The market is shifting. More on this when I do Sunday Night Stats, as I have a busy weekend.
But I’m calling it…we’re at bottom.
We're at bottom…
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Category Archives: Seattle-Employers
Sunday Night Stats
As of tonight, prices are showing at down 5% in January vs. the 4th quarter median price per square foot in the graph below. That would take prices back to the 2nd quarter of 2005 at $185 MPPSF (vs $195 4th quarter median). That would also be 20% under peak price of $230. ($230 minus 20% – $184)
I expect the median for the 1st quarter to be higher than that, and the median for the second quarter to be higher than the first. Not by a lot. But clearly there are more people out to buy property in the last week to ten days, than we have seen for the 6 to 8 weeks prior.
Given Friday was the end of the month, I don’t want to post the January stats yet, as some sales will be recorded by the agents during the coming week. That could affect the median pricing somewhat, but as of now, January prices are down, and fairly significantly.
Good for buyers…not so good for sellers.
For now, stick a big red dot on the chart below at $185 MPPSF. That’s where we are as of tonight for MPPSF, King County, Residential vs. Condo.
No stats in any of my posts are compiled or published by NWMLS. All are hand calculated by ARDELL (required disclosure)
Virtual Discrimination by Real Estate Brokers
A real estate broker who operates in 23 states has filed a complaint with Federal authorities against the local MLS for “restraint of trade” practices, according to Inman News. Ryan Gehris, who is a broker of record for flat-fee real estate company Housepad.com in 10 of those states, alleges that the North Carolina MLS’s requirement to physically attend specific MLS orientation classes discriminates against non-traditional web-based brokerages. I think he has a point.
Do I have to be here?
While I can see an argument for the advantages of attending specific events, I think that the mandatory requirement of attendance takes it too far. I think of it like networking – It makes sense to do it, but if you don’t it’s your business that is likely to suffer and that’s your choice.
In this age of WebEx, Skype or UStream.TV online meetings, it just isn’t necessary to physically go somewhere for most types of training, especially computer training. And the cost and time concerns associated with attending far away events can make it prohibitive, especially for agents that have other obligations and commitments.
The spokesperson for the MLS said the training is “not intended to be a burden to participants and is required because of the substantial changes in technology.” But if people can get a college degree with online training, it’s hard to imagine why basic MLS user training requires someone’s physical presence to be effective.
The real reason may be that the MLS would like to make it hard for non-brick-and-mortar business models because they do not like the competition. I say let their business model succeed or fail on it’s own merits, not because of discriminatory road blocks put in their way.
Should builders and banks receive an excise tax exemption as WA State faces a budget deficit?
House Bill 1495 has been introduced into the legislature and is now in committee. In these times filled with hope, I am hoping this bill dies or at least comes out looking substantially different. Let’s take a look.
AN ACT Relating to real estate excise tax exemptions to stabilize neighborhoods…
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
The legislature finds that there is a substantial inventory of unsold or foreclosed vacant homes on the market that is driving property values down and destabilizing neighborhoods. These homes also present an opportunity to provide affordable homes to low-income families, addressing some of the unmet need for affordable housing in the state of Washington. The legislature also finds that providing targeted incentives to housing developers will stimulate the sale of these vacant homes to low-income buyers now and stabilize neighborhoods affected by this growing inventory. The legislature intends to provide such incentives through excise tax relief on sales of homes to low-income first-time homebuyers.
I’ve been asking Realtors in all my classes to begin watching the percentage of financially distressed sellers with homes for sale in their market area. Agents can do an MLS keyword search using terms such as “short sale,
Obama plans on tighter regulations for mortgage brokers
From the New York Times
The Obama administration plans to move quickly to tighten the nation’s financial regulatory system. Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.
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Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.
None of this should be a surprise for regular readers of Raincityguide. I’ve been talking about tighter rules for mortgage brokers since 2001 and here on RCG for two years. Mortgage brokers will always argue that they are already tightly regulated. In some states, brokers have tougher regulations than consumer loan companies. Hey, wait a minute. Is President Obama going to let the consumer loan companies slide by without proposing tougher regulations for them as well? The top two largest predatory lending lawsuits were against consumer loan lenders Household Finance and Ameriquest. Both companies settled out of court and “admitted no wrongdoing” even though there was lots of evidence that their sales people were meticulously trained by management on how to do wrong.
Maybe tougher minimum sanctions and penalties are in order as well. We must also realize that these new regulations mean nothing without enforcement. I would rather see the states be in charge of enforcement than the federal government (well, with the exception of Florida where they have proven their supreme incompetence.) We need only to look at RESPA and the miserable job HUD has done trying to enforce this massive piece of regulation since 1975. So if it’s going to be up to the states, then the industry should prepare for a higher cost of doing business as a mortgage broker or consumer loan lender. This will be passed on to the consumer in the way of higher fees, rates, or both.
Sunday Night Stats – 2008
The charts and graphs will pretty much speak for themselves tonight.
The Median Price Per Square Foot chart above shows medians for each Quarter from 2004 though 2008. You can see the nose dive in prices during the last quarter of 2008. Popped right through 2006 prices into 2005 year end prices. I expect to see prices come up a bit during the higher volume months of 2009, and then trend back down toward year end.
What are “the higher volume months”? See the volume graphs below comparing 2008 with 2002. 2002 was the most stable year, prior to zero down loans coming into fashion in late 2003. There will likely be more late postings for December closings, but the relationship of each piece of the pie is more important than the individual numbers. “stable market” equals larger slices near the bottom of the circle than at the top and a fairly equivalent ratio. We did not have that in 2007, but we did in 2008 and likely will see the same in 2009. 2009 will either be fairly similar to 2008 as to volume, or moving a little closer to 2002 volume. It depends on what happens at the high end of the market.
Current volume is lower than 2002 for two reasons. One – financing is tighter, as 5% down and 10% down was much easier to get in 2002. Two – financing jumbo loans is very difficult right now, and in 2002 only 412 homes sold for over a million dollars. In 2008 there are 2,338 homes asking more than a million dollars, of which 942 sold, 79 are pending and 1,317 are for sale as of tonight.
If we do see 4.5% interest rates, I expect many who can, will buy. But that won’t help the high end as too many people just don’t have the downpayments the lenders are looking for. The year ended up pretty much where I predicted it at $400,000 as to median price, give or take fifty bucks. Volume was a little lower at 15,700 vs. my prediction of 16,500.
Enjoy the graphs…they speak volumes.
Statistics calculated by ARDELL and not compiled or posted by NWMLS (required disclosure)
Paradigm Shift: Changing the Human Experience
What will be the tipping point that creates the paradigm shift that is needed in the Real Estate Industry?
To begin, I would like to quote a small portion of “Productive Workplaces Revisited” noted in the second link above. “He put into…context, the age old struggle between authority and dependency”…In so doing he found an audience hungry to find alternatives to bureaucracy, authoritarianism, alienation…not simple ideology…an expression of life’s purpose – affirming diginity in every person, finding meaning in valued work, achieving community through mutual support and accomplishment.”
The above is from a book titled “PRODUCTIVE WORKPLACES REVISITED” – Dignity, Meaning and Community in the 21st Century” by Marvin Weisbord in 1987. That link provides information regarding Mr. Weisbord’s many books. For the purpose of this blog post, I am simply borrowing the above excerpt which I have modified to fit most any Real Estate Office in the Country, and a movement that is afoot.
The Paradigm Shift is also referred to as “A Mental Revolution” elsewhere in that publication, (use the search feature and put in paradigm shift for more info on that.)
The problem as I see it, in the structure of the Real Estate Industry, may simply be the old “Too many chiefs and not enough Indians”. What the Real Estate Industry, and every Real Estate Company in the Industry, and every Real Estate Office in every Real Estate Company, has not answered correctly is quite simply this:
WHO IS THE CUSTOMER?
In most realities, the customer of the Brokerage is the Agent. That is something that most buyers and sellers of real estate do not get to see. The inside of a real estate office is about the customer…the customer being the Agent. The Agent is paying the Broker. The Broker cannot survive unless it adequately serves its customers…the agents, not the buyers and sellers of homes.
Take a look at the photo below:
Meeting of Professionals
If the people gathered around that table were Doctors, you might hear talk such as: “I have a patient…I have tried this and that…has anyone had a similar… Yes, I have found X to work for many of my patients, here is a study on X I found the other day…” The talk around that table, would be about better treatment for the patient.
If the people gathered around that table were lawyers and paralegals, you might hear talk such as “I have a case where the defendent is…I haven’t found adequate support for this client’s…. Try X vs. X, I’ll go get it for you. Is there any other way we might tackle this in Court to show that our client…” The talk around that table, would be about helping this client win this case.”
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Rarely, if ever, do you find a room full of real estate agents discussing ways to find a better answer for a particular buyer or seller.
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The reality is that most times a Broker will set up meetings that help agents sell more houses. Rarely is the discussion about the buyers and sellers of homes. If an agent has a problem selling a home, then agents will filter ideas that ultimately do help the seller. But when the client/customer is a buyer, the conversation all too often revolves around helping the agent “sell a house TO” that buyer.
There are many discussions with regard to “Real Estate ProfessIonals“. Some of us equate ourselves to doctors and lawyers. Many more view themselves as (merely) salespeople, and then complain when “real estate agent” comes up on a list next to “used car salesman” on consumer confidence and trust lists.
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The Tipping Point that will create the needed Paradigm Shift is A Mental Revolution with this Call to Arms:
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TO BROKERS:
1) TAKE DOWN ALL OF THE “SALES” BOARDS AND STOP HAVING SALES CONTESTS.
2) STOP TALKING ABOUT “MORE LEADS” AND INSTEAD ASK YOUR AGENTS IF THEY NEED ANY HELP MEETING THE NEEDS OF THEIR EXISTING CLIENTS.
3) HAVE AT LEAST ONE MEETING A WEEK WHERE THE AGENTS MEET TO DISCUSS THE NEEDS OF THEIR BUYER AND SELLER CLIENTS, AND NEVER TALK ABOUT THEIR NEED TO “CLOSE” A PERSON IN THAT MEETING. CONSUMER-CENTRIC VS. AGENT-CENTRIC MEETING.
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TO AGENTS:
1) TRY NOT USING THE WORD “I” FOR 21 DAYS.
2) WHEN YOU APPROACH SOMEONE FOR ASSISTANCE, MAKE SURE THAT ASSISTANCE IS FOR YOUR CLIENT AND NOT YOURSELF
3) FIGHT FOR ANYTHING YOU “NEED” TO HELP “THEM” AND NOT YOU.
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TO THE GOVERNOR OF THE STATE OF WASHINGTON (& possibly other States, as well)
RECOGNIZE THE DISCONNECT BETWEEN YOUR AGENCY LAW THAT HOLDS REAL ESTATE LICENSEES TO THE STANDARD OF “REPRESENTATION OF PEOPLE”…AND THEN GIVES THEM A “SALESPERSON” LICENSE.
There are many, many real estate agents who aspire to assist their clients well. There are many, many real estate agents who “hung(er for) alternatives to bureaucracy, authoritarianism, alienation…not simple ideology…an expression of life’s purpose – affirming diginity in every person, finding meaning in valued work, achieving community through mutual support and accomplishment.
4.5% Interest Rate's Affect on Home Values
When interest rates are up, home values go down. When interest rates go down, home values go up. That’s a basic principle, but I do agree with those who expect this market to perform counterintuitively to stablize prices vs. causing them to go up. Basically that means they go up to where they are, counteracting the continued pressure for them to decrease. (see 5th paragraph below)
In 1990 when I started in real estate, the common walk-in client said “I want to buy a 4 bedroom, 2.5 bath colonial, with a basement and a monthly payment of $1,200”. Let’s set the bogey at double that and toss out the basement 🙂 The number I hear most often for the neighborhood below is a rental payment of $2,500 a month or a mortgage payment of $3,000 or so with 20% down. (talking SFH Redmond here)
I like using Abbey Road in Redmond as the bogey house. Kind of like Goldilocks and the Three Bears selection process. Not too big, not below desirable…just right. Good schools. Popular neighborhood; 3 car garage most times. Current median price around $700,000. Range of pricing from $630,000 to $830,000. Not too new to be affordable, not too old to be acceptable.
Let’s test the theory with a monthly payment of $2,800 a month not including taxes and insurance which would add about $500 a month to the payment, and using 20% down (see next post for ratio of value to total mortgages of the neighborhood). Let me test that against $3,000 net after tax payment. The after tax benefit should be about $700 minimum, so $2,800 plus $500 = PITI of $3,300 less $700 gives plenty of breathing room for price to go up to $750,000 or for people to stick at $650,000 if their household income is $100,000 vs, $150,000. Depends on whether you use 28% or 33% for housing payment. At 33% of $100,000 you would need about $200,000 down on the $650,000 purchase price. Fits the basic buyer profile for that area anyway you slice it.
Rates of 6.25% and 20% down and a payment of $2,800 P & I, would equal a sale price of $570,000. Current prices would continue to be drawn down toward $570,000 at rates of 6.25% even in a seller’s market (which this neighborhood still is) due to financing qualification changes. Someone asked me from Sunday Night Stats why prices are continuing to go down in Seller’s Market neighborhoods. That’s your answer. Qualifying guidelines & interest rates reducing the ability to purchase and pressuring prices downward.
Now let’s change the rate from 6.25% to 4.5% and see what happens to sale price. Keeping the same monthly at $2,800 and 20% down at 4.5% the sale price would be $690,000.
So, my gut was right. As rates go down to 4.5%, it does not increase the price from the $700,000 bogey we started with, but it does stablizes home prices and keeps them from slipping further down. I always work through these things in my head in real time, testing my perception against reality. I’m always happy when I prove myself right, and admittedly sometimes scratch the post if I prove myself wrong by the end of the post :).
I test the same theory on Rivertrail Townhomes with a bogey of $1,800 a month P & I. High end I won’t calculate…and clearly not at 20% down. I can’t realistically do townhome scenarios until FHA rates get lower. But the $700,000 give or take single family home market will clearly be supported in value by interest rates of 4.5% preventing prices from slipping further back.
So to answer Jillayne’s question on my Sunday Night Stats post (sorry for the delay, Jillayne; had to test my answer) the 2nd wave of Alt-A’s will not affect pricing in this scenario IF 4.5% interest rates take hold, counter-acting the negative impact.
Sorry for the long drawn out answer to Jillayne’s question, but I don’t answer off the top of my head, even when I think I know the answer in two seconds. I test my answer first…and this one tests out in this example. FHA won’t test out, I’m not even going to try to test it out. Unless FHA rates get much lower, the middle value market is going to win on all fronts. High end will continue to suffer from Jumbo Loan issues. Low end will continue to suffer from cash to close issues unless FHA rates come down substantially and toward at least 5% or less. FHA and VA rates were conspicuously missing from Rhonda’s Friday rate post… Maybe she can pop her head up from her busy day and catch us up on where those rates are, or at miniumum include them in this week’s Friday Rate Post.
Bottom line…4.5% interest rates will stop property values from declining…at least in my service area of North Seattle and Eastside. Someone else will have to test the theory in the South End of Seattle and beyond, and for the rest of the Country.
Sunday Night Stats – Best and Worst
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”.
November Home Sales – Is Seattle Bubble Overly Optimistic?
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
I think we can all agree on one thing…for the first time in a long time I think we can all be confident that 2009 WILL be better than November of 2008, as to volume of property sold, since it’s hard to imagine that it could get any worse, even for the most pessimistic among us. Well, maybe not Sniglet 🙂
If November sales volume is not AT BOTTOM…we may have to start looking at an “exit strategy”.
(required disclosure) All stats in this post (and graphs) compiled by ARDELL and not compiled, verified or posted by the NWMLS.