Sunday Night Stats













Last week when everyone was talking about median price being down in August, it seemed to me that median prices is generally down in August…or at least flat.  The graph shows the relationship in median price for 2005 through present from June through year end.  It may give you an idea of what to expect to happen to prices for the balance of 2008. I also find the nexus points fascinating and the 2005 vs the three years following to be very interesting.  Hope you do as well.













As usual, I calculated these myself.  We expect the YOY volume paths to cross eventually.  But I doubt that is going to happen this year.  The spread will become narrower beginning at the end of September.  But there will still be a spread, I think.

For these grapsh I combined condos with SFR because over this 4 year period, tracking what buyers are doing is more important than whether they chose a condo or a single family residence. 

During this period we saw many choosing condos vs. SFR because they could not afford SFR.  Now we are seeing the reverse with SFR prices getting lower than townhome prices.  That is putting pressure on townhomes to be cheaper to compete with the single family home market.  During swings from condo to SFR and vice versa, it is best to combine them to see total buyer activity and trends.

Required Disclosre: Data not compiled, posted or verified by NWMLS

94 thoughts on “Sunday Night Stats

  1. The drop of 1,000 properties from Aug 07 to Sept 07 should not repeat Aug 08 to Sept 08. So the YOY will begin to narrow from September forward, There’s no way the spread of 3,346 to 1,848 of Aug YOY can do anything but diminish in September. Wherever it falls in September, that spread will likely maintain through year end.

    The absolute symmetry of 05 and 06 is amazing. I expect a similar symmertry from September through year end 07 vs. 08.

  2. Expect median prices to continue to drop, bottoming somewhere below $200K.

    Googling “Seattle median homeowner income”, I find the number $66K, which could support a price of $200K at 3x income. Or do we calculate the house/income ratio after we deduct the 20% down? 20% down on $200K puts us right about at 2.5x the $66K income, which is sustainable and healthy.

    I won’t even consider buying a house until lending has standardized to 20% down minimum with proven income, the 3% FHA roaches and down-payment assistance gamblers are gone, and the market has adjusted to this reality.

  3. By the way, has anyone noticed that Queen Anne is mobbed with FOR SALE signs. So is West Seattle. How about your neighborhood?

    And we’re still rolling out massive numbers of condos and townhouses! There’s a giant project (100+ units) going in near me at 13th Ave NW and Holman Road, in the space of an old 76 gas station. Who is building this? Who is funding this?

    Again, who in their right mind would buy a house today? Just wait a while and buy it from the bank!

  4. If the prices have to get anywhere near the green line, the market won’t be done acting up till the middle of 2009. But maybe it could be accelerated by the fact that creditors are turning off the spigot. In turn meaning less money in the market causing prices to fall further/faster. Regardless, this housing and Wall St. event seems like uncharted territory for all …

  5. Christiangustafson,

    I think you would have to calculate what % of the market (in each given area) falls into the 20% down house/income scenario and allow for the FHA mortgages on one end, the 10% plus PMI buyers in the middle, and the more than 20% down 2nd, 3rd and 4th time buyers. In some areas they will all balance out. Points South are being hit harder with fewer 20% or more down buyers. Close to Microsoft will have a higher % of 20% downers and 2nd, 3rd and 4th time buyers with more than 20% down. King County will not move as a whole in that regard…and is not moving as a whole now.

    As to your $66,000 income example at 20% down, that would take the median to $350,000, not $200,000. In other words, yes you have to add the 20% down to the loan amount and the loan amount falls at about $285,000. $350,000 minus 20% down is $280,000. At 6% $280,000 is a payment of $1,678.74 which is 31% of gross at $66,000 income. Some variance for taxes and insurance and other debt issues, but safe to say $325,000 to $350,000.

    That would put the 2008 brown line down into the 2005 green line range, which seems appropriate, but not until 2009. That would put us into that August through November of 2005 range which isn’t far fetched from where we are standing now. In fact it’s pretty predictable. What happens from there is not predictable. The market could fall further OR the median dropping that low could cause another buying frenzy 🙂

    There are some areas that are already at that level, but not the ones I work in. Tacoma? Orting? Fife? Federal Way? Parts of Renton? I don’t work in those areas by and large, but from what I have seen, they are already down that far and parts of King are moving the way of Pierce County while others are moving the way of Snohomish or Kitsap. Of the areas I work in, Woodinville/Bothell/Kenmore and parts of Seattle toward Lake City Way and Shoreline, are weaker than Green Lake, Kirkland, Bellevue and Redmond which are my primary areas.

    I think you wi9ll see some areas of Renton and Tacoma down 30% to 50% from peak pricing and some areas of Redmond and Bellevue down 10% to 25% down from peak pricing. I will be doing some breakdowns of specific zip codes this week.

  6. John Dames: “If the prices have to get anywhere near the green line, the market won’t be done acting up till the middle of 2009.”

    I agree, but I also think you will see more pressure due to short sales and foreclosures for another 18 mos from now. We will enter a market in 2009 where the majority of sellers have to sell, and those who don’t have to won’t even be on market. 2009 is fairly predicatable…it’s 2010 and beyond that is an unknown factor. Much of that will depend on interest rates.

    If inteterest rates become very favorable by external pressures and government supports, then when prices dip into the green line, or even before that, you will see more people coming off the fence who CAN buy now, but aren’t.

  7. Ardell, he needs to do a lot more than that. For one thing he needs to figure out what the median income of potential homeowners is, as opposed to the general population. Taking a median income that includes 19 year old students, people on welfare, etc. really is a bad starting point.

  8. Kary said: “Ardell, he needs to do a lot more than that.”

    No, I don’t think he does. Of course I factor in tons more than he is, but it’s a case of the ends being the same regardless of method. I think prices will reach the 2005 green levels for sure in 2009. Whether or not it is strictly due to the method of backing into it from the $66,000 median income level or not, is pretty much irrelevant…if it gets you to the same place.

    I expect those above and those below to balance out, and that is based on what I am seeing on the street, in current sales and in the mindset of buyers and sellers. I never ONLY look at the stats, and $350,000 give or take as the median is definitely in the cards when you balance “close in” with “far out” in King County.

    The bigger news is the overlap of SFR and townhomes. With SFR coming into the townhome price zone, townhomes will feel the pinch and SOON and already are on the Eastside more than in North Seattle.

  9. I think we can all agree that speculation is simply a fancy word for guessing.

    So your guesses based on past trends are simply “black swans.” These trends are trends until they are no longer trends.

    If any of you were right on your guessing you would all be rich and not blogging about this, because you’d be too busy managing your empire or supervising the many workers you employ to count your money.

    I know my house is worth more than a recent valuation it came back at, but I really have no idea what the ACTUAL selling price would need to be to get it sold in a market that isn’t lending money out.

    So many experts when the times are really good, or really bad. I just hate the “I told you so” people.

  10. “I know my house is worth more than a recent valuation it came back at…”

    In this market most valuations are coming in high and not low, so that is unlikely. But given you are not selling it, that doesn’t really matter, so whatever floats your boat.

    But those who do need to buy and sell now, need expert advices and best guestimates as to future value considerations. Those who aren’t buying or selling can call it parlor games if they like, but those who need professional assistance can’t so easily shrug it all off as nonsense talk,.

  11. Ardell, you couldnt be more off.

    Valuations done by banks to verify costs of HELOCs are coming back super low. They valued my house to a 900 sq/ft house and an 1100sq/ft house on the worst streets in our area.

    My house is on a fantastic street, and is 2400 sq/ft.

    They also are not listening to reason…either way, they are looking at all the negatives, ignoring any possibly positive, and trying to find reasons to cut HELOCs or any other form of credit.

  12. John,

    I’m surprised the bank is even bothering to justify reducing the limit on the HELOC with a “formal” valuation process. Most are just cutting them on principal…period! Why do they need to justify it? Did you appeal it?

    Do you live in the Seattle area?

    Of course I am right and so are you LOL!!! My experience has nothing to do with HELOCs and yours has everything to do with HELOCs. From the standpoint of RCG and blogging, I in particular am primarily speaking to people who are buying and or selling property, and agents who are assisting people with same. What is happening with regard to HELOC limits pushing back has virtually nothing to do with what I am talking about.

    Most people I know just got letters in the mail saying the HELOC limit was reduced, without regard to the value of the property. Banks are just protecting themselves as to maximum exposure and reducing the % of value even when the value is unchanged. HELOC limits will pull back to 75% of value as to total incumbrances, regardless of market conditions.

    Was your original HELOC set at above 75% of value including your first mortgage from the getgo?

  13. I used to think so, Kary, but when I test it against likely outcome…it’s pretty right on. That could be coincidence, but without stated income loans it is going to be closer to right than it was when the same argument was made in 2005.

    Calling it silly is of no value to anyone, and is just insulting to the commenter. If you have a better way to predict…oh right…you stay correct by having no opinion whatsoever! LOL Calling everyone wrong is getting a bit tiresome without your proposing a “more right” alternative.

    It’s not likely that the outcome will not fall where we have suggested. You can call that a lucky guess if you want, but continually suggesting that buyers and sellers should just throw their fate to the wind is just repetitively annoying. No “prudent man” would say “Que sera sera” when making the most important financial decisions of their life.

  14. Ardell, the median argument assumes people buy houses with their income only, they don’t. It also assumes first time home owners would buy a median house. They don’t. It’s just silly. And as mentioned, it’s the median income of all households, not just those likely to buy houses. Unless that is consistent from city to city, and over time, then again, it doesn’t work.

    I don’t mean to insult people who reference it, but if they think about it just a little bit, it makes zero sense. Which brings me to the final reason it doesn’t work: It’s something that was apparently thought up by the NAR. 😀

  15. Kary #18,

    Some were doing HELOCS at 125% of value right after closing. The “healthy” and historic level for a HELOC is not more than 75% of market value including all incumbrances.

    From what I can see, pulling back to 75% using a very conservative method as to valuation is appropriate from any banks perspective. But again, half my brain is bank and the other half is real estate, so I empathize with this position. My heart is half Italian and half Jewish, but my head is half Banker and half real estate professional 🙂

  16. Kary…I am now a member of NAR again so I may respectfully disagree with them at times, but I can’t call them “silly”. I think that’s a violation of the COE 🙂

  17. Well at the very least it’s very ironic that something created by the NAR has become the favorite argument of those with negative viewpoints on real estate. It was designed to get support for various pieces of legislation, and instead became an argument that the market was priced too high.

  18. Kary, how does the median argument assume that first-time homeowners buy at the median price? Is it your contention that most people buy from funds that are not directly derived from their income?

  19. The ratio, if you want to use ratios, show look at what starter homes cost. The ability of people who don’t have homes, that are at the stage of their life where they might want to buy, to be able to buy a starter home. I don’t know what the median priced car is, but let’s say it’s $25,000.00. That doesn’t mean that you need to pay $25,000 to go buy a car. That the cheapest new car might be $14,000, that’s far more relevant to a lot of people.

    As to the second part, people use assets they gain from many different types of sources to buy houses. It could be a prior home, investment income, inheritance, etc.

  20. Colin,

    Why wouldn’t HELOCs exist? Not following you on that one.

    Say someone bought their home 20 years ago and has no mortgage and wants a HELOC to put on a new roof or a new kitchen. Why wouldn’t a HELOC like that exist?

  21. Kary #26,

    But that’s more likely to be the source of the 20% down. I would say those with more than 20% down and those with less would balance out in strong areas like the ones where I work. In weaker areas the need for 20% down is killing prices and I don’t see FHA catching on quick enough to save them. Though I do see people talking FHA more than in the last 5 years…complexes that didn’t bother getting FHA approved in the last few years are really feeling the pain now.

  22. Kary,

    #23 I still don’t get why you think median income tabulations as to value were “created” by NAR. No one “created” the math of that…it just IS. Why would you think NAR created the math of how much house someone can buy who earns the median income level? I’m sure 90% of the world “created” that thinking out of pure logic.

  23. Sorry, I should be less flippant. But if I were a lender right now I’d hesitate to do even 75% of “mkt value” especially because valuation appears to be pretty seat-of-the pants.

  24. Colin,

    75% limitations on HELOCs was where it was during the last bad market, so I would think it might hold at present. Though no one would blame a lender if they dropped that %, I’m sure.

    What is relatively new, as far as I know, is using a HELOC as a 2nd mortgage at time of purchase. I would NOT expect any bank to do that at present, under any circumstances.

  25. Colin is correct in that many banks have either limited existing heloc line amounts or have closed them. I have very few heloc options for clients as compared to a year or so ago with low LTVs.

    Home owners with HELOCs should verify funds are available before they use them for a big purchase…they could wind up with a nasty surprise.

  26. Rhonda,

    I assume you are talking about people who are buying homes, since that is what you do. Seems to me the HELOC is still alive and well for people who use them for the purpose intended, which is to improve their existing home that has substantial equity. If someone owes $200,000 on a $600,000 home and needs a HELOC to put on a new roof for $12,000…I don’t see any change to HELOCs in that scenario. Do you?

  27. Jillayne, it’s “might continue to fall.” Nothing is certain.

    BTW, I was recently doing a search in the Renton/Kent area of SFR, very unrestricted to property type/style. I was looking for something else, so didn’t look at this closely, but my quick impression was it appeared people are buying up rental type properties in that area.

    For some of the past year I’d thought that the median was being held up a bit due to low end stuff not selling. Now that may be clearing out a bit (but driving the median down too). That’s just a two mile radius search, so it might not be true of the entire area.

  28. Jillayne, I would also add (#38) that most home buyers who utilize FHA financing are more “long term” buyers. They certainly are not flippers where the lower down payment could back-fire on them.

  29. Jillayne and Rhonda,

    Many young people buying FHA really don’t know if they may need to move in 3-5 years. Whether it is 3.5% or 20% down, a loss is a loss and it is the agent’s responsibility to counsel properly and try to get the home at a price that leaves less room for loss as to sold price. Downpayment really doesn’t matter because an agent is as conscious and consientious about the buyer’s potential loss as the bank’s potential loss.

    That is why being “in denial” as to market trendings is dangerous. Not mentioning who seems to be in denial in this comment stream 🙂

    Rhonda, it’s not about flipping as the market trend at downward and then possibly flat after that could continue for 3-5 years from hear. Not everyone buying FHA is going to stay in the same house for more than 6 years. I didn’t. I bought my first house FHA and I sold it within 2 years.

    The bigger key than pricing and downpayment is condition. Buying a cosmetic fixer offers more protections as to value than buying a new townhome or a totally remodeled home that needs nothing. If you can’t add value, it’s not likely a good purchase for anyone who may have to move within the next 7 years.

  30. The only denial here is the denial in not understanding one’s own abilities. Question Ardell, were you predicting this downturn 7 years ago, or even one year ago? As I recall your change to the bear side was fairly recent, but now you’re making projections seven years out.

    That said,obviously advice about what’s likely to appreciate or depreciate can be good advice. That’s true regardless of the market, unless perhaps it’s features or a narrow location that is driving the buyer.

  31. Ardell, I sold my first home in one year which was financed FHA…but the market was trending upwards (proving your point). We had no plans on moving, either.

    Many of the first time home buyers I’m working with now (who are going FHA) have been living in their rental home for many many years. It’s not their style, desire or habit to move. They like roots. 🙂 I’d much rather see that…especially in this climate.

  32. I think there is usefulness to referring to the median price/median income ratio, as a model of predicting future median prices.

    I have looked at the data from 1980 to 2006.

    There is an astonishing consistency of that ratio on a national basis from 1980 to 2000, only varying by 0.1 up or down from 3.0. For example, if the national median (half higher, half lower) household income was $40K, then the median national home price would be $120K.

    It is important to note that there is considerable variances by market to that ratio, and much more year to year volatility, within those markets.

    Clearly (and it is documentable), lending criteria changed in 2001, where the national ratio jumped to 3.4, and continued to rise every year to 2006, where it was at 4.6. I have not seen the number for 2007.

    The statistics for Seattle MSA follow a similar pattern, except that Seattle decoupled from the national average in 1990 and began to resemble other coastal markets (Boston, Sacramento, NY).

    It is reasonable to argue at this point that lending standards have returned to the standards that were in place from 1990 to 2000 (no 100% financing, no DPAs, no option ARMS, limited stated income options, lower LTVs on 2nds, etc). If someone thinks otherwise, chime in, and that the nature of Seattle MSA is similar to the conditions in the last decade.

    Since it is fairly clear that the rapid increase in the national ratio after 2000 was solely due to the change in lending standards, it seems reasonable to assume the median income to price ratio will return to the range of 1990 to 2000.

    That average for the Seattle MSA (Seattle, Bellevue, Tacoma, Everett) was 3.7.

    I’ll admit that there are factors that these backward looking analyses do not take into account.

    For example, if a community evolves into a retirement magnet, instead of a jobs magnet, (let’s use Bend OR as an example), the price/income ratio would get seriously bent, as it would not be unreasonable to posit that many of the purchases were made largely with cash (sold my home in Boston, moved to Bend). It being a much smaller market overall, the ratio could be significantly disrupted.

    Something similar MAY be happening in the Seattle MSA, as people move into the area, and bring large down payments, or pay cash. There could certainly be other factors. I’d love to hear them.

    Of course, predicting future values based on the assumption that lending standards will stay the same as they are today is still risky.

    They could get easier again, and they could get even stricter than they were in the 90s, depending on the banks willingness to make loans, and the Fed’s willingness to back them.

    I think this is a root cause of the lending/credit crisis: the uncertainty of future values that the leveraged debt instruments are based upon, which creates too wide of a spread (worse case to best case) variation of future value. When that variation gets magnified by leveraging of 10 to 30 times, it starts to look very uncertain.

    And when that uncertainty is insured by AIG (and others), you begin to see why backstopping AIG became an urgent matter.

    I think this problem is even more serious than than the “toxic mortgages” problem, and the foreclosures, because of it’s magnitude.

    I’d actually LIKE to be wrong here :), and it is likely that I am, by some degree. I’m just not convinced anyone else’s predictions are more right.

    I’ll get over it.

    Just for argument’s sake (the kind of arguments that provide clearer insight, please), I’d like to propose that the 2007 number for the Seattle MSA will be 5.4., and the number for 2008 will be 4.6., and the number for 2009 will be 3.7.

    Doesn’t really matter if I am right, but it may spur someone else to look for the data, using the same criteria (median home price/median HH income, Seattle MSA), and make their own reasoned predictions. 🙂

  33. Kary,

    I listened to Greenspan in 2004 when he said 7 up ends in 2005 and some areas could be anywhere from 2005 to 2008 before the downturn. He was right and so consequently so was I.

    He also said the downtown or flat period would be 3 – 5 years from the beginning of the downturn, which for us would be from 7/07.

    I was very bullish in 2004 and 2005 (before I started blogging on 1/1/06) I remember the day I turned bearish but have to go through my email to my clients to pinpoint it. It was sometime in 2006. Spring I think. At first I cautioned people not to buy unless they had no reason to need to move within 7 years. I also cautioned them to buy homes that could be improved in the event the market turns down.

    By January of 2007 I was urging people who bought for investment purposes to sell and take their gains. In fact one of my clients closed with a substantial gain on 7/31/07 just before the market changed.

    By August of 2007 I “stepped out” a bit in a wait and see approach by being the Broker of Brio for 6 months. I sold a couple of properties that I had listed in July and as to buyers, did a short sale to be safer on price.

    If you are looking only at blog posts for my stance as to the market, obviously my client advices are more direct than any blogpost. What you recall as to my being bullish or bearish would likely come from blogging, but the real answer is in my client recommendations and sales activity, which I curtailed severely on more than one occasion and leaned more toward helping sellers than buyers given my stance on the market.

    You do believe the market is going down, Kary. You just don’t want to say it. Or at least that is how it appears from the many things you have said over the last year. In fact I think you said you did not deny that the market was going down…you just didn’t confirm it either 🙂

  34. Rhonda,

    I always treat someone who has just relocated to an area as someone who may not stay long. That has served me well over the last 18 years. Someone who has lived here their entire lives and owns their own business, has more options than someone who is relocating here from another State for job purposes.

    I would have stayed in my first house for much longer than I did, but my husband had more grandiose plans which I didn’t know until after the honeymoon. As they say, love is blind 🙂

  35. Ardell, your change isn’t even a year old, at least based on your blogging. Of course I have no way of knowing whether you tell clients something else than what you say here.

    Main piece, first paragraph (8/13/07) “So far this year I’m seeing 16% appreciation over by Microsoft. I prefer to wait until we get into October to calculate appreciation, but I figured everyone was wondering. Six months ago I had predicted appreciation in 2007 to be 15% to 25% over by Microsoft. With all of the gloom and doom talk that seems to prevail and persist, I thought I’d better do a reality check.”

    Main piece last paragraph: “I predicted appreciation in 2007 would be about the same as it was in 2006. So far compare $130,000 to $152,000 and $152,000 to $176,800…and it’s just about on track…but the year’s not over yet. Not much of a chance we’ll see prices rolling back on these though. They generally sell in 2-5 days once they hit the market.”

    But in fairness, post 30 (8/24/07): “That said, I clearly think today is a better time to sell than it is to buy. People who are buying property are not doing it because they expect the market to go up another 100% in the years from 2007 through 2010. Or at least I hope not.”

    Post 89 (8/26/07) in response to a potential buyer in post 81, wondering where the market is headed: “October 15 to Dec 31 is always the best bet every year for lowest price. The prices usually jump in January. No one ever knows if they will or not. They did in 2007 Jan through May, and usually do. It’s a tougher call this year than most.”

    Post 32 (9/28/07): “Seattle is not a lagging market, so if it missed 70% of the downturn thus far, that does not mean that 70% will come eventually. If the rest of the country continues to fall, then we will still have missed most of the downturn cycle. When the rest of the country “bottoms out

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