Seattle –Dec. 16, 2008—Real estate Web site Zillow.com today announced the launch of Zillow® Advice, an online resource for consumers to find answers to specific local real estate questions. Located in the “Advice
First, it’s been pretty obvious in the last 3 to 4 days that people are reacting to the interest rates being at 4.75% to 4.875% recently. I can honestly say agents are not instigating this momentum, as all of the calls I have received have been directly from buyers that I’ve never spoken with before. In fact I have had more calls to see property from buyers than I have had showings from agents. It’s like a large part of the agent marketlace is MIA. I’m hearing similar stories of “agents retreating” from Vancouver. A sign that first quarter 2009 is clearly going to be on the upswing. But let’s look at some more of the here and now tonight.
The Best: Townhomes – the under $500,000 variety – net even a Buyer’s Market really – not a Seller’s market either. A balanced market in Townhomes in Redmond where almost ALL townhomes sell for under $500,000 and North of Downtown in Seattle. Location issues are more of a concern in Seattle than Redmond, as most townhomes in Redmond are built in larger, well located communites. In Seattle they are often smack on a main arterial. So be discriminating as to location and lifestyle and not just space issues.
Only a 5.7 month supply of townhomes in Redmond 98052 – not even a buyer’s market
Hard to believe with all the gloomy news, I know, but yes there is a market segment that is still performing well. That will clearly improve in 2009 if rates stay this low, so we could even see a Seller’s Market come back in Redmond Townhomes in the not too distant future. Still, I’ve seen prices taking a beating in the last 60-90 days. Let’s see if lower rates and low supply pulls that back to stable. I think that will happen for Townhomes in Redmond.
Now for the Opposite Extreme – The Dark Side – The Scariest Stat of all Sundays
Over FOUR YEARS of Inventory! Where you ask?
Kirkland 98033 in the $1.2M plus market. 115 for sale and only 7 closed in the last 90 days. See detail.
Compare Single Family Homes – Kirkland 98033 above to Redmond SFH 98052 below:
They look like Chirstmas Balls 🙂 The more red you see, the less green and blue, the weaker the housing market. Redmond is doing pretty good until you get over $750,000.
Two story townhomes under $500,000 are definitely the IT segment both in Seattle and the Eastside. Kirkland just doesn’t have enough of them like Redmond does. Not sure what happens when you get out to Cougar Mountain and other not “close-in” newer townhomes. I don’t get out that way very often, and last I looked there was a reason why I don’t go out there very often. Every time it snows, I get calls from people who want to sell them and move closer to work.
Well, that’s your Sunday Night Stat “Christmas Balls” edition. Hope you’re enjoying your “White Christmas”.
Microsoft Seadragon iPhone App
“Seadragon Mobile comes with around 50 sample images that users can play with and Photosynth users will also be able to browse their synths, in 2D at least.”
See more at The Boy Genius…which is a very good site to add to your daily read.
Read more on Seadragon at the Micrsoft Live Labs site.
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.
Seattle Area Home Sales Volume
To some people, that question will seem ludicrous. If you are buying or selling a house every 7 years or so, you may not care about this somewhat complex answer to the question raised. I am writing this post for real estate professionals, rather than the individual who may be buying or selling a home every 7 years or so. My hope is that if more real estate professionals understood the housing market, more consumers would be better served by those professionals.
For those that want to hear that the market is doing much worse than expected, I give you Detroit. I heard on the news yesterday that home prices in Detroit have rolled back 8.5 years. That is much worse than “expected”. For those that want to hear that the market is doing much better than expected, I have to say “jury’s still out” on that one, as the down market has not yet completed its “expected” cycle.
Yes, real estate prices always go up. But when did real estate professionals en masse start thinking that meant it looked like the chart below? It DOES NOT!
Housing Prices do not go up in a straight line!. I can honestly say that 20 years ago the only agents I met who thought this way were the salesmen vs. the professionals…and they were few. The first time I overheard an agent at an Open House talking to a first time home buyer explaining the real estate market in terms of “AWAYS GOING UP!” and drawing a chart like the one above for them, I thought “What an Idiot!”
It is only in the last couple of years that I have seen MOST of the professionals, and consequently the general public, setting the unrealistic expectations noted in the chart above. Many of those professionals have left the business, and more will follow. For the benefit of those who will continue in the industry, and for the public at large, lets get back to basics and set our expectations properly. First you set realistic expectations based on an Annual Cycle of Real Estate markets. The one below is primarily for single family residential housing. Not condos, not multi-family, not commercial – Single Family Residential Housing Market.
Annual Cycle of Home Prices
When home prices increase from year to year, most of that appreciation happens from March through July. Even when home prices decrease from year to year, prices are still expected to be up from March through July vs. January and November. THAT is the expectation.
Think of it this way, retail sales are expected to be higher in November and December than in February. They may not go up as much as expected, and that is not good. But if sales in November are lower than in February, that’s really bad. So up vs. down is NOT the barometer…it is up when expected to be up, down when expected to be down…and then it is all a matter of degree.
If you heard a store owner who only sells Christmas Ornaments complaining that his April sales were lower than his Nov/Dec sales, what would you think? That’s how I scratch my head when I hear someone saying “I’m waiting for the lowest possible prices, so I’m going to buy a house in May or June. Does not compute! I’m not saying it could never happen, I’m just saying that is not an appropriate expectation. As long as you are willing to wait until 4th Quarter of 2009 or even 2010…fine. But if you are determined to buy within 12 months, wanting the lowest price and wanting to buy in June is not a match. You will likely get a better house if you wait until May…but not a better price. Again, not impossible…just not likely. Go back and study the graph above before we move to broader market descriptions.
For this next part, different people will have different market theories. Mine are primarily based on a “7 steps forward, 3-5 steps back” theory, that I attribute to having entered my head via Alan Greenspan many years ago. Nationally the market started moving up past it’s previous peak in 1998. Consequently the expectation would be for it to go down in 2005. When it did, people freaked out while I said “DUH”.
The market performed as expected. But when professionals don’t know what to expect, they react inappropriately, which creates an unexpected market condition. It’s like playing a sport where half of your team is not performing their role “as expected”…it throws the whole game off. When your quarterback starts throwing to the guy in the wrong colored Jersey…all hell breaks loose. As a real estate agent, you are the quarterback, time to learn the plays. The people in the stands have a harder time betting on the game, when the quarterback is messing up the plays to the degree that we as professionals have been screwing up. STOP sending GOOD NEWS! C-R-A-P. This is NOT an industry based on consistent and continual “Good News”! STOP wishing ONLY for Good News, and blaming market conditions on the purveyors of “bad news”. Get Real – Real Fast…or suffer the consequence.
Another analogy. The market went down when the Dow hit 14,000. If most people said “DUH”, there wouldn’t have been panic selling. Yes the market still would have gone down, but the market loses all semblance of sanity when expectations are set at unrealistic levels. Momentum created by panic forces markets out of their natural cycle. That is true both on the up side and on the down side. The Dow was supposed to go down when it hit 14,000…in fact it should have gone down when it hit 12,000.
This is my expectation of the housing market. Yours may differ. Lacking an informed and valuable opinion from the professionals, the public will start imposing their own opinions like “markets should only increase at the same level as median income.” That is not correct BUT professionals have no one to blame but themselves for all of the Bubble Blogs. When professionals started lying both to themselves and to the public, the public had to move in a different direction. You hate Bubble Blogs, you say? Well then stop acting like you don’t have a freakin’ crystal ball! If you don’t like the public not relying on your opinion…well then go get yourself an opinion! OK, here’s mine. Beyond the Annual Cycle above for single family homes, there is the YOY expectation in a long term cycle.
Home prices up for 7 years; down for 3-5
Now let’s define what a Housing BUBBLE is. A housing bubble is when the market outperforms expectations…not when it goes UP. A housing slump is when the market underperforms expectations…not when it goes DOWN. Bubbles ALWAYS burst. That is why you need to know the degree to which the market should go up (like Christmas Ornament sales in November and December) so that you know when you are entering a bubble zone.
I learned this many years ago…so long ago I don’t know where. A market will ALWAYS reach and surpass a level it has previously achieved. It’s not a matter of IF…it’s a matter of WHEN. If it happens too quickly, the downside of the cycle will hit harder. If it happens as expected, the people betting on that expectation will do well. We want to be a Country that always does WELL…not that always goes UP beyond normal market expectations and never, ever goes down.
Once you set a realistic expectation, you can predict markets. When the market moves outside of predictable levels, you know you are in a bubble or a slump. If you think every batter is supposed to hit a home run…you will spend your life in misery and disappointment. If you expect the batter to always hit a home run…one day he will hit you instead of the ball.
Real Estate Prices are supposed to stop going down, nationally that is, somewhere between 2009 and 2011. They were supposed to go up from 1998 to 2005 and down from 2006 through 2009 – 2011. The degree they went up was “bubbled” by the loose lending practices in the latter part of the up cycle. First that bubble must pop, as it did, and now we’re looking for the end of the down cycle. If the government wants to make sure the down cycle is only 3 years and not five, then they have to do something to cause interest rates to stay at or below 5.75%, even if that is an artificial stimulus level.
No one can, nor should anyone try to, force the market to be always up. That kind of talk is for salesmen, not professionals. If you don’t want to hear ANY bad news, ever. If you don’t understand that there should be at least 3 years of “bad news” following a consistent 7 year trend of “good news”, please go do something else for a living. That’s like a lawyer who tells everyone they can win a case, cause they get paid whether the client wins or loses. That’s like a doctor ordering MRI’s every week for a hypochondriac, because he makes money whether the patient is sick or not.
Don’t want to be compared to a Used Car Salesman? Then stop acting like one.
Enjoy! Mike is taking these from my Master Bedroom balcony in Kirkland. We’re “on Holiday”.
Before posting my thoughts of the week regarding where home prices are going, I have been doing a lot of thinking about “Rethinking the American Dream”. I found this post that I thought was worth sharing.
Now for proofs that people are buying at 2005 levels, even though sellers are not thinking about selling at those levels, to the same degree.
Let me explain what you are looking at in the graph above. In 2001, 83% of buyers were paying under $500,000. Economic models must hold something at a constant, in order to provide meaningful results. What I have held as a constant are the properties themselves. As we move through the years, only properties (condo and single family) built as of the end of 2001 are included, so we can see what people are paying for those same homes. Also, you have to look at a sample small enough to evaluate, in this case I used Bellevue which I feel is a large enough sample with somewhat cohesive property types in the sampling.
By 2005, only half of buyers could pay under $500,000 to buy those same properties vs 83% in 2001. The most dramatic change YOY was in 2006 vs. 2005 when the % dropped from 68% to 51%. Now look at the last two columns. We’re back to 2005 with 67% of people being willing and able to buy these same homes for $500,000 or less. In fact the % may end up being more than that, given pendings are based on asking prices vs. sold prices.
The last column shows that only 44% of people who have not sold their homes, and are still trying to sell them, are pricing at the levels that people are willing to pay.
It’s quite possible that by year end the statistics will show 2004 levels, but I expect that to correct back to 2005 through the 3rd quarter of 2009. Last quarter of 2009 is anyone’s guess at this point. Not enough data to predict that far out. Many of the current pending sales are bank owned and short sale properties. While some may consider that to be a relevant factor, it is not one I expect to change over the next 12 months. There will be at least as many, if not more, opportunities to buy at the lowest price levels over the next 12 months.
Clear Seattle Night, taken from Kirkland
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!
I just got a call from my daughter that I need a booster seat to pick them up at the airport tomorrow night. They are flying in for Thanksgiving. In previous years she was smaller and the baby carrier doubled as a car seat. But she just turned 4 years old and apparently needs a booster seat.
I’ll have to Google what it is. Apparently it is too big for them to bring one with them, or that would be a lot of trouble. I wonder if I can rent one?
If anyone knows anything about 4 year olds and booster seats 🙂 I’d appreciate the info. Maybe I can buy one and then donate it to…someplace. I spent 4hours today shopping for their arrival. Had I known earlier…oh well. Kids!
This is a “real estate is local” post, as it refers to an option generally afforded to buyers in our local standard inspection clause (Form 35 item 1) b. on page 1). Here in the Seattle Area, a buyer usually has the right to do “additional inspections”, IF the original Home Inspector recommends in writing that there be an additional inspection by a “specialist”.
When I am at an inspection I am listening very carefully to the inspector and waiting for him to red flag an item that needs an additional inspection. It is the ONLY time I tell an inspector that I need him to say that, in writing, in the report. They usually get mad when I do that and I try not to interfere with the inspector and his written report. But if he says the buyer should get an additional inspection, but does not include the wording I need to invoke the “additional inspection” clause in the Inspection Addendum, we have a problem.
The buyer usually has X additional days to do the additional inspection (buyer pays for it), and the inspection response in its entirety is extended. BUT the buyer must respond, in writing, by the end of the 1st inspection timeframe that they are doing a 2nd inspection, in order to gain the extended timeframe. That request must include the portion of the 1st inspection that indicated the need for an additional inspection by a specialist. There is a response form where you check a box noting that you are invoking your right under the original addendum section 1) b. to do an additional inspection, and you attach the 1st inspector’s recommendation regarding the need for a specialist inspection.
Everyone’s Inspection Addendum will be different as to the number of days you have for the 1st inspection and for additional inspections, so read your Addendum carefully. The default in the forms I use show 10 days for the 1st inspection and an additional 5 days for additional inspections, but your contract may have a different amount of days written in the blank spaces. The additional days are not automatic. You must respond within the timeframe of the 1st inspection, and indicate your intention to do an additional inspection, in order to gain the additional days. I can’t say this enough and so apologize if I have repeated it.
I don’t want to get bogged down in the forms here. I want this to be a practical guide that focuses on how these situations actually play out. The items that I have seen that required an additional inspection are:
Heater (“recommend the heater be checked by a qualified HVAC contractor)”
Roof (“recommend that the roof be inspected by a qualified…”
Septic System, Drainage Expert (evidence of water in crawl space or basement, either current or old water line mark), Structural Engineer for foundation cracks, fixes and shifting evidences, electrical, etc…
Generally speaking, an additional inspection involves a very costly item that is not obviously, currently, defective. When a hot water tank is past its life expectancy, an inspector usually calls for it to be replaced, and not that it be inspected by a specialist. When a heater or roof is nearing the end of its life expectancy, even if it is currently functioning adequately, the inspector usually calls for an additional inspection by a specialist.
The heater is often easier to deal with than a roof, in my experience. The inspection cost in most cases is under $100. I usually call for the specialist to service AND inspect it, as the service cost is about the same as an inspection cost, and includes an inspection. I need the seller’s permission to service his heater, but I have yet to have a seller object. If there is nothing wrong with it except that it is old, then a general home warranty that covers many items including the heater, is often part of the resolution to the heater being old. The specialist will install new filters and note any parts that should be replaced. Pretty simple stuff.
A roof is harder to deal with for many reasons. Replacing the roof is not usually part of a home warranty like a heater is. Some home warranties include leak patch work, some don’t deal with a roof at all, and I have yet to see one cover roof replacement. Even if a roof is not currently leaking, the first inspector is often calling for a second inspection based primarily on the age factor. Roof Math = Life Expectancy of that particular roof minus it’s current age. A 20 year shingle that is 18 year’s old is often worse than a 35 year shingle that is 18 years old. So age alone is not the issue, nor is currently defective or not defective the only parameter that needs addressing.
Even if a roof is not leaking, if the 1st inspector says that the buyer should “plan for roof replacement” within 3-5 years, often the buyer wants the seller to address the issue. Sometimes the buyer wants to STOP after the 1st inspection, and just ask for a new roof or a new heater or generally ask for all items to be replaced or fixed, when they should be moving to the “additional inspection” phase.
How you handle the matter is between you and your agent and the seller and the seller’s agent. If the roof or the heater is 30 years old, often everyone agrees it needs a new one, even though it is not currently “defective”, without the need for an additional inspection. But it often takes time to negotiate these things, and having a 2nd inspection gives you additional time and also pinpoints the actual cost involved. The original inspector may give you a ballpark replacement cost, but a specialist will give you an actual “work order” and a cost the seller is more likely to consider valid. The seller can then get his own estimate during his response timeframe to counter your request and estimate.
Jumping to asking for a repair based on the original inspector calling for an additional inspection by a specialist, is usually the wrong way to proceed, unless you know the seller is aware of the issue and has already anticipated it. Sometimes the buyer wants the seller to pay for the additional inspection. The contract indicates that the buyer pays for the additional inspection. The seller should pay for any subsequent inspections that are needed for his counter proposal. Say you submit a request for $17,000 for a new roof. The seller would pay the cost for an additional inspection to counter with a different amount, attaching the work order from a different specialist. He has a timeframe to respond in the original inpsection addendum as well.
There is no one right answer except TIME IS OF THE ESSENCE. If you don’t want the house even if the seller fixed the problem, then you can cancel without calling for an additional inspection. But if you still want the house as long as the seller adequately address a specific item, buy yourself that extra time to negotiate, by calling for and doing an additional inspection.
