeway. Anyway, given location it’s hardly evidence of what “Seattle” is doing.

  144. # 83…. was a good one.

    Sorry guys,

    I can’t tell you that prices will never be lower or never be higher. Taking the blue or red pill won’t change that.

    Today I’m just hoping the market is slow enough on this rainy November day, so that the offer I am faxing is not met by a higher competing offer at the other end.

    So put your voodoo hexes on the market today for me, will ya? I need the market to be less competitive for my buyer client today.

    Thanks.

  145. Glad you liked that :) They did not get that house and were stretching for it. I talked them into spending $75,000 less for a different house. YAY!

  146. I wish there were more real estate agents like you, Ardell. We probably wouldn’t be in this mess. /sigh

    I remember when I worked for a telecom company in Atlanta. We had a young lady there that didn’t really want to “work.” She took a course and became a real estate agent and quit to make some “good money – fast.”

    When I bought my first home, the agent, (if you can call him that) kept telling me what I could afford and kept showing me homes outside of my price range. He was all like “You can do 200K!” and I’m all like “150 MAX!” I finally called the lady that was training him and told her that I didn’t want him to show me anything else, because he never listened to me.

    This lady (A dear little Korean lady.) was a Million dollar club something or other and she knew exactly what to do. She came over (and took over) and we found a home within my budget and travel constraints. I suffered with that guy for about a month, though. She just knew things. Like what kind of PVC pipe does the house have? And remove this foam around the bottom of the home and the home inspector she arranged for (that cost me ~$250) saved me 3,000 bucks. You can’t beat an informed Realtor who actually listens to you and has good advice (and good contacts). I just wish there was an easy way to tell the neophytes (chuckleheads?) from someone who can actually add to the process.

    You sign an agreement to be exclusive with someone and then you find out they suck. I guess it’s no different than surgery. You need to find a little bit out about your surgeon before you have them cut out your kidney.

  147. Goldeneye says:

    Ardell, I am back.

    I saw several 1800 SQFT townhomes in Kirkland below $300K!!

    Regarding the comment you made on this blog…
    So even if we see prices dropping back, we will not soon see the day when the increase will be declared a bubble that is about to burst. In fact a modest correction is well warranted, but I do not see single family homes dropping in price back to where they were in January of 2005 for many, many…if ever…years. So yes, in the single family home market, anything decent in the lowest of price ranges should still be grabbed up. By March of 2007 the opportunity to get any bargains in the entry level single family home markets, will likely be gone for good.

    …I think every statment above has been proved wrong.

  148. Hi Goldeneye,

    Welcome back!

    I agree, but not because of a townhome sale. There were always townhomes (condos) available for $300,000 or less. My statement says “single family homes”.

    There’s a whole slew of attached new construction on Redmond Ridge that were built with prices under $300,000 by Quadrant (and sold) since I wrote this post. I wish they would build more of those. They sold pretty quickly.

    There are also some single family homes selling. I have one in escrow for $300,000. I’ll let you know where when it closes. It’s a bank owned property. I am very happy for my clients. I have new clients who want a $300,000 single family home close to Microsoft.

    Will let you know how that goes…I’m optimistic!

  149. goldeneye977 says:

    I’m back after 1 full year. Still no housing rebound.

    But, I have a feeling we have touched bottom. That’s because no one writes “bubble-proof” blogs any more :). Seriously enough, all I hear these days is how much more prices will go down.
    Just like in 2006-2007 you had people predicting 20% price rise YOY, these days everyone favorite past time is to “predict” how low prices will go. People throw numbers randomly – -10%, -15% etc.

    Historically, at the peak of any asset bubble, there is abject optimism coupled with a belief in the invulnerability of the asset price. Likewise, at the bottom of the inevitable subsequent crash, there is abject pessimism with the belief that prices won’t rise for long.

    I think we just might be at the bottom or close to the bottom. One year from now, I’ll be back for a reality check :).

  150. Thanks for stopping by, goldeneye. Glancing back at this post with you I can’t say my feelings have changed much about that highlighted single family homes priced at $300,000 and under market. Clearly still a seller’s market in that arena.

    Testing my own perception…I’ll pull the stats in real time.

    Kirkland 98033

    5 for sale – 15 sold in the last 6 months (of a total of 208 homes)

    Bellevue 98008

    4 for sale – only 7 of the 121 homes sold in the last 6 mos. sold for $300,000 or less

    With all the crazy headlines over the last 3 years or 4 years since I wrote this post, one would think the average family could afford a whole lot more. But the reality is it still takes about $400,000 to $450,000 to buy a truly decent home for a family of 5.

    If you carve out a 9 month segment of home prices and look at the market without that brief period in history around the summer of 2007, it really hasn’t gotten a lot easier for a family to buy a nice home in a close in location.

  151. P.S. my recommendation on the 1 bedroom condo market was also “spot on”. That market took the biggest hit from the time of this post to present day.

  152. WOW! What a trip down memory lane.

    Hat tip to “Matthew” for reminding me of this thread.

    Ardell,

    I hope to meet you and the RCG crowd at some meet-up, now that I have been house trained.

    Your pal,

    El – providing a ‘center’ for RE professionals since 2006

  153. E!!! Happy Holidays!

    Inman News, an insider RE news service, is teasing with their announcement of the Top 100 “influential people” in real estate for 2010. They want $79 for a peek at the list.

    I say if Eleua is not on it…who needs to see it! LOL!

    Forever and eternally grateful to you for cracking my brain wide open,

    Yours truly,

    @ARDELLd

  154. P.S. Everything in this post is still accurate, BTW. No back peddling for me. Still not seeing condos priced under $100,000 in my service area or any good to live in houses for $300,000 or less. I am putting one into escrow for $275,000 ish today in a great location, but it is a rental house on/off a very busy arterial.

    So my thoughts back in 2006 and the subject of this article is still “spot on” in hindsight.

  155. Siddharta says:

    Came across this post while searching for seattle real estate on google.
    Can’t believe the original author of the post still thinks “Everything in this post is still accurate”. Wow…just wow.

    Is Seattle Bubble Proof?
    NO.

  156. If you read the post, we are talking about single family homes for $300,000 or less in North Seattle & prime parts of The Eastside. There are only 18 sold in that area in the last 6 months, 7 on the Eastside and 11 in North Seattle. At least 2/3rds were not particularly “habitable”. Not a lot of selection for most people, though possible…yes. Anything’s “possible”.

    Noticed one of the comments saying “Frightening times for a first timer!” I don’t think that has changed at all since I wrote this post. :)

  157. Goldeneye977 says:

    Quadrant is selling 1800 sqft single family homes for less than $300K in Redmond Ridge East.
    Also, Microsoft is silently laying off people – more than 400 laid off this year. Does not bode well for real estate here. So no price stabilization this year I would say. Next year probably we should see some stability in prices.

    Question is, when will prices start rising? On an average, since 1945, the US economy expands for 5 years and then there is a recession that lasts for about 11 months. The current recovery started in mid 2009 so were are already two years in the recovery i.e. we have 3-4 years left before another recession strikes. My guess is, prices may stabilize by next year and maybe a year or two later, as the economy gains steam, they may start rising right before the next recession strikes – which could wipe off the meagre gains that were achieved. After that recession, we could have some significant price rises. So, people who bought houses in 2007 would probably break even in 2018 or after.

    This housing bubble was probably the worst thing to happen to the US post WWII. It destroyed wealth like never before – trillions of dollars gone down the drain.

    Lesson to realtors – do your country a favor. Stop parroting “Its always a good time to buy”. When you spot a bubble in housing, rather than comforting nervous buyers with fibs, raise an alarm – otherwise every one (including you) suffers.

  158. Goldeneye977 says:

    The S&P downgrade of US credit rating is more bad news for housing. This will make mortgages costlier by about 0.7% putting further downwards pressure on house prices. S&P will watch the US in the next 12-14 months & may issue a further downgrade. Housing is toast in this decade at least. Earlier on i had said that people who bought in 2007 will need to wait till 2018 to break even. That does not seem possible now.

    In 1989 Japan’s real estate bubble burst and RE prices in Tokyo fell as much as 90%. Even after 22 years, prices have not returned to their 1989 levels. I thought that this cannot happen in the US. Now I wonder…

  159. Goldeneye977 says:

    Hi, I am back. The economic recovery is looking solid. House prices in Seattle as per the Case Shiller index have seen an uptick for the last 3 months. The same goes for other hard-hit markets like Phoenix. So now, I am pretty confident that this year will be the year for the housing recovery. We have another 2-3 years before the next recession, if history is any guide. House prices in this region could increase by about 15% in the next three years before falling somewhat again.

  160. Goldeneye977 says:

    Two major banks report that they feel that the housing market is finally healing.

    http://www.washingtonpost.com/business/economy/reports-from-two-major-banks-suggest-housing-market-is-on-the-mend/2012/04/13/gIQAvkthFT_story.html

    So it seems after 5 long years, the housing market is now getting back on its feet. “Bullet proof” Seattle has fallen 35% from its peak.

Trackbacks

  1. [...] Ardell at Rain City Guide, Is Seattle Bubble Proof?: Condo markets in the same price range…entirely different story. I’d stay far away from the one bedroom condo market. the run up there has been as insane as it has been in the single family home market, BUT the one bedrooms are fast converging on the price of a much large two bedroom. So don’t assume you have to buy a one bedroom condo if you are starting out. November 02nd 2006 Posted to Uncategorized [...]

  2. [...] November 5, 2006 Altos Research shows a flattening market in Seattle and confirms Ardell’s analysis: the high end is (was?) the worst place to be. I’m not signing on to the “bubble proof” theory though. [...]

  3. [...] consumer distrust of the industry in general. (Want to see some distrust among consumers? Check out this post on RCG.) Unless/until the industry can do a better job removing the bad apples who are just around to make [...]

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