I have to admit that it is hard to think about anything but tomorrow’s election. It’s an historic occassion, to say the least. Especially for those of us who grew up in the turbulent 60’s, and have been around from when President Kennedy was killed to present. I can’t help but feel that tomorrow “is the first day of the rest of our lives” in a profound and meaningful way.
Next Sunday will be the first opportunity to capture a snapshot of October 2008 as to closed transactions. Last week I reported that October pending sales that will close in November are obviously down in price, and fairly substantially down, from 3rd quarter sales.
This week I’ve been trying to answer the question “Where are prices?”. Are they back to early 2006 levels? Are they back to mid-2005 levels? The answer is both, and days on market is what separates the two. When comparing apples to apples and studying data within small segments of each market, virtually no sales are selling at peak levels, peak being summer of 2007. Those that sell in 20 days or less are selling at mid 2006 to early 2006 levels. Those that remain on market for 40 or more days are selling at mid 2005 levels. Those that try to sell at 2007 levels, end up at 2005 levels. If they had started at 2006 price level, they would have sold more quickly and at a higher price.
There’s really no message to anyone in this post. Just reporting the facts. Buyers who buy something as soon as it hits the market, will still do that, and rightly so. Sellers who ask more than the last property sold for will still do that, because they need the market to beat them down. Most people can’t sell for less than the neighbor by voluntarily electing to do that. They have to be on market for 100 days or more before they “give in”, which costs them about 5% on price. Still, that’s human nature for most people.
New construction is more attractive than it has been for a long time, short sales are still the best values, and best homes in the best locations still sell quickly at the highest prices. No big news there. Once we get to early 2005 pricings, the wait will be over. Why? Because the prices in 2004 and 2003 and 2002 are not substantially different from one another. Once prices roll back to January 2005 levels, we will be “at bottom” here in the Seattle Area, unless you think prices will get to 1998 levels.
So for all of the people waiting for “bottom”…your wait is about over. Now you just have to figure out how to finance those “at bottom” prices, and interest rates will be the obstacle vs. fear of overpaying.
Now let’s all focus on the election tomorrow. It’s an historic event. Don’t miss it. Vote and vote early.
Ardell, according to Case shiller the price in January 2002 was about 20% lower then January 2005 and about 30% lower than December 2005. That’s a lot of dough for most of us so I wouldn’t agree that it isn’t much difference between 2005 and 2002 prices. Sorry but I will still be waiting for some time.
Ardell, echoing tj above – what do you mean by 2005 not being much different from 2002? Are you using some sort of inflation-adjusted set of data that I haven’t seen?
Sorry Ardell
But I am not buying this. I agree with the comment from tj.
Pingback: Charleston Real Estate Blog : Days on market, buying or selling
If you wait for the robins, spring will be over.
It’s difficult to explain the variance between my numbers and Case-Shiller’s. I’m in the middle of a project and will get stats ASAP.
Generally the difference is about increase due to improvements vs. increase due to appreciation. In 2002 there are fewer sales with granite counters. I use “granite counters” as an indicator of properties built in and after 2002 as well as older homes with remodeled kitchens and bathrooms. Selling for 20% more because it has a new kitchen and master bath is different than 20% market appreciation apples to apples.
When I look at appreciation, I exclude properties in the sampling that didn’t exist in 2002 sold in 2005. For instance all homes built in 2003 might sell for a large % more in 2005 than homes built prior to 2002 in original condition.
I believe Case-Shiller excludes new construction and only counts resale homes. But in 2005 they would include a 2003 resale and a 2002 resale. In 2002 they would not count what was built in 2002, but would include what was built in 2002 in the 2005 figures. So a portion of their expanded value is not appreciation, it’s improved product.
From my notes:
2001 $149, 2002 $153, 2003 $156, summer 2004 $160, summer 2005 $208, 2006 $235, 2007 $275, 2008 $225.
So if January 2005 is $184 then higest price ever paid ($297) to January 2005 is -38% and highest price ever paid to 2003 is -47%. Current price of $225 is -24% and -38% would be “at bottom”. 5% is negotiation variance, so the difference is 4% not 20%, even though the difference between 03 and 05 is 18% of the lower number, that is only 4% difference from top to bottom giving a 5% negotiation or concession variance.
It will take me a lot longer to explain that than to simply say it 🙂 As soon as I have time I will explain it better with more data. Case Shiller’s 20% is really only 4%, and I do not adjust for inflation. I only adjust for % of peak vs. % of 2005 and remove all property improvement dollars. Improvements or newer construction does not equal appreciation or depreciation. Everyone agrees on that one. Case-Shiller simply does it once at year of construction, but not again at quick resale of new construction (within 2-3 years), nor do they sort out massively remodeled property.
No problem, I like summer better.
Ardell, no need to explain that to me. I use a multiple of sources coupled with my view of common sense and experrience to make up my mind on where I think we are and it’s not the bottom, not even close. You are one source of information and even if you build what looks like a strong case for 4% appreciation from 2002 and 2005 it will not be nearly enough to counter the other data as Case Shiller.
Long story short, I’m calling 38% less than highest price ever paid “bottom” and if you can get there now via short sale, all the better.
Sampai, 38% down from highest price ever paid would be about 80% to 90% of 2008 assessed value. So I predict you are currently buying “at bottom” via your short sale price, based on what you have told us.
Good job!
tj,
I didn’t say we are “at bottom”. Far from it. I said many sales are selling at 2006 levels and bottom is January 2005 pricing.
Knowing where bottom is, helps people buy at bottom today. While only a small percentage can do that, at least they know what they are aiming for. This method does NOT work for other areas, as other areas of the Country had more appreciation from 1998 to 2004 and more depreciation from 2005 to 2007 than the Seattle Area.
tj,
Take any property you have been watching and subtract 38% from highest price ever paid (which will be in 2007). If you think bottom is lower than that…you are going to miss bottom.
I believe Case-Shiller only increases or decreases the index based on cases where the same house sold twice and increased or decreased in price, so unless someone did a significant remodel to increase value, it wouldn’t skew the index. I also think the Case-Shiller index tries to account for remodels.
Ardell, are you saying that flippers doing actual improvements accounted for 16% of the increase 2002-2005?
Are you saying that houses post 2002 are higher quality than before?
From http://www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Methodology_Web.pdf
“Price Anomalies. If there is a large change in the prices of a sales pair relative to the statistical distribution of all price changes in the area, then it is possible that the home was remodeled, rebuilt or neglected in some manner during the period from the first sale to the second sale. Or, if there were no physical changes to the property, there may have been a recording error in one of the sale prices, or an excessive price change caused by idiosyncratic, non-market factors. Since the indices seek to measure homes of constant quality, the methodology will apply smaller weights to homes that appear to have changed in quality or sales that are otherwise not representative of market price trends.
High Turnover Frequency. Data related to homes that sell more than once within six months are excluded from the calculation of any indices. Historical and statistical data indicate that sales made within a short interval often indicate that one of the transactions 1) is not arms-length, 2) precedes or follows the redevelopment of a property, or 3) is a fraudulent transaction.
Time Interval Adjustments. Sales pairs are also weighted based on the time interval between the first and second sales. If a sales pair interval is longer, then it is more likely that a house may have experienced physical changes. Sales pairs with longer intervals are, therefore, given less weight than sales pairs with shorter intervals.”
Ardell, that can very well be but I think the bottom is going to be looooong so I’m not worried about missing it or at least not missing it by much. I like your guidance for today’s buyers on what they should strive for to avoid paying to much above the bottom. Very nice, and 38% from peak does not sound like a bad guess. I’m not so much argueing that the bottom could be early 2005 prices as that 2005 prices equals 2002 prices. I might very well decide to buy when we are solidly into early 2005 prices according to Case Shiller. I don’t have the time to try to get today’s sellers accepting a 40% lower than peak value, to much work and to little selection.
It’s a bit of a pity with the “The wait is over” and the 2002 equals 2005 prices since it risks destroying the credibility of the entire post which would be a shame because I think the rest is really good.
“…even if you build what looks like a strong case for 4% appreciation from 2002 and 2005 it will not be nearly enough to counter the other data as Case Shiller.”
peak price $297
2005 price $184
2002 price $153
$152 is 16.8% less than $184 but that same $31 is 10% of $297. Concessions at $297 are nil as that is multiple offer territiory. Concessions at $184 are 3% on average. That makes the appreciation 7% not 16.8%%.
So I’m not saying Case Shiller’s difference of 20% from 2002 to 2005 is off. I’m saying that is -4% to -7% from peak, even if you use Case Shiller’s data. Waiting for an extra 4% is not as worthwhile as waiting for an extra 20%.
When buying today and comparing to 2002-2003 prices (which I think is reasonable) would you compare absolute $$ figures or inflation adjusted?
According to inflation calculator at http://www.westegg.com/inflation/ there was 12% inflation 2003-2007 and 14% inflation 2002-2007.
12% inflation makes 2003 prices look like 2004 prices in absolute $$.
The house that was sold for $400 in 2003 – will you consider a good deal if you get for $400 or $450 ?
tj,
Saying what people want to hear is just as bad if it skews to the negative as when it skews to the positive. If you are disagreeing with me and saying -38% is not good enough, then that would make the waiters as greedy as those who caused the problem in the first place.
Again, I’m not saying you are buying “at bottom” today, unless you are buying at 38% less than highest price ever paid. If that isn’t good enough…what can I say.
Take out your calculator. $515,000 less 38% is $319,000. If that is too optimistic for you, I’d have to say “get real”. I have seen neighborhoods, good ones, where high is $515,000 and current asking prices are as low as $399,000. So sales in the $319,000 range will be bottom, no question. It is more likely they will stop at $350,000 and not get to $319,000. If you are waiting for that to be $250,000, then you just don’t want to buy something. That’s OK. But clearly I write to people who want to buy smart…not to people who don’t want to buy at all.
ARDELL,
What if there was no sale in 2006-2007, what you would consider a “bottom”?
If you look at Zillow graphs – you see that in most neighborhoods the line starts going up in 2003. Which “mathematically” makes the bottom at 2003 prices, inflation adjusted.
I also believe that there could be some “over-correction” for a short time, may be to 2002-2001 prices (inflation adjusted for +15%).
alexu,
If there was no sale in 2006 or 2007, I would not use that neighborhood to calculate appreciation. If I needed to find bottom of that neighborhood because I am writing an offer for a buyer, then I would apply the rate from a larger neighborhood with more sales that is as like kind as possible.
Zillow lines bulk view houses with non-view houses and new construction with older homes. Can you give me an example of a Zillow line that you are using?
2002-2005 appreciation is different in areas where there is continued new construction vs. areas that had no nearby new construction. The price of the area will go up on Zillow because of the new construction. The price of the older homes will not go up as much as the area overall, as the older homes will have trouble competing with new construction.
There is no one right answer for all homes. But I do think the deepest discount you will see from peak price is 38% in areas that are within 25 minutes to a workplace. I have no clue about Orting or Sultan, for instance, or Lake Stevens. When you get too far from a major employment area, anything can happen.
I’m not talking about discounts from original asking price. I’ve seen one house asking from $1.5M to $999,000 and still never sold. So asking prices is not a barometer of value.
What do you think happens after the bottom, whenever that might be? Do prices shoot back up, stagnate at the bottom, or slowly rise with inflation?
Is it crucial for a buyer to hit right on or just before the bottom?
There were plenty of people who bought Tokyo area properties in 1993, after they had dropped 40% from peak, only to find they fell another 40% in the next 8 years.
I don’t see why we can’t see another similar phenomena in the US, and the Seattle region in particular. In fact, things might even be worse this time since the global macro-economic environment is so terribly worse than when Japan saw it’s initial fall. Just today auto manufacturers reported the worst decline in monthly sales since 1945! This is NOT your typical recession, and the fall in prices will be of an order of magnitude no one has seen in generations. Heck, we have barely seen a 10% drop from peak prices in the Puget Sound yet there is already a higher percentage of home-owners with negative equity than ever before. Once foreclosures pick up things are only going to get MUCH worse.
1998 prices? I think we will be seeing 1982-type prices before we hit a bottom in the Puget Sound. The local price decline will really kick in when we start seeing ALL the major area employers start to lay people off by the end of next year.
Further, when we do hit a bottom it will most likely be like a thud that will drag along for years before there is any significant appreciation, so no one need worry about “missing” the bottom.
I haven’t read all the comments, but the ones selling within 20 days are probably getting higher prices because they’re in better condition.
Sniglet,
I am the first to admit that I shrink my world until it is small enough for me to feel like I have a grasp of it. I cannot relate to Tokyo or Japan. It is beyond my ability to look at Education Hill and pretend I’m in Tokyo.
“Heck, we have barely seen a 10% drop from peak prices in the Puget Sound…”
I don’t look at “the Puget Sound” and what I see is apparently not what you see. Just yesterday I saw a house assessed in 2008 for $900,000 listed and not selling at $799,000 and not worthy of an offer from my client at $750,000. New construction. Decent to good location.
So when I see near bottom, I’m not looking at what IS selling as you do. I’m looking at what that house is going to sell for. At peak that house would have sold for…wait, let me calculate it so you know where I get my numbers.
A house in same group on the same street assessed at $1,065,000 sold for $1,225,000 in August of 2007 (peak). $1,225,000 divided by $1,065,000 times $900,000 equals $1,035,000. That’s how I find peak of the subject house, using like kind property.
$1,035,000 minus YOUR 10% is $931,500. So while you may be seeing prices at ONLY 10% down from peak, I am seeing an ASKING price down 25% from peak, and I’m seeing that 25% reduction from peak being not good enough for that house to sell today.
The story is in what is NOT selling. The smaller reductions in price are those that are good enough to sell at the highest of prices, and that is where you are getting your calculations. Mine come from what it will take for a property to get to sold, and for this house that I saw yesterday, it will take a minimum of 28% to 30% down from peak pricing.
At $699,950, there is no question that someone would buy it. 38% from peak would be $725,000. It may sell at $740,000 to $750,000 and that will not be “at bottom” even though it would be 28% down from peak.
You are looking at closed sales. I am looking at the asking prices of pending sales and the even lower prices of some homes not making it to pending.
When I see a house on market priced down 25% from peak and not selling, I am seeing “near bottom”. I’m not seeing it in closed transactions. So it would seem that we are looking at different facts. If you are only seeing “barely a 10% drop from peak prices” then you are looking at a different set of data than I am.
P.S. to my previous comment. Last week I noted that pending sales were looking more like 20% down from peak, while closed sales were only looking like 10% down from peak. This week I’m seeing a further drop from now to year end and use the property above as an example.
Kary,
You are correct to some extent, but in better condition and staged is really not worth 20% more, and people have to stop being fooled by such things.
Better houses in better condition are worth 20% more. Some houses are just more desirable than others. So you’re not going to get 20% more just being clean and staged, but you could easily do that being a good house design in a good location that is also clean and staged. It gets back to having bought the right house in the first place–something that’s very hard to do in a very hot market because you have to be very fast.
BTW, I mentioned somewhere a couple of weeks ago that the pendings didn’t seem to be as big a drag on future sales as they had been the last few months (sometime I repeatedly give you credit for noting). When I said it the pendings were about 5k higher than the solds for the month, rather than 10-20k lower, which they had been at times. Right now they’re about $5 lower (yes five dollars). I think the volume of outstanding pendings is dropping, however, no doubt to the news of the last few weeks.
Closed in July of 2007 asking $489,925 closed price $485,000 peak pricing.
Closed in the 1st Quarter asking $439,950 closed price $434,950
Closed in the 2nd Quarter asking $452,950 closed price $449,000
Closed in the 3rd Quarter asking $434,900 closed price $424,950
Closed in September asking $419,950 closed price $410,000
Closed in October asking $399,000 closed price $390,000
Pending in October asking $389,950 should equal closed $380,000
$380,000 would be 21.6% down from peak of $485,000.
Catching up on some comments I missed earlier:
“Are you saying that houses post 2002 are higher quality than before?”
I’m saying that houses built in 2004 will sell for more today than the same size house in a good location built in 1983. Significantly more.
I’m saying the high median in 98052 in September of 2007 was $695,000 and more than 1/3 of the homes sold at that peak were built after 2001 and had a median price of $730,000. 23% of them were brand new. The homes built prior to 2002 in that $695,000 median price only had a median price of $550,000 vs. $730,000. So a significant part of the jump in median price to $695,000 at peak is represented by homes that did not exist in 2002.
When volume is low, a higher % of sold homes are newer, pushing up the median closed price, but not affecting appreciation stats to the same degree. Since March of 2008, 18% of the homes sold were new and had a median price of $791,000. 30% were built since 2002 and had a median price of $766,000. The remaining 2/3rds built before 2002 had a median price of $555,000.
So a large percentage of homes sold are not affordable for most people because they are new or newer The median price of new homes sold in October of 2008 is at $775,000 and represents 23% of all sales. Half of all sales in October were built since 1997 and had a median price of $715,000. The other half built before 1997 only had a median price of $485,000. 55% of the homes for sale didn’t exist in 2002.
Ardell wrote: “I’m saying that houses built in 2004 will sell for more today than the same size house in a good location built in 1983. Significantly more.”
That’s probably a good generalization, but I suspect the situation will be reversed for houses of such a vintage 10 and 20 years from now. Right now the difference in age is 4 years old and 25 years old. That seems significant. But in 20 years that will be 24 and 45, significant, but not as extreme. And given the fact that there really haven’t been any improvements to houses over that time (just the reverse really), and the location of the older houses is more likely better, I’d think the older house would do relatively better.
It would also be neighborhood specific. As I’ve mentioned before, our 40+ year old neighborhood has houses that are better maintained than some 5-10 year old neighborhoods.
#22 Cautious Buyer,
First, I’m willing to revise bottom to June of 2004 vs. January 2005 IF interest rates DO NOT get to and stay slightly below 6%.
Most are saying late 2003 I am saying early 2005…let’s split the difference on that and call it mid 2004. I have seen the market recede back 50%, so 38% to 43% depending on the area and the house and interest rates, seems like a good range.
Now to what happens at bottom. As you can see by the length of time it’s taken me to answer this, I’m giving it a lot of thought and pouring through numbers and thinking back to 1990 all at the same time 🙂
You are correct. There is no day or week when it is at bottom like the stock market. The missing factor and wild card is interest rates. Affordability is interest rate driven and if interest rates went to 7.5% or 5% it would have a direct impact on what we may surmise as of today.
In my experience people react at least as much to “being priced out forever” in terms of interest rate as they do to price of property. So my answer is I can’t predict what will happen without knowing the going mortgage rate at that time. If it stays at 6.5% through the entire period from now until then, it would stay at bottom for 3 years. Interest rates being above 6 and toward or past 7 can make the difference between down 38% and down 43%. Interest rates shifting down at any point toward 5% or even 5.5% will create a “we will never see interest rates this low again” panic buying spree for those who can afford to buy and have been waiting for lower prices.
My guess is that somewhere on the way down interest rates will go to 5.5% and stall the impact at 38% down and reverse the down cycle. The change from 5.875% to 6.5% has an impact. So we don’t need to see larger swings than we have been seeing on a weekly basis.
When people can get 5.875% and buy that down to 5.75% there are more homes sold than when they go toward 6.5%. That’s a weekly scenario now, and will continue to be so, unless someone can figure out how to sustain rates below 6%. I think they can and I think they will and I think that should happen between now and Spring of 2009 long enough to halt prices at no lower than January of 2005 levels.
If they don’t meet my expectations, then at least we will have a new President to blame 🙂
sna comment #2,
Sorry for missing that yesterday. I’m only seeing a 2% difference in 2002, so not worth haggling over. Both 2002 and 2003 look like normal adjustments with 2004 being the first year prices were impacted by loose lending, that impact being 10%. I will split the difference on that one unless interest rates go to and are sustained below 6% by even 1/8th of a point.
I don’t know where you are, but my numbers are primarily based on Eastside housing options.
I use Eastside because there is more pressure on pricing between townhomes and single family homes and old vs. new within a reasonable driving distance. I study the area that has the most pressure on pricing. Seattle areas that were primarily built out in the early 1900s with no available land until you get way North and way South, don’t react the same. I also can’t find apples to apples comparisons in Seattle as easily as I can on the Eastside.
That doesn’t mean Seattle won’t react similarly. Just that it is easier for me to see what is happening, when I have more like kind property to study.
Ardell
I appreciate your insight although sometimes I do not agree with your opinions. I am actually curious about what your opinion would be on the following situation.
We put an offer on a home that is being shortsold. It was purchased in 2004 for $295. Between 2004-2007, the owners took out three loans against the property totalling $269 thousand. This would explain why the home is being short sold. Our offer is $300. Currently waiting on bank to accept our offer. They have asked for a commitment letter from our lender and have asked to review the underwriters report before they will look at our offer. The home is waterfront in kitsap county. The earliest we would sell the home is five years from now. The home is lovely, but honestly, I would much prefer to live in Seattle, where we are currently renting. We have contemplated purchasing here in Seattle, but when this opportunity arose, we thought it would be a great investment for us and not to mention that is in waterfront.
Based on what I have told you, what is your opinion? Do you think we are making a smart decision? We are concerned about losing value in the home. Thanks.
homebuyer,
I don’t do Kitsap. Plus, you are already in up to your neck, and I could get sued for pursuading you in any way, shape or form from completing what you have arleady started. It would make more sense if you wanted to keep it for generations as a family getaway, or if you could see yourself retiring there. If you could hold it for 10 or 15 years, that’s a lot different from having to sell it in five.
Pingback: October King County Home Prices at 10/2005 Level | Rain City Guide