October King County Home Prices at 10/2005 Level

Back in a late October post, I said “Once prices roll back to January 2005 levels, we will be “at bottom

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ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: ardelld@gmail.com cell: 206-910-1000

352 thoughts on “October King County Home Prices at 10/2005 Level

  1. If sellers are pricing 10% above selling, and you need to get 15% below current prices to get an “Ardell bottom price” then you need to talk the average seller down 22.7% from their asking price to get in at the “Ardell bottom” right now. Probably not even worth trying since most sellers seem to think that even 5% off of asking is a low-ball.

  2. You can’t get to the “Ardell bottom” right now unless it is a short sale, foreclosure or bank owned property. I believe I said that in the post.

    Not all sellers are pricing 10% above selling price, only the ones that aren’t sold.

    33% of the sellers that are sold were within 2% of today’s price.
    18% of the sellers that are sold were within 5.5% of today’s price.

    The rest were in between the two. Everyday a new property comes on market within 2% of today’s price and sells, leaving the 10% overpriced one behind.

    Unfortunately the obvious “Ardell bottom price” houses that you see today are often not worth having at any price. Still, you can buy them at bottom…but who wants ’em?

  3. John,

    If you are holding out for 1981 prices, why are you even reading real estate blogs with that long of a wait in front of you 🙂

    How much is a 1981 price?

  4. Nope. You said “… if you can get a house for 15% less than current prices via short sale, foreclosure or Bank Owned property, then you (in my opinion) will be buying at bottom today. ” That does not exclude the possibility of getting a low price on other kinds of sales, it just doesn’t mention it. Also you never stated that short sales, foreclosures, and Bank Owned properties are (generally) not among the properties that are overpriced by 10%.

    So after adding in you clarifying comment, it sounds like foreclosures, short sales, and Bank Owned properties are really the only properties worth looking at? I mean, everybody always says, well I’m planning on staying in it for 5/7/10 years so it doesn’t matter if it goes down for a few years more, but in this economic climate who can say with reasonable certainty that they will not have to change jobs and move far away?

  5. “That does not exclude the possibility of getting a low price on other kinds of sales, it just doesn’t mention it.”

    LOL…correct, I just didn’t mention it for a reason.

    Absolutely the asking price of a short sale can be 10% or more overpriced as to asking price, and should be. The owner doesn’t know what the bank will take, so they can’t represent to the public a number without basis. But they will identify it, at least in the agent remarks, as a short sale. Bank Owned Properties? I’ll have to check on that. I don’t know much about foreclosures as they happen on the courthouse steps. As agents, we generally see them before foreclosure as short sales or after foreclosure as bank owned property.

  6. I’m still waiting for the Alt-A loans to implode. I’ve got a suspicion that a lot of homes here were purchased as Alt-A.


    ….some borrowers could see their payments jump 50 percent or more, and they may not be able to sell their properties for as much as they owe.


    And I was going to swoop in, and pick up the pieces. At least one piece. But all I can see is the government trying to keep home prices artificially high.. Just like they are trying to keep GM going. It’s artificial. GM burns through 2 billion a month. Does the government really think that GM will (within one year) suddenly start making 2 billion more a month?

    I see Realtors (the NAR) lobbying for Congress to keep the Seattle market loan limits higher. I keep thinking, “You don’t need higher loan limits; you need reasonably priced housing.”

    The average person in Seattle can’t afford a ½ million dollar home.

  7. I wrote a post similar to this somewhere recently, where I mentioned that you can often find property at over 10% below market. I wouldn’t exclude any type of property in looking for such property. The wider your search, the more likely you are to find it. Just because a seller is asking $xxx,xxx for a property doesn’t mean you can’t get it for 10% less than that, and that’s true even if they recently reduced their price.

    Also, although I believe in support levels for stocks, I don’t for real estate. The two are very different here for several reason.

  8. Ardell, I think different people have different ideas of what Alt-A means.

    Here’s Fannie Mae’s definition:

    “Generally, a loan that can be underwritten with lower or alternative documentation than a full doc. mortgage loan but may also include other alternative product features. As a result, Alt-A mortgage loans generally have higher risk of default than non Alt-A mortgage loans….”

    For example, some Alt-A loans were fixed products, but stated income or no income verified. Alt-A mortgages were considered in a class between conventional and subprime. And some alt-a borrowers have excellent credit and assets, but did not want to document income or perhaps had excellent credit and income and did not want to document assets. They just didn’t fit the conventional box.

    Greenpoint (no longer w/us) was a classic “alt-a” mortgage provider.

  9. I agree Kary, as to your 10% under asking. We were talking about severely discounted to 15% under FMV. The vacant ones that are sitting on market with asking prices of 30% under peak pricing, and still not selling. I’ll write a separate post on those.

  10. Looking at short sales vs. sales of bank owned property. Short sales tend to be newer and better properties selling at 102% of asking price when on market for 120 days or more. Bank Owned properties (of which there are 4X the amount) tend to be older and selling at 96% of asking price if on market 120 days or more.

    In both groups, the sold prices are close to the asking prices and they don’t sell until the asking price is within buyer’s perception of value. I didn’t see any lowballs closing.

    So the buyers still had to come up with fair market value and not simply rely on a low % of asking price. Most sold for more, at, or very close to the asking price at time of sale.

  11. I think that’s a pretty good guess. That’s pretty much when Price/Income and Price/Rent ratios will come back into alignment with historical norms as well.

    Two other observations:
    – That would put prices about 30% off peak
    – It would also put prices back to where they were 6 months before The Tim started Seattle Bubbble

  12. #1 – Short Sale – Sold at 1.02 times assessed value. Only one other home was on market during the last six months in the same neighborhood. It was listed at 1.22 times assessed value and did not sell. It is currently off market.

    #2 – Short Sale – Only two sales in the neighborhood. Both are short sales. One sold at assessed value and the other sold at 96% of assessed value (2008 assessed values). Home asking 1.16 times assessed value did not sell. Home asking 1.22 times assessed value did not sell. Home asking 1.2 times assessed value did not sell. Slightly older home in one neighborhood over asking 1.09 times assessed value did not sell. Slightly older home asking 1.04 times assessed value did not sell. Relocation property in the newer age range asking 1.035 times assessed value is pending after several price reductions and over 400 days on market. The other pending property in the neighborhood is a short sale with an asking price of 1.22 times assessed value and it is pending inspection. The asking price is 17% less than the last sold price but still a higher ratio to assessed value than the other sold properties. Won’t know the sold price until it closes.

    So for Short Sale neighborhood #2 above, the only homes that sold were short sales and the only two pending are a short sale and a vacant relo property. All others did not sell and came off market.

    #1 Bank Owned Property – sold at 92% of assessed value in October. Only other sale was back in July and sold at 92% of asking price and 1.11 times assessed value. No pendings. On market asking 1.17 times assessed value and 1.16 times assessed value, 1 new construction way overpriced for the neighborhood at 1.7 times the sale price of the neighborhood. Asking 1.29 times assessed value did not sell and is off market. Asking 1.42 times assessed value did not sell and reduced by over $100,000 and is still on market at 1.17 times assessed value noted above. That’s the neighborhood.

    #2 Bank Owned Property – sold at 72% of assessed value and is the only property sold in six months within 1/4 mile. High end Eastside. Assessed at over a million, sold for less than $850,000. Asking 82% of assessed value did not sell and came off market. Asking 1.22 times assessed value on market and not sold. Asking 1.41 times assessed value on market and not sold.

    So, Cautious Buyer, hard to compare to non distressed properties as the only homes that sold inthose 4 neighborhoods, for the most part, were distressed properties.

    I chose newer houses so I didn’t have to account for remodeled kitchens, etc. or severely deteriorated deferred maintenance issues.

  13. “It would also put prices back to where they were 6 months before The Tim started Seattle Bubble”

    YES! That is true! Where would we all be without Seattle Bubble…I mean that sincerely.

  14. OK Jay…I’ll put you down for August 2005. I’m sticking with January 2005. Are we having a pool?

    I think I took out houses built in the year sold to eliminate new construction from the mix. On Sunday I’ll do a graph with price points so people can pick their pool month.

    Maybe The Tim will stop by and pick his own bottom. I doubt he will say August of 2005.

  15. Ardell, I said I’d take that, not that I’d put money on it. 🙂 Unfortunately, I think your January prediction is more likely.

  16. “I’m still waiting for the Alt-A loans to implode.”

    Not gonna happen. As I’ve commented here before, the banks are now aware of just how dangerous foreclosures are to the market as a whole, and hence to them. So they’re getting much better at approving short sales, and working with homeowners to prevent foreclosure from happening by modifying their loans. Hence the recent programs announced by Bank of America, J.P. Morgan Chase, Citigroup, Fannie Mae, and Freddie Mac.

    In fact, WaMu (J.P. Morgan) and Wachovia (Wells Fargo) are specifically targeting what was supposed to be the “next great implosion” – Option ARMs – and are modifying loans to prevent foreclosures.

    The window to get the “short sale discount” is closing fast. Once prices have fallen back to 2004-2005 levels, we’ll see something like a normal market. At that point, you can expect to pay “normal sellers” close to asking price, and even have to compete with other buyers.

  17. if you can get a house for 15% less than current prices via short sale, foreclosure or Bank Owned property, then you (in my opinion) will be buying at bottom today

    When curent prices are 15% less than they are today, why wouldn’t I be able to get a short sale, foreclosure or bank owner property for 15% less than those prices?

  18. Alan,

    For people who don’t have an indefinite period of time to wait, a strategy for today is relevant.

    I’m with sampai…if you can get 2004 or early 2005 prices today, why take a chance that the banks and government aren’t going to find a way to turn things around. IF a house that you really like can be had at a good price today. Don’t buy a house you don’t want just because it’s cheap.

    I think prices will shore up a bit mid 2009. They may continue to decline again in the last quarter of 2009, as they are now in this last quarter, but being able to buy today at pre-run up prices has its advantages.

    I just got a call about some brand new spec houses by small builders selling short and at 62% of original asking prices. With a deal like that on the table, I’m not sure waiting just in case something better is going to happen 18 months from now suits everyone’s personal agenda. If you can lock in at 35% down from peak, it might be “the right time to buy” that.

  19. Some homes are already there. (link removed by Ardell) that is listed at 12% below its September 2006 sale (was $650,000, now $569,900).

    That’s a funny story though – I was just thinking in terms of “what year are we in” last week. Some parts of California have been blown back to 2002 like this one and this one.

  20. “When curent prices are 15% less than they are today, why wouldn’t I be able to get a short sale, foreclosure or bank owner property for 15% less than those prices?”

    Because the banks are tired of the “short sale discount” and are making short sales easier. When a short sale takes two weeks to get approved, then buyers will be as interested in it as in a “normal” sale, and will pay similar prices.

    Think that won’t happen? My short sale offer got written approvals from two banks within two weeks. The banks are getting their act together; it’s only a matter of time before everyone realizes that.

  21. If a short sale was handled so efficiently it was exactly like a normal sale to the buyer, I think it would command a price similar to a bank owned property, given it’s still distressed but no harder to buy than any other place.

    That is, unless the buyer was somehow unaware that it was a short sale.

    Also, for it to be as easy as a “normal” sale, there would have to be a 100% guarantee that the bank would agree to the price arrived at by the buyer and seller, just like in a normal sale.

  22. Alan,

    That’s a short sale. In 2005 it was “newly remodeled” and today it’s a short sale that “needs tlc”.
    Sorry I had to edit your comment removing the link and specific reference to the address. Otherwise I’d be subject to the fines that Redfin got for Sweet Digs and why I use “Short Sale #1” vs a link to the property referencing the address. If the blog (or post) does not belong to a member of the mls, they are not subject to mls fines. The fine is $5,000.

    I’ll go check Galen’s. The CA properties are OK, as I am not a member of their mls nor do I have an active CA license.

  23. Not bad Galen. That is the first time I’ve clicked on Estately.

    I think I get a little more information out of Redfin, but Estately is miles better than the searches at most traditional brokerages. Is the days on market cumulative?

    Alan, could it have to do with the fixer_upper label? What’s wrong with it, other than not having been tidied up in a while?

    Does a cheap listing price on a short sale mean the agent has reason to believe the bank will take the lower than normal price, or just that they think more people will look at the listing that way?

  24. Galen,

    You should know better 🙂 That’s a bank owned. Looks like it already went through Trustee Sale. We’re not allowed to highlight other people’s current listings in that manner and talk about them. It’s possible that you would get the fine and not me, but I’m not taking any chances. I think Redfin’s fines stacked up to $75,000 for Sweet Digs.

  25. Going way back to comment 9, I meant 10% off FMV not list price. I was in a hurry this morning.

    You could probably get 10% off FMV in a hot market too, but that would require acting within 4 hours of a property coming on the market. 😀

  26. If anyone sees one they think is priced at 2005 levels and not a bank owned or short sale, you can shoot me the listing number and I’ll check if it’s bank owned or short sale. So far both of the ones mentioned are. The lowest I’ve seen for property that is not a short sale or bank owned property is 2006 prices.

    I have a condo in Issaquah that is listed at 9% under the early 2007 purchase price that is not a short sale or bank owned. Here Galen, here’s an Estately link back for the one I took. I can show this one because it is my listing:


  27. Here’s the house in LA I lived in after Beckenham Dr in Granite Bay. Also not back anywhere near 2002 levels. I paid $585,000 for it in 2000 and sold it for $685,000 in 2001. I don’t think it’s worth the $1.4 showing in Zillow. The guy I sold it to sold it for $1.35M and it went down to $1.1 or so. Looks like the prices are about the same place ours are.


  28. There will be a lot more bottom calling over the next few years.

    We have fear now and panic is not far away; to be followed by despondency. A final, flatline capitulation where home “ownership” transcends from “a great investment” to “a place to live” to “the dumbest thing anyone would ever want to do.”

    Yes, this is a drag – and I’m truly sorry.

    My original bet a few years ago was 1996-1997 pricing, but its looking more and more like 1991. The historical mean for house prices is about 2X median income, so isn’t that around 100K?

  29. I think the bottom is going to be 2002 prices, probably hitting around 2010. To correct back to “pre-bubble” prices we need to return to 2003/2004 prices. Then if you factor in recessionary deflation on prices which would occur bubble or not, you get back to 2001/2002 pricing. I think too many people are focused on removing the ridiculous bubble prices, and are not factoring in “terrible recession” discounts as well.

  30. Ardell,

    What might convince you prices could come down even below 2005 points? Are there any particular indicators you would suggest we look for that would point to a substantially greater decline?

  31. I’ll strike some Jan. and July points going back as far as I can in a graph tormorrow. I think I can only go back to July of 2000, keeping the data source the same. Let me look at those numbers before responding further.

  32. “What might convince you prices could come down even below 2005 points? Are there any particular indicators you would suggest we look for that would point to a substantially greater decline?”

    I don’t know about Ardell, but here’s my answer:

    The Seattle Case-Shiller HPI is currently about 170. If you assume 5% appreciation annually from the year 2000, the HPI should currently be around 150. So prices will drop about 10-15% from now (from an HPI of 170 to 150.) That means going back to 2004-2005 prices.

    Currently, you can buy some short sales and REOs at 2004-2005 prices. Hence my decision to buy a short sale.

    As for “norrmal” sellers, a wave of short sales and REOs will need to sell at 2004-2005 prices before they’re “educated” about appropriate pricing.

    Out of curiosity, I stopped by some open houses in the last couple of weeks. The sellers seemed utterly clueless, as did their realtors. The houses were priced at 2006 levels or higher, and poorly staged (if at all.) After a few months on market without any offers, while short sales and REOs sell all around them, these people might come to their senses.

    Given the way these properties are being sold, it doesn’t surprise me that people have such a poor image of realtors. (Ardell and my realtor excepted, of course 🙂 My realtor is very professional and dedicated; without him, my short sale purchase would have had little chance of succeeding.)

  33. Sampai,

    Are there any indicators you would look for to give an early warning that Seatte area prices might fall significantly below 2005 levels (e.g. increasing numbers of foreclosures, increases in inventory, etc)? Or will the only way to know prices will fall below 2005 levels is when (and if) they actually do?

  34. If “normal” houses (not short sales or REOs) were to be priced at 2005 levels from the day they are listed, and still take months to sell, then I would definitely have to rethink where the bottom is.

    Markets don’t move in straight lines. They sometimes overshoot, and it’s possible that they might overshoot to the downside.

  35. Put me down for 50% off peak case shiller value wherever that might be. I base that on my own situation. We are a family of four with dual incomes who rents an sfh for half the monthly cost of what a 20% down 30y fixed would cost us. We could “afford” to buy it if we live paycheck to paycheck without savings or “luxuaries” but our ambition for ourselves and our view on a balanced life stretches far beyond being homeowners. Today we have a good balance and financial security and would buy if we could maintain it for the longterm. I.e 50% off. When the “great investment” dogma is crushed I think we will be a pretty median home buyer in the area. There are dual incomes with no kids who will buy higher and there are single incomes with more kids who will buy lower. There are richer and poorer and so on.

  36. 2000 is $250,000. The year pretty much ended where it started, with very little variance in pricing month to month. $127 to $131 MPPSF. $131 being the Spring bounce and both ends at $127- $129. So let’s call 2000 prices $250,000 for the median and $129 for the MPPSF. King County Single Family only.

    2001 stayed virtually the same for the first few months and the high was in the midpoint as well with Spring Bounce. $252,000/$265,000/$261,000. Median home square footage is consistent with 2000 at 1,900 to 1,980. Stretching a bit to call it a 5% increase YOY. Let’s call it $262,000 and $132 MMPSF.

    I’ll be posting these in a graph when I’m finished. Just showing “the work” as the nuns used to require in Catholic School…and not just the result.

    2002 had more movement at $131 in Jan, $131 at 1st Quarter, $140 at Spring Bounce and ended the year at $138. Square footage throught the year at 1,900 to 2,000. Climbing a tad. Let’s use the average for the year as 2002 prices. $273,000 and $136 mppsf.

    So far we have
    2000- $129
    2001 – 132
    2002 – 136

    When you look at those as a % down from peak pricing, the variation is nominal. We’ll do that at the end. Not a good enough risk/reward ration to hand in for 2000 prices vs. 2002 prices so far.

    2003 Spring Bounce is still higher than year end. The year started at $140, mid year was $148 and the year ended at $144. So we’ll again do median price and MPPSF for the year as an average for the year. 2003 = $292,500 and $144.

    I’m still working the numbers, but I see people talking, so I’ll give you what I have so far. To be continued in next comment.

    My position is about risk/reward ratios. What do you gain by waiting for 2000 prices vs. what you might lose. I can’t do that ratio until I finish the stats. If waiting for 2000 vs 2001 pricing brings you from 35% under peak to 34% under peak (just as example – the real numbrs will be at the end) then the downside potential doesn’t warrant the upside risk. I’m stretching back here to my days at Wharton in the early 80s, but that’s how I remember it. You have to calculate the risk/reward ratio to choose “your” bottom.

  37. “Of the houses that sold in King County since 10/1/08, just over 1/3rd of them obtained an offer within 30 days of being listed.”

    It would be interesting to see how these sold houses were priced:
    1. Relative to those that didn’t sell
    2. Relative to 2005 and 2004 prices

  38. Kary,

    I did that research yesterday and studied homes that sold within 35 days. A high % were people who priced low. In the lower prices, 75% of sales were short sales, bank owned property and estate sales. Relocation homes were in the mix as well. I did see a handful of lots of equity, not in distress sellers, who were pricing at late 2005 levels out the gate and sold quickly as a result. I was impressed.

  39. Thanks tj…different topic, but completely relevant. I’ll give that some thought.

    In the meantime, I’m concerned about higher prices being called “appreciation” if that higher price is about new product vs. appreciation of same product.

    In 2000 only 12% of all home sales were homes built within the two years prior, that became 15% in 2001, 15% in 2002, 17% in 2003 and 19% in 2004.

    If median price goes up from $650,000 to $850,000 because 30% of the homes purchased are now brand new homes that are 3 times the size priced at $1.4M (thinking Kirkland East and West of Market), that’s not appreciation.

    Throwing this out there while I’m working the stats in case someone has any thoughts on that. When volume was 31,000 homes sold (2004) and 19% were built within 2 years vs. volume sold being 16,000 with 25% built within 2 years (hypothetical), the increase in price sold is not “appreciation”.

    When only a fraction of homes for sale are sold, then median price is about what people are choosing to buy, and not median price of homes.

  40. Back to comment 47. 2003 had only a $4 MPPS variance from start to finish, with an additional $4 appearing only at Spring Bounce.

    2004 was a year of true appreciation, with the year ending $17 more than where it started, and “spring bounce” less than December Pricing.

    So if you pick “back to 2004 levels” you have to choose between Apr. 2004, July of 2004 or Dec. of 2004 see below.

    So here’s where we are so far:

    2000 – $129 – $250,000
    2001 – $132 – $262,000
    2002 – $136 – $273,000
    2003 – $144 – $299,250

    2004 – $155 – $315,000 April
    2004 – $164 – $328,800 July
    2004 – $166 – $340,000 Dec.
    2005 – $166 – $329,450 Jan

    oops Jan 05 is lower than Dec. 04 That explains why I say Jan 05 is bottom and people are asking me to go into 04 and I won’t…end of 04 was higher than Jan 05. My recollection is it had to do with interest rates, and 2005 didn’t kick into gear until Mar-May when rates decreased.

    In a previous post I compromised to mid 04 or Jan 05, but as you can see, that is the same. So if it makes you feel better to say bottom is July 04 vs. Jan 05, just know that it is semantics, as the prices were the same. The “kick” in 04 was not spring bounce, it was year end sales.

    2005 – $166 – $329,450 Jan
    2005 – $170 – $337,000 1st Quarter
    2005 – $185 – $370,000 2nd Quarter
    2005 – $192 – $385,000 3rd Quarter
    2005 – $196 – $392,700 Dec (higher than 4Q)

    2006 – $199 – $398,500 Jan
    2006 – $206 – $413,000 March
    2006 – $213 – $427,700 May
    2006 – $216 – $435,000 4th Quarter

    2007 – $222 – $445,000 1st Quarter
    2007 – $228 – $462,500 May
    2007 – $232 – $475,000 June
    2007 – $233 – $485,000 July – PEAK PRICES
    2007 – $231 – $467,000 August
    2007 – $225 – $450,000 September
    2007 – $221 – $439,990 4th Quarter
    2007 – $220 – $436,500 December

    2008 – $214 – $431,375 Jan
    2008 – $221 – $435,960 Mar
    2008 – $219 – $442,500 May
    2008 – $218 – $439,975 July
    2008 – $208 – $412,000 September
    2008 – $196 – $392,250 October
    2008 – $196 – $416,000 Nov. to date.

    Current Pendings are in the $380,000 to $390,000 range, I think mid 2009 will be in the $415,000 to $430,000 range and there will be a Spring Bounce with lower prices through year end 2008, slightly higher early 2009, bounce in spring and tipping back down year end 2009.

    OK…so that was a lot of work to get to % below peak…that will be in next comment.

  41. Peak is $233 so we are currently at 17.5% under peak at $192 which is the same as year end 2005 pricing.

    Jan 2005 of $166 would be 28.75% under peak and the same as 2004 year end pricing and mid 2004 pricing.

    Back to Jan 2004 prices would be 33.47% below peak.
    2003 prices would be 38.19 %below peak
    2002 prices would be 41.6% below peak
    2001 prices would be 43.3% below peak
    2000 prices would be 44.5% below peak

  42. 2009 is going to be like 2008. Jan 09 will be higher than Dec 08 and 1st Quarter 09 will be higher than last quarter 08. Spring Bounce will take us back into the $400,000 plus range and last quarter will taper down. Look at 2008 to see what 2009 has in store for us. March through July will be up.

  43. Ardell, with your bottom-calling at Jan 2005 ($166), do you realize that you’re being even more bearish than The Tim’s Calculator? 🙂 (http://seattlebubble.com/blog/2008/08/05/pricing-calculator-for-todays-market/)

    If you assume – as Tim does – 2000 prices ($129) as the starting point, and a 5% annual appreciation rate, then a fair price for today would be $129 * 1.05 ^ 8 = $190. That’s a mid-2005 price.

    Even if you assume 4% annual appreciation, you end up at $176, which is an early 2005 price.

    In fact, a bottom of $166 only makes sense if you assume that Seattle area real estate really appreciated at just 3% annually for the last 8 years.

    Mid-2005 is the likely bottom. The market may overshoot the decline down to 2004 prices, but mid-2005 prices would be fair to ask and offer today.

  44. Sampai,

    Are we talking about “bottom”, or “fair to ask and offer today”? They are not one in the same. I think bottom will come more gradually from this point forward, and not by means of straight decline. I think the real estate market will have dips and rises from here and each spring bounce will be followed by a season of bottom feeders, as it should be.

    Thinking the market can only go down is as bad as thinking the market can only go up. As to fair, who said life was fair? If the housing market were “fair”, Seattle would have enjoyed more of the upswing the rest of the Country saw from 1998 trough 2002…it did not.

  45. Savvy buyers and sellers should skip the drama and disappointment and just deal in bottom prices today.

    Otherwise, sellers will suffer stress and disappointment due to over-pricing their homes. Buyers will overpay for homes and regret their decision later.

    That’s why I think that offering and asking mid-2005 prices today is “fair” to everyone involved. “Fair” means being able to do a deal without having to regret it a couple of years from now.

  46. sampai –

    the problem is that 2005 prices reflect 2005 economy and 2005 supply levels. there are about a trillion more condos and homes in this area now thanks to builders vomiting them into every corner. the economy is also entering a bad recession, which will discount prices even further. once those factors are taken into account I think its reasonable to see that reverting to just pre-bubble prices is still too high.

  47. You are going to see a lot of sales in 2009 at 2006 prices. 2005 prices are for short sales and bank owned properties, estate sales and relo sales, cosmetic fixers, busy road, freeway noise. All houses will not sell at discount. More are now in the 4th quarter, but that won’t hold into high season of 2009 for great looking homes in prime areas.

  48. CB,

    I have a couple of daughters nearing home buying time. One has a 4 year old and the other is due in January. The risk is about home and stability for them and their children. If they can get an early 2005 or even mid 2005 price today, they’d count themselves lucky, and be glad they didn’t buy in July of 2007. Much like sampai. At some point you have to glad to have a home for less.

    What’s the risk of waiting too long? Hmmm, when I was younger and had 3 small children, if my husband was waiting for bottom when we could afford a house and get a good deal too…the risk would be losing his family who were losing their patience 🙂

    Don’t laugh! I’ve seen many a wife lose patience with a husband’s fear of commitment.

  49. Sampai, as I understand it you just purchased a home at a short sale. My adivce would be to enjoy it and don’t fret over if it was a good deal since you most likely will be dissapointed with the outcome. The “risk” that this time next year the short sales will sell at a significant discount to what you paid is huge. Just take a close look at where the economy stands and where it will likely go. So if you are happy with your purchase and can easily afford it I would recommend that you close your eyes to the developments or follow it and just shrug your shoulders.

  50. Sorry Alan, as I said before, you can’t put links to houses like that. Well, you can, but I can’t, so I had to delete it. It’s interesting, I agree. But not worth the $5,000 fine.

  51. Ardell wrote: “I did that research yesterday and studied homes that sold within 35 days. A high % were people who priced low. In the lower prices, 75% of sales were short sales, bank owned property and estate sales. Relocation homes were in the mix as well. I did see a handful of lots of equity, not in distress sellers, who were pricing at late 2005 levels out the gate and sold quickly as a result. I was impressed.”

    Ardell, I think you’re grasping at straws there. To do that kind of analysis you’d have to actually look at the sales that obtained offers within 30 days. And I do mean look–physically inspect the property. Without doing that you can’t say whether they priced low or not. Now are houses priced at lower price ranges selling? Yes–that’s what’s causing the median to drop.

    Also, I’ve not seen a lot of short sales or relocation properties selling quickly, but that’s really more the inverse. I’ve noticed a lot that are not.

  52. b wrote: “the problem is that 2005 prices reflect 2005 economy and 2005 supply levels. there are about a trillion more condos and homes in this area now thanks to builders vomiting them into every corner. the economy is also entering a bad recession, which will discount prices even further. once those factors are taken into account I think its reasonable to see that reverting to just pre-bubble prices is still too high.”

    Condos are way up in units, but a good part of that is due to conversions. It wouldn’t surprise me that if over the past 4-5 years more units were added due to conversions than building.

    I had expected to see the condo market drop more than the SFR market, but that hasn’t really been happening. But as some point something has to happen because in many areas condos are not that much cheaper than houses.

  53. “Ardell, I think you’re grasping at straws there. To do that kind of analysis you’d have to actually look at the sales that obtained offers within 30 days. And I do mean look–physically inspect the property.”

    Not sure what you mean by that, Kary. I don’t have to look inside a property to know if it is a short sale, bank owned, estate sale or relo property. I don’t have to look inside a house to see that someone is selling it for what they bought it for in 2005.

  54. You have to look at a property to know whether it’s a good deal. Unless perhaps you think Zillow can accurately value properties. 😉

    And how many of the 33% that sold within 30 days actually sold in 2005? And again, even if they did, what kind of condition were they in compared to when they sold in 2005? You need to know that too, unless perhaps you think Case-Shiller is accurate. 😉

    You pointed out some problems with median prices several posts above. I’d agree there are problems with those stats too. But getting back to my original point (that 33% are obtaining accepted offers within 30 days), there can be many reasons for that. I really doubt short sales is a big part of that, but whatever. In proper condition at the proper price, there is a good likelihood that a property will obtain an acceptable offer within 30 days. There’s an even greater likelihood that an offer that should be accepted will be received.

    Finally, it should be noted that not everyone that places their property on the market prices it to sell within 30 days.

  55. Kary, do you agree that having two kids, dual income and a wish to provide good daycare, secure retirement, college funds and yearly family vacations is a pretty common situation for home buyers? I think it is. I also think that buyers in the past have taken risks in terms of their savings in the line of thinking that my home will do a lot of the savings for retirement and college so I can reduce my other savings and still be able to afford those things with helocs if needed. Now things have changed, homes aren’t appreciating any more and the terms for helocs etc have tightened. To put your faith in home appreciation to pay for your kids college and your retirement is no longer a risky gamble it’s plain stupid. So, my thinking is that this will make people want to have a much larger buffer in monthly payment than before to be able to make the required savings. I know that there are many variatons but when you make predicitions it’s good to look for a norm since that is what set the norm in statistics which is what is reported.

  56. And to add to it that we choose our rent level based on having that balance not on getting the biggest fanciest home we could afford. The same thinking should logically apply when homes are purchased but it obviously haven’t been the case since if it had we would not have a financial crisis and recession on our hands. I think it will be the norm the next coupe of years. To dismiss that thesis with the argument that people prefer different vintage of homes is pretty weak. It’s like if I were making the prediction back in 2000 that I think cell phones will replace fixed lines as the primary mode of telecommunication since I made that switch and you would argue that it’s not a viable predictions because you like pink phones and still some buy blue phones.

  57. “…and yearly family vacations…not on getting the biggest, fanciest home we could afford…”

    These two phrases caught my eye, as they are pretty much the basis for why my 20 year marriage went off track in the first 6 months 🙂
    Apparently he had “The American Dream” and I had “The Italian American Dream”.

    He wanted to move into the biggest and best house in the best area ASAP and continue to move UP in income and home. I still remember sitting on the beach with him after buying our first home and his saying “when we buy our single home…”. As you can see from my profile, he had no problem with moving all over the Country to move up and get more income and house. The whole concept was foreign to me.

    In my experience the wealthier people I knew stayed in the same house and bought a 2nd vacation home within driving distance. They kept the adequate 3 bedroom house in Philly, and bought a 2nd home at the Jersey shore. The wife quit working, except maybe part time, when she had children. The wife and children spent the entire summer at the beach house, and the husband drove down on weekends. Kept the kids off the Philly streets for the entire summer.

    Apparently my anglo, blonde haired, blue eyed new bridegroom had no clue about the “Italian American” dream 🙂 I often think about how different my life would have been if I had won the battle and followed my own dreams.

  58. TJ, I’d say that people with two or more kids are probably a smaller part of the market than what you’d guess.

    And as to saving for college, the alternative most people would put their money in has gone down much more than real estate. I recently did a blog piece over in P-I land pointing out the advantages of no-interest bank account I have because I’ve procrastinated in closing it. Cans buried in the back yards and/or money stuffed in mattresses were also mentioned as investments earning a greater than average return right now. 😉 Anyway, we’re about 20% off a short lived peak for real estate, 40% off a short lived peak for stocks, and commodities such as oil and gold are down as well. And if all this government bailout stuff moves to more and more risky programs, and creates inflation, you’re going to see those who have invested in real estate do much better than others.

    Finally, do you really think that cell phones have replaced land lines as the primary mode of communications? I’d be a bit surprised, primarily because of the amount of business communications, not to mention those with DSL, alarm systems, poor coverage at home, etc. So again, I wouldn’t necessarily use your personal experience as a guide for what others are doing.

  59. “…do you agree that having two kids, dual income and…”

    I absolutely do not agree that it is every Mother’s dream to have a dual income household.” One of the hardest parts of being an agent is when the wife is crying and the husband is saying SIGN! Or when the wife is trying to focus on less expensive housing, while the husband is passive aggressively pushing toward homes that would require a “dual income” to lock in the likelihood that the wife will have to continue working.

    One thing I have learned is that as soon as one or the other spouse is saying “we agree on everything”, one of them is trying to control the situation to their advantage. It’s very hard at times to represent “your client” when your client = 2 with equal say, and who are equally deserving of my listening to their desires and helping to bring those desires to fruition. Often the disagreement is unspoken…it’s a tear in the eye, a face turning red, a reluctance to sign because of X when y is the real objection.

  60. Kary said “TJ, I’d say that people with two or more kids are probably a smaller part of the market than what you’d guess.”

    As I recently said to the affordable housing guys…that may be true, but finding out WHY that is true is more important than accepting that as fact. Maybe it’s because home prices are too high for the average family with two or more kids.

  61. “Finally, do you really think that cell phones have replaced land lines as the primary mode of communications?”

    YES…in fact I was going to write a post about whether or not builders should continue to put landline hookups in every bedroom and even most BATHROOMS. I think that is an outdated “luxury option”.

    Multiple cell phone charger ports would be more in line with today’s “luxury option”.

  62. Maybe we are building too many 2 bedroom condos and expensive houses and not enough 3 and 4 bedroom affordable options? I think that is true for many areas.

    Even the three bedroom townhouses in Seattle are not conduce to families with even two children, given the 3rd bedroom is often two flights down and next to the garage.

  63. On the cell phone thing, the problem is there is no standard cell phone charger port. And if there was, it would probably be a different voltage/connection in 10 years.

    But I do think the cordless (not cellular) phone has made the number of connections within a house less important.

    BTW, I was never really comfortable with the bathroom phone. 😉

  64. Quadrant has a new option in Redmond that is priced under $250,000 along the lines of what I was asking for in my Affordable Housing post. I’ve been meaning to go and check them out. Will do se before the end of Wednesday. By Thursday I will be focusing on family arriving Friday for Thanksgiving.

  65. RE #62. Thanks for answering Ardell. It sounds like the risk of waiting is mostly not having the benefits of owning for a while longer. I will counter that you still get most, though not all, of those benefits renting a nice place, plus have a bit of extra spending money. You also avoid the risk of depreciation, and of being affected by the down economy, since your odds of keeping employed are better if you can take a job anywhere in the world.

  66. I also don’t believe in the concept of the need of “affordable housing” for typical households. I believe in the need of housing being affordable. There’s a difference.

  67. Cautious Buyer,

    The barometer is usually this…what would your reaction be if you received a 20 day notice to vacate?

    I remember my sister being in a panic once that the owner of the place she’d been renting for 7 years at that time (a few years ago) was thinking of selling. Even though she is single and lives alone, the prospect of having to move in her busiest travel season for her business knocked her for a loop. She was in panic mode and was having difficulty focusing on her work for a couple of days. There is no way in hell she could move that quickly and keep her at home business functioning. The owner said “not to worry; you’ll have 20 day notice”, as if that were sufficient time! She was sure to require a much longer notice time in her new lease when the owner decided not to sell.

    I don’t know if you are married, if you have children, how old those children are…or any of the particulars. So you have to decided if “oh by the way, you have 20 days to vacate” would create a reasonable or unreasonable situation for you and yours. Once you answer that question, you’ll at least know what terms you want in your lease beyond the normal boilerplate or WA Law options.

    Say you have 3 dogs…how easy is it to find a new place in 20 days that allows 3 dogs?

    Everyone’s situation is different.

  68. To anyone who is “waiting”, be that a buyer or seller, I generally say be prepared to wait 3-5 years. If you can only wait for 1 year or less, then setting the best strategy now is the best method. I think homes cost less today, than they will after the 1st of January or in April through June.

    Even the ones on market today may accept a lower offer before year end, than they will once neighbors come on market in Spring at higher prices.

  69. tj,

    “affordable” has different meanings in different areas. Do you use “household income” for that City as the guideline, if everyone with 2 or more children in a lower income is forced to leave that City when they grow out of their 2 bedroom condo?

    Some areas can come down 50% and still not offer “affordable” housing to you. Kent median house price is never going to equal Green Lake median house price or Kirkland near downtown median house price. There is no one rule of thumb that equals “affordable” to all people.

    Personally I think you live in the best neighborhood you can, and not the best house. Better to be in a three bedroom newer townhome in an area that supports a fabulous lifestyle for you and yours, than a beat up old house with a yard out in the middle of nowhere with bad schools. But that’s my opinion. I remember my stepson getting into trouble at age 15 and then doing well when his Mom traded down in housing but up as to neighborhood.

    First you pick where…then you pick what. I’m sure there are a lot of people who don’t think the same way I do.

  70. There’s demographics for each area. If the typical family that fits the demographics can’t buy a home without putting their financial balance at risk I think that’s an unaffordable situation that will not hold. There are many such areas today, many.

  71. I was running some numbers the other day. Seems to me that a two income household with each earning $15 an hour equaled $62,500 a year and a need to buy at $250,000 or less via FHA. Does that sound right?

    $15 X 40 X 2 X 52 divided by 12 times 32% (I forget the actual current FHA front end number – but that’s about it). Payment needs to be $1,664 less taxes and insurance at 6.25% equals a loan amount of $238,000 plus 3.5% or so. Just about $250,000. A tad less depending on other debt and bank end ratio.

    So starting in a good area in a 2-3 bedroom condo or townhouse and staying until the market appreciates, is still the better/best strategy.

  72. CB,

    If you can’t buy something now that you can see yourself staying in for 10 years, then buy at the lowest possible price you can live in for 10 years and not your max affordability. The risk of renting for 10 years is arguable, but I think it is appreciation and tax right offs over 10 years, plus the ability to fix your payment for 10 years vs. being subject to rent increases for those same 10 years.

  73. Ardell, married, no kids. I’ve never gotten a 20 day notice to vacate, but if I did, it would certainly ruin a weekend or 2. I’m more concerned about getting a notice that I can move to the employer’s other location in 2 months, or find another job. Or worse, that they would lay off a couple thousand people in the region with similar qualifications to mine, and I could compete with those people for what regional jobs are available in this economy, or relocate. They have a local history of doing that during down times. If that happened and I was underwater on a mortgage, it would be a real disaster, far above that of needing to find another rental.

  74. I agree. This is often a concern of people who work for a local employer who has a location up north and a location down south 🙂 The problem is positioning in between is not as affordable nor often the best choice regarding commute expenses.

    If you are insecure about your job and location over the next 3 years, it’s not likely “the right time to buy” unless you could find a place at a price at which it would cash flow or at least break even if you had to rent it out.

  75. Sign yearly rental agreements and be mentally prepared to move at each renewal. If you have to move you can take one or two months savings from the diff in monthly costs from owning to have professional movers packing and unpacking. It’s not fun but it sure beats being upside down on your mortgage or living paycheck to paycheck.

  76. I’ve been giving Sniglet’s question a lot of thought:

    “What might convince you prices could come down even below 2005 points? Are there any particular indicators you would suggest we look for that would point to a substantially greater decline?”

    1) The Dow going under 7,000

    2) Mortgage rates going over 7%

    3) Microsoft laying off 10% or more employees locally

    4) % of short sales and foreclosures and other vacant stress sales continually being 50% or more of all closed sales.

    I was just studying stats for San Diego, and while their prices are down substantially at -30% YOY, it also says that as many as HALF of those sales are Bank Owned properties. I think any time over the next 24 months where short sales and bank owned properties are a large % of the mix of sold property, the relationship of price to years past will take huge dips. This will change month to month and from area to area, with fewer in Spring Summer and more at the beginning and end of next year.

    Not that Spring and Summer will have fewer short sales and bank owned properties, just that there will be a higher number of sales that are not, affecting the mix overall.

    I think there is some value in tracking prices of “distressed” sales vs. non-distressed sales. Fair market value is the price at which neither party is exceedingly happy, and right now that equals mid 2006 prices. I’ll be checking this by area to see which areas are being hit hardest.

    On the one hand I do King County Stats, as overall people like to read that. But when working, I only look at what I call “my service area”. I’ll be studying each segment and posting stats area by area over the next several days.

  77. tj, good points.

    In comment 72 you kind of touched on an idea that many people were counting on being able to use a house as kind of lucrative savings plan they could draw on via HELOC. That expectation was probably priced into a house. Now many people are seeing a house purchase as a risk, rather than a guaranteed money maker, and the risk probably has to be priced in. That shift in attitudes alone would require a price correction.

  78. Ardell, I saw that you missed where I put the “wish” in your comment #76. What I wrote was “do you agree that having two kids, dual income and a wish to”. I did not say that it’s the norm to wish for dual income. I fully agree that many wifes prefer to be home executives and I make no judgement on one or the other. It’s an unfortunate part of modern urban society that almost demands dual income to be able to support a family. I think it started in Euope and is now getting a strong footing in the US. What I’ve seen it’s very hard to reverse and it quickly turns from initially being a preference to a neccessity. Escalating housing costs plays a major role in removing the option for mothers to be full time homemakers and dual incomes plays a major role in escalating housing costs. It’s a viscous circle that stems from housing being priced from demand and not from production cost.

  79. tj,

    I took the items after the word “wish” as wishes. Houses priced via demand is not something that sellers control. Buyers control that and clearly buyers created the bubble, not sellers, for the most part.

    I’m remembering the previous bubble back in the 80s. A friend of mine and his partner were selling a new construction SFH complex of say 40 houses in NJ. There was a line of 100+ people on the first day! (much like what happened here in Kirkland in 2005, where people were getting numbers for their position in line weeks in advance of opening day.)

    My friend and his partner didn’t quite know what to do with more buyers than product. They hadn’t opened the door yet. One of them went out and announced that the prices would be increased by 10%. No one budged from the line. They kept announcing the price at higher levels until the line was within reason at double the product.

    They really were not happy with the outcome at the time, but it wasn’t the builder/developers who popped the prices by end of day dramatically. It was the buyers in the line.

  80. tj,

    I lived through the change to primarily dual income families, with both as full time wage earners. My observation is that it had much to do with the amount of money women made.

    When male/female salaries were disproportionate, giving up 20% of the household income balanced against the cost of child care, etc… made sense. When the wife’s income became 50% or more of household income, giving it up was much harder, and the cost of childcare warranted.

    When men made 80% of the household income, you never heard a man say “how about you work and I stay home with the kids”.

  81. RE 100
    Some of those buyers are now sellers. I hope they didn’t pay those prices with the expectation that they could sell for more or refinance out now. If they did they are getting punished.

  82. Well, you wrote this: “I absolutely do not agree that it is every Mother’s dream to have a dual income household”.

    I’m not sure who you disgree with if it isn’t me?

  83. tj,

    I think we have now determined that we do agree that it is not a mother’s dream OR wish in many cases, but clearly not all. I never wanted to be a total “stay at home” Mom, and I meet many women every day who don’t want to give up their career and stay home all day.

    I do think there is a desire for the woman’s income to be expendable, and to live on one salary.

  84. I agree that buyers created the bubble but it was facilitated by the lenders with agents as cheerleaders with ballons and pom-poms. I’m not blaming sellers I just stated the fact that prices are set from demand as most things in a market economy. I’m for a market economy in general but I start to wonder when it comes to natural resources limited in supply as land, oil etc. It’s to late to do anything about it when it comes to housing and I think the blood letting and corporate and personal tragedies that is and will continue to be the fallout from this bubble will provide a more stable and sane development for quite a while when the dust settles.

  85. Are you saying I shouldn’t put balloons on my Open House signs? If you hire me to sell your house, would you insist on no balloons or fanfare of any kind 🙂

  86. tj,

    Seriously. When representing a seller client, balloons and enticements are warranted. When representing a buyer client, assisting in helping them see past the balloons and pom-poms and staging is the order of the day.

    All impulse buying suffers the same consequence. Often the buyer of an impulse item will toss that item after the newness wears off. The consequence is obvious and warranted.

  87. Question for all the “what year will we roll back to” guessers.

    If an area with 50% foreclosures rolls back to 2003 prices and an area with 10% foreclosures rolls back to 2006 prices…how do you account for that in your guesses? Do you state them separately if both areas are in King County? Or do you roll it all into a median?

  88. The balloons and pom-poms were mostly figuratively speaking. I saw very little market warnings from any individual agent, borker or association. The duality of of being able to put on one hat or the other was never visible before the decline, it was all balloons and pom-poms. I never saw any reprentative for the industry contemplating that maybe we are short-sighted and being blinded by the fat paychecks and that there is a big risk for a meltdown of our own industry that will hurt all of us if we don’t try to turn down the heat a couple of notches. Not by less advertising of your specific clients homes but via the NAR, MSM interviews and blogs like this one.

  89. Going back to my first ever blog posts, I see plenty of warnings to people, and clearly no pom-poms. The format is embarassing and the photo links are long broken :), but the message was anything but sugar coated:

    Warning to buyers to help them qualify themselves and to point out the dangers of subprime loans and predatory lender practices on my 5th day of blogging on January 5, 2006. Message “don’t be a victim”


    Warning to flippers January 1, 2006, the first day I blogged.


    Warning to buyers to pay attention to details in a hot market and not to get carried away in a rush to buy, also January 2006:

    “Just make sure the property is appropriately discounted for the noise factor.” Also warning to check noise levels when the roads are WET.


    I didn’t really know what blogging was at the time, and I thought I was just beta testing some blog software for a friend (not realizing others were reading), but I definitely came out of the gate from the getgo trying to arm consumers with warnings. In fact one of those posts ends with “Forewarned is Forearmed”.

    Not saying I had one single message for the last 34 months of blogging, but jumping out of the gate I clearly wasn’t running around saying “hurry up or be priced out”. I was saying “this is like a moving train, put on the brakes, pay attention to what you are doing and apply some sound principals.

    I was blogging over there in my own little room for 10 days before Dustin asked me to write over here. I don’t really know what was going on over here at the time, as I had never heard of Rain City Guide before the invite to write here based on my blog writings like the ones linked in this comment. I’m sure Dustin didn’t expect me to come in with pom-poms and a megaphone.

  90. January 11, 2006:

    “The answer is simple. ALL bubbles burst, or at least deflate, because they contain “air”. The question is not IF the bubble is going to burst, but how and why and when.”

  91. “The duality of of being able to put on one hat or the other was never visible before the decline”

    I beg to differ. Some only saw what they wanted to see.

  92. But I think you realize that you are the exception, right? And that one voice is easily drowned by the quire. I think you can agree that the overbearing message from your industry during the bubble inflation was pretty free from warnings or even slight concerns. It’s nothing I like to dwell on but I think it would be quite an odessity for agents to wipe their hands free from any involvement in blowing the bubble and not to feel some responsibility for the current economic mess this country is in.

  93. tj,

    When I first saw lenders qualifying people at 50% to 60% of their gross income and charging many thousands of dollars as a lender’s fee, I tried to report it. I got the pamphlet on Prediatory Lending (this was 2004) and made some calls to whomever puts that pamphlet out. It’s a long time ago, but as I recall the lender charge was 5% vs. the typical 1% I and was told that up to 8% was OK. That’s not for all fees, that’s just the origination fee.

    At some point you have to say, “I guess I’m wrong. I guess I’m living in the past.” Then I started to try to warn people directly best I could and I never, ever stopped pounding into agents at every possible opportunity that they represented people for a living, and did not sell houses for a living.

    Yes, I felt like John the Baptist crying out in the Wilderness many times. But I did influence a lot of people. But you will be surprised how many consumers do not WANT us to represent them, and only want us to SELL stuff. At least as many consumers feel that way as agents.

  94. For those who’ve been reading my short sale comments: We were all set to close, but in the end my loan was not approved to buy the place because of Fannie and Freddie guidelines re. rental percentages and HOA reserves. So I guess I’m going to keep renting after all.

    I might wait six months and see what opportunities arise.

  95. OMG Sampai! I can’t believe it! How high was the rental ratio? I’ve never seen a sale fail on “HOA Reserves” as a lender criteria. I find that hard to believe. Though if they do not have sufficient reserves, that’s good for you in the long run.

    Did you notice a problem when you reviewed the resale certificate with rental ratios and reserve position? I can’t imagine how a lender would apply a “reserve criteria”, since a building that just had significant improvements could justifiably have a low reserve position.

    I’ve never heard of a “Fannie and Freddie guideline” for reserves. Maybe Rhonda has seen it or maybe it’s something new.

    I feel so badly for you. You negotiated so well. Did your agent confirm that this is not an obstacle that can be hurdled? If the rental ratio is over 50% I’d agree. If reserves are low and the Reserve Study shows many items past their life expectancy, I’d also agree. Otherwise, it’s a bit bizarre.

    Thank you SO MUCH for letting us know. These sale failures based on lender guidelines are very important info for everyone.

  96. I’ve actually been amazed by the poor financial condition of some of the condo properties that are FHA approved. I think the rental percentage is a bright line test, but I too have not heard of one being rejected because of finances. We’ve had buyers back out of units because of their financial condition–maybe those would have been rejected if we’d tried to go through with the deal?

    I agree with Ardell that you’re probably lucky it didn’t go through.

  97. Sampai, I’m so sorry–what a bummer. Sounds like this was a condo–was there a delay in getting the resale cert from the Seller? And/or condo questionaire from the HOA?

    Generally you need a minimum of 51% owner occupied for Fannie/60% for Freddie. However, some lenders may have different (higher) requirements. Lenders also will frown on a single entity owning more than 10% of the total units in the project.

    Ardell is correct on the reserves–a lender is going to want to see that there is enough reserves to cover potential issues (such as a new roof).

    These seems like this is popping up “late in the game”.

  98. This is really bad for small-plexes of 8-14 units that rarely have considerable reserve positions.

    I would SO appreciate it, Sampai if you would email me the mls # (not post it here). I am very interested in researching the specifics.

    Rhonda, might it help if she applied via FHA even though she has 20% down?

    This is why the law should have always required a Reserve Study at least every 3 years. People should be much more concerned about the monthly HOA dues being TOO LOW, than they are. The problem starts with the builder (yes, even if that was 30 years ago) setting the initial monthly too low in the first place, in order to sell the units. The HOA takes over and maintains the status quo until the place gets run down and there is not enough in reserves for replacement costs. Oh jeez…I could go on and on and on about this topic.

    What happens now? It’s a short sale and it can’t be sold except to a cash buyer because of rental ratio and reserve position?

    Owners of condos take note!!! This would not be the first time in the last 5 years that almost no one could sell a unit in a complex due to HOA weaknesses. There will be many more in the future. Given where prices are going, you don’t want the double whammy of weak HOA finances.

    I would be more than happy to volunteer to speak at any HOA meetings in my service area, to discuss these matters. I happen to know a lot more than I should about these things 🙂 Many of the newer complexes have more control over rental ratio than the older CCRs.

    Sampai, Kim and I (my partner who speaks less than I do) feel so very badly for you. If you want to pursue this and are working without an agent, I would be happy to look into it further. If you are seeing this as an omen (I have to admit I’m a pretty firm believe in omens) then let us know that you are OK about this. I can’t help if you have an agent, unless that agent calls me.

    Special Note to all – lower dues is not usually a good selling point!

  99. The Dow closed at a five year low point today. The Dow has been lower than this in the last 52 weeks, but not at close of business on any given day since March 31 (Jacquie’s Birthday) of 2003.

  100. And the DJIA looks good compared to the S&P 500 and NASDAQ.

    I touched on some condo issue about a month ago in P-I land.


    It was more an appearance/maintenance type thing (lots of complexes I previewed were in sad shape), but some of the responses hit on financial concerns.

    Sampai’s situation is bad, but the poor seller, their situation is worse. Sampai can look elsewhere. The seller may be stuck.

    Condos are not less work than owning a home, because condos require that you stay involved, or at least stay alert. I joined my condo board about 25 years ago when it became apparent they didn’t have the political guts to raise dues. I agree with Ardell, low dues are not necessarily a selling point.

  101. sampai, take comfort in that in the current economy the cash you were going to put into this purchase is getting more valuable for each day. I think in the end you will count this day as a lucky break.

  102. The condo financing guidelines are one of the many ways that stricter guidelines result in lower prices, which result in stricter guidelines, which result in lower prices…

    As a renter who’s looking to buy his first place, though, this is all good for me 🙂 Time is on my side. I can buy a short sale now, or wait six months and buy a “normal” sale.

  103. From the November 2007 Guidelines, it appears to be a very subjective review and analysis:

    “This Announcement amends the Selling Guide Part XII, Project Standards. These changes provide lenders with fully delegated processes for reviewing the acceptability of condominiums, cooperatives, and PUDs based on a combination of project and loan-level risk factors. Except as otherwise stated in this Announcement, all provisions of Part XII of the Selling Guide continue to apply to mortgages secured by properties in condominiums, cooperatives, and PUDs. Due to the complex requirements associated with certain types of projects, we expect lenders to have appropriate processes and procedures in place to perform project reviews.”

    This is good news in the long term. It will help responsible owners of condos push stronger oversight guidelines through HOA Boards. But it definitely is something condo owners want to get in front of as quickly as possible before their property values are affected irreparably.

  104. Sampai,

    I see a red flag when rentals are over 1/3 of the units, though as Rhonda said 50% might be acceptable to a lender, over 33% is something the buyer and buyer’s agent should be concerned about.

    Who wants to buy the one that throws the ratio into no financing zone? You may get your loan, but no one else after that, causing prices to decline regardless of market conditions and even further than they would have otherwise.

    Yes, be very grateful you are the one who didn’t get it, rather than the last one TO get it before the financing shut down.

    I chose a video where everyone in the audience is expressing the emotional level we share with you 🙂

  105. Re: 130

    If I have owned a lived in a condo (or house) for say five years and decided to move out and start renting it, am I required to report this? If not, how can anyone know the true occupied/investor ratio?

  106. Sorry I don’t have a link to it, but I believe it is the Washington Condominium Act enacted in 1990 that provided for uniform standards of disclosure via the Resale Certificate.

    The HOA is to keep records of which are owner occupied and which are rented out. There is likely a requirement that you report when it is rented vs. owner occupied, and often they can tell when someone asks for a change of address for notifications, minutes and payment coupon books. Plus neighbors tend to know and report that at meetings.

    All purchases of condos require a Resale Certificate which includes the number of units, the number owner occupied, the number rented out, the amount of money in the reserve account, and many other things.

    The only time I’ve seen a gray area as to owner occupied vs. rental, is if a parent buys it for a child who pays them “rent”. Technically that is a rented unit. But if the parents only took out the loan because their child didn’t qualify for the loan, or they got a better rate, I’d say that is more like an owner occupied than a rental, especially if the person living in it is making the mortgage payment.

    I do think associations should critique situations like the one above, but I’m sure you’re not suggesting that owners lie about it being rented to protect their property values.

  107. My issue wasn’t with the rental percentage (although that is a long term concern.) It was with the HOA dues not providing for adequate reserves.

    In this economic environment, I feel sorry for the condo boards that are trying to get homeowners to see that putting in a rental cap and/or increasing dues is a *good* thing.

  108. sampai,

    Was it your concern, or the lender’s concern? I’ve never seen a lender do that, so we are quite shocked. I’ve even seen places with $0 in reserves get mortgage funding. Most if not all small complexes do not have enough owners to accumulate sufficient reserves for all replacement items, and special assessments are needed for most big projects. You need a lot of units to accumulate enough money for roof and siding replacement. 8 plexes would not usually do that, and yet they have qualified for mortgage funding.

  109. Usually Boards do not need the owners’ approval to increase dues as needed within a certain annual increase cap. Changing the CC&Rs to add new requirements regarding rental activity would normally take a large majority to vote it in, and also can be quite costly if they revamp the entire CC&Rs at the same time.

    On the one hand I can see the need for having a rental cap, on the other hand I don’t understand how you can say yes to 11 people and then no to the next guy. I have not seen as many Board Meetings and HOA Operations with rental caps, as I have seen those without them. It’s a relatively no thing to have it in the CC&Rs.

    It’s become a huge issue around the Country when the developer sells say half of the units, and then has to rent the rest due to decreased demand. I think there is now a term for it. Instead of a condo conversion it is a condo reversion.

  110. Rental caps are typically a good thing. In additition to keeping the percentage low, they also tend to prevent multiple ownership by one person, which is also not liked by lenders.

  111. Still, it seems to be against the basic principles of home ownership and “the bundle of rights” that comes with. If we keep chasing “what lenders like” where will we be?

    It’s one thing to be hostage to market forces. It’s another for someone to say you can’t rent it out if you take a short term gig in another state.

    It’s gotta suck for that one guy who says “Mother May I” and the answer is no, expecially when many of the neighbors got a yes answer before him.

  112. SeattleJo, Ardells correct that the HOA will report this and tax records may also indicate how many units are non-owner occupied. If you do not inform your HOA of your status, you may be violating your CC&Rs which could have legal concequenses.

  113. Ardell, lender guidelines will continue to get tighter for a while… if someone doesn’t want to do “what lenders like” they can always pay cash or seek out private or seller financing.

    If Sampai’s condo was short on reserves, I’m sure it’s in her best interest that the lender declined the transaction. It sucks that it seems to have happened very late in the game. If she would have purchased the unit w/low reserves and major issues (which is not uncommon) occurred, there would be heavy duty assessments to each unit. Recently, I had a condo owner contact me needing $20k that she didn’t have laying around…due to a condo assessment. She doesn’t have the home equity to pull it off either…it’s quite a bind to be in.

    HOA’s really need to do a better job looking out for their members with regards to rental ratios. When the ratios exceed what is allowed for conforming or FHA financing, then the only alternatives are private, seller or alternative (hard money) financing…if you can’t sell or refinance your property, you condo is worth less than one that has traditional financing available.

  114. We, as a correspondent lender, review reserves on condo’s constantly. I can’t remember NOT having the reserves evaluated by underwriting. And I can safely say that scenario in 134 (zero reserves) would not fly with us or any of our lenders. Have you seen that recently Ardell?

  115. Thanks Ardell & Rhonda.

    Are there any reporting requirements for a SFR? If I decide to rent out my home that I purchased in 2002 and have roughly 50% equity, do any lenders require that you notify them?

  116. SeattleJo most deed of trust state that you intend to reside in the property for atleast one year after you obtain the mortgage.

    Where people run into trouble with a lender is by trying to finance an investment property as owner occupied.

  117. “And I can safely say that scenario in 134 (zero reserves) would not fly with us or any of our lenders. Have you seen that recently Ardell?”

    It was a place in Snohomish one of my clients was going to buy as a place to go for weekend ski trips. Funny thing was the listing agent said they were well run and had plenty of reserves. When I got the Resale Certificate it said $0 in reserves. We cancelled the transaction immediately so I don’t know what my client’s lender might have done, but there had been financed sales just before that, so someone was lending with zero in reserves.

  118. Seattle Jo,

    My first thought was that you didn’t have to notify the lender, but remember that you will have to switch the insurance covers which covers both you and the lender. The policy your received as a condition of the original mortgage was an Owner’s Policy. If you rent it out you need a Landlord’s Policy, and the lender is to be notified at least annually that you are carrying appropriate insurance on the house.

  119. I need to add an update to my story.

    I figured that, if I’d have trouble financing the purchase because of HOA issues, then others would too. So I lowered my price accordingly, which led to another round of negotiations with the lienholders.

    Long story short: We negotiated a much-reduced price (2003 or 2002 prices, rather than 2004 prices.) Barring unforeseen surprises, there will be a closing by Tuesday!

  120. We wish you luck sampai. Of course I’m probably not the only one wondering how a lower price solved the problem of low reserves for the lender 😉 How can you get a mortgage now, but not so a few days ago?

  121. With the lower offer, and the increased down payment, the loan type changed from “conforming jumbo” (the weird thing that resets in Jan) to “conforming” ($417k). Fewer restrictions.

    The best thing here was that the lower offer resulted in a round of negotiating where I increased it until the lienholders were happy. So I ended up paying almost exactly what I needed to in order to buy the place.

    I don’t believe in omens, Ardell; I believe in making my own luck 🙂

  122. sampai! Thank You! In my head I had been picturing a first time condo purchase at $250,000 or so, nowhere near conforming limits.

    There’s a great message in that story. What lenders don’t like at one price or for one person can be different for the next price and person. The underwriter is looking at “the gestalt” when making that final YAY vs. NAY decision. That’s why I quoted the section of the guidelines above that shows the reserve position field is a subjective decision on the underwriter’s part. The ability of the specific buyer to handle a potential special assessment in the future, is part of the decision.

    It really never dawned on me that a first time buyer getting 2002 – 2003 prices would be still buying near the conforming limit. What was the price of those condos at peak pricing

    Thank you for filling in that blank for us.

  123. Kary,

    Many times the owners view “the HOA” as someone other than themselves. Many agents tell buyers “Oh the HOA takes care of that” without figuring out if the Great and Powerful Wizard of HOA has the money to “take care of that”. Often they say that before studying the reserve position in the Resale Certificate.

    I’m a little bleary eyed this morning from being up late getting the kids at the airport and then fingerpainting on the dining room table as soon as I woke up. Good thing Nana has a glass dining room table :)…and now blue fingernails.

  124. “sampai! Thank You! In my head I had been picturing a first time condo purchase at $250,000 or so, nowhere near conforming limits. ”

    I sat out the bubble and bust, and have been renting a crappy apartment for 8 years. So I’ve got sacks of cash in safe, fixed-return investments. My first place isn’t going to be like most people’s first places 😉

  125. Ardell wrote: “The ability of the specific buyer to handle a potential special assessment in the future, is part of the decision.”

    Seemingly though, the thinking should be broader than that. Just the one owner being able to pay a special assessment isn’t the concern. Problems can arise if the condo association cannot function properly. That’s what I was trying to get at in my piece on condos becoming dumps. If that happens, values decline, reducing the security for the lender (and any equity of the owner). And as far as I know, the ones I wrote about weren’t even a worst case scenario type situation. What happens if needed work simply can’t be done because too many of the owners cannot pay?

    Just as a hypothetical: What happens if a high rise condo needs a $1,000,000+ plumbing project because the existing pipes are repeatedly leaking? If the work can’t be done, and each leak cost an average of $10,000 in damages and repairs you could have a nightmare situation.

  126. I agree with you Kary, but when an underwriter says no, not enough reserves and then yes, enough reserves, it’s obviously not about what you and I would impose as parameters. Since the amount of reserves stayed the same, then it was their exposure on this loan and with this particular buyer that was in play.

    Hand underwriting will confuse people for awhile. My sister Nikki (not the sister who lives in Seattle) was an underwriter for many years. I love picking her brain.

  127. My understanding of the conforming jumbo loan is that you plug a bunch of information into software called Condo Project Manager. If it isn’t happy, then you’ll have trouble selling your loan to Fannie Mae.

    For a simple conforming loan, the annoying software goes away.

    Of course, my first act as an owner will be to support the HOA, which is trying to raise the monthly dues. If I ever decide to sell my unit in the future, I don’t want my potential buyer to run into this issue 🙂

  128. I closed! I only believed it when I saw it on the county web site.

    Price? You can throw all the “expectations” about previous sale price, assessed value, and even appraised value out the window. In fact, I suspect my agent may get a few calls from appraisers trying to make sense of the price. If they don’t factor in a giant “short sale discount”, I may have wrecked the comps for a mile in every direction.

    Given the state of the market, I *still* expect to lose 10% over the next year or so. I’m in it for the long term, though; so that’s fine. I’ve got enough cash left to last me a few years.

  129. “I’ve been seeing similar price action”

    How can you say that when sampai hasn’t provided the info to compare?

    Come on sampai…email me the address. Let me see if I can find “a similar price action”. I still think you are using 2009 assessed value. Satisfy my curiosity 🙂 I promise not to reveal the particulars.

    Kary…you do the same. Show me a property that sold significantly less than 2008 assessed value that was NOT a short sale or bank owned property.

  130. Email sent. My reference was to a property that might generate a lot of calls from appraisers.

    BTW, I wouldn’t judge things on assessed value. That would be like comparing it to Zillow. They are not consistent from property to property. In Snohomish County there have been properties over-assessed for about 2 years now. King County is erratic.

  131. On the assessed value issue, in late 2007 I was an expert witness on property assessed in Snohomish County at 286k. The court found it to be worth only 245k as of early 2007. Even the creditor’s expert witness didn’t find it worth 285k, even though he noted that the assessment for the next year was going even higher!

  132. I LOVE using assessed value, as long as you know how to use it properly. Trust Your Assessor is my MOTTO!

    I’ve done posts on it before. I’ll do a string of data in the comment section here to show you how to apply it. There is no single piece of data that is more valuable in valuing property. I’m busy cooking right now, but I’ll try to do it after everyone eats and things settle down.

    I’ve got two stuffed birds in the oven and the soup has to be up by 2. I’ve been cooking for four days, so the work is not as heavy today. I should be able to get to it by…well, before I go to bed.

    But we do have to play our tranditional game of Pictionary…or Cranium, so…by tomorrow at the latest.

  133. You’re kidding, right? Just a couple of months ago you started a piece on how much your assessment had gone up. Was it something useful before it went up, or after? It couldn’t be both. And if it couldn’t be both, it wouldn’t be a useful tool at all.

    Assessors do not go into the property! There is no way an assessed value could be at all useful. That’s why I compared it to Zillow.

    I’m not even sure whether appraisals even mentioned the assessed value of property. That’s how irrelevant it is.

  134. “Come on sampai…email me the address. Let me see if I can find ‘a similar price action’.”

    I’m sure you can find it, Ardell. A clue: Based on the pictures you’ve been posting, my view is very much like yours 🙂

    Once you find the details, I hope you’ll let me continue being appropriately coy. It’s just that I like my anonymity.

  135. Kary,

    You crack me up. Sometimes I wonder if we really are in the same profession. I didn’t “start a piece on how much my assessment went up” I was talking to Robbie who started a piece on how much HIS assessment went up. I was trying to make Robbie feel better by pointing out that mine went up much more than his.

    You’ve never seen one whole neighborhood selling at 1.17 times assessed value and another at 1.24 times assessed value? Before you even think about looking at interior issues, you start with all things being equal the value is X based on assessed value…then you add and subtract based on interior finishes. Every neighborhood will have a different multiplier.

    There are many steps beyond that include supply and demand and seasonal factors, but you never ignore the assessor.

  136. I guess it’s cost, comparative sales, income and some random number times the assessed value are the four methods of appraising property. 😀

    Even within the same street the assessed value numbers are not consistent.

  137. “…and some random number times the assessed value are the four methods of appraising property. ”

    LOL…close enough! It’s a Holiday!

    Happy Thanksgiving, Kary!

  138. Not wanting to go outside and put up Xmas lights this early in the morning, I decided to run some numbers. I picked a radius 1/2 mile around our office, and looked at sales for the last 3 months. I excluded townhouses, short sales, any property built in this century, and any property indicating it was a fixer. I found four 1.5 bath or less samples and four 2.0 bath or more samples. I then looked up the tax assessed value and the approximate “Zestimate” for September, 2008 (a time before any of the properties sold).

    For the 1.5 bath or less properties all sold between 315k and 370k. Here’s the amount the King County assessed value and Zillow were off respectively:

    -4k +27k
    -39k +37k
    -36k +27k
    -10k +27k

    Zillow was closer more often than the assessor, and also consistently high. The assessor, however, was very close when they were closer. But if you wanted to apply a percentage to either to get an adjustment, you’d use Zillow because it was consistently between 5 and 10% high.

    The two bath plus homes went for between 379k and 545k.

    -67k +7k
    +53k +117k
    -89k -10k
    -161k +45k

    Here the numbers are all over the board. Neither the assessor or Zillow is even consistently high or low. Zillow was closer more often, but that hardly matters when you win one because the assessor was off by 161k.

    Anyway, the bottom line is I wouldn’t rely on either source of data for a “starting point” to make adjustments.

  139. I did the same last night and had different results. Used Redmond. Zillow was consistently high.

    As to assessor, you have to start with a relevant question vs. a radius. 3 townhomes sold in the same complex for $450,000. Who overpaid? Who got a good deal?

    1) Assessed for $370,000
    2) Assessed for $350,000
    3) Assessed for $300,000

    If you look hard, you can find why the assessor had such a huge variance between the assessed values. Looking at the assessed value differences sends out the red flag to look hard.

    The one who paid $450,000 for the townhome assessed at $370,000 did better than the other two. The one who paid $450,000 for the one assessed at $300,000 grossly overpaid.

    The simple math would be:

    If assessed at $370,000 = $450,000 then assessed at $350,000 would be $425,000 and assessed at $300,000 would be $366,000.

    $450,000 divided by $370,000 equals 1.22 times assessed value. You start at 1.22 times the assessed value of the subject property to make adjustments, not at the “comp” price of $450,000. If you start at the comp price, you don’t make enough adjustments.

    You have the choice. You can look hard for the differences or you can trust the tax assessor and know he had a basis for the variance. I trust the assessor and then look for the differences…the latter being more out of curiosity than need. For a quick valuation, I trust the assessor.

    Upon further study, the reason for the differences are:

    Both had a two car garage but one was side by side and the other tandem. A 2 car tandem is not worth as much as a 2 car side by side. How much different? Trust the assessor.

    Assessor says 2 car side by side is $370,000 and 2 car tandem is $350,000. If $370,000 sells for $450,000 (1.22 times assessed value) then tandem should sell for 1.22 times $350,000 or $425,000 making the tandem worth $25,000 less than the side by side.

    You can do the same by taking the difference of $20,000 in assessed value and reducing the offer by 1.22 times that difference. I don’t do that because the assessor is using many other factors, and the difference may not all be attributable to the tandem garage. Various plus and minuses equalled $20,000, including:

    Position in complex
    Across from tot lot
    backs to greenbelt
    backs to busy road
    busier street in the complex
    almost no traffic on street in complex
    same square footage but 3rd bedroom is really a den

    Depending on the year built, assessments will vary dramatically. Best to use like kind properties and do not compare assessed values of a townhome built in 1972 with one built in 1995.

    As with comps, using assessed values as a valuation tool requires like kind samplings. If the assessor says it’s worth 5% less…better to assume he is right than to say he’s wrong and pay that 5% more for the property.

  140. Ardell wrote: “As to assessor, you have to start with a relevant question vs. a radius. 3 townhomes sold in the same complex for $450,000. Who overpaid? Who got a good deal?”

    That’s a self-fullfilling analysis because you’re assuming a better deal based on the number you think is accurate.

    That said, my analysis assumes that the sales price was the FMV. That’s sort of the definition of FMV, but as we both know some people get better deals than others. In picking the four in each group I tried to make the properties as similar as possible, but there’s no way you can make the sellers as similar as possible. No system is perfect.

    Personally I don’t like anything that affects my result. Thus, for example, I don’t want to know either the assessed value or the amount the client owes. And when the wife is doing the same task at the same time, I don’t want to know what she’s thinking either.

  141. Kary said: “Personally I don’t like anything that affects my result.”

    Well then, there’s the difference between you and I. I want to know anything and everything. I want to know as much as possible. I want to test my result against any possible available information. I want to “leave no stone unturned”.

    Kary said: “my analysis assumes that the sales price was the FMV.”

    When working for a buyer client, I would want to reduce comps that were inflated by concessions. I would also want to eliminate comps where someone paid the same for a 2 car side by side garage as a 2 car tandem. I clearly would NOT treat sales price as FMV. FMV is not what someone paid. FMV is what someone should have paid.

    End result might be, “this place is worth $425,000”. Seller might want $450,000 because the guy down the street sold for $450,000. Seller might not take $425,000. But if the buyer pays $450,000 or any point between $425,000 and $450,000 as a result of negotiating with that seller, at least the buyer knows how much he is overpaying when he agrees to a price higher than $425,000. Client wants to pay $10,000 more than it is worth…that’s OK, as long as he knows that going in, and remembers it going out.

  142. I’d agree you’d adjust for things that would affect value, like the 2 car garage configuration. But those are conditions of the property. The assessed value is not a condition of the property. As to seller concessions you often just have to guess because you can only pick out the obvious ones.

    This issue is very similar to the issue of whether appraisers should know the contract price prior to doing the appraisal. Arguably it would be better that they didn’t and that the financing still go through if the appraisal is within X% of the sales price.

  143. The assessed value includes all conditions of the property that are pretty much carved in stone. Upgrades get old…two car garages don’t generally morph into one car garages. As a buyer you assume the norm as to seller concessions. When 90% of purchases in that price range included closing costs, then you assume all sales included closing costs when making an offer. You have to lean toward the side of your advantage. Seller assumes none had concessions. Buyer assumes all had concessions. There’s no other way to look at it until concessions become a matter of disclosure. Some mls systems have that feature when a sales is recorded. Ours does not.

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