Sunday Night Stats – At Bottom

Many buyers are waiting for the $15,000 tax credit for homebuyers in 2009 to be signed into law, as well they should.  This will continue to keep the volume stats down through the month of February as to closings. If the bill is signed by the 16th of February or so, as expected, you will begin to see volume pick up in March. 

The other thing that buyers have been waiting for, are signs that prices are “at bottom”.  While median prices for King County continue to slide as short sales and foreclosures continue to impact sold prices Countywide, we are seeing two emerging trends as to “bottom”.  20% for non-distressed property and almost but not quite 40% for distressed property, more like 37%.

Who determines “bottom” as to prices?  Sellers and real estate agents would love to control prices, but the buyers of homes ultimately control home prices.  While we wouldn’t expect to see prices bottom with continued bad news as to layoffs, buyers are consistently calling the bottom at 20% under peak pricing for non-distressed property.

The odd thing about the stats on this is that it doesn’t seem to matter how long the property is on market.  If it takes the seller 800 days on market to get to 20% under peak prices, the property sells.  If it takes the seller 65 days to get to 20% under peak prices, the property sells.  In several cases when the property gets to 20% under peak prices, there is more than one offer.  BUT rarely do those offers push the price much under the 20% under peak range.

Exception seems to be when the homes sold at peak values did not have remodeled kitchens and baths, but the property sold today does have a remodeled kitchen and baths, and possibly an addition as well.  In those cases, the sales can be as high as 11% to 14% under peak pricing.

Because every neighborhood has a different peak value, and peak MPPSF, you can’t do whole zip codes or a whole County using median statistics.  You have to find the peak price in each neighborhood for each house sold, and calculate the % off peak of the sale.  A tedious chore.

House #1 – Redmond – peak pricing $249 MPPSF – Home sold at $210 PSF, 16% under peak with a remodeled kitchen of 8 years ago.  The odd thing about this house is that in September through January, this home sat on market at 16% under peak, after first trying only 5% under peak for over 200 days.  Once the market determined the price was not going to reduce further and reach 20% under peak…it sold anyway.  This is not the norm and if the kitchen remodel had been more recent, it may have sold a bit higher and faster.

House #2 – Bellevue – Peak pricing $1.5M – this property sat on market for well over 700 days.  The minute it reached 20% under peak it sold.  This would not seem like a basis in and of itself, for calling bottom at 20% under peak.  But when you see house after house going from not sold to sold when it hits the same price point of 20% under peak, the buyers speak in unison.

House #3 - Peak pricing $1,059,000 – This is a sad one.  More than 4 buyers called this one at 20% under peak at roughly $850,000.  Unfortunately it is a short sale and the lienholder would not approve the sale price at 20% under peak, even with several multiple offers all in the same price range.  How much more proof of value to do need then several buyers in a market like this all calling current value at the same place?  This one will likely go to foreclosure and end up selling for even less than 20% under market.  Still…the buyers called the price of 20% under market the acceptable level.

House #4 - Seattle 98103 - peak pricing $425,000 – Asking price at 20% under market sold – this one was unusual as the opening asking price was 20% under market…it sold immediately…in less than a week.  Doesn’t seem to matter if the seller takes over 700 days or 1 day to get to 20% under market…it still sells either way.  This consistent price point of 20% under peak turning a property from ‘for sale ‘”to “sold”, gives us a price at which buyers determine, bottom has been achieved.

House #5 – Seattle 98115 – peak pricing $800,000 – sold when asking price reduced to 20% under peak.  This is a sad one because the owner started out at well OVER peak pricing.  Hard to believe that someone was thinking prices would actually be going up from mid 2007.  But the end result was consistent with the other properties, and a buyer made an offer when the price was within 20% under peak prices.

There are some houses selling for less than 20% under peak. There are many, many houses for sale with asking prices that are much higher than 20% under peak.  But unless it is a distressed property or an especially miserable location or condition, there are NO houses sitting on market without an offer ,where the seller is asking  20% under peak pricing.

I don’t “call bottom” nor do sellers or any real estate agent.  The buyers call bottom.  And when they consistently respond to an asking price of 20% under peak by bringing an offer…the buyers are calling bottom.  

It’s very hard for a seller to price his house at 20% under peak pricing, even if he bought it 15 years ago for much less that that.  Now it seems equally hard for buyers to see a house at 20% under peak…and pass it by.

“At bottom” has nothing to do with more activity.  “At bottom” does not help real estate agents sell MORE houses, as most sellers are not ready to price at this point that buyers have determined is the price at which they will buy.  When a given price point not only guarantees a sale, but brings multiple offers consistently at the same price point…buyers as a whole determine that “comfort zone” of pricing.  Now sellers collectively have to agree with them…or not.

About ARDELL

ARDELL is the Managing Broker of Sound Realty in Seattle/Kirkland. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has over 22 years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. Follow Ardell on Google+

Comments

  1. biliruben says:

    Maybe in the land of 2-years of inventory, over on the East side, but I’m not seeing this in 705-710 in Seattle.

    Maybe 10% off-peak for a great house in a great location, and there’s a buyer there willing to pay.

    I’m guessing you don’t have enough distance from house #3 to include it in your analysis.

    I’m also guessing, at least in Seattle-proper, we have a ways to go yet on the downside. As of yet, I don’t see any reason to change my call of 20-40% off-peak, depending on area and type of housing.

    My surprise is how well condos have held up, but as we see many of the downtown projects coming online, that’s about to change in a big way.

  2. The Case-Shiller index for the Seattle area peaked at about 190 in mid 2007. This was obviously a bubble-inflated value.

    If you assume that a reasonable price appreciation is 5% per year, then a fair value for Case-Shiller now would be about 150 (5% appreciation compounded every year from 2000, on a base value of 100.)

    150 is about 20% below the peak value of 190. So, Ardell, your calculations are finally in line with Seattle Bubble’s calculations, and I buy your math!

    To verify, go to the Seattle Bubble calculator (http://seattlebubble.com/blog/2008/08/05/pricing-calculator-for-todays-market), plug in 2007 for the purchase year, and $100,000 for the purchase price. Notice that the property should now be worth about 20% less.

    20% under peak value is a fair valuation for a house in the Seattle area. If you can get a distressed property for a price below that (like I did), then you’re getting it at below fair value.

  3. While it may be completely true that houses are selling as soon as they’re priced 20% under peak, there’s no reason to believe this number is static. Last summer you probably could have made the same argument that houses are selling as soon as they’re 15% under peak. Who’s to say that it won’t take 25% – 30% under peak for a house to sell this time next year?

  4. Between 2005, 2006, to 2007 we were seeing price increases of 10%, 14%, and 17%. Any combination gives you the 20% off peak pricing and then some. If you take the adage that Real Estate doubles in price every ten years, you’re putting the bottom at 2004, or 2005 pricing.

    Buyers are stepping up. Some properties are selling. There is this period of hope right now.

    There are however a number of properties that are foreclosed being held off market, in preforeclosure, have special financing arrangements, or have struggling home owners waiting for some miracle.

    I’ve come to believe pricing will retreat further.

  5. 20% off peak isn’t a bottom, it’s the current equilibrium point in some markets. Instead of calling it a bottom one should say that “at 20% off peak prices your home has a very good chance of selling in todays market.”

    As time will show, the true bottom is years away, and much, much lower.

  6. WaileaKid says:

    Prices at early 2005 level make them seem attractive and that’s why you might have seen some people jump off the fence. I don’t know if that is a bottom though. As Scotsman @4 said, it’s a current equilibrium.

    There is a great article that explains this point by prof. Kash Mansori.
    http://www.econbrowser.com/archives/2009/02/kash_mansori_on.html

    With the next coule of years not looking as bright, I think we will see a continued downward pressure on prices.

  7. biliruben,

    I will continue to post specifics today and during the week. I couldn’t put mulitple neighborhoods and price ranges in graphs last night. I tried, but there were too many variances from one neighborhood to the next.

    I’ll run through some of the detail on my blog and then post the graphs with links over here on RCG. I will start with area 705 or 710 as I promised DadTimesTwo some numbers in that area.

  8. sampai,

    I appreciate your verifying data against the SB calculator and Case Shiller. I don’t do that, because it is better for people like you to take three independent sources, than for those three sources to copy one another.

    As bilruben alluded to, and he is correct, it is much easier for you to get in front of the number as a cushion that it is for him. I’m double checking that today, but based on my experience of the last 3 years, I believe he is correct.

  9. biliruben,

    I think that is because the areas you are looking in are, or at least were, more strongly controlled by sellers and agents than buyers. Not sure why that is, or if that continues to be true. But it was true for much longer past July of 2007 than in some other areas, particularly on the Eastside.

  10. DrShort,

    Of course you are correct, and the last quarter of 2009 should dip somewhat. That is why I tell people who are “waiting for spring” (buyers that is) that they are more likely to pay more then than now, but should wait until October or November of 2009, if they are choosing to wait from here. They should not stop waiting in June.

    I think the stall due to the $15,000 credit may help in that regard as to sellers already on market, but not necessarily for new listings.

    No market is stagnant, and every year has a cycle of ups and downs.

  11. Does this mean that regardless of what happens to the broader economy, or local jobs, that we are unlikely to see much more erosion in housing prices over the next few years? For example, if area employers were to undertake substantially larger lay-offs than they’ve already announced, can we assume that the impact on real-estate would be minimal (i.e. that prices have already fallen as far as they can)?

    I am just wondering what parameters there are for local prices having reached a “bottom” (on some houses, at least). What, if any, factors could cause prices to decline still more? Is this statement of having reached a “bottom” dependent on no big additional lay-offs in the region, or other possible negative events?

  12. David,

    Distressed property bottom is 37%, not 20%. Though some of it is bought at down 37%, and then brought back to market, and it sells in between 20% and 37%.

    Distressed property should always sell at a % under non-distressed property, as they are often bought “as-is”.

  13. Ardell, I think that is a good analysis, but I disagree that it describes a bottom. Instead it describes where housing should be priced to sell today. That number may change in the future. Worsening economic conditions will probably push it lower.

  14. Scotsman,

    I took some time studying prices in various areas around the Country, from 1987 forward, and the increment of change past the steepest decline moves, much, much slower. There will be times in April through July where the price picks up and times in the fall and winter where they recede equal to or more than the mid-year increase.

    But when things are moving in smaller % ranges, interest rate considerations can often over-ride price considerations, in those smaller dips.

    Everyone I speak with expects deflation to cause I substantial rise in interest rates at some point. That could be 3-5 years out. But waiting for a 2% decrease in price and ending up with a much higher interest rate, will not be of value for most.

  15. WaileaKid,

    Areas with sustantial numbers of vacant foreclosures will take many years to work through. Any one not specifically talking about the areas we are focusing on, will disagree, and be correct.

  16. Sniglet,

    One area that will impact prices is something I believe you mention in your podcast. Where do you see interest rates in 2 or 3 years?

  17. Alan,

    That’s the advantage of this particular market. As I said in the post.

    “we are seeing two emerging trends as to “bottom

  18. I would be curious to know if you have attempted to split out new construction from resales in any of your analysis. Another would be how are town houses fairing? I would suspect that resale town houses are off their peak by way more than 20% and that new construction (both town houses and SFR) would probably be less.

  19. Regarding interest rates: normally we would expect rates to remain low as a stimulus for the economy at large. However, the demand for money and concern about government defaults has been pushing rates higher with the 10 year t-bill rate breaking over 3% for the first time in almost a year. A month ago the rate was in the very low 2% range, so this is a very significant change. The 10 year t-bill rate is often seen as a good indication of mortgage funding rates, and typically tracks about 2.5% below mortgage rates. So we can expect to see rates start back up, and I would expect they will continue up for several years, back to their long term average of 8% or so. This will further reduce home prices.

    Interest rates reflect three economic fundamentals- inflation expectations, a risk premium, and the supply/demand of available funding. With the government entering the market and borrowing huge sums of money to fund the stimulus and tarp programs, the supply of available funding cash is being severely drawn down. The response will almost certainly be higher rates, as only higher rates will entice those with free cash to transfer it from equities or other assets into bonds. These higher rates will further dampen any economic recovery. Additionally, as the government expenditures work their way into the economy, the extra dollars will be inflationary, further increasing rates as investors seek to increase the expected inflation component of interest rates.

    Whether we see inflation or deflation in consumer prices over the next year or so, we will see steadily increasing interest rates and steadily falling home prices. The goverment’s demand for funds will be the primary force at work here, squeezing out business investment, home buyers, car buyers, etc. Hang on for a wild ride!

  20. Trebor,

    Interestingly, I clearly did not have to separate new construction. In MANY cases the builders are MORE negotiable, and lower in price from peak, than individual sellers and even the banks in short sales. The credit crunch has affected builders moreso, in many cases, than just about anyone else.

    As to your question on townhouses, I need to know if you are talking Seattle or Eastside.

  21. Trebor,

    The “problem” or caution with regard to new, is it will have no place to go but down due to wear and tear. People often don’t understand that a new house is like a new car. When the market is appreciating, you don’t see the depreciation. But when a market is flat…new will go down while used stays flatter. A two year old carpet is not a new carpet. Someone having taken 600 baths in the bathtub, is not the same as new. New in a flat market, depreciates.

  22. Scotsman,

    Factor this in. We will be in a market for the next few years, where there is no “frivolous” buying of property. Most people who are buying will be buying for the long term, to live in the property for a decade or more. Consequently volume will not be changing as much during this period. It will reach a point during the flat period where activity doesn’t change much.

    In that environment, interest rates rising will not impact volume and sale prices by huge swing amounts. That is why I say we are at bottom. The consideration to buy at 5% interest vs. 8% interest (and I totally agree with you on that number) or wait for prices to go down another 3%, is an easy decision.

  23. During this break when I have answered everyone’s comments, I’d like to bring up the subject of recession vs. depression.

    A few months back I called my Mom. A very astute woman who was born in 1930. I said, “Mom, how will we know if this is a recession or a depression?” She answered, “Ardell, it’s not a depression. Food isn’t cheap enough. In a depression, the cost of food will be subsidized generally, and everyone’s food bill will decrease dramatically.”‘

    So watch the price of staples and any talk about subsidizing the cost of staples. Milk, eggs, bread…basics. If you see pressures on the cost of food, we will be moving from recession to depression. I don’t see that happening.

    Does anyone expect that to happen?

  24. Ardell,

    Thanks for your comment. Are you seeing a big disparity between how town houses are doing on the eastside versus Seattle? I am also hearing that condos in downtown Seattle are doing much better than the eastside. Although there have been several comments about the large supply of new condos about to come online in both Seattle and Bellevue. Which city is in a better position to absorb a large influx of new condo inventory?

    As to recession or depression part of what made the Great Depression last so long is that banks and businesses at that time were doing their ledgers by hand. Any coherent data at all took months to come out and executives many more months to analyze and respond. Today we are seeing markets literally move and change direction on a dime. My fear is that with all of the stimulus being proposed is that one) it does no immediate good, in fact the promise of it may be doing more harm, and two) when it does finally kick in we may already be seeing improvement in corporate profits from all of the layoffs and inventory reduction so that when the stimulus and artificially low interest rates do kick in we will have a double whammy of inflation, (which may not necessarily be a bad thing for a short period).

  25. The stimulus bill and latest bank bailout plan expected to be announced this week are obviously key to turning around the U.S. economy. But they’re of even greater importance given the world economy is at such a critical juncture, says Martin Wolf, chief economics commentator for The Financial Times.
    “There’s no precise definition of a depression” but the global economy “looks incredibly bad – far beyond a normal recession,” says Wolf, author of Fixing Global Finance. We “could have a very severe and prolonged recession.”

    Wolf, who is also a professor of economics at University of Nottingham, believes “it will be lucky” if the current downturn is only as bad as Japan’s so-called lost decade. Unlike the U.S. today, Japan was able to count on a strong global economy to mitigate the affects of its burst bubble and struggling financial system. “There is no world economy to rescue the U.S.,” he says. “Chances are [it will prove] much worse than Japan.”

  26. Trebor,

    You have to pick Seattle or Eastside for me when you talk townhouses and condos. On the eastside a townhouse IS a condo. In Seattle it is not. It has to do with the land issues, and that monthly fee for a condo townhome on the Eastside creates a different market class than townhomes in Seattle which often are “zero lot line” single family attached homes.

    I totally agree that may be the effect of the stimulus, as to your second paragraph.

  27. Tim,

    Your comment doesn’t seem to get around to Seattle Real Estate anywhere in there…so I can’t respond. Please try to take all that down to what you think it means for Seattle Real Estate. This is not a general economy blog, except where those factors influence our local real estate market. I can’t apply it for you…you’ll have to take around to the topic at hand for us.

    Thanks.

  28. Being a Seattlite I am not familiar with the differing rules for Bellevue townhouses. To be honest the lack of a home owners association for most of the Seattle townhouses scares me. I foresee ghettos of the near future. I wonder what the percentages are for people walking away from townhouses or condos versus SFR? (Seattle style townhouses that is)

  29. Back to David Losh #4. In some markets we saw over 17% increases in a single year. Kirkland condos were bidding out at ridiculous levels in the summer of 2005. Properties near Microsoft were pushed up more than 17% as well during that time, and in some cases those prices are sustaining at still ridiculously high levels in the lowest price ranges. (cheap old one bedroom condos near Microsoft.)

    This is a function of “similarity” which Seattle has less than Eastside. Think Issaquah and points south. If 20 properties sold in one complex, and each one was selling for 5% more than the last one, the total appreciation for the year was astronomical. The function of every property selling for more than the last one, exacerbated the inflated prices, and older homes in Seattle didn’t see as much like kind turnover.’

    8 properties of like kind selling in a 5 monthy period created 40% increase in that short time frame, in some areas. Some of those areas are now the hardest hit on the downside. Some….not so much.

  30. Trebor,

    I’m used to townhomes that are SFR from my youth in Philadelphia, but I’m also used to ghettos LOL! To me it’s no different than regular SFH where two houses on a street are well maintained and upgraded, most are OK and a few are “trashed”.

    Single family homes are not exactly cohesive on each street as to “pride of ownership”. Townhomes in Seattle are no different than other single family homes in Seattle.

    As to townhomes more likely to be foreclosures, that’s a function of age. Someone living in their home for 15 years is less likely to go into foreclosure than someone who bought within the last 4 yars. So yes. Newer townhomes built in 2005 and later will have a higher degree of foreclosure. Not because they are townhomes, but because by definition they were bought in the last few years. The rate of foreclosure won’t be greater, when compared to only all homes bought since 2005 though.

    There are many townhomes in Seattle built in the 90s. They will not likely have as many foreclosures as those built since 2005.

  31. “Your comment doesn’t seem to get around to Seattle Real Estate anywhere in there…so I can’t respond”

    Just sayin…

  32. Ardell,

    The unfortunate thing is that well over half of the townhouses in Seattle have been built within the last four years. Large swaths of South Seattle along the light rail corridor were developed in the last two years and I suspect that the vast majority of them were sold with less than 20% down. It will be interesting to see how they fare.

    As for people who bought in 2005 or more recently should we treat them as unfortunate victims of some unforeseen disaster? Or chalk them up as reprobates deserving of their fate for not foreseeing the inevitable?

    Thanks again for your comments!

  33. LOL Tim!!! LOVE the “just sayin…”. I’ll let the original comment stand, but know that most times off topic comments get deleted. We try to keep the comment stream in line with the ongoing subject specifically, that being Seattle Real Estate for the most part.

  34. Trebor,

    “As for people who bought in 2005 or more recently should we…”

    That topic is 1) being covered by Jillanye’s posts and 2) will be the subject of a post of mine as soon as I have a bit more time to manage it. It will be a side forum on the topic for several reasons, but I will be going way deep and personal into that issue shortly. Likely within the next week. It may replace my normal Sunday Night Stats post, if there are no new issues involving stats that need addressing.

    There are two important sessions over at Zillow this week, have to get that post up, and I don’t want to be in a meeting all day when the comments on that topic are flying through.

  35. Ardell,

    You stated:

    “While we wouldn’t expect to see prices bottom with continued bad news as to layoffs, buyers are consistently calling the bottom at 20% under peak pricing for non-distressed property.”

    Ardell, what is your definition of “consistently” here? How many months of data are you looking at?

    You also said:

    I don’t “call bottom

  36. Ardell wrote: “One area that will impact prices is something I believe you mention in your podcast. Where do you see interest rates in 2 or 3 years?”

    Ardell,

    Are you saying that the ONLY factor that might impact real estate prices are interest rates? Lay-offs, or any other kind of additional economic disruption (over and above what’s already occured) would have a negligable impact on Puget Sound prices?

    As far as interest rates go, I expect them to stay low for quite a while. I wouldn’t at all be surprised to see mortgage rates for 30 year fixed conventional loans in the 3% range (with no buy down of points) in the next few years. However, I also think that we could see the borrowing requirements increase much more (e.g. requiring larger down-payments, etc).

  37. Ardell wrote: “watch the price of staples and any talk about subsidizing the cost of staples. Milk, eggs, bread…basics. If you see pressures on the cost of food, we will be moving from recession to depression. I don’t see that happening.

    Does anyone expect that to happen?”

    Yes, I expect the price of food to fall. We are already seeing many food commodities take major dives (e.g. wheat, soybeans, corn, cattle). It simply takes a while for those prices in base materials to work their way through the supply chain. Many food manufacturers still have inventories of materials that were purchased at higher price points.

    Just ask farmers how well they are doing today. My relatives on a dairy in California are struggling with record price drops on the milk they sell to the creamery. Mid-west farmers have seen the biggest drop in income they can recall as prices for corn and wheat have crashed.

  38. Ardell,

    My friend Rhonda Porter tells me you are someone to watch, so for the past couple days I’m doing that here at RCG to see what I can learn.

    Certainly with your topic here on ‘Bottom’ you’ve captured and engaged a lot of minds and I’m fascinated with your 20%/40% (regular vs distressed properties) rules of thumb based on a ‘Peak’ price calculated by zip code, neighborhood, house by house … yada yada

    In all of this I’m asking myself a question which perhaps reveals an older model mindset, ‘What happened to months of standing inventory’ as a gauge of demand & therefore price? (And the months of standing inventory based on closed not pending sales.) I don’t see it ever mentioned in any of this analytical conversation so far, but I may have missed some of the finer points in your answers along the thread of posting.

    It seems like your definition of bottom is this percentage off ‘peak’ which has an almost impossible quality to determine. I’m really interested in learning, and absorbing this thinking – yet something seems missing here. I’m really trying, my hair color isn’t always blonde, and I’ve been in this business a long time too. Please help me, if you have the time. I know Bloodhound Blog and REBar Camp are fast approaching and we are all busy.

    Rhonda’s right – I might learn something ;-)

  39. gene,

    Given the number of people who have commented and agreed with me, and supported their agreement with additonal facts, (both on this post and Saturday’s post) I will choose to treat your comment as a lone or minority position.

    I am a person of strong opinion and conviction. If you want me to pepper my posts with “seems to me”, “unless I am incorrect on this”, and other soft peddle phrases, you are just talking to the wrong lady.

    My clients (and clearly that is not everyone and maybe not people who want what you want) expect me to keep digging into every detail of the transaction, and be absolutely confident in my advices. YMMV

    I will alter my advices per client and per situation…that is the difference between a “blog answer” and a “client advice”. Blogs are free and come with more grains of salt.

  40. Gene,

    I just had a situation where a client disregarded my emphatic advice and lost the house as a result. They were not pleased with that result. They clearly did not blame me, as if they had followed my advice they would have been much happier. They chose to listen to “the people at work”. Most people don’t want to pay agents the big bucks to be wishy-washy. And paying an agent and then second-guessing them by listening to the peanut gallery, is just wasting your money.

  41. Hi Sniglet.

  42. Diane,

    Unfortunately agents are not well trained in the hard work of number crunching (finding peak) that lead to good client advices.

    I seriously doubt I can help you in that regard, as my talent in that area comes from my previous 20 year career in Banking and the Trust and Investment field from 1972 to 1990 or so.

    Sadly the average Microsoft Employee is better at finding peak than most agents, due to lack of training in that area. We have the tools…and yet don’t use them to calculate the answers resultant from the data. That’s why the public is saying “give us the data! WE know what to do with it!” :)

  43. Ardell wrote: “paying an agent and then second-guessing them by listening to the peanut gallery, is just wasting your money”

    Amen to that. The truth is that in the current market people need experienced agents more than ever. I do wonder how Redfin is doing. Has anybody been comparing the Zillow data to what is actually happening?

  44. Ardell – that’s an interesting answer – I respect your background, that’s sincerely why I asked your input. But I guess that won’t work, so we leave you to your corner on the talent in giving sound advice ;-)

    Best wishes …

  45. I would determine peak price for a particular property here in Seattle by looking at comparables from the MLS for the period of January through July 2007 (subject to some tweaking depending on the situation) which at least here in Seattle was pretty much the peak. Just basic real estate agent stuff using 2007 data. I’ve also encountered a very specific situation in which I had an investor put in an offer on a bank owned duplex that was sold in May of 2007 for $750,000. We went in and offered 525K, saw multiple offers on the table and raised ours to 550K. The property ended up going for 600K or exactly 20% off of its 2007 price. When I saw Ardell’s article I had to say AHA! That is what I am experiencing.

    Now whether this means the “bottom” I don’t know. As for “standing inventory” I assume you mean absorption rate. We still talk about it but right now it’s hard to translate that in to whether or not homes as a whole are properly priced. Well priced homes in good condition and good locations are still selling fairly quickly. I just had a 1.4 million dollar new construction sell in Wallingford in 3 days. On the other hand there seems to be very little market for fixers. Part of what is happening is that banks are forcing buyers to bring more cash to the table so the buyers are no longer in a position to go in and do any kind of repairs to a house that needs work. These less than turn key houses are dragging out the time on market stats. The other big factor dragging out time on market are the bank owned and short sale properties. These take forever to negotiate and I think artificially skew the stats.

  46. LeftOverpricedSeattle says:

    Ardell,

    You shouldn’t dismiss Gene’s comments so quickly. I completely agree with him and said as much in your “We’re at bottom” posting. Correct me if I am wrong but most economists would argue that a bottom call can only occur once the event has passed, WELL passed.

    I think you are poised to lose a HUGE amount of credibility if your statement “We’re at bottom” fails to materialize as fact.

    What will you do if, in six months, the new reality is 30% from peak is where a house will sell.

    It seems to me, and to others, that what you are really saying is, “To sell a home in Seattle today, you had better be prepared to knock 20% what the peak price would have been.”

    That statement would be closer to the truth and potentially valuable to buyers and sellers.

    All you are doing with your statement now is declaring that you can predict the future, with cherry picked examples of homes that may or may not be too high a price to have paid in six months.

    Where’s the economic data and aggregate trends that back this up.

    If you are so sure we are at bottom and prices won’t drop any further than say, 5% more, then put your reputation on the line, as you already appear to have.

    If you are wrong on this, are you willing to quit the RE business?

    If not, then you aren’t as convinced yourself as you are claiming to be. Do you really want your reputation to be as laughable as that of Yun and Lereah?

    After all, you have already been alluding to your failure to time the peak (something anyone with access to the internet can see), so why should we trust your bottom call?

  47. Diane,

    If you click on the Sunday Night Stat tag on the post you will see 13 months worth of data that I have calculated. If you worked in my service area, I could be of more assistance, but:

    1) Your peak did not have an extension beyond 7/07 to the best of my knowledge as some of the North Seattle area did and

    2) Your area has a greater imbalance toward foreclosure and bank owned property than mine, which will drag your non-foreclosure properties into a different bottom zone.

    I didn’t mean to be rude. The County data in my 13 months of posts will be of some assistance, but will not replace each agent deep drilling into their own service area, as I do mine. I don’t deep drill south of Downtown Seattle as a rule.

  48. Trebor,

    I did a post last week or 10 days ago comparing some January closing data to Zilllow and Cyberhomes. I did about 30 properties as I recall. You should be able to find it by searching “Zillow” in the RCG search box, or by clicking on the link under my photo at the bottom of the page, pulling up only the posts written by me. It’s about 5 posts back or so.

  49. Trebor,

    In some Seattle neighborhoods the price kept trending up into October or November, even as the volume trended down. This is particularly true in all markets in higher end homes.

    The initial “change” in July of 2007 was about the end of zero down mortgages. Di’s area likely had an abrupt change in July or August of 2007. But for neighborhoods that on average had buyers with large downpayments as a rule, their peak was later than 7/07.

    If someone who is buying a house for $950,000 is looking for peak, it won’t be the same as someone looking to buy a townhome for $375,000. Different price ranges peaked at different times, and the lower price ranges were affected first.

  50. Trebor,

    New in Seattle i.e. Wallingford is quite different from new on the Eastside in many places. In Seattle you have no land and no big developments (in Wallingford), so new is more of a limited commodity and responds differently for that reason.

    One trend I am seeing that is important, but I don’t want to write a whole post on it, is that people are really VERY interested in smaller, newer, contemporary homes. Smaller being anywhere from 1,600 to 2,400 sf. There are not enough of them to make a whole story about them. They often have views of Lake Sammamish or Green Lake or other water features. They are often long as to view frontage and shallow as to home depth.

    These are hugely popular at the right price, for the same reason people don’t want a big gas guzzling vehicle, even if they can afford it. Builders should take heed of this new trend in single family structures.

    They are most often 90% remodels vs. new…but I’ve seen both.

  51. Have to run guys…will pick up later.

  52. I did qualify myself by saying that I would tweak the analysis depending on the situation, but you are absolutely right. In particular prime view and waterfront properties remained fairly strong much longer. However, we are seeing those taking some of the biggest hits now.

  53. Ardell – Re#47 above thank you. Your 2 points about our Federal Way area are correct – we have a big imbalance in distressed & bank owned properties that must be reckoned with in pricing all properties. Thanks for referencing the data you use for calculations – and I’m looking forward to meeting you in person Thurs/Fri at the 2 Seattle events!

  54. Di,

    Your 20% and 37% will meld together more. See you later this week!

  55. Folks, the “at the bottom” comment is less that the market is done falling due to economic problems in the present and the future, and more that the current stock on the market has been repriced adequately to deal with the fallout from the bubble and has reached a reasonable equilibrium for now. I mean, the free fall over the past year was due more to the fact that buyers and sellers weren’t sure of what the right prices should be, and they now seem to have a better sense of what is a reasonable price on the market. Does this mean that if Microsoft and Boeing and Amazon were to continue laying off workers, housing prices wouldn’t decline further? Certainly not. However, if you can assume that all the folks in the market aren’t buying houses today and getting laid off tomorrow, it’s not unreasonable to say that the figures that she’s putting up are probably right.

  56. Comment #46,

    Understand that many of my clients are people who have only lived in this Country for 5 years or so. They expect me to be right as rain and almost always right about real estate. That is the standard I have always lived by in both my previous 20 year profession and this 20 year profession.

    I have poured through thousands and thousands of stats over the last 3 years of blogging (oh, forgot to celebrate my 3rd Anniversary on RCG back on Jan 12). I do not make rash decisions and I do not trend toward the selfish mode.

    My clients do not expect me to be the Pope…as in infallible, anymore than they expect Obama to be always right. I’m OK with being about just as right as Obama will be. That is good enough for me…and my clients.

  57. demo_kid,

    I agree with most of what you said, but the tumble had more to do with change in loan approval standards than buyer confidence. Once those changes were implememented into the pricing structure, people began to feel their feet hitting the bottom. Then everything you say is true.

    I don’t think much, if any, of the decline is about buyer confidence levels. Maybe 2% to 3%. But that’s about all.

    Another reason why I am confident at this bottom is I see lending standards getting better for buyers vs. worse. So if fundamentals pull the market down 3% then the buyer confidence factors and $15,000 tax credit issue and the lenders getting some of the stick out of their butt…will pull in the other direction at the same time.

    So 3% down for fundamentals can end up at 2% up considering all other factors, on balance. That is my expectation for Spring and Summer. Too soon to call 4th quarter 2009.

  58. I, as a would-be buyer, would LOVE for this to be the bottom, but I see great risk. The rapidly rising levels of foreclosures and distressed properties in King County give me great pause. I see a scenario where the initial 20% price decline (today) triggers a high foreclosure rate. And then that high foreclosure rate triggers an additional 20% decline.

    The overall housing inventory has remained flat year over year, but the level of trustee sales has more than doubled. What happens when these distressed properties become realistic alternatives for average buyers? Non distressed buyers have to start pricing against the bank owner homes in the same neighborhood.

    If foreclosures and short sales weren’t rising so quickly, I might be more inclined to agree with your bottom call.

  59. Now with the approach of the Spring selling season, and a new president, I see buyers having hope that the worst is over.

    Diane asked:

    ‘What happened to months of standing inventory’ as a gauge of demand & therefore price?

    My point was that in addition to that inventory and delisted properties there is a hidden inventory of Real Estate Owned, pre-foreclosure, loans with a lease back program, and those people hoping the market will come back.

    In my opinion if this Spring season falls short of being stellar asking prices will drop significantly.

    Also once the stimulus package is in place, just in time for that Spring selling season I might add, lenders will go back to trying to unload properties. I think this is season is going to be a mess.

  60. I love all this educational and fun talk .. some final remarks ..

    A. Ardell knows how to create some good google juice with her posts ;-)

    B. The foreclosure, short sale, bank-owned inventory is anything BUT ‘hidden’ especially in Southwest King and N Pierce counties, and must be considered for what it is – I N V E N T O R Y. It’s not going away anytime soon, and all properties must price to that competition if they want to
    S E L L. I don’t think there’s going to be a distinction between a ‘normal’ sale price and a ‘distressed’ sale price if both properties aim to sell. At least not for quite awhile. It used to be so, but I don’t see that now.

    C. Within the real estate community of agents and lenders, our cooperation & respect for each other seems to be shining brighter than ever. In fact, the kindness & respect does take me aback lately. We are working on our mindset and skills. We can do this.

  61. I do have a beef with the way banks are handling short sales and REOs. They make the process so difficult and opaque that they shoot themselves in the foot and that makes them unrealistic alternatives for motivated buyers. Ones that need to buy in a specific time frame. They end up with the majority of their sales going to the bottom feeders and “investors”. I know that getting a bunch of 3rd party investors to agree to take a haircut for each and every mortgage that comes up short is slow and time consuming, but until a mechanism is figured out to handle this legitimate sellers will be getting dragged down by incompetent sellers. That more than anything is what is feeding this vicious cycle. It’s a complaint that is slowly reaching the ears of the bankers but the real estate community needs to keep driving this point home.

    Sorry, that’s my pet rant and we all need to keep repeating it until the banks and the government take notice and move to correct it. I know that bankruptcy judges are being put forth as one way to speed up the cram down but that’s not nearly enough. I’d like to see a discussion of what some possible solutions to this are.

  62. Banks want as close to full value as they can get. Eighty cents on the dollar is the figure that comes up in discussions.

    By value they mean loan amount. If there is a twenty per cent second they want the first paid as close to full loan amont as possible. If it is a first they want eighty per cent.

    If the first is seasoned five years or more that is a good deal for the investor. Newer mortgages are less desirable, but it depends.

    What I think is that banks are waiting for the bail out money to be dispersed and the stimulus package put in place before they will be shedding inventory.

    Many of the people I talk with think that there is a huge back log of inventory in the pipeline that is being held off the market. One report says there are over fifteen million vacant homes in the United States.

    I don’t track foreclosures but have worked with some short sales this year. One client went a year without payments while the property was on the market and never got a notice of default. One that I have right now has two properties that sold short and one that was just foreclosed in one cul de sac. There are two properties that have a lease back to the owner who is in default (behind on payments). In one culde sac that’s six properties in trouble.

    It is also my opinion and other people have taken me to task for this that banks are transferring properties into Trusts for rentals.

    If banks start becoming more reasonable with selling properties the price of properties will go down further and faster. It’s in the banks interest to keep inventory in check and prices higher.

  63. If someone just wants to fight with me, and not have a coversation or at least agree to disagree, sorry…I’m not in the mood.

    Mr. Got His Nose out of joint, I am not going to argue with people. If you want to state a differing opinion, that’s fine. If you want to convince me that I should agree with you, or tell me I’m wrong because i don’t agree with you…highway option.

  64. Dr. Short,

    I don’t disagree with you and as I said to Di, that could well be the case in her market, but clearly not all markets.

    Aubrey Cohen called me in between the last time I was here commenting and now, and this is how I explained it to him and now to whomever is reading.

    1) A distressed sale does not affect property values. Per appraisal guidelines, if there are 4 comparable sales and 1 is a short sale or bank owned property, they are to disregard it entirely when determing the value of the subject property.

    2) MANY distressed property sales near the subject property WILL affect the value of the subject property. If there are 5 sales nearby and 4 of them are short sales and bank owned property, the appraiser cannot ignore them nor will the buyer of a home near them ignore them.

    The amount of short sales will only affect the areas where there is a heavy concentration of short sales. Di’s area (or part of it) will clearly be affected in that manner.

    In this post you have 20% down and 37% down as bottom. IF your area is primarily short sales and distressed property sales, then your bottom is closer to the lower number.

    But if you are buying a property in a 240 townhome complex with one short sale and 4 regular sales, don’t expect the short sale to drag prices down. IN FACT, the short sale in a neighborhood like that is quite often only 20% from peak or slightly below 20% from peak. All short sales are not drastic price cuts. The biggest discount on a short sale is often on a very high end property.

  65. I am skeptical. However, once other RE agents start chiming in that they have seen the same pattern of 20%/37% price cuts before sale that Ardell has seen, I will be less skeptical. All you agents out there, care to testify?

  66. I just get a little concerned about it being the bottom when there were more Notices of Trustee Sale in January (909) than closed sales (906) in King County.

  67. Numbers 1 and 2 from comment 64 contradict each other.

    What about inventory? We generally conclude that rising inventory has an overall downward effect on prices.

    The real statistic to watch this year in the northwest, is the percentage of short sales AND ALSO foreclosed REOs compared with overall available inventory in a given market.

    The higher the percentage of short sales and REO sales, the more likely it will be that the appraiser is going to have to address those comparables.

    Agents would be wise to factor this in to the listing price.

    Underwriting guidelines can vary from lender to lender and can undergo constant change in a downward trending market.

    As DrShort mentions, we are still on a trend of rising foreclosures in King County.

  68. Thanks David, your comments make sense. However, one of the solutions I see is the prospect of the banks turning into landlords and getting some cash flow as opposed to none and keeping the properties off the market indefinitely. If the present value stream of rental income exceeds the loss that is about to be taken it is the only logical course of action.

    Obviously this returns us to one of the most important valuation methods that got left in the dust during the bubble run up and that is what is the value of the property based on its potential rental income? This is the rock bottom valuation that prices will not fall below. Hopefully.

  69. Jillayne,

    Have to eat dinner and I’m trying to get Jonathan Miller over from my Saturday Post over to this one to confirm my one and two.

    They do not contradict each other…short sales are to be disregarded. And when you have three comps without them…you disregard them. But if they are dominating the market NEAR THAT HOUSE, then they cannot be disregarded.

    Let’s see if I can get the guru of appraisers over here…off to dinner. I’ll check the rest of the comment and other comments later.

  70. Ardell,

    Short sales are to be disregarded….only when they cannot be disregarded? Sorry. I still say you are contradicting yourself there. The problem with this statement is that short sales can effect values very quickly. Agents ignoring these because of what the stats say “today” may be blindsided when the appraisal is completed after the house sells. Agents need to be on top of all possible short sale comps as well as REO comps no matter what their current numbers. But I am being most prudent here and I understand everyone is not like me.

    Banks do not want to be landlords and deal with property management issues of maintenance. There is a whole host of expenses associated with turning the REOs into rentals. I’m trying to imagine a tenant calling loan servicing to report a plumbing problem.

    Many banks are insolvent on paper. What is announced tomorrow if it’s not partial or temporary nationalization, will amount to just more waiting until we nationalize.

  71. If banks do not want to deal with being landlords then Gods help us because now there is no bottom. The US government is about to become the landlord of last resort. And you can bank on this, nationalization is the only step left.

  72. Hi Ardell,

    From my appraisal perspective – regarding your comment:

    1) A distressed sale does not affect property values. Per appraisal guidelines, if there are 4 comparable sales and 1 is a short sale or bank owned property, they are to disregard it entirely when determing the value of the subject property.

    This is “sort of” correct but a bit out of context – it’s tough to see this as pure vanilla. If there is one short sale and 4 comparable sales that are not short sales as you describe and these are in contract or recently closed, then I would probably agree with your statement but would not “ignore” because this would get my attention in the way I look at that market. If the situation as described was accurate but new listings entering the market were nearly all “short sales” then I would emphasis to the short sale as the “new market” for the time being.

    2) MANY distressed property sales near the subject property WILL affect the value of the subject property. If there are 5 sales nearby and 4 of them are short sales and bank owned property, the appraiser cannot ignore them nor will the buyer of a home near them ignore them.

    I agree with this concept – the short sales dominate the market – they ARE the market.

    One of the issues with the 250 townhome complex isn’t so much that the short sale will depress values directly, it is the view the lender will take of the complex if they see this as some sort of pattern. They may raise the LTV or limit their exposure. This in turn could depress values.

    Valuation in this market, as in any market, is a moving target. The appraisal is supposed to reflect the current market – not some formula – or bank directive. In a market with limited activity, it’s especially difficult to reflect current conditions empirically.

    Whats for dinner?

  73. ARDELL,
    For your sake (and everyone else’s) I hope you are right. I don’t think I have the cojones to call “bottom” in Miami–and we’ve been in the tubes for 3 years and 10 months.

  74. Kevin,

    You raise a good point. I’ll bet you can go out and find a condo for your client “at bottom”. That doesn’t mean they are all priced at bottom.

  75. Thank you so much for commenting, Jonathan. Dinner’s over…sorry. We ate it all. Kind of a pasta-beef stir fry with penne and peppers.

    I agree on all counts, of course. I’ll bring your comment over here from the other post and answer it here after dessert :)

  76. Jillayne,

    I defer to Jonathan’s comment, since he is the appraisal expert. There are some neighborhoods with NO short sales or foreclosures near them…or 10 regular sales and one short sale.

    You can’t take the Country foreclosure stats and apply the info across the board.

    If it is a neighborhood of low turnover and lots of older people and no recent zero down or low downpayment sales…why should they suffer because there are dozens of foreclsosures in the same county ten miles away?

  77. Jonathan,

    If you are still around…and before dessert, if there are 5 sales, one short sale from 4 months ago and 4 more recent sales that are not short sales (heading into Spring we will see this more) does the fact that the non-short sales are more recent, affect your opinion?

  78. Ardell, Jonathan says, “Valuation in this market, as in any market, is a moving target. The appraisal is supposed to reflect the current market – not some formula – or bank directive. In a market with limited activity, it’s especially difficult to reflect current conditions empirically.”

    It’s a moving target.

    Surely today there are some neighborhoods with no short sales or foreclosures.

    I assert that over time, this will change. All tiers and all neighborhoods will feel the effects of short sales and REO sales for quite some time.

    Alt As and Prime ARMs are defaulting, with the subprime foreclosures mostly behind us.

    I encourage agents to watch for an increase in short sales and REO listings as a percentage of overall inventory. This will help agents determine where the market is, and where it is heading, so home sellers can price to sell.

  79. Jillayne,

    We recently had an agent with a sale affected by the appraisal. There were NO short sales anywhere near the property, but the appraiser took off $100,000 just in case. Somewhat like Jonathan’s statement taken out of context “this would get my attention in the way I look at that market.”

    I’m sure Jonathan wouldn’t have done that, since we discussed this matter. But what the appraiser did is really interject “fear of the future” into his current appraisal. The bank was being overly conservative. But that clearly is not fair to this seller and buyer who were fully agreed as to price (the buyer was an appraiser BTW).

    Jonathan said “They may raise the LTV”. By lowering the appraisal they were in effect reneging on their 20% down approval. They were in effect “lowering the LTV” via the downward pressure on the appraisal.

    The buyer switched lenders.

  80. This is taking an interesting turn. So the buyers of regular homes should get foreclosure prices from people not in foreclosure. Why buy the boarded up foreclosure house with no appliances, when you can get the lovely, well maintained home up the street for the same price? Did I enter an alter universe where a lovely old couple with 15 years of pride of ownership have to forfeit their retirement savings of equity because someone down the street had a foreclosure? That couple better have a very good agent who doesn’t let that happen.

  81. Trebor,

    There may be a boarded up house here and there that just has no one who wants to buy it. That happens.

  82. David,

    Can we have a clue as to where that cul de sac is? What city?

  83. Jillyane wrote “Surely today there are some neighborhoods with no short sales or foreclosures.”

    Unfortunately it has spread to all corners. Even the prime properties at the high end are suffering. I do not study the Eastside but on the Westside from Burien to the Highlands I have found REOs and shorts at every price point and neighborhood, even waterfront. Even Sunset Hill, North Beach and Blue Ridge are feeling the effects. Green Lake and Wallingford have seen them for over a year now. Although the numbers are still relatively small and inventory at least in Green Lake is still tight relatively speaking.

    BTW – Jillyane, a testimonial for your Short Sale, Foreclosure, and REO classes. I really enjoyed them and have been working that beat more and more. Although a lot of of my clients these days feel like wolves sniffing around for the wounded and dying.

  84. Ardell – interesting post and good comments.

    There is nothing magic about the 20% below peak price or for that matter 37%/40% below peak price.

    This data does not in my opinion indicate that in your market area, you are at the bottom. All the data indicates is that at the present time, non-distress homes are selling 20% below their peak prices. This does not mean they will sell at 18% below the peak in 2 months. Property could just as easily sell at 22% below the peak in 2 months.

    Will market be at bottom NOW if in 3 months if Miscosoft or Boeing lays off 10,000 people?

    The other aspect of the post I wonder about is that you seem to define the market in two different sub-sets – distress properties and non-distress properties – and if I understand the post correctly seem to indicate these markets are not connected. This does not make sense to me. The market is the market within a given area – all sales data is relevant to the market area. There is discussion about how many comps are distress and how many are not distress – and that appraiser needs to select the comps based on which number predominates. If on the same block 3 distress homes and 3 non-distress homes sell within 30 days of each other – which 3 properties is the appraiser to pick when doing his appraisal?

    In my mindm the appraiser should pick the properties for comparables that most closely resemble the subject property. It is NOT that there are two markets – there is one market and within that market, homes vary in condition and appeal and that accounts for the price differential.

    There also seems to be some belief that what the appraiser says is fair market value is in fact fair market value. You correctly point out elsewhere that buyers not sellers or agents determine market value.

    In my market area (SF Peninsula), there appears to be a whiff of optimism in the air but with the economy still weak, companies still laying off folks, and with stock values still down; it is hard to say we are at bottom.

    I do not pretend to know your market area but I imagine the same forces at work in the SF Bay area are at work in your market area.

    My gut sense is maybe the worst is over and that most markets will range from slight decline to flat for the balance of the year.

    Only looking back in time can one determine where the bottom is.
    It will be interesting to see what the balance of year will be.

    On another matter, any predictions on outcome of House/Senate negotiation on the stimulus proposals put forth by each in regards to $7500/$15000 tax credit – Now that will be interesting to watch.

  85. Arn,

    What I find very interesting is that if all agents feel that sellers have to price the same as a foreclosures (God forbid) as you and Di seem to feel, where there’s a case for a market being doomed.

    I am not seeing that in the areas I work in at all, nor did I see that in the last bad market. I am seeing the markets running separately. But if all the agents somehow convince sellers of non-distressed property otherwise, that could change the marketplace.

    I find this topic interesting and quite disturbing and so far, not affecting the markets in that manner. I’m seeing much deeper discount on the foreclosure, bank owned and in many cases but not all, the short sale properties. But non-distressed properties are not being influenced in the manner some are suggesting they “should” be.

    I do think in David’s case where all of the houses in the cul-de-sac are distressed property…that’s a different story, and a different market than what I see.

  86. Jonathan Miller says:

    Ardell, besides my regret for missing out on dinner, although we had an excellent cornbread covered pot pie, I get the feeling you see the markets you cover with absolute definition. I think that foreclosures in other adjacent neighborhoods are not mutually exclusive. What is influencing them is probably influencing your market and it may be just a matter of timing.

    However the $100k adjustment made by the appraiser is idiotic (as described). The appraiser is not an underwriter. We are to estimate market value as of a moment in time. The underwriter may very well embellish with a lower LTV but the appraiser is to provide the benchmark. So many Appraisers are new to declining markets they don’t seem to understand their role. In the same way many exagerated values with their own rationale and financial pressures as the market was rising.

    From the commuter train going into Manhattan,

    Jonathan

  87. Ardell wrote: “I do think in David’s case where all of the houses in the cul-de-sac are distressed property…that’s a different story, and a different market than what I see.”

    It all depends on how many foreclosures there are in a given market. The more foreclosures, the more pressure there is on sellers to reduce their prices. A single foreclosure in a given market isn’t going to lead to massive over-all price reduction, but hundreds of foreclosures might.

    Unfortunately, the rate at which King County foreclosures are increasing doesn’t look good for those hoping that prices will stabilize. There is a good chance that foreclosures will massively increase over the next few years, when all the various resets are factored in. Don’t forget that the cycle of lay-offs our region is facing is only just beginning. I expect every major employer who has already announced lay-offs this year to undertake far more significant cuts by the end of 2010.

    I am hearing stories about a MASSIVE drop in business activitiy for our big employers, and their current belt-tightening assumes that their businesses will recover a bit in 5 or 6 months. If this doesn’t prove to be the case (i.e. that their orders pick up a fair bit in the coming months), then the lay-offs we will see in the next year will make what’s happened so far seem like child’s play. This can’t possibly be good for house prices.

  88. Jonathan,

    It appears the appraiser’s “explanation” was he did the comps based on recent sales. Decided the market was 24% down. Then reduced his answer by 24%, not recognizing that the comps reflected ANY of the % down for the last 18 months, even though they were recent sales.

    Obama can do a stimulus plan, but we people on the ground have to monitor the day to day activities that push things sideways.

  89. Ardell – I see. If the comps were recent and reflect current market (ie contracts were signed recently), then this of course is a “double dip” and the appraiser has taken on the role of an underwriter which is not what we are, obviously. Market value today infers future expectations of the purchaser. If a buyer feels comfortable with the price, they are building in what they think about the future so that appraiser took that value and infused another layer (their own) on top of it.

  90. Jonathan,

    Lots of the mess we are in was about a whole lot of people not being on top of their game on many levels.

    We have to be the checks and balances that don’t permit human error to ever again influence a market. No innocent bystanders this time around :)

    I’ll be on the radio at 10:15. Dave Ross Show…need more coffee.

  91. Ardell – you are getting lots of publicity! You were mentioned on KIXI this morning. “Ardell De-La-Goya”. I am thinking they butchered your name!

  92. deejayoh,

    Libby at KIRO called and asked me how to say “DellaLoggia” before Dave Ross got on.

  93. Ardell:

    I have a quick question for you… I’m doing separate research at the university on housing economics, and I’ve been trying to get time-on-market data for King County for months. All I really need at a basic level is to connect the listing date and sale date to existing property information. Is there a (relatively) direct way to get this data on a historical basis for individual listed properties, if it is for non-commercial research purposes? I’ve been stymied at this point…

    dk

  94. Its an interesting article, and dropping your house price 20% below would definitely create more interest, but I don’t think that this is an accurate type of comparrison for the larger economic woes that we are facing. I believe to find a true ‘bottoming’ point we need to compare average, or at least median household incomes to the median home prices. When the median incomes in an area can finance a median priced house consuming no more than 30% of their income per month, I think we are at the bottom and preparing for solid growth again. Just my two cents.

  95. demo_kid

    The problem with “days on market” is it is too dependent on every agent registering the transaction in a timely fashion. Seems to me if you get around to recording the contract signed around 5 days later (and some are many days later) they won’t let you back date it to when it actually happened.

    So the data is not valid enough even if you can get your hands on it.

  96. Dustin,

    We’ll agree to disagree on that, and I will do some stats to prove out why that is incorrect. MOST people are not buying in a manner where income is relevant to sale price. MOST.

  97. Ardell:

    True, and the same goes for houses that are pulled and relisted, or sellers that change their minds about how much they’re willing to accept during the whole process.

    On the other hand, a lot of the academic studies that I’ve examined in the past simply use price movements without *any* consideration of market liquidity. From the egghead academic urban economist perspective, that’s simply not right for *exactly* the reasons why you’ve outlined here: houses sell and real estate markets clear fastest when the prices are set at or below what buyers are willing to pay, but stock languishes on the market when their prices are set wrong by the sellers because of a lack of information. Making some adjustments for that, even if the data points are off by a few days, might be an improvement for academic types like me that are trying to work our statistical mojo on market data.

    Anyway, regardless, I think that this blog should be required reading for any student interested in real estate! Far more than what you can learn from a textbook or most professors!

    dk

  98. demo_kid,

    In order to be accurate, one would have to measure the days on market from the point of changed sale price that “worked”. That’s a tedious chore. I do it in samplings for each area I work in, and will provide some stats for you this week. But there is no way to “hit a button” and get the data in aggregate form.

  99. cautious buyer says:

    RE 96: “MOST people are not buying in a manner where income is relevant to sale price”

    That fills me with a dark sense of foreboding.

    In what manner are most people buying?

  100. cautious buyer,

    From Dustin: “compare average, or at least median household incomes to the median home prices.”

    The problem with this “valuaton model” is that for it to be correct, loan amount would have to equal sales price. Obviously that is even less true today than it was a couple of years ago.

    In areas where the majority of people are buying at a price of $650,000, the loan amount is not $650,000. So median income to median sale price is a faulty premise.

    It is more of a first time buyer vantage point, and all buyers that draw a medain sale price…are not first time buyers. Even those who are first time buyers, often have substantial downpayments in this market.

    I’ll get on the work to prove that to you right now. Could take an hour though.

  101. Cautious Buyer #99 – you pose a relevant question. And Dustin #94 poses an interesting case for his defininition of ‘a true bottoming out.’ Hindsight for many people buying in the yrs approx 2001 – 2005 would probably cause them to agree that buying based on income plus a buffer would have been a wise choice, but for some reason they blew that caution to the wind.

  102. Ardell – Sorry to have missed your talk on the radio today with Dave Ross! I’m bummed about missing it – can anyone catch it being aired anywhere else yet?

  103. Ardell – I think those of us who missed you today on Dave Ross can tune in to a podcast of the show tomorrow – looks like they post within 24 hours.

  104. Di and Cautious Buyer,

    The simple math of it is the LOAN has to be 3X or 4X your annual income, not the sale price.

    There are cash buyers…there are people with 30% to 50% down…all involved in getting to “median sale price”.

    So median income to median sale price has no direct relationship. Median income to “starter home and condo” price, has a direct relationship. Not median sale price.

  105. Di,

    As to the 3 minute radio spot, you didn’t miss anything except hearing my laugh.

  106. cautious buyer says:

    2 more questions. If it primarily isn’t first time buyers, that wouldn’t decrease inventory, would it, because for every purchase there is another sale?

    Wouldn’t the money brought in from a previous sale be offset somewhat by a reduced mortgage term, or do we have 50 yr olds getting new 30 yr mortgages when they move?

  107. cautious buyer says:

    I guess one more question based on 105. Is there a source for median loan amounts?

  108. Cautious Buyer,

    As to inventory, you know that answer. How many great homes priced well are you seeing in “all that inventory”? It’s not about inventory from a buyer’s perspective. It’s only about the house they want to buy. Do you have a list of 10 great houses you want to buy with all the looking you’ve been doing?

    When you have a list of 10…we’ll talk about “all the inventory”.

  109. Cautious Buyer,

    I have to hand calculate the loan amounts, and I can, but not everyone agrees on the formula for “median” without a button to push.

    You tell me:

    If I have data saying (this is hypothetical)

    10% – cash sales
    30% – 30% down or more sales
    40% – 20% down sales
    20% – private lender or FHA 3.5% down sales

    What would the “median” loan % be?

  110. Ardell:

    Re: @98, absolutely agreed. All the statistical models that one can feasibly create often do a poor job of defining many of these things in terms of exactly how they operate in the real world. Part of that is due to the innate limitations of the data. Price changes with changes in liquidity, though, is one area where I have yet to find a really great academic study that can integrate them. In the end though, all of these economic models are finicky… some are just more finicky than others.

    Certainly can’t be a substitute for real world experience, but can perhaps provide a little bit of insight from us eggheads!

    dk

  111. Here’s what I think is relevant, Cautious Buyer.

    If 65% of the real estate is bought with 20% down at $350,000 to $600,000, then a loan amount of $380,000 is the relevant median bogey for a majority of homebuyers.

    So the average homebuyer needs to be making about $90,000 for the household (two people making $45,000 each).

    I’m not doing FHA numbers here, straight conventional.

    I don’t think it’s unrealistic to expect someone buying a house to make
    $45,000 and to have more than one income in the “household”.

    Do you?

  112. demo_kid,

    You sound like my Economics Professor at Wharton in 1980 LOL! He had to keep telling me to forget about the real world…not my strong suit.

  113. Ardell:

    Hopefully quite the opposite! I think that academics in economics / real estate / urban planning do folks in the industry a disservice by not making their research relevant or tapping into on-the-ground, real world experiences of professionals. :)

    dk

  114. Hi Ardell,
    I work in real estate myself, and with the number of qualified buyers we’ve seen through our community, I agree with your opinion! In some cases, we’ve even seen mulitple offers on homes (at full price)! It’s good to hear from others in this industry that activity is picking up! I think at times people forget the reason for buying a home, and that is why we are hearing some negativity and seeing hesitation. However, others realize the buying power they have at these interest rates, they are secure in their jobs, and they are taking advantage of the buyer’s market we are currently experiencing. After all, people need to live somewhere. And if your plan is to stay long term (5 -7 years), you will be better off in the end than if you are renting. I’m amazed to see the attention you are gathering from this article! I think that says something in itself…

  115. Erin,

    Glad to hear business is up. In the current climate 5-7 years might be optimistic for the rent vs. buy to make sense financially. A good resource for evaluating that decision is a calculator at the NY Times:

    http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

    You have to make some guesstimates/assumptions, but then everyone does right now. There are of course intangibles like “being able to paint a wall” and “feeling settled”; however, these days with very few jobs completely secure (600 potential layoffs at UW mentioned yesterday/today, etc.), feeling settled and secure may not jive with “having a lot of debt” or “large monthly payments.”

    Ardell has certainly gotten a lot of attention from the article. I have to wonder if that is why she chose to frame her posting the way she did rather than something along the lines of “this is how you pick a price for a quick sale.” Calling bottom certainly gets more attention than simple, good advice.

    Gene

  116. Ardell – I’ll tune in just to hear your laugh – so far I only read your serious side and gotta have the laugh to get another facet! ;-)

    Honestly, it’s an interesting point regarding median income financing a median price home – I want to look at the math of that later and see what conclusion I can make for Federal Way/NE Tacoma.

    Oh the stuff we can find to do – but it all makes us sharper – no? It’s a great benefit of blogging and transparency, well hopefully ;-)

  117. Thanks, Gene, for that link! What a great tool to use! I can see how in some real estate climates it may make more sense to rent, however, given the increase we’ve seen in the Seattle area, I’m sticking to my argument – especially with the number of large companies, jobs, and relocations we experience in this area. I know that there have been many many lay-offs and jobs lost, but let’s look at the glass half full – 93% of the population is still employed. People have to live somewhere. If you can buy a home at the price of your current rent, then why not?

  118. “If you can buy a home at the price of your current rent, then why not?”

    A few reasons:

    1. Ties up down payment funds (ones that might be needed if a job is lost)
    2. One could end up “losing” the down payment if/when prices continue to fall for a while.
    3. Rents also seem to be decreasing, at least in the areas I’m looking (Seattle area).
    4. Currently it is cheaper to rent than to own in a number of areas.

    Having said that, if I were to find a place I loved, that was an excellent deal, was affordable, and where I thought I’d want to stay for 7+ years, I’d strongly consider a purchase.

    But that’s why I (re)posted the calculator above – so people can make informed decisions…

    Gene

  119. Gene,

    Rent vs. buy works best for undesirable locations, so I would be careful about counseling people, other than yourself, to use that method.

  120. Ardell,

    I’m not sure where I counseled anyone, I merely pointed out a tool that might help people educate themselves about their options. If I’m looking to rent or buy in a certain area then it is good to know what the potential financial ramifications of that decision are. That is true in a “good” area or a “bad” one.

    So, I’m not sure what point you were trying to make… that people shouldn’t learn about their options when they are making what is properly the biggest investment in their life? Isn’t that a big part of what got us into this mess?

    Gene

  121. Erin’s an agent…so I’m sure she can handle herself just fine :) I’ll take a closer look at the tool.

  122. gene,

    I tried it with a real client’s numbers, and it said the client would be better buying vs. renting after 4 years. But that was without the $15,000 tax credit and I don’t see how it accounts for rent being not tax deductible and mortgage and RE taxes being tax deductible.

    So the answer does not appear to be valid. That 4 years might be 2 years or less. Unless I’m missing something, I wouldn’t recomment the tool. Doing the numbers by hand would be better.

  123. Ardell,

    “You’re missing something”. :-)

    Click on the “Methodology” link in the upper right which explains what the calculator takes into account. It takes into account “operating costs” and “opportunity costs” including tax write-offs. It also takes into account things like security deposits, etc. for renting. See the “advanced settings” in the upper right for more options as well.

    Really, it’s a pretty nice tool. I wish they had a downloadable spreadsheet version to see exactly what they are doing, but it’s great for a quick ballpark and looks pretty completed based on the methodology.

    One can’t take a $15,000 tax credit into account that does not exist yet – it still needs to get past the reconciliation process between the Senate and House versions of the stimulus bills. It could be cut out of the final law that is signed, or changed – but good point that it needs to be taken into account if it does pass!

    Gene

  124. gene,

    I was surprised the break even was only 4 years on a buy vs. rent. With a $15,000 tax credit it likely would have pointed clearly to buy. Most rent calculators haven’t been even near “buy” lately. Interesting result.

  125. Ardell,

    This is an interesting article and now I plan on doing a little more research for my areas of Oregon. Specifically the Eugene and Florence areas which are both very different markets. Eugene is a college town with the U of O and Florence is on the Coast and predominantly a retirement community.

    I want to see how the 20% rule is playing out here, but without even doing the work I think your numbers are close for here as well.

    I see more buyers seriously looking right now then the last quarter of 2008 and I agree that once the $15,000 tax credit takes affect I think in my area at least buyers will get off the fence and start writing more serious offers.

  126. There’s some squabbling today about the $15,000 credit. Keep your eyes open. For many people it won’t matter, since the put the total tax limitation on it. I’ll wait for the dust to settle, before doing a last post on the credit.

  127. I just got in when I posted comment 127, and now see in Jillayne’s post saying there will be ?no? credit? How disappointing. I’ll wait for the dust to settle, and hope for the best.

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