We're at bottom…

The market is shifting.  More on this when I do Sunday Night Stats, as I have a busy weekend.

But I’m calling it…we’re 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

98 thoughts on “We're at bottom…

  1. The “audacity of hope?” Most certainly! The start of the spring bounce? Absolutely! An impulsive reaction to the promise of stimulus and tax credits? You betcha! But this is not the bottom.

    With 10 year treasury rates up almost 70% over the last month, unemployment continuing to rise, hours worked and average weekly wages continuing to fall, government at all levels facing deficits and forced contractions, this is most certainly not the bottom. This is, however, the last opportunity to get out of housing before everything goes to hell come fall.

  2. Sorry, but I think we have barely even scratched the surface of this downturn. Using my favourite example of Japan, there were plenty of people who bought homes in ’94 after they had fallen 40% from the ’89 peak only to find them drop another 40% in the next decade. Further, there were intervening periods where real-estate (and stock prices) actually increased for a year or so, creating a false sense of hitting a bottom.

    I very much think we are in for a very similar experience in the US.

    You can check out the full explanation for why this might be the case by listening to my in-depth podcast on the case for deflation at http://www.surkan.com.

  3. Scotsman,

    Maybe she means we’re at the bottom for “real estate professionals”. The tax credits aren’t going to do much to help prices (though I’m sure there will be at least somewhat of a spring bounce).

    I know some people are comparing this tax credit to the 1975 one – but there is a fatal flaw there. The 1975 credit was for new home purchases only. This one is for any home purchase – so it really isn’t going to create a significant number of new jobs (well, maybe for some remodelers).

    If the purpose is an attempt to prop up housing prices, I don’t understand how it is a sustainable solution. Isn’t artificial inflation of housing prices part of how we got into this mess?

    The tax credit may spur more people to move, which will help RE professionals, but I don’t think it’s going to greatly help much else.

    Kudos for Ardell for (somewhat) taking a stand and calling the bottom (maybe she does mean in prices). We’ll be able to check in 9-12+ months to see how accurate her prediction is.


  4. Ardell,

    I’m happy to hear your phones are ringing today.

    There are multiple factors that will eventually lead to a bottom. Ringing phones may be one of them but surely there are many others. Declining short sales and foreclosures would be another indicator and all signs I’ve seen point to more short sales and foreclosures in many markets.

    Let us know how the weekend pans out. In specific, I’d like to know how many hopeful buyers (I’m assuming they are buyers calling because we definitely don’t need more sellers) are able to qualify for a mortgage in today’s tight underwriting environment.

  5. Jillayne, it’s not so tough for qualify for FHA financing as long as the borrower meets the debt to income ratios. Credit scores 620 and up have the same rate (credit scores 619 and lower have price adjustments).

    Borrowers today need to be prepared for a “full doc” loan regardless of if they’re using a FHA product or conventional financing.

    Financing is nearly as tough as the media is making it out to be.

    The biggest issues I’ve faced with current transactions are home values and employment.

  6. Hi Ardell,

    I’ve seen an uptick in showing activity and a lot of phone calls from potential clients who are deciding whether to move. My advice to potential sellers has not changed at all. Homes have to be a great value to make it worth sellers’ time and energy to sell. I’m guessing, Ardell, you’re seeing more homes go pending, which means more buyers are getting off the fence. I suspect the good values are the homes that made it to the pending category.

    We have great mortgage rates, the best prices in years, and a proposed $15,000 tax incentive for home buyers. Three great reasons to get off the fence if someone has thought about making a move. But, if people want to stay on the fence, it’s their call.

    Have we reached bottom here in Seattle? Hard to say with the job losses and retail slowdown happening.

    But when the real estate market changes here, it can happen fast. Every time there’s been a significant shift in the real estate market, it happens fast, like in a matter of weeks or just after a new year. In 2001, you couldn’t give a house away after 9/11. When January 2002 came, everyone came out of the woodwork to buy.

  7. To clarify “where” are “we” at bottom, I rarely speak outside of “my service area”. I don’t know or care if Monroe or Sultan or Tacoma are “at bottom”. Clearly every seller is not “at bottom” as to current asking price.

    I have some more numbers to look at for tomorrow’s Sunday Night Stats post, but basically bottom is 20% under peak for non foreclosures and lower for short sales and foreclosures and other distressed seller situations. Redmond short sales are going for close to bottom of a non-distressed sale, at 25% to 30% under peak, and Kirkland high end is going as low as 35% to 40% under peak for a short sale or foreclosure.

    I’m looking at 98115, 98103, 98033 and 98034, 98052, 98004, 98007, 98008 and possibly a few others.

    Bottom is here…for what happens next, you would have to refer to some of my other Sunday Night Stat posts as to the normal cycle of the quarters from here out, meaning last quarter of 2009 should dip below 2nd and 3rd, but not as low as 4th quarter and Jan 2009.

  8. Debra,

    I have to pick a volume number for 2010 to go with the price call. I’m working on that. I picked 16,500 for 2009 and it came in just under 16,000.

  9. Rhonda,

    Keep us posted on the talk about $506,000 moving up toward $700,000 on that loan limit.

    I’ll be doing some workshop posts this week that I will need your input on, if not in the post itself, then in the comments.

  10. Jillayne,

    Short sales and foreclosures do not control a marketplace unless they are the majority of sales. That’s why I won’t call Tacoma and some other areas.

    When you look at distressed property, you have to factor the % of them in a given area to calculate the impact on home values generally for that area.

    If there’s a foreclosure bus running around Redmond…someone let me know.

  11. Steve Balmer, 2-6-2009
    U.S. House of Representatives Democratic Caucus Retreat

    “At Microsoft, we’ve studied these developments. We believe this is a once-in-a-lifetime economic event, but it’s not unique frankly in U.S. history. The current situation looks a lot like several — not one but several previous cycles of long-term private sector debt.
    In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent. Last year, private sector debt as a percentage of the GDP: 300 percent; far more leverage. And you can see it’s been a steady increase basically since almost the end of World War II.
    In my view, what we now have will be a fundamental economic reset. The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate.
    This may not be the thing that people really want to hear, but it’s certainly what we’re planning on, and it’s the truth on which we’re basing sort of our model, if you will, at Microsoft.”

    I don’t think Steve sees this as a bottom, for his zip code or any other. Cheers.

  12. Scotsman,

    I hope it’s understood that I am talking about the housing market, being a real estate agent, and not the housing market in Detroit. This is a real estate blog…let’s talk real estate and not the entire economy.

    This is a SEATTLE AREA REAL ESTATE blog, for the most part. Let’s stay on topic, people.

  13. Ardell, would you say prices plateau at these levels for a while or increase from here? I’m hoping to buy in 98115. Are you recommending that buyers take the plunge now to avoid higher prices soon?

    BTW, I’m not quite sure where I stand, but I love the fact that you made this call. It takes a lot of courage to put yourself out there and you may just be right. Thank you!

  14. Ardell- what Mr. Balmer is talking about is a coming depression. When reading the entire transcript of his speech, it seems he expects it to be as bad, or worse, than the depression of 1930+.

    The company he heads, Microsoft, is in one of the zip codes you target as a real estate professional. If he expects a national depression, and is positioning his company accordingly, it doesn’t seem unreasonable to expect significant additional Microsoft layoffs. I’m not a real estate professional, but won’t that translate to fewer home sales/purchases in the Microsoft area, probably at continually reducing prices? And isn’t that what this post is about?

    Don’t shoot the messenger.

  15. DadTimesTwo,

    You will have to be careful not to mistake “asking price” as bottom, of course. I’ll spend a lot of time on 98115 tomorrow for you when I do Sunday Night Stats.

  16. 25-30% off in Redmond? 30-40% off in Kirkland? I didn’t know it had dropped that far in the eastside. I don’t believe the rest of the region has done the same. Has anyone from other Puget Sound areas seen a drop close to that much?

    Ardell, from comment 10 I am reading that you are calling a bottom in price, correct?

  17. cautious buyer,

    Those are the bottom numbers for short sales, foreclosure sales, etc… For Kirkland it’s for over a million $ distressed properties. For Redmond it’s mostly short sales vs. foreclosure prices. I’ll fine tune it tomorrow in the weekly stats post. There are some screaming deals out there getting multiple offers and they are not all distressed property.

  18. cautious buyer,

    May I say, based on our conversations over many months, that you have to decide between good deal and your list of what you want in a house. It does not appear that you have been looking for the best screaming deals, which is why you may not be seeing/finding them.

  19. Jillayne,

    I’m actually seeing some loosening of credit standards, and people I didn’t think could qualify, are. Expect to see a comeback in lower downpayment with MI.

  20. Would you care to define bottom? From what I understand RE prices and sales are cyclic in nature. So does bottom mean prices will be higher YOY next February? Or this is the lowest price of the year? or both?

    I don’t think the prices are at bottom yet. May be the rate of aceleration of YOY price drops has stalled. what means that prices will go down at the slower rate than thy were dropping say last year but that does not mean price sare going to increase. This is simple to deduce by just looking at the yoy price graphs on seattlebubble.com

    For a home purchase to make economical sense, the prices have to “increase” by at least the inflation rate per year (1-3%) We are far far away from that. I think you have read the trends incorrectly Ardell. Time will tell us that.

  21. You go girl. Hope you are right. You can’t believe the media these days so I am always interested your sources. Even NWMLS does not really cover the entire market. What impact does avg days on market have in your opinion? Is that a predictor? Does Redfin agree? GIGO still rules.

    My idea of bottom is really when the buyer jumps off the fence because they are buying a home they can afford and plan to occupy for 5-7 yrs and they have a bullet proof job and income. Right now the avg income levels don’t support the median home price and jobs are being lost…..

    From a friend who knows more than me:

    “Remember when we first-time buyers had to make $39,458 per year to
    qualify for the loan to buy a $125,000 house? If we made $39,449 we
    didn’t qualify for the loan. If we made $39,460 we didn’t qualify for
    the state bond to bring down the interest. It wasn’t easy back then
    but it wasn’t broken like now.

    That’s the yardstick to tell when this is over. Houses have to be
    priced at three times to a max five times salary, with or without a
    tax credit. With a King County median income of $55,000, that means
    everyone under that can’t buy, period. And some 10-20% over that
    might not either. Income has to be at least $70,000 to ‘first-time buy’
    a $250,000 house if you are talking about a straight loan with no
    credit-default swaps, liar loans, packaged securities, blah-blah.
    There aren’t many $250,000 houses are there? But it’s starting to get
    that low in the burbs. The only way to move up is with cash or equity/
    sale. Now all we need are good jobs so as to pump up the income. And
    demand isn’t enough, it has to be pent-up demand. Then she starts

    But that’s next year, after these people who won’t bring their sales
    price down finally capitulate.”

    Kinda agree with this friend yet people continue to move here at a record pace and we will still need a place to put them. And the condo’s converted to rentals may absorb some of them but there are likely to be buyers in the mix as well.

    I am going to be highly entertained when the ‘stimulus package’ passes, rates go lower and everyone tries to buy or refi at the same time. Are lenders equipped for this mad rush or will it take 3 months to close a purchase loan? Will properties appraise at value even if the hot house of the week gets 3 offers by underpricing? hmmmmm.

    Wait and see. Bottom may be approaching but is it a false bottom smuggling the hopes and dreams of buyers into the abyss of even lower values? hmmmm, hard to say. Hope long term is the approach of all who jump now because Ardell has called the bottom….
    BTW, why would you make such a prediction? I’ll wait for your Sat Night info but at least you are getting some attention…..

  22. I hope it’s understood that I am talking about the housing market, being a real estate agent, and not the housing market in Detroit. This is a real estate blog…let’s talk real estate and not the entire economy.

    This is a SEATTLE AREA REAL ESTATE blog, for the most part. Let’s stay on topic, people.

    This sounds like an echo of “I don’t give a rat’s ass about the banks.” The economy and the housing market are connected. If you make predictions about one while ignoring the other you are likely to be wrong.

  23. WhyIouta,

    Thanks for your comment and sorry you got trapped in the “first time commenter” filter. Tomorrow, when I do Sunday Night Stats, I will include some loan amounts from recent sales. I will cover at least 10 sales in various price ranges in a few different zip codes.

  24. Ardell, will do. It will be nice to have loan amounts increased to help those who have jumbo financing and have been left out of much opportunity to refinance. Even once a higher loan limit is passed, it takes a while for it to filter to the lenders implementing the new limit.

  25. Ardell-

    I respect your views on real estate very much… but I am worried we are far from the end. When you can buy real estate and receive a 7% annual return (on AVG) I would guess we are closer to the bottom. Not to mention foreclosures are picking up speed and as bank owed properties are competing with others so I would be it will be like this until at least 2010… BUT!!!! I hope I am wrong 🙂

  26. Four reasons we’re not at bottom, even in our local market:

    1) Layoffs have not yet hit Seattle real estate. Laid-off workers from WAMU, Microsoft, Boeing, Starbucks, etc, have yet to physically leave the area (e.g. are on transition teams, on unemployment, given X days to find a new job, etc). That translates to 1000’s of homes added to supply, many in distress situations.

    2) Price decline has been accelerating month-over-month. Price graphs are predictably round/smooth, and don’t go suddenly from steep downwards to upwards as required by your prediction. Even the best case scenario where the trends start reversing now means we are ~6 months from the actual bottom.

    3) Other markets which burst earlier have still not finished bursting. Why would we both burst later and recover earlier?

    4) Alt-A and Option ARMs. Enough said.

  27. Jon,

    You said, “…buy real estate and receive a 7% annual return (on AVG)”

    Being “at bottom” has nothing to do with a 7% annual return (on AVG”. Those days will not be here again until after 2016…if ever.

    It is not, not NOT a good time to INVEST in real estate. FAR FROM IT!

  28. Bryant,

    Bottom is 20% under peak (on average) for a non distressed property in a good location and 25% to 40% under peak for distressed property.

    People are buying at these prices now. Finding bottom and negotiating to bottom is not a “given”. All properties are not priced “at bottom”…far from it.

    Being at bottom does not relieve a buyer from their due diligence to find the right house and accurately determine the bottom pricing. Tomorrow I will add % of people who are buying at bottom, and what % are not.

    There will in fact be many foreclosures, because Banks have become as unrealistic about what they will accept on a short sale as some sellers. If those Banks don’t price “at bottom” when they put the properties on market…the will sit. I just saw a short sale INCREASE their asking price. Foreclosure is becoming the better avenue for both buyers and sellers.

    We will never ever see a day where there is a buyer for every seller. There will never ever be NO inventory and high inventory levels will be more the norm, than the exception. That may never change.

  29. Bryant,

    Further on your comment about people leaving the area, it does seem to me that there will be vacant property that is not either rented or sold. I do see that as a strong possibility long term. I think there may be too many houses and condos right now. Some will just not sell at all or even have a tenant.

  30. Scotsman, #19 comment,

    Clearly if Microsoft lays off 1000’s of people all of the Seattle area will be affected. My Microsoft sources tell me as of the last few weeks they see about 700 people actually leaving local campuses in the near future. Attrition will take care of a couple of thousand in a year as it is. Microsoft is still hiring, by the way, but for far fewer positions. I have a friend who just interviewed for a position.

    On another note, I’ve watched Microsoft grow since it went public in 1986. My first home was 2 miles down the road from the main campus. When I started in real estate in 1987, I didn’t know anyone so I figured I might as well sell homes in my area. I’ve seen the growth and changes first hand. The neighborhoods around Microsoft have consistently had the best absorption rate, the number of homes sold vs. the amount available, for most of the last two years.

    Is it just because of Microsoft? Not completely. For the eastside, which is not an inexpensive area, the neighborhoods around Microsoft have a variety of housing and price ranges. The majority of the homes are in what I call the “bread and butter” price range of $500-750,000. There’s also a healthy number of homes priced in the 400’s, and some are really cute! The commute is great if you wish to get to Seattle, Bellevue, Kirkland or downtown Redmond. In the latest Puget Sound Business Journal half of the top 24 tech firms are on the eastside, mostly in Bellevue, just down the road. You’ve got good schools, easy access to great parks, and shopping.

    Will a change in Microsoft employment affect the areas around the main campus, probably. But I see so many other reasons why people would want to live in that area, I still believe it will continue to be one of the stronger areas on the eastside. And, shockingly, many of the homes I’ve sold near Microsoft have sold to people who do not work at Microsoft.

  31. Ardell –
    Your response above: “Bottom is 20% under peak (on average) for a non distressed property in a good location and 25% to 40% under peak for distressed property. People are buying at these prices now. Finding bottom and negotiating to bottom is not a “given

  32. I thought real estate cycles were slow? this seems pretty quick to be at the bottom already, considering the economy is sliding sharply into disaster.

  33. I said then that I didn’t give a RA about banks because there was no saving them. How was that wrong?

    I remember that being part of a conversation where you thought housing prices were going to keep going up. And that is what most of the readers on SB thought too. We made fun of it for months.

    But maybe we all misunderstood you. Or maybe you are falling victim to self-deception. I don’t really care either way.

    My point still stands. You cannot accurately predict where real estate prices are going if you are ignoring the broader economy.

  34. Hi Debra- a couple of points. While we all know someone who works at Microsoft, their opinions and insights, along with those posted on the numerous blogs that follow Microsoft and the software industry should probably be seen as secondary to the direct statements of the CEO, Steve Balmer. I’ll take his word over everyone else’s all day long. And he says he thinks we’re headed for a major depression, a total “reset” of the economy as we know it, and that Microsoft will have to make major adjustments, That’s got to have an impact on the real estate market in Seattle.

    Further, you refer to homes in the $500-750k range as “bread and butter.” To me that suggests that they are the norm, average, the most common-place. And therein lies the problem- as a “bread and butter” home requires an income in the very top percentile in order to qualify for financing. Last time I checked, by definition, those top incomes weren’t all that common, and becoming harder to find every day. Somethings got to give, because the numbers in the old equation just don’t work any more. Everything considered, I’m betting it’s going to be home prices, and for some time to come.

    My background isn’t real estate, it’s economics, specifically bond markets and international currency flows. And what we see there suggests that some significant limits may have been reached, resulting in major changes to come. Will Microsoft always be around? Probably, but we may not recognize it. IBM used to make office machines, then it made computers, then it made most of its money on real estate and leasing (surprise!) and now it is essentially a consulting company. Like IBM, looking back may not be the best indication of where Microsoft will be in the future. And if a depression is coming, I’d bet on other sectors before putting my money on a bureaucratic tech company and the sectors it supports.

    If I were in sales, I’d work on having a positive attitude to project in the market, and commend those of you who have successfully handled some tough times. But I’d also have a back-up plan and an exit strategy, because the reality is that things will continue to get a lot harder before they get better.

  35. Debra,

    I’ll throw in stats for near Microsoft into tomorrow’s data. I don’t think people realize that even if that areas slows down a lot, it will still be stronger than many areas were in better times.

  36. Joel,

    Your point? When we get down to 3-5 banks, be sure to come over here and say “I told you so”. I heard it before…it didn’t happen…and I don’ t believe it. When I see 5 banks left standing…we’ll talk.

  37. deejayoh,

    I’ll have to defer detail on that until Sunday Night Stats, as I said in the post. Sorry if this is confusing.

    For people buying a house it’s pretty simple. They don’t want ALL houses to be at bottom, nor do they expect all houses to be at bottom at the same time…just the one they are buying. It really is that simple. You couldn’t buy a house “at bottom” in February of 2007 if you wanted to…that’s the difference between then and now.

  38. b,

    18 months from top to bottom is pretty consistent with the last major cycle. It falls pretty fast and plods along in that range for awhile. Prices didn’t get back to peak for 5-7 years the last time.

    You won’t find the correlation in Seattle, same as you won’t see Seattle traveling the same path as San Diego from 2005 to present. The 18 month 50% slide in value to bottom I speak of was Northeast (other places too) Late 1989 to through 1990 and into 1991. In 1992, people who bought at peak, were still selling at losses, even though the market wasn’t continuing to fall.

  39. I like to keep up with my comments, but it’s one in the morning 🙂 I’ll keep it us as long as I can. Kim just went to bed…so I have about 15 mintues and I just saw a new comment float in.

  40. “I said then that I didn’t give a RA about banks because there was no saving them. How was that wrong?”

    That is hilarious. Anyone here that remembers that post I’m sure sees it different.

    I mean, here is the comment you’re responding to… (From Eleua)
    “I too have a feeling in my bones. I smell a banking crisis. Do you have any friends in the industry, and what are they telling you?”

    (and also from Eleua in that post)

    “Banking problems are nuclear winter for real estate. No amount of feeling in your bones will keep prices up.”

    It’s actually fitting that this comes up here now in this thread, when you have another “feeling in your bones” about Seattle Area Appreciation.

  41. ardell,
    I love you. But with the layoff we seen and will see, with the amount of $700-800k newer but otherwise mediocre listings i keep seeing on eastside seller’s fantasyland, I don’t think this is bottom yet.

  42. “Bottom is 20% under peak (on average) for a non distressed property in a good location and 25% to 40% under peak for distressed property.”

    I share other folks’ puzzlement over where the 20% figure comes from. By other measures and criteria, we are not in a normal recession.

  43. jen,

    Remember that to a large extent what you see and what I see are not the same. You see what isn’t sold. I see what is sold and the huge concessions hidden in the sold price, in some places.

    A seller can pay up to 3% most days and up to 6% in some cases, in buyer closing and discount points. Homes that were selling at $825,000 at peak are down under $700,000 after seller concessions. That’s 20% down…or very close to it for a brand new house.

    In many cases new is beating out resale in that regard, because of the prices the 1-2 year old homes paid.

  44. Colin,

    In addition to the example I’ve given Jen, I’m seeing a $1.6M selling at $975,000 and a $1.35M selling at $865,000. Short sale/foreclosure. Kirkland. Between 35% and 40% off peak. The one I’m calling $1.6 was next to one that sold for $1.7M. The one I’m calling $1.35M is based on what the previous owner paid. So they are not made up “peak” numbers.

  45. For those who are wondering why I am not saying “the house at 123 Big Price Drop Street”, unfortunately I am not permitted under mls rules to post the specifics. Also, all three of those examples just went into escrow and haven’t closed yet. They are not my clients who will close on those, but I was privy to the offer and acceptance details.

    The advantage of knowing where bottom is, is that sellers can decide beforehand if they are willing to sell at that price…or not. I am seeing some properties selling at NOT bottom, but as someone said (Jillayne or Rhonda) those are having trouble appraising.

    So bottom is not only a function of supply and demand and buyer and seller negotiations…there is a final hoop to jump through…getting it appraised for the new loan. Some lenders will not let you overpay, as they are not willing to overextend themselves as to the LTV. Not all…but some.

    If appraisers were this careful all along…we wouldn’t be where we are now.

  46. Don’t expect February data to improve much, as many are cancelling or extending their closings to capture the $15,000 credit. Let’s hope that gets signed by President’s Day as Obama hopes for…as that will stall the market until it is signed into law. That doesn’t mean those people are buying a house to get that $15,000…it means they will not close escrow, and in some cases not even open escrow, until the start date for the $15,000 credit is a known factor.

  47. Debra,

    You said “Clearly if Microsoft lays off 1000’s of people all of the Seattle area will be affected.”

    What do you think about the 4500 layoff notices Boeing will be handing out a week from next Friday then?

    Ardell, I must admit I am having trouble with the concept that the bottom hit right before most major companies carry out their announced layoffs. But like you said in 51, prices would probably stagnate at the bottom for some time, so no harm looking back in Jan 2010 when we have more information.

  48. jen,

    Remember that some of those layoffs are to strengthen, not to weaken. For those who were laid off, their personal lives are surely weakened. For those who weren’t laid off, in many cases their work loads have increased. But the end result is often a turn around in the strength of those companies and the economy.

  49. Cautious Buyer.

    As I mentioned before to you in the comments of a different post, you are best off in the weakest point of an annual cycle. Waiting until November is better than waiting until May or June.

  50. To agents and real estate companies:

    Don’t be singing “happy days are here again” or “we’re in the money”. The imbalance of transactions to # of agents is still going to be way off for years.

    Companies will have to deal with the fact that they are sitting on 40 desks, when only 3 agents come into the office.

    Agents will have to deal with the fact that volume may still be in the under 20,000 range (and likely will be), and 13,000 agents splitting 20,000 transactions, is still going to leave many with no food on the table.

    Sellers selling at bottom are less able to pay large fees. So use this time to streamline costs. Brokers have to decide…do you want 50 starving agents or 10 making a living?

  51. Ardell:

    I wasn’t suggesting anything was made up.

    I don’t doubt that current prices are 20% off peak prices.

    My confusion, and perhaps that of others, is with your apparent assertion that we are now at bottom *because* we are 20% off peak.

    But perhaps that is not the argument.

    Thanks, Colin

  52. Colin,

    Because some properties can be had at 35% off peak and then brought back on the open market, and sold at a return for that first buyer, two markets have come into the light.

    The people who are willing to get the deepest discount, and the people who are willing to pay more for the easier transaction. When you see a whole market of companies forming to capture the difference between these two price points…you know where bottom is.

    Those companies are capitalizing on their knowing where bottom is, while the general public is paying 6% to 15% more than they have to, by refusing to believe bottom is here. Not seeing bottom costs you money, even if we stay flat at bottom for 5 years.

  53. Thanks Ardell, but this just defers the question of how we know where the bottom is. If I read you properly, you are saying that there are real estate investors who think they see a bottom, and who have assembled financing to buy property at 35% off peak and resell at somewhat higher prices. I don’t doubt this. If those investors are right, they will do well. If not, not. The phrase “capitalizing on their knowing where bottom is” is not really meaningful. They’re making a bet. One can hardly look across the last few years and argue that real estate investors are clairvoyant.

  54. Scotsman-#47. I figured someone who say something about the “bread and butter” price range I quoted of $500-750,000 for the neighborhoods around Microsoft! In fact, this is what it has been for several years. Each week I do the stats and they’ve been consistent. More homes for sale in the price range and more sales in that price range. Will this change? Perhaps. As I also mentioned, we’re seeing an increasing number of homes priced in the $400-500,000 range near Microsoft. So the “bread and butter” range may be dropping to $400-650,000. I’ll watch that pretty closely as the year plays out.

    Cautious buyer-#60 Boeing will have an affect on Seattle real estate. Layoffs have a psychological affect on a community. On the eastside I don’t think Boeing will impact the sales as much as in Seattle, and north and south of Seattle. In many of the more established neighborhoods on the eastside, those built in the 60’s and 70’s, I’ve been watching a shift in the buyers over the years. When the neighborhoods were new, Boeing engineers moved in. Now these engineers are moving further north and out to the peninsula as they retire. Buyers on the eastside come from all walks of life, with many from the tech world, but not all. We see UW faculty, lawyers, doctors, business people, first time home buyers, empty nesters, etc buying on the eastside. We see buyers moving to the eastside from Seattle for the schools and backyards. We still people moving here for a reasonable commute to go along with the schools and yards.


    Thanks for the MSFT stats, I’ll be looking forward to seeing what you report.

    #63-I completely agree with you with regard to real estate companies and the need to regroup. But that’s for another post.

  55. Colin,

    ” One can hardly look across the last few years and argue that real estate investors are clairvoyant.”

    Remember, many if not most of those “investors” were just wannabees with a real estate license. They were Average Joe’s buying 5 houses as “owner occupied” as to financing, and they didn’t have a freakin’ clue what they were doing as in BWHTF (Bought Wrong House to Flip). Plus they let their wives do the “shopping” for the finishes and ended up with high end finishes in bottom range houses, and lost a bundle in the process. But wifey had FUN! at the granite and tile store.

    That’s a whole lot different that a huge company with the cash to buy many homes at the Court House steps.

    In every market there is someone grabbing the profits and getting on a plane to Tahiti, and someone looking back saying WTF. Those who aren’t seeing bottom will be in the latter category.

    I don’t know what the surprise is. Before Jan numbers, Case Shiller said Seattle Area had 3% down to go, and we went down 5% in Jan (see previous Sunday Night Stats post). Where’s the surprise that we are “at bottom” coming from?

  56. Bread and Butter is a bit derogatory, as I recall, Debra. I think I know what you mean, as we used it in Jersey in 1991. Can you explain to the readers where “Bread and Butter” comes from and what it means. I don’t want to assume it means what I know it to mean. It’s an”insider term” that deserves an explanation, if it is what I think it is.

    Rushing through your comment as I’m leaving for an Open House. I’ll look for the answer later today.

    Sorry I missed your call at 10 p.m. We’ll catch up during the week.

  57. Thanks, Ardell I’ll just make three quick points.

    1. The experience of Japan in the 1990s merits more attention. Some urban real estate dropped 80% and has not recovered all that much since.

    2. My comment above treats real estate like any speculative asset and argues from the inherent unpredictability of asset prices. But there is a further argument. Imagine that Seattle real estate prices fell steadily, at ten percent a year, for the next five years. Could an investor do well in such an environment? The answer is clearly yes, if the investor was as clever as Ardell suggests – you’d have to be very good at spotting undervalued properties and you’d have to sell relatively quickly, because at any moment you’d be long property, but unless there was any sudden downdraft you could still make money in a falling market. So again, I don’t see the appearance of investors like this as evidence that the price decline is stopping.

    3. Clearly whenever the bottom comes, there will be someone caught out because they expect prices to keep falling. But that’s not a good reason for thinking that this particular moment is the bottom.

  58. I’m seeing a comment in my email from WaileaKid, but I don’t see it here on the post. Dustin is trying to release all the first time commenters as fast as he can.

    I’ll check WaileaKid and respond when I get back from the Open House. I will be at 8507 Stone Ave and Kim will be in English Hill.

  59. Colin,

    I’ll add a disclaimer similar to yours.


    Investors should not be getting info from a blog.

  60. Umm…

    Your scenario has got NOTHING to do with housing and everything to do with buyers who just don’t care or aren’t as savvy, which happens in ANY market for ANY item. I regularly sell items that I have bought cheaply during a market downturn to other people who didn’t want to deal with the hassle I went through at that time to get the item, only to see the item drop further in value down the road.

    Case in point, collector cars…

    I bought a collector car sight unseen for $7K in a market downturn. Got it back to Seattle and resold it to someone else for $14K. This was for a car that was worth $20K at the peak.

    What’s it worth now? Maybe $12K if a buyer can be found.

    Where’s your proof that the current market price someone got now on a resale won’t turn out to be just another price point on the way down?

    You need to make your case better than that if you want to prove it. Desperate sellers and uninformed buyers don’t make a bottom in ANY market for ANY item.

  61. Hi Ardell,

    “Bread and butter” means the center, the very core of the marketplace. It’s the part of the market in which most people were buying or selling on the eastside. Maybe a better term would be the heart of the market. It’s the price range that has been the foundation of the marketplace.

  62. I wonder if resellers are going to skew stats toward the low end. They buy extreme deals and quickly resell as a less extreme deal. Both sales are below “market price” and they get counted double.

  63. “1. The experience of Japan in the 1990s merits more attention. Some urban real estate dropped 80% and has not recovered all that much since.”

    This is an urban legend frequently stated as fact. It is not correct. Japanese LAND prices dropped 80% in some markets. That is not the same as saying home prices (subject of this blog) dropped 80%. Land investing is by it’s nature much more speculative and volatile than housing.

    Home prices in Japan dropped 30% across the country, and 60% in the top 6 markets. But home prices in those markets also went up about twice as much as they did in the top 10 US markets

    Sorry to digress, but I often see this used as “evidence” of what will happen here and it is not terribly relevent.

  64. wait a minute, how did my comment qualify as a “nasty-gram fly by” and get deleted? all i posted was my opinion that the bottom isnt even in sight yet. i would suspect that the majority of the seattle metro area population would be reasonable with that opinion.

  65. If I had written “home prices,” deej, you would have been quite right in rebuking me. If you had been reading thoughtfully, you would also have noticed that I adduced the (prolonged) Japanese property bust as “evidence” for nothing — there is no evidence possible about a future that doesn’t exist yet! There is simply no sensible basis for prediction of real estate prices in a situation like this.

    However if we are asking ourselves how a deep recession might affect real estate prices in a wealthy country, if we are asking ourselves what is the plausible range of variation, then the Japanese experience of the 1990s is highly relevant, as the Treasury Secretary has has been arguing. The macro situation — with the financial system contracting, the Federal Funds target between zero and 1/4 point, hence the entire burden of policy placed on fiscal stimulus — has ample similarities to Japan’s situation in the nineties and no parallels in recent U.S. macroeconomic history.

  66. Hey Ardell! Greetings from the Atlanta real estate market. I make a habit of searching the web for positive real estate news and am glad I found some tonight. It was refreshing to read this post and the comments.

    I am feeling the same thing in our market with a huge surge in business with the start of 09. I hope you are right about the bottom, and I hope we are here.

    Best of luck to Seattle in 09!

  67. Alan #78,

    We had that discussion last week and agreed that they were not, by and large, counted double. I’ll include that in Sunday Night Stats and confirm any double closings I find.

  68. #79 Deejayoh,

    I was thinking today that there were many people a couple of years ago who wished they could get their hands on a nice lot and build their own house. Cutting out the middleman would make a new home affordable for them, but the builders were snatching up the lots before anyone else had a chance at them.

    There is opportunity now for those people looking for a nice little piece of land to build their own modest house on.

  69. Calling a bottom while the US Treasury complex is in a bubble (beyond overbought) is insane.

    We have another bubble to pop, folks. This one isn’t going to be as tidy as the stock or housing bubble failures.

    Sorry to be such a wet blanket, as it is out of my normal character, but that’s how I see it.

    I just wish I could be my normal ray-of-sunshine self.

  70. Hi Ardell – While I would gladly shower the ground you walk on with roses (or market data, whichever you prefer), I am wildly skeptical of your gut feeling/observation on this one. Credit hasn’t begun to ease in a meaningful way so I don’t see how housing improve, or at least stabilize from here. If you are seeing an uptick in activity or prices, I would think it’s seasonal at this point. Then again, you are nearly always right. 😉

  71. Jonathan,

    As to your comment here…I think you know me a LOT better than to think my opinion is based on a seasonal uptick 🙂 That conversation has moved to the Sunday post.

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