Eastside – A look at "affordable" housing

I need to take a look at “affordable housing” issues after a meeting I had this week on the subject, and in preparation for a meeting I have next week on the subject.  I’m primarily looking at Kirkland and comparing Kirkland to places people would move to from there.

While that is not the purpose of this post, this post will also give you some insight as to why there are “Bubble Blogs”.  Many of the young people who want to raise a family without moving to Tennessee, are impacted by the same factors I am raising in this post.  There was a time when I could (and did) tell them to buy condos and use the appreciation for downpayment on a home.  No longer the case in the near distant future.  Where are home prices going?  Well strip out exotic financing, including FHA 60% backend, and look at realistic financing, and you will immediately know what the “bubbleheads” already knew.  Prices have to come down considerably before a young family needing 3 bedrooms and 1,500 square feet can afford to live here.

Median incomes in the last census back in 2000 were $60,000 per household and $73,000 per family in Kirkland, but only 23% of households had children under 18 living with them.  The Powers That Be take this to mean they need more affordable housing for 1 and 2 person households, since that represents over 75% of the residents. I disagree. It is my contention that young people in condos move out of Kirkland once they have a child, because affordable homes for families are more prevalent elsewhere.  To me that means we need more housing for young people with children, otherwise you get overweighted in young professionals, wealthy empty nesters and “affordable housing” for lower earning singles.  That doesn’t diversify the base, and expand the number of households with children under 18 living in the household, up from 23%.

Rather than up the 2000 census incomes, I’m going to call median income $65,000 for a family, as in we want to attract that which we do not have.  Also, that number looks like the King County median and more appropriate for this study.  I’m going to use 4X annual income plus 20% down as the barometer for housing price and minimum 3 bedrooms and 1,500 sf. 

$65,000 times 4 equals a loan amount of $260,000 which is $325,000 with 20% down.  This is why the presidential candidates are incorrect when they say we have to get home values back UP.  They need to recognize that home values accelerated to the point were only Exotic Loans would make them attainable.  So a wish to shore up property values is like a wish for Exotic Loans to make a comeback.

Let’s do an FHA 31/43 ratio double check on that.  31% of Gross Monthly Income of $65,000 is a monthly payment of $1,680.  Lets back off $300 of that for taxes and insurance and call that payment 1,380 for principal and interest.  That gives us a loan amount of $230,000 plus 20% down is about $290,000.  So affordable housing for a family earning $65,000 would be priced at $290,000 to $325,000.

Now let’s look at property with at least 3 bedrooms and $1,500 square feet.  For this purpose I am using the Tax Records vs. the MLS. as I am looking for what exists vs. what is for sale or sold.  In the system I am using, the assessments for 2009 taxes are not in place, so I am using 1.17 times the assessment used for 2008 tax purposes.  That means we are looking for property in the County records assessed between $245,000 and $280,000 with 3 bedrooms and a minimum of 1,500 sf.

Kirkland 98033 comes up with 39 properties, many of which appear to be apartments at the same address.

Kirkland 98034 has 54 all centered in the same vicinity.

Bothell 98011 has 35

Kenmore has 64

Bellevue has 31

Redmond 98052 has 25

Duvall has 53

Monroe has 113

Bothell in Snohomish County vs. King has 76

Mill Creek has 34

Issaquah has 27

Sammamish has 20

Renton has over 1,000

Auburn has over 1,000

Kent has over 1,000

I don’t know how many over 1,000, because there is a pre-set max on the search function.  But you can readily see where a family making $65,000 a year working in Bellevue, Redmond or Kirkland  needs to go to get just 3 bedrooms and 1,500 sf of living space.  I didn’t put any bath requirments or lot size requirements or even separate condos out.  Just 3 bedrooms and 1,500 sf and look what your money doesn’t get you.

Seattle has over 1,000 of which

16 are in 98115

28 are in 98103

9 are in 98117

Shoreline has 170

So when you look at Joe Sixpack and his story, and wonder how he got in over his head, remember that very few homes or even condos exist for a family making $65,000 a year within a reasonable distance to where they are curently renting and working.  So before you blame Joe for his demise, take into consideration that he really didn’t have options available in the marketplace that would have made for a more conservative decision by his family.  This not based on “what is for sale” but “what exists”.

Areas that have housing that fits the $65,000 income, also have lower median incomes.

If the Powers That Be representing Affordable Housing concerns only target 1 and 2 person households, because that is the constituency, then they are doing nothing to solve the REAL problem of “Affordable Housing”.  We need more affordable households for 3 or more persons to impact the issue of “Affordable Housing.

If Kirkland only added 20 to 25 of these, they would be increasing affordable housing from 84 to 104 or 109, which would be a increasing affordable housing by 25%!  Adding more one and two bedroom units, or increasing the affordability of small one and two bedroom units, continues to force young families out of the demographic.

I was told “but the whole REGION has primarily 1 and 2 bedroom households” so that is why we are targeting that demographic.  I said look for WHY the region is primarily 1 and 2 bedroom households…and fix that why.

I need to look at a few more things in preparation for my meeting, if you don’t mind tagging along with me for a few more minutes.  I’m raising the assessed value to $280,000 -$375,000, which is like raising the sale price from $325,000 – $440,000 and I’m adding built since 1990 to see how the cities are progressing toward adding affordable housing.  It is my contention that Redmond via newer 3 bedroom townhomes is outpacing Kirkland.  I need to test my perception.

Kirkland 98033 – 104 (several of these are owned buy builders and developers.  Not sure what to make of that)

Kirkland 98034 – 53

Redmond 98052 – 147 (it is true that a lot of that is Rivertrail, which is where my perception comes from to some extent.  I need to research how that much land close to Downtown Redmond was available to build Rivertrail.  Wait a sec…no I don’t…it’s in a flood zone.

Belleuve – 194 (94 in 98005 – 67 in 98006 – 17 in 98008 – 15 in 98007 -3 in 98004

Seattle 98115 – 44

Seattle 98103 – 84

Seattle 98117 – 58

Shoreline – 219

Lynnwood – over 1,000

Bothell Snohomish – 588

Bothell King – 186

Issaquah – 669

Duvall – 428

Sammamish – 342

Kenmore – 173

Woodinville – 161

It’s about land values.  Thinking out of the box, if everyone on a 22,000 to 33,000 square foot lot was allowed to keep their house and shortplat off a couple of 5,000 sf parcels and put up two 1,700 square foot homes…

Thank you for letting me think out loud.  Your thoughts appreciated.

P.S. for Jillayne 🙂

Edmonds – 35 for the first group assessed at $245,000 to $280,000,  322 in the 2nd group built since 1990 and assessed at $280,000 to $375,000.  hmmm am I missing something by not looking under $245,000 assessed values with no age range?  23 in Edmonds,  Kirkland 62, 98052 – 120, Bellevue 43, Shoreline 68, Kenmore 51, Bothell King – 47, Duvall 27, Bothell Snohomish 37

130 thoughts on “Eastside – A look at "affordable" housing

  1. Have you looked closely at any of these $300K houses in Kirkland? Do you really think that you can raise a family in one of these houses?

    $300,000 house in Kirkland is a dump, and a person with $65K income will not have any money left to fix it.

    I believe that you can find livable places for $300K in South Seattle/Renton area. But that’s about it.

  2. Alexu,

    Yes, I am looking very closely at where those houses are and what they are. Many are actually new construction projects where the “house” is still assessed at “land value only”.

    As to points South having more affordable housing, they also have a lower median income.

    The bigger issue for me right now is say I help double the number of affordable houses…that is still a small number of homes. How do you determine who gets to buy them? Could be too much opportunity for nepotism and corruption.

    The City created 20 units plus senior housing, but still…on such a small scale, how did the people who live in them get “selected”. Hopefully not by “word of mouth”.

    Many issues to consider.

  3. Alexu,

    As I understand it there are two methods in consideration:

    1) Encouraging the building of affordable housing

    2) Preserving the existince of existing affordable housing

    Your observation “$300,000 house in Kirkland is a dump, and a person with $65K income will not have any money left to fix it.” was the point I raised regarding the deferred maintenance of existing “affordable housing”.

    The outcome could be securing it and renovating it and then offering it as an affordable housing option to those who qualify.

  4. Alexu,

    Your thoughts on this appreciated:

    If the best we can do is a nice, new 1,500 sf 3 bedroom 2 1/2 bath townhome with a little yard for $350,000 to $450,000 with an attached party wall or possibly two attached party walls, is that worth pursuing?

    Not ideally what you are wanting, but perhaps the best we can do. Townhomes along the lines that Seattle has that are mixed in with Single family homes? A single family home lot with 3 -5 new townhomes on it? Not $950,000 townhomes like they are building now, but smaller and more affordable ones?

  5. I do a presentation on this topic that I give to local cities for the work I do with Habitat for Humanity and when you look at the numbers in our communities, it’s really staggering. The challenge is that local builders have gotten away from building for this demographic because the underlying land values are so high. Habitat can’t afford to build affordable housing in most close-in communities unless we build multifamily because the land cost alone makes it prohibitive. And since it’s hard to make multifamily work for families of 3 or more, it’s a real challenge. That’s why you see most builders that are building for this demographic, are doing so in areas like Lake Stevens or Kent where land is still affordable.

    Some of this is probably going to right itself over the next few years because not only will falling prices have their affect, I also predict a real sea change in terms of what buyers are going to be looking for over the next few years. The Tim has been right about a lot, and one of the things he may be right about is that our whole stainless steel/granite countertop/best of everything mentality may seem pretty antiquated in a few years. The buyers I am talking to now sure don’t seem to care about that stuff. They just want a roof over their head that they can afford the fully amortized payment on. Everything else is nice to have, but not necessary.

    Home as castle/investment will probably become less important than home as stable source of shelter. And currently, we actually have a glut of land for sale, in areas where there is still land. But in closer in communities like Kirkland, I see density as the only solution to affordability. The problem there is you have to have political will behind it to make that happen. I hope that as our country returns to its financial and political senses from this free-market laissez faire mess we’ve gotten ourselves into, we will find the political will to house our populace in a way that won’t bankrupt them.

  6. I’m betting a lot of these places are condos and townhouses too. That nixes 2 of Joe’s priorities of playing fetch with the dog, and catch with the son.

    If you just make the credit requirements reasonably stringent, that will bring down the price. Joe may have been forced into option B of renting, saving, and building his credit for a couple years, but it would weed out those who don’t have the financial discipline, who probably aren’t ready to own a house anyway. That is happening on it’s own, although very slowly in Seattle.

    It probably goes without saying that government intervention in the form of subsidizing homebuying or propping up prices just kills affordability.

    I would have expected an immediate outcry proclaiming that high prices are the ultimate good and median incomes shouldn’t be able to buy homes. Where is everyone?

  7. ARDELL,

    I did not know about “new constructions” projects for $300,000 in Kirkland. If they do exist – this is great.

    “If the best we can do is a nice, new 1,500 sf 3 bedroom 2 1/2 bath townhome with a little yard for $350,000 to $450,000 with an attached party wall or possibly two attached party walls, is that worth pursuing”

    Yes, I believe that townhouses can help. The main disadvantage of low-end townhouses is layout and sound insulation.

    Sound insulation:
    If you build right up to “the code” – it is very weak. You can probably hear your neighbor talking on the phone. This is not acceptable for family with kids (or if you live next to the family with kids :).

    Make the layout so you can have a kids room in the same level as master bedroom. I saw so many new townhouses that feature a 3-level layout with 2 beds on level1 then living space on level2 and master bad on level3. Master bed and kids separated by 2 levels! No mom (or future mom) will take that.

    Btw, have you looked at the Holly lane projects that were put up few years ago in South Seattle? The structures itself are very nice and (were) inexpensive. Whoever managed the project – they figured out somehow, how to build it.

  8. Cautious Buyer:

    I’m thinking townhome with small yard for dog and small park within the community for playing ball. Not optimal…but better than what we have now.

    Most of Kirkland has lots of small parks.

  9. “Btw, have you looked at the Holly lane projects that were put up few years ago in South Seattle? The structures itself are very nice and (were) inexpensive. Whoever managed the project – they figured out somehow, how to build it.”

    South Seattle is too easy to figure out, Alexu. The land prices are cheaper. But median incomes are lower too. It’s not the cost of construction as much as it is the value of the land. So identifying land to build on is where I’m being asked to participate for Eastside “close in”.

  10. Cautious Buyer,

    As you can see from Sandy’s comment, the forces at work are toward those who can afford it (the haves) and those who can’t (the have nots). Whereas the primary issue for you and I is all the people in between who are ignored entirely.

    If I wanted to live in a have/have not society, I would have stayed in L.A.

  11. “But in closer in communities like Kirkland, I see density as the only solution to affordability. The problem there is you have to have political will behind it to make that happen.”

    I see the missing link as aversion to “attached” housing, and yet if you build it people will live in it, as in Rivertrail in Redmond.

    Upland Green type housing would be ideal, in my opinion. Single family not condos, two houses with one attached wall. They have two car garages and really nice sized yards. Very low monthly PUD dues.

  12. “I would have expected an immediate outcry proclaiming that high prices are the ultimate good and median incomes shouldn’t be able to buy homes. Where is everyone?”

    Cautious Buyer,

    The problem is that when there are meetings on these issues, the people who come are the people who can now afford to live there. The Rich…the people who have lived in their homes since the cost a fraction of what they cost now…and they don’t want change.

    The median income people are largely unrepresented at these meetings. Someone like me and Sandy have to speak “for” them.

  13. The back door would have to be dog door friendly, rather than sliding glass. You definitely couldn’t have an “outside” dog in the postage stamp yard of typical new construction townhomes (if you would anyways). Also, the park would have to be off leash if you wanted to play fetch. I don’t know how prevalent those are in Kirkland.

    I see what you are getting at. It could be done, but the homes would have to be much better thought out than townhomes are now. I’m thinking of a nice 1 level duplex with 1 common wall that I have seen, and a decent yard with a fence right down the middle. You could sell them separately, and you have 2 attached homes on what otherwise was a largish 1 home lot.

  14. Here are a couple big contributors to the high prices.

    Material construction costs have risen 60% during the boom. The price is unlikely to come down because the problem is more supply related than demand related.

    Blame the voters and legislature for the Growth Management Act and other restrictions which adds about $200k to the price of home adding a significant barrier to homeownership.

  15. “The median income people are largely unrepresented at these meetings. Someone like me and Sandy have to speak “for

  16. I think what cautious buyer is looking for is “open space.” In a typical suburban community, each home comes with its own open space–although this isn’t the only way you can solve this particular need. You can still have open space and density at the same time, but you have to build a community where the residents share that open space. If done right, it solves that need of kids and dogs and people needing room to be outside and breathe fresh air. It also CAN serve as a gathering place. This is in fact not a new idea – cities in most of the world have always had open squares and communal spaces, but in the last 50 years our American society has focused around the individual and the single family residence. However, that’s not the only, or even necessarily the best, solution to people’s need for space. It just happens to be what we know.

    But, it all comes down to balancing density/affordability with liveability. They do not have to be mutually exclusive.

    And Ardell: “The problem is that when there are meetings on these issues, the people who come are the people who can now afford to live there. The Rich…the people who have lived in their homes since the cost a fraction of what they cost now…and they don’t want change.”

    Amen to that, though I don’t think this is because they are just the typical NIMBY types. I think it is just a lack of understanding of what “affordable housing” means. You’ll find as you get more involved with this that people tend to think that term means you are somehow bringing in a bad element…and I would attribute that at least partially to mindsets that have developed over the last 20 – 30 years of wealth somehow being indicative of character. The instant answer for many is to say, “well, if you don’t like where you can afford to live, then you should just go get a better job, or move.” What that mindset doesn’t take into account is that there are many jobs which are vital to our communities that do not pay well – think police officers, teachers, military, etc.

    When people really understand who we are talking about, when we are talking about “median income” and “affordable housing” it really tends to open up their eyes.

    I think it is also a matter of educating people as to the economic value of affordable housing in our communities. I predict many changes ahead in terms of how Americans will choose to live their lives and the car-centric commuter lifestyle is losing its appeal quickly in the face of a world where the US is no longer the economic superpower able to control prices for those commodities we depend on for our way of life. I hope that our answer to this will be to look at our way of life and make some necessary changes towards becoming more sustainable, and not to try to uphold a way of life that is unhealthy for us and for the planet.

    One solution is for people to live, work and play in the same community rather than living one place and commuting someplace else. I think most people want this, it’s just that we haven’t figured out how to accomodate this in our suburbs, as it wasn’t what they were built for. But already we see how former “suburbs” like Mukilteo, Lynnwood, Kirkland and Bellevue have really become small cities in their own rights, and as that happens, the nature of these communities will change.

    The challenge I see right now is that there is an income disparity between those who live in a community and those who work there. The market’s answer to affordability has been to get in your car and drive till you qualify. Yet, most residents understand that for a city to be a viable community, it needs to be able to house its work force, that there is benefit to a community’s workers to be able to afford to live near their jobs. It reduces infrastructure costs to support commuting workers, and it increases patronage of local businesses, thereby developing the tax base. And to attract new businesses and higher paying jobs, you need to be able to show potential employers that their workers will be able to afford to live in the area. So, it’s an economic issue for communities as well as a quality of life issue.

    Like I said, this is partly an issue of political will. And the way you create political will is to sell the benefits. Appeal to rational self-interest is always more successful than appealing to someone’s sense of charity. It’s simply not that well developed in a lot of people. I won’t say most people, however, since I think you’ll find as you get more involved in this, that people understand that affordability is a problem, and just don’t know what to do about it.

    I have a lot of very scattered thoughts on this subject but I love that people are thinking about it. Thanks for writing this post!

  17. Wow, it’s been a while since I made my way over here from Seattle Bubble, and it seems like the message has changed a lot. Congratulations to Ardell for coming on board saying home prices are too high, and need to be lowered.

    I thought the rule of thumb for affordability was home price = 3 x annual income, not home price = 4 x annual income + down payment?

  18. I haven’t posted here before, but seems like a good place to contribute since my current situation is somewhat related.

    We just sold our older (but renovated) Redmond (98052) townhouse. The townhouse was two levels, 1800 sq ft, with the living areas on the main level with a half bath and two car (double wide) garage. The upstairs had two regular bedrooms, a full bath, and a large master with a bath and walk-in closet and vanity area. The home had a large backyard by townhouse standards, and backed up to a greenbelt so was fairly private. It was a PUD type townhouse so we owned the land. The community also had a park, pool, clubhouse, etc. Although the assessed value last year was mid $300’s, we sold it for mid 400’s. Again, this is an older neighborhood – I’ve seen newer townhouses sell for more (even though they’re not laid out as well or have no yards). I think at this point its nearly impossible to think something can be done to have affordable middle class family homes exist in Bellevue / Redmond / Kirkland. The only way we were even able to afford this townhouse was because we bought it as a fixer upper and renovated it over the time we lived there.

    We now have a two year old and are trying to find a regular home in the area, and I’m having a hard time finding something that was even as nice as this townhouse, but for more money. The whole process has become frustrating – $500k will not buy you much at all, and this is for someone with a 40% downpayment and a median income well above the average.

    All this, combined with the fact that interest rates recently have spiked way up compared to what we were paying on the townhouse we sold. All we can do now is wait out things a bit in our rented one bedroom condo. All you people with your $550k split levels for sale – I say keep them!

  19. Ardell, when I bought my first home, which was very affordable for that time, I had to buy in NE Tacoma (I worked downtown Seattle and commuted via the Metro).

    When my son’s dad and I bought our first home, we used a FHA mortgage. Who knows what our back end ratio was (I’d love to find my old loan application and GFE…but this was about 20 years ago).

    I would have loved to not have had such a long commute! I remember having to stand on a crowded bus with a case of title policies to right (for OT) lodged in between my feet.

    Everyone has choices. We had the ability to:

    -buy at that time instead of continuing to rent.
    -elected to move further out (as your stats still show it’s more affordable the further away from the work centers you are)
    -we both worked over time to afford that life and sock away a little extra cash.
    -we were happy to start small with a REAL starter home. (It was a 900 sq foot 3 bedroom rambler).

    I hope our freedom to make our own financial decisions (subject to bank/lender guidelines) isn’t stripped away.

  20. DaveO,

    It’s always “plus downpayment” as the 3 x income equals mortgage and not sale price. I used 4 x and then balanced it with FHA ratios. Getting it down to 4Xincome plus downpayment would be a monumental effort! We can look at 3 X income after we get past 4X. Neither are very possible at present.

  21. RDB,

    Townhomes will often have more space than a single family home at an equivalent or slightly higher price. Were you in Hidden Valley off Lake Sammamish?

  22. Regular folks making regular pay can’t afford a 3 bedroom, 2 bath home, in a good neighborhood, with good schools. They MIGHT be able to afford an apartment, or condo – maybe – or can perhaps take on room mates. Just you, your wife, 2 kids, and a roommate. Mmmmm, good times.

    …I said that on 01/01/08…..by the way.

    $46,075 is low income. Check out this thread, if you like. It might enlighten you. Some people define 150K as smack dab in the middle of middle class.


    Population: 563,374
    Households: 258,499
    Median household income: $45,736
    People in poverty: 64,068
    Adults with college degree: 53.6%
    Median rent: $721



    Income Less Than 15K 13.50%
    Income between 15K and 25K 10.29%
    Income between 25K and 35K 11.19%
    Income between 35K and 50K 15.78%
    Income between 50K and 75K 18.44%
    Income between 75K and 100K 11.64%
    Income between 100K and 150K 11.28%
    Income between 150K and 250K 5.35%
    Income between 250K and 500K 1.67%
    Income greater than 500K 0.88%

    Take a look at those incomes. They don’t match up very well with housing prices.

    (I know the population stat is from 2000….it’s somewhat relevant, though)

  23. Ardell –

    I don’t think its realistic at all anymore to consider 20% down. How many $65k/yr families do you know with $60k in the bank? Unless their parents gave it to them or they won the lottery, I am guessing there is maybe one or two in the entire region. Most people with double that salary wouldn’t even have half that in the bank these days.

  24. Number one the Growth Management Act delivered the mandate for affordable housing close to employment centers.

    Second the cost of lumber is supply and demand. Way too many people became builders as a way to make profits. Many of those new builders are associated with the Real Estate business.

    Many Real Estate agents entered the land search for those multiple listing opportunities with a list back agreement.

    Lastly if you bring up the Growth Management Act it’s important to mention the CAP Initiative that effectively killed any large scale development in the City of Seattle core business district.

    Small points really compared to affordable housing. Town houses were fast tracked for permitting as a way to get more of them built faster. Again the idea was supply and demand. As the supply went up the price would go down.

    These are cheap housing units. They were built as cheap housing units.

    The math is long involved and complicated. In terms of affordable housing you should pay what a property is worth. In todays market place many housing units are over priced.

    Make offers, low ball the lender, if you are a buyer today you are golden, use that.

  25. RDB –

    You should rent something nicer, you can rent newer large homes in Bellevue/Issaquah for around $2000/mo. It will keep off the pressure from jumping into a bad deal and catching a falling knife. Living in a small condo while house hunting in this climate is just going to force you into a rushed decision.

  26. Cautious Buyer,

    In case you do make it to a meeting to represent median income households, I suggest you drop this from your “want” list.

    “The back door would have to be dog door friendly, rather than sliding glass.”

    Suggesting you can’t open a door to let the dog out, may not garner much empathy 🙂

  27. “I don’t think it’s realistic at all any more to consider 20% down.”

    Welcome to the mind of an agent. When the calculation of three times income plus 3.5% down FHA comes up with zero properties exist…that would make for a very, very short post 🙂

    One of the reasons things get worse and worse is the reluctance to make things better vs. optimal. In my view, making things 25% to 100% better than they currently are, becomes the goal.

    Moving in the right direction is likely the best I can hope for, market forces will have to handle some of it. When you make the goal impossible to accomplish, people don’t even try.

  28. I found comment #23 from 70 Ford in the “in moderation folder” this morning because of the numerous links. I fished it out and it’s well worth a read for those who may have missed it while it was “in limbo”.

  29. Ardell – I was in Sammamish Forest off of W Lake Sammamish. Our townhouse was basically new inside, and in my opinion built better than many of the newer ones (just a better layout and overall more land space). I’m amazed at what people will pay for some of the newer townhomes just because they are ‘new’, but that’s a separate topic (new construction vs. old construction).

    What I have found thus far is that roughly $60k – $70k more than what I sold our townhome for will get an equivalent size home built in the 60’s or 70’s, but minus all the updates. This is looking at what has actually sold in the area. There is plenty of the same currently for sale at much higher prices. I’m seeing well priced homes still sell relatively quickly. We priced our townhome right and sold it the weekend it went on the market. So my main point is that although inventory is ‘up’, there is not very much good inventory. When someone is overpriced by $100k its hard to even consider making an offer when you believe they’ll likely be so offended by how ‘low’ it is in their mind.

    Even though we’re in such a small condo at the moment, I’m willing to be patient for the right house. I always hear about there being ‘no buyers out there’. Although this is probably true to a point, I think the more likely situation is that there is a normal level of buyers out there similar to myself (at least 20% down, etc.) but they’re not willing to pay such high prices.

  30. RDB,

    It is very typical of the last quarter of any given year for buyers to “build up” because they don’t want to buy what is for sale. After the first of the year they then jump on any decent thing that comes out the gate. That’s a typical annual pattern.

    If you are trying to sell a house with an inherent weakness, often January 3rd through January 15th is the best time to put it on market. The first quarter is for “weak sisters”, busy road, small yard, etc… before more competition enters the market between April 1 and May 30.

    The problem with the current housing crisis is that which fueled the appreciation can not continue…but that’s another post 🙂

  31. Ardell, I was thinking about what the dog would do when I’m not there. Thats the type of thing I think about when I walk through a home.

    Sandy is correct in that I am looking for open space. I believe if you are going to have dogs and kids, you should have a safe place for them to run. A 1200 sqft townhome with a 150 sqft yard isn’t enough. But I am getting the idea that isn’t the type of home you were thinking of? I agree that parks can serve that purpose.

  32. CB,

    It’s not about the type of housing I’m “thinking of”, but the type of housing that might be the answer to the problem at hand.

    Someone making $100,000 a year makes a lot of money! That times three doesn’t buy you a house. It’s a bit mind blowing, really, and I’m just trying to get from Point A to Point B.

    When my family was making $50,000 we could buy a nice 3 bedroom house for $150,000 in a very nice town. When my family was making $100,000 we could buy a very nice house, a new one, with a pool, on a lake, for $200,000. When my family was making $120,000 we bought a really big new house with two staircases and a big bonus room for about $350,000.

    My heart BLEEDS for young families today. I’m just asking you to cut back on your wish list a little 🙂 Finding a good answer is hard enough without “doggy doors” in the mix LOL!

  33. I know this has been beat to death in other posts, but do you think the current commission structure contributes to inflating home prices? As in if agents, and particularly brokers, make more money the higher prices are, they will be more likely to structure themselves in ways that support price inflation, and hire agents who are motivated to “make the sale”?

    Basically I am thinking of the same things mentioned in the famous “The Commission-Based Fee Structure: it’s Bad for Buyers” post a while back, but in respect to inflating home prices. I also suspect the it could be responsible for all these lobbying efforts, web pages, and commercials that seem to be aimed at propping up prices.

  34. After further research on Google, I found that you can buy a doggie door that fits in a sliding glass door, so problem solved.

    Its nice to hear that someone is concerned. Thank you, Ardell!

  35. CB,

    I honestly don’t think the commission structure is responsible as it has pretty much been the same for eons through both good and bad markets for as long as…well a really, really long time 🙂

    I’ll write a post on Monday about what caused or fueled various price increases, and why this one is different than most and harder to solve.

  36. I wonder how the whole discussion around affordable housing might change if we see average eastside housing prices drop 50% or more? Will that suddenly make housing “affordable”, or will we still have community leaders looking for ways to promote inexpensive homes?

    I’ve read about how many affordable housing projects have been running into trouble in regions that have already experienced significant prices declines. The developers of affordable units complain that the price points they hoped to sell for are higher than what consumers can find elsewhere. In fact, many of these affordable housing projects have lobbied the municipalities for permission to change their designations and allow them to sell to anyone (i.e. not just low income families), for much lower prices than orignally envisioned.

    How far would prices have to drop before the whole affordability problem becomes a non-issue?

    Unfortunately, if we DO see massive real-estate price declines I think we may be concerned about a whole different set of issues. If big local employers start laying people off and there are gobs of foreclosures cities may find they have to make substantial budget cutbacks and charities could find themselves overwhelmed with people needing food and shelter.

    Affordability is relative. Even with an 80% price reduction someone who is unemployed will find it hard to buy a home.

  37. Sniglet,

    I have been studying the affect of prices reducing on the marketplace as a whole. Each segment pushes other segments out of whack.

    Townhomes in Redmond that sold fairly well at $450,000 are experiencing downward pressure as single family home prices drop. People who own the townhomes are looking at “the comps” of townhomes, when in fact the downward pressure on sale price is coming from the single family home market.

    As the townhomes drop, people buy them instead of 2 bedroom condos. Again, the 2 bedroom condo sellers are looking at the 2 bedroom condo comps, when in fact the downward pressure is coming from the reduced price of the townhomes.

    People ask why sellers aren’t getting “more real”. In markets like this it is because “the comps” are only telling the story of “the trees” when it is the whole forest that is creating shift.

    I don’t think housing prices will drop 50% or more. I don’t think the $450,000 townhomes will drop to $225,000 or less. Some are creeping into the high 3s. I think we can call them at 3 X 90 plus 20% down, which could take them to between $335,000 to $350,000 vs. $450,000 (some were selling close to $500,000 in 2006. So 30% reductions from peak as to price is more than remotely possible, but 50% I think is a stretch for close in Eastside. Even for not close in, as those prices were not as inflated either. It depends when buyers come off the fence. I think most would come off the fence at 30% reductions and not wait for 50% reductions, which would end the down cycle.

    Exception will be difficult locations like busy roads or near electric towers.

  38. “Affordability is relative. Even with an 80% price reduction someone who is unemployed will find it hard to buy a home.”

    I have seen 80% reductions in some remote areas of Florida, but they are areas with almost no job opportunities. I don’t see Seattle area, or most of the Country, getting there. Those were areas of 2nd homes that people abandoned without losing their primary residence.

  39. I would agree that the commission structure isn’t the primary cause of the latest price frenzy, but I can’t imagine it helped. I think that it could have helped fuel past price increases and slow price reductions for a very long time.

    The powers that be in the real estate business certainly have been trying very hard to prop up prices.
    Do you think that they have had no effect on anybody at all? Would they be so high on increasing prices if it didn’t help their bottom line, at least in the short term?

  40. P.S. I watch the DOW as I do think there is a correlation.

    Not as to time but as to % off.

    I wrote a post on RCG (which I can’t seem to find now) when the DOW first grabbed my attention. It was accelerating at too rapid a rate. I’m pretty sure that was when it passed out of 10,000 and quickly ran up past 12,000 into 13,000 too quickly. When it hit 14,000 that was a SELL sign bigger than GOD could put out from heaven!

    I thought it would settle out in the 7s, though it seems to be settling out in the 8s so far.

    If 14,000 is peak as to DOW and 7/07 is peak as to home values, then things should stabilize at 35% down from tip top peak. 14,000 down to 9,100 is 35% down. Home Price of $850,000 down 35% is $550,000. Townhome of $500,000 down 35% is $325,000.

    Watch the DOW. All the layoff announcements this week are very telling. The biggest buys in real estate may be the homes owned by people in the lending and real estate industry…and that’s a very strong “may” leaning more towards are and will be.

    To sellers…get real, real fast. If you can sell at 15% to 20% off peak…and aren’t prepared to hold the property until the DOW gets back to 14,000 or even 12,000…sell now and get real, real fast. Stop looking at your neighbors. Take the highest number you thought it was worth in recent history and be 15% under that. You can still sell it there…and I won’t be able to say that for very long.

    I just did some rough numbers and asking prices of 15% down from peak are still very sellable. Don’t miss the boat and get there when things are down 30%. I’ve seen this market before, it rolls downhill real fast. Use the DOW as your guide and see how quickly the decline happened vs. the acceleration. The acceleration was quick…but the decline was quicker.

    As to your question, Sniglet, with regard to affordable housing. If they actually make it affordable as in 3 and not more than 4 times median income, they will still be a go. If they simply make it “more affordable” and yet not affordable, then the scenario you portrayed will play out.

    The key will be finding sellers of land that are backed into a corner enough to let go of the property at drastically reduced levels. It’s all about the land. And the Powers That Be have to look at their zoning restrictions vs. tiny affordable housing projects for a handful of people. Let the builders build what they need to build, and stop living in the past or some utopian future.

    If only people who are buying and selling had a say in what should be built in “their town”, things would get a whole lot more real, real fast. Problem is the people who are going nowhere are the ones voting to keep it the same. They lose nothing when that decision is wrong.

  41. CB #41,

    The Realtor Organization is a Trade Association. Their job is to support their members who are Realtors. They don’t really have a relationship to consumers other than to help their members with consumer type effort, as in selling more homes to them or helping them sell homes.

    They actually are doing their job to post optimistic info and commercials that build consumer confidence. They are “a Trade Association” and the trade is agents selling houses.

    I think people confuse the role of the Realtor Orgainzation and it’s objectives, and I think the organizations contributes to that confusion in many ways. But I would hope the general public understands that Realtor Orgainzations and Builder Organizations are Trade Associations and not public entities.

    When I am referring to Powers That Be, I am referring to government entities, not Trade Associations.

  42. Ardell wrote: “I don’t think housing prices will drop 50% or more. I don’t think the $450,000 townhomes will drop to $225,000 or less.”

    We can agree to disagree on this point (I actually think we will see the average price for Eastside homes drop more than 80% before we hit bottom). But to get back to my original question: what would happen to the whole “affordable” housing problem if prices dropped 50%? If you assume we did have such a big price drop, would this erase affordability issues?

    For the record, I believe we are headed into an outright global depression which will cause MASSIVE deflation in all asset classes. The Nikkei dropped 80% from it’s ’80s peak, the Dow dropped 90% from the it’s ’20s peak to the 1932 bottom. I expect a similar thing to happen now with both stocks and real-estate. Look out for Dow 2000 in several years, after a couple short-term rallies that last for 6 to 8 months before the bear gets a better grip.

  43. Ardell, I wasn’t trying to imply government involvement. Perhaps I misused the term “powers that be”. I think that they are an organization of people and businesses whose bottom line has benefited from higher prices, so it makes sense that they would try to influence prices upward. If they also are filling the role of advocates for consumers in real estate transactions, that is a conflict of interest.

    If you read the comments of posts from a few months ago, can you really tell me that the predominant view of Realtors isn’t “high prices good, lower prices doom”?

    I think that you are correct in that the trade is predominantly “agents selling houses”. That is subtly different than agents helping people buy houses. The problem is that buyers trust agents to be their advocates, rather than salespeople.

  44. Cautious Buyer,

    The misconnect happened around 1995. Previous to that the role of all Realtors was to represent sellers. Buyers had no representation. The Pledge we took as Realtors was to uphold the value of Real Estate.

    That system was in place for about 85 years. The main prinicple was that agents and sellers had the same goal, to sell the house at the highest price in the shortest time. Upholding and elevating the value of real estate was our goal.

    Then…came…almost…kind of…buyer agency. It was a cog that never truly fit and not much time and effort was made to make it fit beyond the Title. The job description really didn’t change much. The rhetoric in the offices hasn’t changed one iota.

    The “justice” or “integrity” of the all seller system was that all buyers will some day be sellers. But one day, that wasn’t good enough and we ended up where we are now. A system that still for the most part runs the same as it did for 85 years, with a few people trying hard to be buyer’s agents as buyers would expect them to be. It’s a lonely road for them.

    The only real way to bring integrity back to the industry, I fear, is to go back to the we repesent sellers system and let buyers have lawyers. Craig really does have it right most days. That won’t help buyers about the value of real estate…until they are sellers of what they buy. But at least it was honest.

  45. “If they also are filling the role of advocates for consumers in real estate transactions, that is a conflict of interest.”

    I saw this after I typed my comment above. The original concept when buyer agency first came out was that every real estate agent would have to choose one and solely one. You either represent sellers for a living or you represent buyers for a living. A Group called EBAs started (Exclusive Buyer Agents) but buyers didn’t support it enough the same way buyers and sellers don’t support other business models for the better…enough. And they fail.

    For change to happen, people have to support the new models better. So far the masses aren’t acting in accordance with what they say they want…hence Redfin laying off 20% of its staff.

    Buyer agency went all wishy washy when sellers refused to hire agents who never talked to buyers and buyers refused to hire agents who didn’t list houses. The masses have spoken. They want us to be two-faced. And hence we are primarily back to the system where sellers are clients and buyers are customers. In practice, if not in other ways, that is the long and short of it.

    Until buyers refuse to call the name on the sign, the agent for the seller, true buyer agency can’t survive. Until Sellers understand that it is the other agents who have to bring a buyer, or they have to come on their own, true buyer agency cannot exist. Sellers want the agent for the seller to sell their house to a buyer, and not necessarily through an agent for the buyer. Buyers are now doing the same and calling the agent for the seller more than ever in history. Buyers want to represent themselves and keep the buyer agent fee more than they want to be represented by a buyer agent.

    The trend is not leaning in the favor of better representation for buyers. Not because of the professionals, but the actions of the consumers who speak with forked tongue. They don’t support what they say they want.

    It’s like people who love, love, LOVE their little town, but don’t shop there because it costs a little more and all go to Home Depot and Target and love the “look” of their town, cry when it goes by the wayside to developers, but don’t support it with their actions and purchases while it’s small and quaint.

  46. Sniglet,

    Where’s Eleua when you need him?

    My Mom says it’s not a depression because the cost of food is too high. If it were a depression, the government would subsidize the cost of staples.

    When I was a kid, bread was a quarter. When I started working, the Dow was below 1,000…it hit 1,000 during my first year at work. I’m pretty sure it took from then…1972 till 1991 to get to 3000, so maybe we should be at 6000 by 2010.

    Housing prices have to get to pre-subprime levels. Prices were driven up from 1980 to present by people accepting two income households and women earning as much as men. Before that the average woman made a lot less than a man and quit work when they had children. If people didn’t accept the premise of Women’s Lib…prices would not have risen so much. But two income households prevailed, so housing prices sustained at the inreased levels.

    This price increase was based on loose lending, which will not be making a comeback, so the prices cannot be sustained as the Presidential Candidates have claimed to do, nor should they want that to happen.

    When did loose lending start? Seems to me it was sometime after 2001. Maybe 2003? I’m not talking about 5% down with PMI. I’m talking about when that went by the wayside in favor of two loans, 100% financing, stacked costs. Seems to me it was well on its way by 2004 and not here yet in 2001. Let me go check some tax records…be back.

  47. Ardell wrote: “My Mom says it’s not a depression because the cost of food is too high.”

    We are not in an all-out depression yet, but just in the early phases of entering one. As far as the cost of food goes, just look at how virtually every basic commodity (e.g. wheat, corn, soybeans, hogs) have been falling dramatically in recent months.


    Even the price of oil has been falling precipitously. This is precisely the kind of deflationary trend we should expect to see going into a depression. Lets not forget that house and stock prices have been falling significantly of late as well. It is my belief that these are only the opening acts in the great deflation yet to come.

    But this still doesn’t address my original question: how would the debate around affordable housing change if average eastside home prices were to drop 50% from the 2007 peak?

  48. I’m in the tax records. Jan 2002 FHA loan. April 2002 FHA loan. December 2003 FHA loan. November 2003 two loans 100% financing.

    OK let’s call it late 2003. Prices from then $83,000 for that 2 bedroom, 2 bath condo in Bellevue Manor to $250,000 for the same thing in 2007 and they are now down to $225,000.

    If prices went back 50% from peak that would be $125,000 which would still be well above pre-subprime prices.

    OK…we’ll use your 50%. It passes muster. I just can’t throw a dart at it, I have to match it to my methods of valuation and thinking process. Excuse the interruption. I noticed another email/comment from you fly by while I was writing this, so I’ll check that before proceeding.

  49. Thanks for the most recent comment. I was wondering how the price of bread was going to go down.

    Back to your question, now that I have deemed it to be quite reasonable using my methods.

    A really nice house in Redmond was up to about $950,000. Standard, nice, new big, Education Hill. Maybe $850,000 to $950,000. Take those down to $425,000 to $475,000. $475,000 divided by 3 is $160,000 a year. Divided by 4 is $118,000 a year. A reasonably priced and “newer” Education Hill…say Abbey Road, is $600,000. At $300,000 a family needs to make $75,000 to $100,000, and most buying them now do.

    I think it’s a pretty good match. What do you think? A $450,000 townhome in Rivertrail (I just saw one priced at $399,000) would be $225,000 that’s $56,000 to $75,000.

    It depends what you see happening to incomes. They usually don’t recede, though there is more unemployment, those who keep their jobs don’t often take pay cuts. Are you expecting pay cuts. If salaries go down then housing prices going down won’t help. If salary levels maintain, then yes, I see that as a match with regard to affordability and plausible as well, given the increase from 2003 to present.

    I have to check the 2003 pricing levels of those homes, as I think the condo prices are still running at higher levels than single family homes, at least the really small ones that I used in the original tax record sampling.

  50. Abbey Road

    $330,000 in 1996 to $735,000 in 2008
    $485,000 in 2000 to $$695,000 in 2008
    $283,000 in 1994 to $721,000 in 2008
    $355,000 in 1996 to $705,000 in 2008
    $406,000 in 2001 to $616,000 in 2008
    $418,000 in 2003 to $585,000 in 2008

    $335,000 in 1997 to $700,000 in 2007
    $647,000 in 2004 to $875,000 in 2007
    $525,000 in 2002 to $697,500 in 2007
    $343,000 in 1996 to $745,000 in 2007
    $396,000 in 1997 to $825,000 in 2007
    $470,000 in 2002 to $774,000 in 2007

    No, I don’t see this going back to 50% of peak value. Difference being, the price increases weren’t fueled by sub-prime financing. Most people buying these at peak pricing were not zero down buyers. The prices didn’t jump as much from 2003 to present as the condos in Bellevue Manor that jumped from $100,000 in 2005 to almost $200,000 in 2007. So no, single family housing was not as propped up and fueled by sub-prime financing.

    I don’t see anything going back to 1996 pricing. 2003-2004 yes. 1996 no.

  51. To summarize Sniglet,

    Not everything apparently was fueled to the same degree by sub-prime pricing. The sub-prime roll back will not be the same across the board. Lower prices were inflated more, that being condos and townhomes, than single family homes. Existing ones vs. new ones. Houses like Abbey Road built in the mid 90s were not pushed up in price to the same degree as condos and townhomes.

    Let’s look at downward pressure from the top.

    In the first half of 2007:

    30 homes sold for $1M plus in Redmond
    140 sold in Bellevue
    112 sold in Kirkland

    In the first half of 2008

    16 homes sold for $1M plus in Redmond
    75 sold in Bellevue
    60 sold in Bellevue

    Currently for sale:

    93 in Redmond
    296 in Bellevue
    243 in Kirkland

    Looks like a two and a half to three year supply. They better stop building them. In Redmond 114 people bought homes priced between $700,000 and $1M in the first half of this year. Pretty soon they will be getting a shot at those $1M plus homes. Which will drive the price of the lower ones down, at least until the builders stop building the more expensive ones that can’t be absorbed.

    Interesting times. Your theories are a bit extreme, but not beyond belief from what I see in terms of inventory and rate of sale.

  52. Ardell, you paint a stark picture.

    Maybe the best solution is for agents to return to only being advocates for the seller? At least then buyers would know they are dealing with salespeople rather than most assuming they are working with a buyer’s advocate.

    If agents are only going to be compensated based on the seller’s goals, maybe it would be better if they didn’t claim to represent buyers. We buy many other products from sellers representatives, knowing that they are selling us something.

  53. I still like the Redfin model, and am not pessimistic about it, even if they too have to tighten belts in this extreme real estate crunch. At the very least they are experimenting with ways to change the status quo. I believe the current status quo does play a role in raising prices and reducing homeownership long term.

  54. Cautious Buyer,

    What buyers really want is someone to help them figure out if they are making good choices. Most will trade a relatively small savings in commission for best advices, hands down.

    When the best choice is to buy nothing at all…it is a very difficult advice for an agent to give. Maybe that kind of advice should come from Mom and Dad 🙂 That’s why I always try to identify with my clients and treat them like I would family. Some say “it’s business”, but in my experience, the very best advices have to include a large element of caring about the people.

    I’d say it’s been about 50/50 in the last 12 months. It’s a better time to sell than to buy and about half of my clients I told to rent and the other half I helped make good choicesin buying. All in all that’s still a 75% drop in my income. That kind of integrity is heavy load to carry. I don’t think we can expect a whole industry to do that.

  55. I pretty much agree. If what buyers get is the type of advice you give them, it is worth the fee for most and shouldn’t inflate the price beyond the reasonable transaction cost.

    If buyers thought they were getting that advice but really were getting a dishonest sales pitch, on both the national level and sometimes the individual level, they would end up buying more and paying more for it, and not just the commission.

    One of the things Redfin trumpets is that their agents are paid bonuses based on customer satisfaction, rather than commission, so individually they aren’t motivated to get you to buy a big place. Its a start.

  56. If you need to create “affordable housing” projects for the median income residents in an area something is really wrong. I’m not particulary worried about it since I think the price level of the existing housing stock will have to move into affordable levels for the people who live there. There should be no need to create “affordable housing projects” for median income house holds. For low income household, yes it can be needed but not for median if you just have some patience to let the bubble deflate.

  57. I have worked with ARDELL that she does give some great advice. We have been in the market for now almost 18 months trying to upgrade(move locations from issaquah to bellevue) but I keep joking ..between Ardell and my wife I will never move out of my current home. She is really very good evaluator. Ver practical and more interested in our value that making that quick commission and move to next one.

    I agree that home prices are very high compared to median income and what people have saved. I feel this market will still feel the pinch as we start seeing the effects from any layoff’s from microsoft(they will come) and other startup’s starts shutting down.

    I feel home prices will fall to 2004 levels.

  58. Srini,

    The worst thing you can do “for” a client is disrupt their lives unnecessarily. For some it is easy to elevate the quality of life for a client. That’s really what it’s about. Not trading in one “asset” for a different “asset”.

    Truth is…with all the “inventory” people talk about, we didn’t see any homes that replicated the home and lifestyle that your wife really likes right now where she is right now. Moving closer in on a fairly lateral basis is a “concept” that often has too many tradeoffs. When people are faced with driving an extra 15 minutes and trading down in housing to accomplish that…those extra 15 minutes don’t seem so long anymore.

    So in a way, the process makes you happier even if you don’t move. Sometimes people stop worrying so much about those extra 15 minutes.

    All agents learn the circle of “Probe, Evaluate, Close”, well maybe they don’t. But even those who do don’t learn that “close” means a good ending for the client, and that good ending isn’t always a commissioned sale.

    Sometimes when you go out to buy a new dress, you go home without one. You realize that one of the ones you have in your closet fits better, and looks better on you, than any for sale in the store. Then you feel better in that same old dress than you did before you went out shopping for a new one 😉

  59. Ardell,

    I agree 100% with you. You are looking for the final satisfaction 5 years later for the client and very rarely find in people who make it a business decission to sell the house take the comm and move on to next.

    I think Madhuri has accepted that we have a lovely house, that extra 15 mins does not bother her much(since we car pool so much due to gas prices, I end up driving mostly)

    I love that dress analogy. I do it so many times with my laptop. I go out to get a new one, look at specs and the price and then come back saying that my old one is good enough :))

    – srini

  60. LOL, you can imagine with all the blogging and commenting and emailing that I do, that my laptop is quite a friend indeed. I’ve worn out some of its keys, but some days I feel like we’ve been to hell and back together. It’s kind of like my pet, and I’m sure some day I’ll put it to rest with the same affection I would a pet.

    Please say hi to Madhuri for me. Some day she’ll find a home that she likes more than the one she has, but it’s a tough one to beat 🙂

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