Jim Cramer says don't buy now…except for Seattle.

On the Today show yesterday, Jim Cramer from Mad Money told Meredith Viera “Don’t you dare buy now…you will lose money”.   This enraged Realtor Associations across the country who have blasted back that this is a “buyer’s market” and have demanded to NBC that Cramer correct his statements.

Cramer discusses slumping homes market
Cramer discusses slumping homes market

This morning on CNBC Squak on the Street, Cramer was asked if he would like to correct his statements on the Today Show…his only correction was that Seattle is still a good place to buy homes along with a small sector in…was okay to buy.  Click here to watch his “Seattle correction” from CNBC this morning.

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About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages. She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/EntityDetails.aspx/COMPANY/40445 NMLS ID 40445. Equal Housing Opportunity. You can follow Rhonda on @mortgageporter, Facebook and/or Google+

74 thoughts on “Jim Cramer says don't buy now…except for Seattle.

  1. Cramer had too much fun today,but hes right.People need to hear the truth,like from the Pres. of KB homes.His list of States woke a few people up.As for Cramer,less of him and more of Erin is always good.He is funny,but no Christmas card from the realtors this year.

  2. Ohmygosh! Does this mean pent up investors from all over the US will flock to Seattle to buy? OhhhhhhhhhhhhNoooooooooooo

    There goes the inventory.
    There go prices.
    Multiple offers………those darn bidding wars!

    Cramer should just leave us alone!


  3. Rhonda,
    Did you see Cramers melt on youtube?I saw it live,dude had a breakdown.Its worth time to find it,a classic.You gotta like him today,he was in hog heaven.

  4. Oh yeah…I’ve seen it so many times. I can’t remember if I saw it live or not. It is hysterical (literally)! “Just go buy some Washington Mutual”….
    Erin is a gem! Watching her in the morning with the other old dude is so funny. She’s a crack up and knows her stuff.

  5. Question that may be slightly off topic, may be realtors and mortgage lenders can chime in on this one:

    Lets say I buy a new house. A few months down the road I get this letter from the county that says this is the value of your home. 1) Does that reflect what I could sell my home for? 2) Does that affect my ability to refinance especially if the value per the county is less than what I paid?

  6. sandy, what you received is a notice from the tax assessor…it just reflects how much they’re going to tax you next year. If it reflects your 2008 taxes, you might want to see if your mortgage payment is going to change.

    It does not reflect how much you could sell your home for or wht you can refi your home for. An appraisal determines the value of your home, the lender will not rely on your tax assessment. You’re not thinking of selling all ready are ya?

    I’m sure the Tax Assessor thanks you! 😉

  7. Sandy,
    Good question. Your county assessment will rarely be as much as your market price. It’s OK if the assessment amount is less, as you’ll get to pay less in taxes. The assessment will not reflect what your home is really worth to the market, for sale or refinance.

  8. technically, state law provides that the assessment should be equal to the full value of the land and improvements…so its more and issue of accuracy lagging in boom times. They get a lot closer to appraisal values in slower-appreciating markets

  9. No Rhonda, not thinking of selling! 🙂 I wanted to understand why there were so many discrepancies in terms of “value” of the house – we get one figure from the county, one from appraisers, and looks like a bad/good market (extreme markets buyer or sellers) a third one when the house sells! For instance I cant explain the how appraisers and county arrive at different numbers. Apparently they both say its based on comparable sales!

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  11. So are Seattle realtors going to hang their hat on Jim’s statement? Its just it has not hit here yet, the 47% decline in sales and invenotry “explosion” pretty much paints the true picture.

    BTW he did not say “its ok to buy in seattle”

    He was talking about 2 places that were not declining ” he said Seattle is ok and new york”

    No where did he say its ok to buy in Seattle lets keep the statement in context.


  12. I watch Cramer every night because right after his show is the Big Idea which I love. I often have not a freaking clue what Cramer is talking about but I love watching his ways. The guy never seems to sit down. Last night was the first I have ever seen him sit and that was because he was talking about Cracker Barrel buying back their stock and sat in one of those rockers that you often see outside of the CB stores.

    He is crazy, the guy eats like a mule on TV too when talking about KFC, taco bell. Last night he kicked a barrel of apples into the audience and several got thrown back at him.

    You can’t help but to watch a show like that.

  13. I have another question about county assessments. Does anybody use them to value homes when comparing to recently sold homes? What I mean is, say you have to 2 nearly identical units in a condo. They’re slighty different though so one is assessed at $100k and the other is assessed at $95k (5% less). Let’s say condo one is sold for $200k and then the other condo is put up for sale. Would it be reasonable to assume that condo 2 should go for about $190k or are county assessments not that reliable? Again, I’m not talking about the actual value they are assessed at ($100k and $95k), but the difference in value (5%).

  14. I hear a lot of “things are different here” from various markets around the country.
    One by one, they all end up succumbing to the inevitable reversion to the mean.
    Trust me, NO ONE is immune from this downturn.
    We had a party for five years and now we’re gonna have the hangover.

  15. Believe me, I would love to have a crystal ball and see into the future. Just because I posted what Cramer had to say does not mean that I’m one of his followers. It was interesting to here Seattle being made the exception…that was my only point.

    There’s so much mixed information about what’s going on here. And I don’t believe anyone knows without any doubt what will happen in our region with housing values. So far, we are fairing better. It’s been quite a party, I’m sure we’ll have a hangover…but will it be one that’s cured with 2 advil in the morning or will we be whiped out a bit longer than that?

    The degree of our hangover is the question.

  16. Sandy,

    If the assessor values at true market value, instead of under it, they’ll be hell to pay if values go down. Owners will be coming in droves, one at a time, with three comps to get their assessments reduced. That one at a time process can be very costly for them, so riding too close to true value could end up costing them more than being accurate on the high side is worth in taxes.

  17. I get a kick from how different topics can pop up from the original post. Sandy, I don’t know if your property is in King County…here is a FAQ: http://www.metrokc.gov/Assessor/FAQ.htm

    As a home owner, you have the right to contest your property taxes if you feel they are not properly assessed.

    Should our values go down, Ardell is correct, people will be coming in droves…who wants to be over taxed?

  18. This reminds me of an analogy – if you throw a deck of cards in the air, there are some things you can and some things you cannot predict.

    You cannot predict what will be the last card to fall to the ground and you cannot predict exactly when it will fall.

    What you can predict with 100% certainty is that all the cards will fall.

    What are the odds that we won’t fall just like all the other cards in the deck?

    Another analogy – you get on an airliner to fly overseas. As you take off you see dozens of other airliners take off at the same time. During the ocean crossing, you see all these other planes losing altitude one by one and you realize they’re going to crash. You also notice that your plane, which was prevously climbing at 1000 feet per minute is decelerating it’s ascent rapidly. It’s only climbing at 800 – no, wait – 600 – what’s going on here – it’s now 400 – holy sh*t – now it’s only 200!….. As you watch the other planes fall from the sky and your plane’s ascent rate rapidly approach zero, just how confident are you that you won’t be soon following all the other planes down?.

    Seattle’s price appreciation has been slowing every single month for the better part of a year; at the same time the inventory has been consistently increasing and pending sales have been falling. The impact of the credit crunch on the financial markets and on real estate are just BEGINNING. Our economy will be in recession by early next year. The Fed is worried about avoiding a depression and is hoping we only end up with a recession. It’s going to take years to clean up this mess.

    A year ago, on forums like this one, all across the country, people were debating whether there even was a housing bubble. Just go back and read some of those old posts, it will open your eyes. How times have changed! A year from now we won’t be arguing about whether Seattle will be spared, the discussion will have shifted to how low will we go.

  19. NAR’s latest course… the d-Pro:

    The d-PRO Certification Course is an educational program unlike any other professional certification or designation course available, comprehensive and Interactive. It is sponsored by the NATIONAL ASSOCIATION of REALTORS® and is specifically designed to help real estate professionals thrive in the delusional world of real estate. In addition, the d-PRO Certification Course is geared to ensure continued success in remaining unrealistically optimistic in the face of overwhelming evidence and pushing NAR’s political agenda forward. You’ll learn to stick your head in the sand, legally threaten anyone who disagrees with NAR and just out right lie to make NAR look better. You’ll also receive valuable training and talking points regarding any innovation or competition that threatens NAR’s stranglehold on the real-estate market. In short – this course puts the “R” in Realtor®

  20. Joel,

    Yes, I always teach new agents to trust the assessor as to variances in valuation within a building. I do apply the 5% to lower the price when valuing for a buyer. But often people don’t and I can get 5% more for a seller.

    This doesn’t necessarily apply though when valuing property built at different times in different buildings, and adjustments need to be made for other factors. But the assessment difference will usually take into consideration a location difference when the square footage is the same.

  21. A Reuters article on 9/20, which was picked up in the New York Times, was headlined No Housing Woes in Booming Washington State


    It seems that Paul Allen’s Vulcan Inc. sees few obstacles to turning Seattle’s South Lake Union area into a thriving residential neighborhood, given Washington State’s economic strength. In fact, Vulcan expects (through their market research) that 135,000 people will move into the Seattle market over the next five years.

    The article also goes on to say:

    “While growing payrolls keep Washington’s housing market intact, they are also swelling state coffers.”

    “ChangMook Sohn, chief economist for Washington’s Economic and Revenue Forecast Council, projects $281.5 million more than initially expected for the state’s 2005-2007 and 2007-2009 budget periods — raising the state surplus to more than $1.5 billion — thanks to continued strength in housing from strong payroll growth across the state.”

    “This is the third year of achieving about 3 percent job increases,” Sohn said, adding that Seattle-area payrolls are growing at a torrid annual rate of 3.8 percent.

    “Washington’s broad economic strength is underscored by housing markets across the state, said Keitaro Matsuda, an economist with Union Bank of California. He noted that Wenatchee, Washington, notched the nation’s best annual home-price appreciation in the second quarter among local markets — up 23.5 percent — and four other Washington markets, including Seattle and Spokane, made the top 20 list.”

    “When you look at its numbers, there aren’t too many things that are going wrong with Washington’s economy,” Matsuda said.

    I’ve long held a long personal belief that ALL MARKETS CORRECT. A quick glance at any market historical chart will prove this.

    The last correction in the Seattle market (especially the Eastside) started in 2000. The dot com collapse combined later with 9/11 put a glut of higher end homes on the market. Homeowners who lost stock options, employment and needed to transfer all tried to sell at the same time. A saw examples of people who purchased $1.2 mil homes later selling in the $900,000 area. By 2002/2003 , theses home caught back up in value and later appreciated at rather spectacular rates.

    During this correction, the entry level homes still appreciated over 5%, so that segment of the market did not correct and has since continued to rise.

    So, what will a correction look like? Will it be deep? or quite shallow? The local ecomony, populaton growth and job market all seem to be one of the strongest in the nation. We were not affected as much here with the failed mortgage products. It seems that the mortgage markets are righting themselves quickly (Rhonda could speak with more authority here), as I see the jumbo products back, FHA reform and other creative ways for homeowners to finance. Yes the exotic products are gone, but that puts us back to 1999/2000 mortgage market condtions.

    Vulcan is positive. Vlucan is deep pocketed and I’m sure hires the best economists and market forecasters that money can by.

    I’m a Realtor and not an economist. I don’t have a crystal ball. The only thing that I can do is carefully watch the pulse of the market and guide buyers and sellers through it, negotiating their best position based on market realities.

    As I mentioned in an article that I wrote recently on the Seattle PI blog, we’re somewhat divided between glass 1/2 full mentalities, (always a postive spin) and the bubble community who seems to be rooting for a 10 year prediction that this market can’t last.

    For me, I’m a market realist. I assiduously track market supply and demand, not just regionally, but at the local level —by price range. Some areas are still quite active and are still Seller’s markets, others areas are Balanced, and yet other areas have slipped into Buyers markets. The higher price points again are the most affected.

    To see the post and some of the local numbers in depth here the link to that post:


  22. fgm,

    Since gravity isn’t involved in declining markets, the way it is with a deck of cards, the analogy isn’t accurate.

    In my experience there is one market that becomes the driving force for others around it. More like a draw store in a mall. Here I consider that the area around Microsoft, since I live in Kirkland and my office is in Bellevue. The further you are from Microsoft, the more general factors will influence property value.

    Take the mall example. In low retail markets, strip malls with no draw store, will suffer more than the same store in close proximity to a mall anchor store. Stores that sell things people need, like grocery stores, will suffer less than those that sell luxury items. Housing is more like a grocery store until it reaches the point of luxury home.

    Just like the strip mall, houses in areas with no big draw to the area, will suffer first. Houses in areas where there is new construction will suffer greatly. If you bought a new house two years ago and a builder is offering a similar product new, new wins out and resale nearby suffers. Same way a used car can’t cost the same as a new car.

    Premium areas take the hit first, as in I don’t HAVE to live in Green Lake and pay that premium, when Greenwood, Magnolia, Phinney, Licton Springs or Maple Leaf will do just as well. So that shift could create a weakening in Green Lake and a boost for nearby areas.

    Just as there will always be a demand for food at some level, there will be a demand for housing at some level. Luxury and premium markets are not necessarily the hardest hit, but are often the first ones hit.

    If the market corrects before the basic housing supply sans premium is affected, the market swings back without certain homes and areas being affected at all. Consequently it is the LENGTH of the downturn that becomes more important than the downturn itself.

    Seattle is not a lagging market, so if it missed 70% of the downturn thus far, that does not mean that 70% will come eventually. If the rest of the country continues to fall, then we will still have missed most of the downturn cycle. When the rest of the country “bottoms out” or is boosted by lower interest rates, we will get the same boost and miss all or most of the downturn experienced by the rest of the Country.

    Just as staples like bread and rice will suffer less than luxuries like lobster and shrimp, entry level housing will suffer less than high end luxury housing. If we find ways to better support the low end quickly, like FHA and VA, the support of the lower end moving well will bolster the market at higher levels, but not necessarily at the top.

    If professionals keep looking for easy answers and don’t embrace FHA, the market will suffer more. As an office, we are focusing on the lowest priced housing to try to help it move in the first quarter of 2008. If the lowest priced housing doesn’t move well in the first quarter, causing move up buying, the rest of the year will suffer as a result.

    It’s clearly time for everyone to get very familiar with FHA, and for everyone to compare FHA with conventional and subprime options, for first time buyers purchasing within FHA limits.

    Those who wish for the market to go down and for prices to be lower, cast a big shadow of panic hoping to influence that change. Those that wish for the market to be as stable as realistically possible, stick to the facts and look for solutions to the mortgage issues. Those that wish for it to go up always, take out their pom-poms.

  23. Greg, “We were not affected as much here with the failed mortgage products. It seems that the mortgage markets are righting themselves quickly (Rhonda could speak with more authority here), as I see the jumbo products back, FHA reform and other creative ways for homeowners to finance. Yes the exotic products are gone, but that puts us back to 1999/2000 mortgage market condtions.”

    I just posted rates this morning at Mortgage Porter. I’ll wait a few hours to post current ones here (in case of a mid-day rate change).

    You’re right. Mortgage programs are coming back. The Jumbo 5 year fixed ARM is offering rates close to pre-August 30 year fixed. Jumbo interest only is back, too.

    The big difference with the jumbo market is down payment and loan to value. However, you can get creative and still accomodate buyers. Right now I have a client who’s buying a home at $550,000 and has 10% down. We’re doing the first mortgage at $417,000 and a second to make up the difference which provides him with a conforming rate on the first and we still have (knock on wood) second mortgages available (although we had one more lender pull back 2nds from mortgge brokers/correspondents today).

    And for conforming loan limits, there is still low and zero down if your credit warrants. VA loans are the original zero down and FHA is a great resource, as Ardell mentions, assuming the loan limit fits your scenario.

  24. Ardell,
    And speaking of lagging markets, WE were the lagging market in the dot com collapse. Our values at that time were affected as we had a larger proporton of dot com companies in our markets. Other markets around the country were relativley unaffected by it. Yet as you point out, the bread and butter items (entry homes) were still in demand.

    And yes, you’re spot on about FHA. It looks like Congress will raise loan limits and drop down payments to 1.5% making it even more attractive.

    Rhonda, thanks for the update.

  25. In the Seattle area I think psychology as cheerleading, doom & gloom talk, past experiences, guesses etc. plays a pretty small role in the market impact. I think the main driver is affordability. Can the majority of buyers afford, really afford the current house prices or not. If they can there will most probably not be a correction. If they can’t there will be one. It seems like when the market turn one way or another the loosing side puts to much credit to the sentiment driven by the press, the industry or the public. While true for the stock market I think it plays a minor role in the housing market that I think is mostly driven by affordability factors as price, interest rates and mortgage qualifying rules.

  26. Looking at the latest Cramer video from this morning, its amazing how desperate and ridiculous the NAR’s position is. They’re making Cramer look reasonable! They just cannot admit that it is ever a bad time to buy. The talking points are just hilarious: “Ask a real estate professional about buying a house not someone who deals in stocks.” Paraphrasing Warren Buffet (I think this was in a CNBC article): “Don’t ask a barber if you need a haircut.” This effort to keep the house buying hamsters running for their commissions would just be funny if not for the pathetic attempt to mask it as being “helpful to consumers.” Ugh!

  27. SS, I fully agree with you and find it strange that the NAR and many agents still do not understand how much damage it does to their credibility and reputation. I think this damage is of a total different magnitude than what I suspect being a very marginal impact of housing cheerleading.

  28. I believe in the interview from yesterday am (I’ll need to rewatch it and I’m running out the door right now), Cramer said something along the lines of “when has NAR said that it’s NOT a good time to buy”.

  29. tj
    Valid concern for sure.
    When I moved into this area in 1978, a basic rambler style home in No. Kirkland ran about $60k. (built and sold for around $35k in say 1969) When I started in real estate in 1995, the same home would have gone for $130 – $145k. I remember at the time I was wondering who could afford it? Today that same rambler runs $400-450k. Who can afford them? In 1995, a $600k home was almost “street of dreams” quality. I could no more imagine someone paying $450k for that $130k rambler than anything. So, in short, I don’t’ know the complete answer to your question. One thing I know is that the markets drive on supply and demand. Another thing that I am sure of is that companies like Microsoft, Google, Amazon, Costco, Boeing, will want to hire and attract good people. (Vulcan’s research says that 135,000 people are coming into the region in the next 5 years.) They simply won’t come if they can’t afford the homes. Interestingly,….the job market also thrives on supply and demand. Will Microsoft, Google, Amazon, Costco and Boeing (and other employers) figure it out?

  30. Greg, your guesses are probably as good or bad as mine. I think data as inventory and sales volume will more accurately tell us the story of affordability. As I mentioned above, I don’t think what we tout as likely one way or another has much impact on others other than risking our credibility if we are wrong…it for sure will not make a buyer buy a house he can’t get funding to.

  31. Greg,

    What were the median incomes in 1995 in the Kirkland area? I’m wondering about the price to income ratio change between 1995 to the present.

  32. tj and ss
    You know, there are all kinds of agents from hobbyist to professionals.
    I run in the circle of professionals, whose business model is referral based, who deeply keep their clients interest at heart.

    In our business, before we start with any buyer, I meet with that buyer for 60-90 minutes. We have a thorough discussion around their wants and needs, what they expect from and agent, my expectations of them as a client, the market (including a healthy discussion around appreciation), the process from top to bottom, consumer issues and agency education. We actually use a power point presentation to keep us on task so we cover everything.

    Then, if we all like and trust each other, we go looking for home.
    We have an complete understanding of each others expectations and the buyer has basic education.

    There’s lots of great real estate agents. So…guys….why indite an entire industry?

  33. Ardell, regarding “Since gravity isn’t involved in declining markets” – I should have guessed that you might have problems understanding a simple analogy. An analogy by definition is not a literal argument. In the future I will keep my arguments less abstract, maybe something a 12 year old can understand.

  34. Greg,

    My post referred to the NAR, not to individual Realtors. That’s how the NAR is perceived. Rightly or wrongly, they are the face of the industry. They might have more credibility if they did not have the same shtick again and again or if agents publicly disagreed with the party line. Also, it just seems like common sense to not base your decision to buy a home on the recommendations of a party who stands to make money if the deal goes through. Its prudent, thats all.

    Additionally, the talking points constantly spewed forth are frankly annoying to anyone who can work with a spreadsheet. “It always makes sense to buy”/”Rent is money thrown away”/”Real Estate is an tangible investment while stocks can crash and disappear”/”Buy now or lose forever”/”I bought 20 years ago and now I’m wealthy” – these are the classic lines that Realtors love to throw out with none of the caveats that should make these statements flat out incorrect or misleading in the present context. Still wondering why Realtors aren’t exactly at the top of the trusted professions list? For an illustration of my point, please watch the “Suzanne researched it” ad on Youtube.

    About the median home price to income ratio in 1995 to the present, I’d wager that it is way higher now, 2 incomes or one whichever way you want to look at it. This is the real issue. When someone cannot buy a reasonable house making well over the median income while saving some money on the side and resorting to funny mortgages, I’d say we are due for a correction. Now, is there a Realtor who would agree with that?

  35. Ardell,I think fmg gets it.How long do you think before gates gets even cozier w/china,and starts taking advantage of that slave labor?
    You are seeing a huge outsourcing of high tech positions to PHD’s in India for a fraction of pay in your area.The gravity beam is locked in,look at the UAW contract this week,its a race to the bottom.Soon china will have most of our high tech+manufacturing.This is the high water mark,unless we wake up.

  36. Greg, I don’t think I indited everyone I did say NAR, meaning the NARs officials and statements they make and I said many agents. And my context was the cheerleading in general and spin of data. I also said that it’s damaging for their own credibility and reputation. Agents that understand this and refrain from overoptimistic touting of a product that really needs none. ( Homes are the american dream and as important as food remember ) are not indited as not being credible even if the shadow of what their collegues do could have some impact on all agents credibility by generlization.

  37. “Will Microsoft, Google, Amazon, Costco and Boeing (and other employers) figure it out? ” How many times are they going to have a pay/reimburse loss on sale of home to transfer someone to Seattle? If people can’t sell or have to sell at a loss they won’t be coming anyway. Or at least not buying when they get here.

    Seattle Pi had an extreme example of this in Microsoft taking a $2mil loss on Chris Liddel’s house.

  38. ss and tj
    Ok…..it was looking to me like you were inditing all real estate agents. Fair enough.

    Did you see the commercials last night from the Master Builders last night? They’re saying it’s a great time to buy! Funny, I was thinking at looked like a “Realtor” commercial, myself.

    As I said, all market correct. The correction is in fact happening in my opinion currently in rural upper end properties (not West Bellevue, however). Hasn’t reached my locald entry market…..yet.

    I think Ardell did an good job on articulating the realtionship between markets. I’m going to think on those ideas.

    The weekly absorption rates from price range to price range and area to area show us that we actually have many markets within the larger market. We’re just starting to learn and understand how to most effectively read and articulate their value.

  39. jeff,
    Corporations do all kinds of creative things to build and keep their work force. And they budget for it.

    Supply and demand. If new buyers (population) are coming in to the region, will sellers have someone to sell to? If enough people come in, why would sellers not be able to sell, or sell at a discount?

  40. Greg, as long as there are less houses than households there is a potential demand. It’s just a matter of price for sellers to tap into it.

  41. fgm,

    Although I understood your analogy of the cards, I didn’t follow the airplane analogy at all (I’ll save you the time….next time write at the 6th grade level for me).

    Ok, now that the insults are aside,

    What did you think of Ardells market interdepenancy ideas?

    What did you think about the idea of looking at markets within markets using weekly absorption rates?

    What are your thoughts on FHA reform?

    Here is another thought on those exotic loans. There was a segment of buyers who used the exotic loan products. Some used those products to just get in to a first time home. It would interesting to understand how many buyers used the exotic products just to buy more house (buy up).

    We all agree that buyer pool will dwindle because of the loss of these loan products, but how many in the buyer pool would not have purchased at all instead of using the product for higher purchasing power to buy up? To what extent will the buyer pool be comprimised?

  42. tj
    Yes, there is ALWAYS demand. (didn’t mean to look like shouting, but wanted to emphasise always).

    It is the rate of demand that dictates whether a Seller has an advantage, neither party has an advantage or the Buyer has an advantage.

    In periods in where the Seller has the advantage prices go up.
    Balanced, prices equalize
    In buyers markets prices drop.

    Also,I want to again emphasize that we have different market sales rates within the large market, as shown by absorption rates.

  43. This is about a lot more than the housing market. You could very reasonably argue we’re also in another tech bubble (anyone following the VC market for the last year, it’s easily as crazy as 2000). Why else can I get a job inside of 5 seconds right now as a programmer, anywhere (not just in Seattle, but Boston, NY, CA, etc.).

    The dollar is in free fall which really only benefits our nearly non-existent (and still more expensive than Asia) manufacturing sector. The obvious exception/advantage for us here is Boeing… it’s cheaper than ever to buy from them for the rest of the world.

    Our lenders (Middle East, China, etc) are getting more and more wary of our nations credit rating making it harder and harder for us to borrow the ridiculous amount of money Bush is burning through.

    The average family’s cut of the national debt is around $700K, with social security and health care thrown in that jumps to $1.4M.

    We’re in a very expensive war with no end in site and absolutely no upside for our economy or country.

    Americans might have over spent on housing and speculated… but the government did something much worse. They just over spent on items that will never benefit our economy.

    If Seattle is still healthy then why did my house (in downtown Kirkland) sit on the market for 7 weeks without so much as a peep (in fact all the houses in East of Market seem to just be sitting there) when my neighbors house sold in weeks just last summer? And why was the Realtor’s suggestion to drop it to a few-years-ago-price if I wanted to sell? That’s not a decline? My wife and I make around $180K combined… the cheapest thing in East of Market right now is my house for $575K – we could barely afford to buy that without flipping something else… and it’s a tear down.

    Time for a reality check. Seattle isn’t invincible. If you really think that America going through a significant slow down (recession?) isn’t going to effect us (and effect our largely national companies all very dependent on the stock market) then I think you’re missing something fairly important.

  44. Greg,

    If a dozen airplanes take off from an airport, normall you wouldn’t expect any of them to get into trouble. If you see one of them do that, your first thought might be that it’s an accident, ie, something went terribly wrong with that plane but there’s no reason to worry aobut the other planes since occasionally accidents do happen. If 11 of the 12 planes get into trouble, all of a sudden it’s clear that something very unusual and terrible is going on – whether terrorism, bad fuel, etc. I think that most people on the last plane to go down, after bearing witness to the tradegy around them, would fear for their own safety, particularly if they were informed by the pilot that their planes ascent rate if rapidly falling and soon will be zero. In the current real estate market, something very unusal is happening. Never before have housing prices fallen on a national level. Never before have prices fallen without a recession. There is a systemic problem, not an isolated regional problem. It’s hard to imaging anyone taking any solace in the fact that we are the last market to go negative (particularly when we’ve been headed in that direction for over a year with falling rates of appreciation, rising inventory, and falling pending sales). This is not business as usual. Prior rules of thumb do not apply.

    Regarding market segments and subsegments, obviously there will be pockets of strength closer in to city centers or major employers or particularly desireable neighborhoods, at least for a while. That is what happened in Florida, San Diego, and Las Vegas as well. Until it didin’t. Those cities have strong economies and major employers and desireable neighborhoods as well. However, when prices run up in excess of people’s ability to pay (or borrow), people stop buying. It happens at the low end, mid end, and high end. Not necessarily all at the same time. FHA reform will help some, might drag out the correction to some degree, but won’t change the outcome.

    It used to be that median prices in those markets was WAY more expensive than here. It’s interesting to note that as they’ve been coming down and we’ve kept going up the difference between the these markets has narrowed substantially vs Seattle. One of the reasons we attracted so many to this area was the relative bargain. That is no longer the case to a large degree. Better climate regions always have had a premium compared with the Seattle area. Once areas like CA and FL bottom out eventually (and it may take a year or two), that premium will be maintained by Seattle area continuing to adjust downward.

  45. Greg, I’ll try to keep this short. I think all areas and segments will be impacted very similar. Any premium due to desirability is likely already priced in and most people buy on the top end of what they can afford. When affordability factors (price,interest rate, lending standards) changes they impact across the board. I think the timing on when it’s seen could vary some depending on size of area but that’s about it.

  46. tj
    Good thought. We’ll see.

    Good Gawd, I can’t believe you typed that mess out analogy mess again. I said 6th grade and you just made it more complicated!

    I appreciate your thoughts. I don’t agree with your conclusions. And here’s why:

    What other market factors were at work in LV, Florida and CA, that didn’t affect us in the same way?

  47. Ben,
    Wow, you went global! I think you gave me a headache.

    Back to Kirkland, yes the market has tightened. If your value is in your land, take a good hard look at absorption rates where the builders currently have standing inventory (above $1,000,000). Work with your agents, they’re good.

  48. Greg, Easy. Best climate cities always draw demand first when money is easy. Then there’s a trickle down to other markets as the spread in prices widens. After the best climate cities roll over and fall, the other markets follow (ie, why would someone pay the same price to live in Seattle as in San Diego?). The same thing happens in the stock market during every business cycle. First high quality stocks rally. When those get bid up to rediculous levels that no one can justify going any higher, everyone piles into the lower quality names, and eventually even the crap stocks get bid up. Then everything goes down. In the tech bubble, remeber Cisco?

  49. Dustin, thanks for checking. Wierd, it’s not here. And I submitted it twice.

    Anyway, here’s the gist:

    In support of my post above, it seems that Seattle is leading the nation in September sales declines.

    Existing-home sales MTD in September (through the 24th) are off sharply from the same period last year:

    August Sept. 1-24
    Seattle -18% -47%
    Tucson -29% -44%
    Baltimore -20% -42%
    St. Louis -24% -29%
    Cleveland -11% -19%

    Source: Re/Max International


  50. Dustin,

    It seeems that this link was preventing the above post from being accepted (it’s the link to the data shown above) – I’ve swapped a few of the characters for words to let it go through:

    http colon // www dot usatoday dot com

  51. Greg, of course there were other factors. Those factors explain why prices rose farther in those markets than here. Those factors were also operable here but to a lesser degree. Bottom line: most of the markets, including ours, will revert to their long term trend lines which are based on inflation and household income to a large degree. We’re likely to see declines of 30-50% in the hottest markets like FL, CA, NV. We didn’t rise as far so we won’t fall as far. But we are likely to see decines of 15-25% in our area (adjusted for inflation). For examle, if our market falls only 5% per year for two years and then goes flat for 4 years (with inflation at 3% per year) the actual drop in inflation adjusted terms would be 22%. Of course, had the money been invested wisely you would do far better than that. And Greenspan is projecting inflation, going forward, to run an average of 5% or more. Commodities, gold, oil, US $, and the 30 yr bond are agreeing with that assesment at this point. So maybe 15-25% downside is too conservative?.

  52. fgm,
    Ok fair enough. The problems with these debates is that all of us don’t know what we don’t know. I’ve read a lot of opinion that we’re heading into recession/depression, and others call for inflation. Heck I saw a post where a guy predicted recession and inflation in the same post. He’ll be the only one to get it right.

    Speaking of predicitons, I predict, based in their improvement over last year and the additional maturing of their young players, that the Mariners WILL be in the world series next year. Resonable conclusion?

    Like I stated earlier, I believe all markets correct, but I’m not ready to buy into your projected conclusions. Too many variables, including the variables we haven’t yet seen.

    For now, I can watch monthly and weekly absorpton rates and guide my clients into their best positions within the existing markets at the time…….and watch the Mariners as they come out of spring training next year.

  53. Greg,

    Time will tell. You should do a post a year from now and reflect back on these very discussions.

    Regarding “all of us don’t know what we don’t know”. Fair enough. Maybe a better way to put it is that some of know what we don’t know better than others?

    Regarding the inflation/recession debate, as indicated above, what I stated was that historical inflation rates were not likely to go away any time soon and may rise somewhat based on very real macroeconomic factors including global growth fueling commodity demand and a falling dollar which is inflationary. The dollar is now at all time lows. I didn’t call for 70’s era inflation but that’s certainly not out of the question.

    I actually didn’t comment on recession, so let me do that now since you bring it up. As you know, I am sure, inflation and recession can coexist in a number of forms, the most common being stagflation. But more commonly you see inflation and recession alternate cyclically. This cycle has been largely muted in the last 15 years due to overly ambitious intervention by the Fed. History may show that such aggressive intervention was a mistake and contributed significantly to lower risk premia and multiple asset and financial bubbles including real estate. Regardless, we clearly have inflationary forces at work for now. How much longer they will last will be the million dollar question.

    I do think that at some point in the near future, such as early to mid next year, we will be in a recession. This will be the result of many factors including the deleveraging of the financial markets reducing the desire of lenders to lend, the write-off of boat loads of bad debt causing many companies to go bust and/or consolidate, souring of consumer psychology due to lower perceived wealth largely related to decreased home values, the squeezing of the consumer and companies alike due to the recent rise in inflation, etc.

    I think the other million dollar question will be: do we see a garden variety recession or stagflation? That answer will depend, in my view, on how strong foreign economies remain in the face of our downturn. If they remain robust, their demand for commodities and growth will be intact, and inflation will not wane despite our economic downturn. If on the other hand, our downturn ripples overseas (as I suspect it will – and don’t forget that they also are over leveraged, have bought loads of bad debt, and have in many places similar asset bubbles), then we would see a global sychronous recession. The benefit to us of that outcoume is that it would support our dollar and reduce our inflation.

    Regardless, I think we’ll work through these issues even if it takes several years or more. In the long term, as long as our government reacts appropriately (by not making policy errors and/or over regulating) we should emerge a stronger nation. If our government screw up it’s response to this turmoil, then all bets are off.

    Best of luck to you and thanks for the discussion.

  54. To think this great debate stemmed from a Cramer video! 🙂 Sorry I’ve been away from the party…I was trying to do cpr for one of my past clients who obtained an option ARM from another lender last year.

    I am grateful that I never “dispensed” an option arm.

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