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.
This may seem like an odd analogy, but I remember this story about my Mom when she was having her 7th baby. She was in “a ward” with only curtains drawn around each bed. She overheard some people telling the lady in the bed next to her that she should have “her tubes tied”. They were explaining the procedure to her. My Mom jumped out of bed, ripped open the curtain of the woman next to her and yelled “I want one of those!!!” The people were embarassed and said, “I’m sorry but we’re only allowed to offer these to single women on welfare having their third child. You weren’t supposed to hear that.”
Yes…I’m suggesting that to some extent The Information Age is in part responsible for the Subprime Crisis. Subprime loans did not come into being in late 2003. 2003 is the year more people said “I want one of those!!!”
Couple that with the fact that the World as it IS has come to the conclusion that spinning words (like Death Tax vs. Estate Tax) is a persuasion tool. We used to say, “You can’t get a good loan, but we can find you a BAD loan, if that’s what you want.” Most people said, “No, thank you…we’ll wait.” Loans had letters that were easy to understand. A Paper = most lenders. B through D Paper was a different lender for buyers with one or a few correctable issues over the short term. Z Paper was basically the Mob with a license to lend.
People understood the alphabet, and they knew that a C-Mortgage was not as good as an A-Mortgage. Life was more Transparent back then. The need for Transparency today is largely due to the fact that professionals hide truth behind more persuasive language. Don’t get me started on Listing Agent vs. Agent for the Seller. Everytime I hear a buyer say “The listing agent was MY agent, looking out for me (and I heard it twice in the last 4 days) I want to scream. How the heck can you believe that “the agent for the seller” is looking out for you, the buyer? Maybe because they use the words “listing agent” for that reason. But that’s a different, though related, subject.
Couple that with small businesses (who only offered Sub-Prime loans) getting gobbled up by larger “one stop shops”. All of a sudden the lender could give you an A Paper loan or a C Paper loan without a loan denial in between. When there was a loan denial in between, the buyer had a legal out with the Finance Contingency. When the approval came…but it was for “a bad loan”, the buyer was locked into the transaction with no legal out.
Couple that with Real Estate Agents only caring if the buyer could get a loan, period…without caring on what basis. Couple all of THAT with the fact that many Finance Contingencies did not give a buyer “a legal out” if they could not get a conservative “A Paper” loan, but could qualify for a SubPrime loan.
There are many factors that contributed to this mess. Perhaps a fuller understanding of how the world changing in many and small ways led do the catostrophic consequence, will help all people who played a small part in the Country’s demise, change their small part in The Crime of the Decade. In the end it was mostly No victims; no villains, just a lot of small tweaks and changes that snowballed into a Crisis Situation.
Let’s go back to the world as it was for a minute.
1) Conventional Loan = 20% downpayment, 28% of gross income for housing payment, 36% of gross income for total recurring debt including the housing payment. An 8% spread for debt payments. If debt payments equalled 10%, then the housing portion was reduced to 26%. There were no Credit Scores. All credit issues were underwritten by hand and each and every negative item was explained by the buyer, in writing. A separate letter for each negative item.
2) FHA Loan = slightly more lenient terms and dramatically reduced downpayment requirement. The biggest reason to use FHA vs. Convential being the downpayment requirement, not the looser standards as to ratio and credit issues. Almost no downpayment – 3% vs. 20% at the time.
The first change was a long time ago! It started as a quiet whisper, like the people talking behind the curtain in the next bed from my Mom. Some people were getting loans with only 5% downpayment, conventional. When I started in real estate in 1990, most people’s perception was that they needed 20% downpayment or FHA. Few knew that they could get a 5% down conventional.
The beginning of all of these problems goes all the way back to there. Conventional lending guidelines made FHA less desirable. The primary purpose of FHA was low downpayment…no longer a big spread between the two.
THEN in the early 90s, the lenders started stretching ratios from 28% to 33% of gross income on “the front end” BUT the back end was only stretched to 38%, at first. Stretched ratios entered the scene ONLY for people with little or no debt payments (just like tubal ligations being only for single women on welfare). It had a stated and targeted “appropriate” audience.
When cars started costing more, lenders had to start figuring out a way for people to buy a house who already owned a car. In many cases in the early nineties (before car leasing became popular, and probably why car leasing became popular) most young couples who each owned a car, could not buy a house. The two car payments sucked up their whole back end ratio and subtracted from their front end ratio. “I thought we could get a mortgage for 28% of our gross income or 33% of our gross income?” “Well, yes…but the combined value of your two new cars is almost as much as the house you are trying to purchase!”
Everyone agreed that people needed both cars and houses…so ratios grew and grew and grew. So, Sniglet, the changes in FHA are NOT fascinating at all. In fact FHA hasn’t changed all that much. What’s happening is that lending standards on the Conventional side are creeping back to “The Way We Were”, putting the spotlight back on FHA, which is closer to the way IT was IF you cut out “automated” approvals.
Before you even think about buying a house, get your “other debt” issues down to no more than 10% of your gross income. If you make $45,000 a year and your wife makes $25,000 a year, and you each have a car with a $400 monthly payment, you are spending 14% of your gross income on car payments!
Of course this Rise and Fall story would clearly fill a book. But until everyone understands that a bailout or bandaid in ONE area only (or two) is not going to fix what ails this Country, we cannot have HOPE…and HOPE is what we need more than bailouts and fixes.
As I said in one of my previous posts: “2009 will not be a year of great change. It will be a year of Great Hope for Change, one small step at a time, via you and me acting the best we can in each moment.” Falsely creating hope with “Talking Points” and “Good News” articles is NOT the solution. Expecting any one source to be the Messiah, is NOT the solution. Every single person doing their part to improve the situation…is the only long term solution. That means YOU!
Stop looking for someone else to come up with an answer. Get out your teacup, and start emptying out your own little piece of the ocean.
I kissed a girl once. I was almost 50 years old and was in the middle of a divorce from a 20 year marriage. I just wanted to make sure before I started over again, that I wasn’t starting out on a faulty premise that had been “fed” to me. 2009 is the year to test your foundations…so that when “The Rocovery” does come…it isn’t the old mess wrapped up in a bright shiny red bow.
I’m busy making James’ Biscotti , but I just got a Tweet from Matt Goyer over at Redfin about a Cover Story in the Seattle PI. I glanced at it and everyone and their mother is putting in their $.02 about the Seattle Real Estate Market in 2009.
You can read it HERE
I didn’t see much of a concensus. The usual suspects saying it’s going to be good vs. the usual contra-suspects saying it’s going to be bad. I’ll look at it more closely when the bis-cotti is twice baked (biscotti means twice-baked; not biscuit). In the meantime, if anyone sees a strong case for believing in one person more than another, let me know.
James, your recipe calls for “a lb. of flour” and I have a half used 5 lb. bag. I guess I’ll have to Google how many cups = 1lb. of flour 🙂
We’re back to work…but’s it’s still Holiday Time too! Plus, we can’t really do any meaningful year end or 4th Quarter stats until a week or so into the New Year.
So far, December is neck and neck with November as to median prices (per square foot), and 12% down for the year.
In Edmonds, we have 7 inches this morning. We had 2 to 3 before last night’s storm so we ended up with an additional 4 to 5. It’s beautiful! We’re going sledding!
How’s everyone doing out there?
When I did my stats for King County for the month of November, my numbers were actually worse than those reported on Seattle Bubble. I have come to rely on Seattle Bubble as being the place where I can find the worst possible news about the housing market. But I have double, triple and quadruple checked my numbers, and I still come up with only 768 sales of single family homes in the month of November.
This from The Tim at Seattle Bubble: “What immediately jumped out to me was Closed Sales, which were down a whopping 43% YOY, coming in at just 869 SFH sales county-wide.”
My figures show a drop YOY of just over 46% from 1,427 sold in November of 2007 to 768 sold in November of 2008 for Residential Property in King County. While that is only a modest difference, when I look at condo sales YOY, the numbers are even worse and down 58% from 555 sales in November of 2007 to 230 sales in November of 2008.
A more significant factor is the % down from peak volume for any month of November. For Single Family Homes, that would be November of 2004. For condos that would be November of 2005. Based on my previous research, that variance is due to the fact that by November of 2005, many people were priced out of the single family home market, which pushed the peak sales into 2005 for condos.
For single family homes, November of 2008 sales are almost 70% lower than peak volume for the month of November.
For condos, November sales are slightly more than 70% lower than peak volume for any month of November.
The Tim correctly points out that “For comparison, that is lower than any month on record (post-2000).” However, I think it is more currently relevant to point out the relationship of November 2008 sales volume to a most recent lowest volume, that being January of 2008, I have shown this figure as a dot on the graph below, green for condos and purple for SFH.
Conclusion: Both single family and condo sales in Novmeber of 2008 are approximately 70% under peak volume, and 20% under the previous, recent low point of January of 2008.
Enjoy! Mike is taking these from my Master Bedroom balcony in Kirkland. We’re “on Holiday”.
I’ve never been able to take a night shot off my balcony, but Mike Santoro had his super digital camera with him and took this one for me. Enjoy!
Just turned around in my office to this fabulous view. Thought I’d share it with you on this beautiful Saturday.
This is the view of the sunset behind my TV as I’m watching the Phillies in the World Series tonight.